SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
AMENDMENT NO. 2
to
FORM S-4
Registration Statement
Under the
Securities Act of 1933
CASINO MAGIC OF LOUISIANA, CORP.
(Exact Name of registrant as specified in its charter)
Louisiana 7999 64-0878110
- ------------------------- ------------------------- -------------------
(State or other juris- (Primary Standard (I.R.S. Employer
diction of incorporation Industrial Classification Identification No.)
or organization) Code Number)
and as Guarantor,
JEFFERSON CASINO CORPORATION
(Exact name of registrant as specified in its charter)
Louisiana 7999 72-1310739
- ------------------------- ------------------------- -------------------
(State or other juris- (Primary Standard (I.R.S. Employer
diction of incorporation Industrial Classification Identification No.)
or organization) Code Number)
1701 Old Minden Road, Bossier City, Louisiana 71111 (318)746-0711
----------------------------------------------------------------------
(Address, Including Zip Code, and Telephone Number, Including Area Code of
Registrants' Principal Executive Offices)
Robert A. Callaway, Vice President/General Counsel,
Casino Magic of Louisiana, Corp.
711 Casino Magic Drive, Bay St. Louis, Mississippi 39520 (601) 466-8000
---------------------------------------------------------------------------
(Name, Address, Including Zip Code, and Telephone Number, Including
Area Code, of Agent for Service)
copy to:
J. Patrick Ryan
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1500 NationsBank Plaza
300 Convent Street
San Antonio, Texas 78205
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after the effective date of the 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. |__|
==============================================================================
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
============================================================================ =
<PAGE> CASINO MAGIC OF LOUISIANA, CORP.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
FORM S-4 ITEM NUMBER HEADING OR SUBHEADING IN PROSPECTUS
- ---------------------------------- -----------------------------------
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of the Registration and
Outside Front Cover Page of
Prospectus............................Facing Page of Registration
Statement; Cross Reference Sheet;
Outside Front Cover Page of
Prospectus.
2. Inside Front and Outside Back
Cover Pages of Prospectus.............Inside Front Cover Page of
Prospectus; Outside Back Cover
Page of Prospectus.
3. Risk Factors, Ratio of Earnings to
Fixed Charges, and Other Information. Prospectus Summary; Risk Factors;
Selected Financial Data; Business.
4. Terms of the Transaction..............Prospectus Summary; The Exchange
Offer; Description of the Notes;
Certain Federal Income Tax
Considerations.
5. Pro Forma Financial Information.......Not Applicable
6. Material Contacts with the Company
Being Acquired........................Not Applicable
7. Additional Information Required For
Reoffering by Persons and Parties
Deemed to be Underwriters.............Not Applicable
8. Interests of Named Experts and
Counsel...............................Not Applicable
9. Disclosure of Commission Position on
Information for Securities Act
Liabilities...........................Not Applicable
B. INFORMATION ABOUT THE REGISTRANT
10. Information With Respect to S-3
Registrants...........................Not Applicable
11. Incorporation of Certain Information
by Reference..........................Not Applicable
<PAGE>12. Information with Respect to S-2 or
S-3 Registrants.......................Not Applicable
13. Incorporation of Certain Information
by Reference..........................Not Applicable
14. Information With Respect to Registrants
Other Than S-2 or S-3 Registrants......Prospectus Summary; Selected
Financial Data; Capitalization;
Management's Discussion and
Analysis of Financial Condition
and Results of Operations;
Business; Regulatory Matters;
Description of Notes; Financial
Statements.
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information With Respect to S-3
Companies.............................Not Applicable.
16. Information With Respect to S-2 or
S-3 Companies.........................Not Applicable.
17. Information with Respect to Companies
Other Than S-2 or S-3 Companies.......Not Applicable.
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or
Authorizations are to be Solicited....Not Applicable.
19. Information if Proxies, Consents or
Authorization are not to be
Solicited, or in an Exchange Offer... Management; Principal
Shareholders; Certain
Relationships and Related
Transactions.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
<PAGE>PRELIMINARY PROSPECTUS
SUBJECT TO COMPLETION DATED APRIL 9, 1997
CASINO MAGIC OF LOUISIANA, CORP.
OFFER TO EXCHANGE
13% SERIES B FIRST MORTGAGE NOTES DUE 2003 WITH CONTINGENT INTEREST
FOR ALL OUTSTANDING
13% SERIES A FIRST MORTGAGE NOTES DUE 2003 WITH CONTINGENT INTEREST
________________________
THE EXCHANGE OFFER
WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME
ON MAY , 1997, UNLESS EXTENDED
_________________________
Casino Magic of Louisiana, Corp. (the "Company"), a Louisiana corporation,
hereby offers, upon the
(Continued on next page)
See "Risk Factors" beginning on page 17 hereof for a discussion of certain
material factors to be considered by Holders prior to tendering their Series A
Notes in the Exchange Offer.
_____________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAVE THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THE PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
NEITHER THE LOUISIANA GAMING CONTROL BOARD NOR ANY OTHER GAMING AUTHORITY HAS
PASSED UPON THE ACCURACY OF ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
The date of this Prospectus is April , 1997
<PAGE> (Cover page continued)
terms and subject to the conditions set forth in this Prospectus and the
accompanying Letter of Transmittal (which together constitute the "Exchange
Offer"), to exchange up to an aggregate of $115,000,000 principal amount of
13% Series B First Mortgage Notes Due 2003 with Contingent Interest (the
"Series B Notes") of the Company for a like principal amount of 13% Series A
First Mortgage Notes due 2003 with Contingent Interest (the "Series A Notes"
and, together with the Series B Notes, the "Notes") of the Company. The form
and terms of the Series B Notes are substantially identical to the Series A
Notes in all material respects, except that the offer and exchange of the
Series B Notes will be registered under the Securities Act of 1933, as amended
(the "Securities Act"), and therefore such Series B Notes will not bear
legends restricting the transfer thereof. The Series B Notes will evidence
the same debt as the Series A Notes, and together with the Series A Notes will
be subject to the terms of the Indenture dated as of August 22, 1996, (the
"Indenture") among the Company, Jefferson Casino Corporation ("Jefferson
Corp.") and First Union Bank of Connecticut as Trustee (the "Trustee").
The Company will accept for exchange any and all Series A Notes which are
properly tendered in the Exchange Offer prior to 5:00 p.m., New York City
time, on May , 1997, unless extended by the Company in its sole discretion
(the "Expiration Date"). The Expiration Date will not in any event be
extended to a date later than May , 1997. Tenders of Series A Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the
Expiration Date. In the event the Company terminates the Exchange Offer and
does not accept for exchange any Series A Notes with respect to the Exchange
Offer, the Company will promptly return the Series A Notes to the holders
thereof. The Exchange Offer is not conditioned upon any minimum principal
amount of Series A Notes being tendered for exchange, but is otherwise subject
to certain customary conditions. The Series A Notes may be tendered only in
integral multiples of $1,000. See "The Exchange Offer."
The Company will not realize any proceeds from the Exchange Offering. The net
proceeds of the offering of Series A Notes in August 1996 (the "Note
Offering") have been used to finance the development, construction, equipping
and opening of a new dockside riverboat casino and entertainment complex
located in Bossier City, Louisiana ("Casino Magic-Bossier City") and to repay
indebtedness incurred by the Company and Jefferson Corp., the parent of the
Company and a wholly owned subsidiary of Casino Magic Corp. ("Casino Magic"),
in connection with the development of the Company's gaming activities in
Bossier City. Casino Magic-Bossier City is owned by the Company and managed
by Casino Magic Management Services Corp. (the "Manager"), a wholly owned
subsidiary of Casino Magic. Casino Magic, through its other subsidiaries,
owns and operates gaming facilities in Bay St. Louis and Biloxi, Mississippi
and in Argentina.
2
<PAGE>Payment of principal and interest on the Series B Notes will be fully
and unconditionally guaranteed on a senior secured basis by Jefferson
Corp.(the "Jefferson Guarantee"), the parent of the Company and a wholly owned
subsidiary of Casino Magic Corp. ("Casino Magic"), and all future subsidiaries
of the Company (the "Subsidiary Guarantees" and, together with the Jefferson
Guarantee, the "Guarantees"). However, as of the date of the Indenture and as
of December 31, 1996 Jefferson Corp. had no material assets other than the
capital stock of the Company, had no material liabilities other than the
Jefferson Guarantee, had no subsidiaries other than the Company, and had no
independent operations, the Jefferson Guarantee having been granted primarily
to more effectively secure the Notes rather than to provide financial credit
support; in addition, because of restrictions imposed upon the business
activities of Jefferson Corp. under the Indenture, it is not likely that
Jefferson Corp. will have significant assets at any time in the future. Fixed
interest on the Notes is payable semi-annually on February 15 and August 15 of
each year, with the first such payment having been made on February 15, 1997.
The Notes will mature on August 15, 2003. Contingent Interest (as defined
herein) is payable on the Notes, on each such interest payment date, in an
aggregate amount equal to 5% of the Company's Adjusted Consolidated Cash Flow
(as defined herein) for the Accrual Period (as defined herein, but generally a
six-month period) last completed prior to such interest payment date; provided
that no Contingent Interest shall be payable with respect to any period prior
to the Commencement Date, which is defined as the date on which Casino
Magic-Bossier City became Operating (as defined herein) and which occurred on
April 1, 1997. See also "Description of Notes - Certain Definitions" for the
definition of capitalized terms used and referred to as defined herein. The
Company, at its option, may defer payment of all or a portion of any
installment of Contingent Interest then otherwise due subject to certain
conditions described herein. See "Description of Notes-Principal, Maturity
and Interest." Except as set forth below, the Series B Notes will not be
redeemable prior to August 15, 2000. The Series B Notes are redeemable at the
option of the Company, in whole or in part, on or after August 15, 2000 at the
redemption prices set forth herein, plus accrued and unpaid interest and
Liquidated Damages (as defined herein), if any, to the redemption date. Upon
the occurrence of a Change of Control (as defined herein), each holder of the
Series B Notes (a "Holder") will have the right to require the Company to
repurchase such Holder's Series B Notes at a purchase price equal to 101% of
the principal amount thereof plus accrued and unpaid interest and Liquidated
Damages, if any, to the date of repurchase. The Company may not have
sufficient funds available to purchase all of the outstanding Notes were they
to be tendered in response to an offer made as a result of a Change in
Control.
3
<PAGE>The Series B Notes will be senior secured obligations of the Company and
will rank pari passu in right of payment with any existing and future senior
Indebtedness (as defined herein) of the Company. As of December 31, 1996, the
total senior Indebtedness of the Company was approximately $121.7 million,
consisting of $115.0 million aggregate principal amount of Series A Notes and
$6.7 million in equipment financing. In addition, the Company anticipates
incurring up to $800,000 in additional equipment financing in the near future.
The existing equipment financing contains, and the contemplated equipment
financing is likely to contain, cross-default provisions with respect to the
Company's other material indebtedness, including the Notes, so that an Event
of Default (as defined herein) would also constitute an event of default with
respect to such equipment financing. The existing and contemplated equipment
financing will be effectively senior to the Notes to the extent of the
security interest granted in equipment financed by means of such Indebtedness.
The Series B Notes will rank senior in right of payment to all subordinated
Indebtedness of the Company, if any (the Company had no subordinated
Indebtedness at December 31, 1996). The Company's obligations under the
Series B Notes will be secured by, among other things, a first priority
security interest, subject to Permitted Liens (as defined herein), in
substantially all of the Company's existing and future assets, including a
recently constructed riverboat (the "Bossier Riverboat") and substantially all
of the other assets that comprise Casino Magic-Bossier City. The Jefferson
Guarantee will be a senior secured obligation of Jefferson Corp. (which as of
December 31, 1996, had no Indebtedness other than the Jefferson Guarantee)
secured by a pledge of all of the capital stock of the Company. Any
Subsidiary Guarantees will be secured by a first priority security interest,
subject to Permitted Liens, in substantially all of such subsidiary's existing
and future assets.
The Series B Notes are being offered hereunder in order to satisfy certain
obligations of the Company and Jefferson Corp. pursuant to the Registration
Rights Agreement dated August 22, 1996 (the "Registration Rights Agreement"),
entered into in connection with the Note Offering. See "Description of
Notes-Registration Rights; Liquidated Damages." Based on interpretations by
the staff of the Securities and Exchange Commission (the "SEC"), Series B
Notes issued pursuant to the Exchange Offer in exchange for Series A Notes may
be offered for resale, resold and otherwise transferred by any Holder thereof
(other than any broker-dealer who acquired such Series A Notes directly from
the Company to resell pursuant to Rule 144A under the Securities Act, or any
such Holder which is an "affiliate" of the Company within the meaning of Rule
405 under the Securities Act), without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such
Series B Notes are acquired in the ordinary course of such Holder's business
and such Holder has no arrangement with any person to participate in the
distribution of such Series B Notes. Notwithstanding the foregoing, each
broker-dealer that holds Series A Notes acquired for its own account as a
result of market-making activities or other trading activities and that
receives Series B Notes for its own account pursuant to the Exchange Offer
must acknowledge that it will deliver a prospectus in connection with any
resale of such Series B Notes. The Letter of Transmittal states that by so
4
<PAGE>acknowledging and by delivering a prospectus, a broker-dealer will not
be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with any resale of
Series B Notes received in exchange for Series A Notes where such Series A
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Company has agreed that, for a
period of one year after the Expiration Date, it will make this Prospectus
available to any broker-dealer for use in connection with any such resale.
See "Plan of Distribution". EXCEPT AS DESCRIBED IN THIS PARAGRAPH, THIS
PROSPECTUS MAY NOT BE USED FOR AN OFFER TO RESELL, RESALE OR OTHER TRANSFER OF
SERIES B NOTES.
Prior to the Exchange Offer, there has been no public market for the Series B
Notes. The Series A Notes are not, and the Series B Notes are not expected to
be, listed on any securities exchange or authorized for trading on the Nasdaq
Stock Market. There can be no assurances as to the liquidity of any markets
that may develop for the Series B Notes, the ability of Holders to sell the
Series B Notes, or the price at which Holders would be able to sell the Series
B Notes. Future trading prices of the Series B Notes will depend on many
factors, including among other things, prevailing interest rates, the
Company's operating results and the market for similar securities.
Historically, the market for securities similar to the Series B Notes,
including non-investment grade debt, has been subject to disruptions that have
caused substantial volatility in the prices of such securities. There can be
no assurance that any market for the Series B Notes, if such market develops,
will not be subject to similar disruptions. Wasserstein, Perella Securities,
Inc., Jefferies & Company, Inc. and Deutsche Morgan Grenfell (the "Initial
Purchasers") have advised the Company that they currently intend to make a
market in the Series B Notes offered hereby. However, the Initial Purchasers
are not obligated to do so and any such market-making activities may be
discontinued at any time without notice.
The Series A Notes were initially purchased by "accredited investors" (as such
term is defined in Rule 144 under the Securities Act) and "qualified
institutional buyers" (as such term is defined in Rule 144A under the
Securities Act). The Series A Notes purchased by qualified institutional
buyers were initially represented by a single global note in fully registered
form (the "Global Senior Note"), registered in the name of a nominee of The
Depository Trust Company ("DTC"), as depository. The Series B Notes exchanged
for Series A Notes represented by the Global Senior Notes will be represented
by a single global note in fully registered form (the "Global Senior Exchange
Note") registered in the name of the nominee of DTC. The Global Senior
Exchange Note will be exchangeable for Series B Notes in registered form, in
denominations of $1,000 and integral multiples thereof as described herein.
The Series B Notes in global form will trade in DTC's Same-Day Funds
Settlement System, and secondary market trading activity in such Series B
Notes will therefore settle in immediately available funds. See "Description
of Notes -- Form, Denomination and Book-Entry Procedures."
5
<PAGE>
Neither the Company nor Jefferson Corp. will receive any proceeds from the
Exchange Offer, but pursuant to the Registration Rights Agreement, the Company
and Jefferson Corp. will be responsible for certain expenses of the Exchange
Offer (which will not include the expenses of any Holder in connection with
resales of the Series B Notes). No underwriter is being utilized in
connection with the Exchange Offer.
AVAILABLE INFORMATION
The Company and Jefferson Corp. have jointly filed with the SEC a Registration
Statement on Form S-4 (the "Registration Statement") under the Securities Act
with respect to the Series B Notes being offered by this Prospectus. This
Prospectus does not contain all the information set forth in the Registration
Statement and the exhibits and schedules thereto, to which reference is hereby
made. Statements made in this Prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily complete; with
respect to each such contract, agreement or other document filed as an exhibit
to the Registration Statement, reference is made to the exhibit for a more
complete description of the matter involved.
Pursuant to the Indenture, the Company has agreed to furnish to the Trustee
and the registered Holders of the Notes, without cost to the Trustee or such
registered Holders, copies of the quarterly and annual reports, and any other
documents it is required to file with the SEC pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
within 15 days after it files the same with the SEC (or documents containing
equivalent information within such time period in the event that the Company
is not required to file such reports with the SEC).
6<PAGE> PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and should
be read in conjunction with, the more detailed information and financial
statements appearing elsewhere in this Prospectus. As used herein, the term
"Bossier City/Shreveport Market" means the gaming market in the cities of
Bossier City and Shreveport, Louisiana ("Bossier City/Shreveport").
Prospective investors are urged to read this Prospectus in its entirety,
including, without limitation, the "Risk Factors" beginning on page 17. See
also "Description of Notes - Certain Definitions" for the definition of
certain capitalized terms used and referred to as defined herein.
THE COMPANY
The Company has developed a new dockside riverboat casino and entertainment
complex, Casino Magic-Bossier City, on a 23-acre site in Bossier City,
Louisiana. The Company commenced gaming operations on the completed and fully
equipped Bossier Riverboat on October 4, 1996, using temporary mooring,
boarding and paved parking facilities, opened the substantially completed
permanent landside portions of its casino and entertainment complex on
December 31, 1996 and completed all of the final steps necessary to qualify
Casino Magic-Bossier City as Operating on April 1, 1997. From October 4, 1996
through December 31, 1996, Casino Magic-Bossier City was forced to close
approximately 15 days due to unusually high flood stage river levels.
Closures due to flood stage river levels should not occur at the completed
permanent facility. The casino site enjoys high visibility and convenient
access from Interstate Highway 20, a major artery between Bossier
City/Shreveport and the Dallas-Fort Worth area approximately 180 miles to the
west. The Company conducts its casino operations on a gaming vessel (the
"Bossier Riverboat"), which measures 254 feet long and 78 feet wide with
approximately 58,000 square feet of interior space, including 30,000 square
feet of gaming space (the maximum allowed under current Louisiana law) with
986 slot machines and 44 table games. Casino Magic-Bossier City also includes
a 37,000 square foot entertainment pavilion, with covered parking spaces for
approximately 1,550 vehicles and surface parking for 400 additional cars. The
entertainment pavilion includes a 350-seat buffet restaurant, a gift shop, a
bar and lounge area, and a stage area designed to showcase live entertainment,
including dance productions, bands and individual performers, with an open
seating area that will accommodate up to 300 customers. Casino Magic-Bossier
City has been designed to highlight a new "Magic" theme which Casino Magic
intends to implement at its other properties to strengthen the "Casino Magic"
brand identity.
7
<PAGE>
The Company believes the Bossier City/Shreveport Market presents it with a
significant gaming development opportunity based upon the strong population
density of its target market (which includes the Dallas-Fort Worth
metropolitan area, for which the Bossier City/Shreveport Market is the nearest
current gaming market) and the current regulations allowing dockside riverboat
gaming in Bossier City/Shreveport. The Bossier City/Shreveport Market is the
only market in Louisiana that currently permits continuous dockside gaming
without requiring cruising or simulated cruising schedules. This allows Casino
Magic-Bossier City to operate 24 hours a day with uninterrupted and convenient
casino access for gaming patrons.
Including amounts expended in May 1996 in connection with Jefferson Corp.'s
acquisition of the Company (other than the $10.1 million allocated to the
purchase price of the Crescent City Riverboat (as defined herein) which is
being held for sale by the Company, with the proceeds of any such sale
intended to be used for the further development of Casino Magic-Bossier City),
the total project cost for Casino Magic-Bossier City has been approximately
$118.2 million which includes: (i) approximately $13.6 million expended for
the acquisition of the 23-acre site, (ii) $45.6 million attributable to the
deferred gaming license cost and gaming equipment acquired in Jefferson
Corp.'s May 1996 acquisition of the Company, (iii) $20.0 million expended for
the acquisition of the Bossier Riverboat, and (iv) $39.0 million as the final
amended development and construction budget for the buildings and other
improvements at Casino Magic-Bossier City (including approximately $8.4
million of preopening costs, opening bankroll and additional gaming equipment
but excluding fees and expenses of the Note Offering and the initial interest
payment on the Notes). At the closing of the Note Offering, approximately
$45.2 million of the net proceeds thereof were deposited in collateral
accounts which were pledged to secure the Notes (the "Cash Collateral
Accounts"), with such funds to be disbursed in accordance with the Cash
Collateral and Disbursement Agreement executed at the closing of the Note
Offering for purposes of funding the construction of Casino Magic-Bossier
City, any initial operating losses and the initial interest payment on the
Notes (which was made on February 15, 1997). As of April 1, 1997, all but
approximately $1.3 million had been disbursed or requested for disbursement
from the Cash Collateral Accounts in accordance with the Cash Collateral and
Disbursement Agreement and the Company's request for the disbursement of the
remaining funds was pending. See "Use of Proceeds - Series A Notes".
8
<PAGE>
In May 1996, Casino Magic, through its wholly owned subsidiary, Jefferson
Corp., acquired the Company (which at the time of acquisition held the
Louisiana gaming license that is being used for Casino Magic-Bossier City) for
$50.0 million and the assumption of $5.7 million in equipment financing. The
assets acquired as a part of such transaction included gaming and related
equipment and surveillance equipment which the Company is using at Casino
Magic-Bossier City and a second riverboat owned by the Company, the Crescent
City Queen riverboat (the "Crescent City Riverboat"). Although Jefferson
Corp. was required to purchase the Crescent City Riverboat to obtain the
Louisiana gaming license, the Crescent City Riverboat is one of the largest
cruising riverboats designed for gaming in the United States, measuring
approximately 430 feet by 100 feet with 88,000 square feet of interior space
spread across three decks. While the Crescent City Riverboat is part of the
collateral for the Notes, the Company did not intend to use the Crescent City
Riverboat in connection with its gaming activities at Casino Magic-Bossier
City, since the Crescent City Riverboat is too large to navigate the Red River
to Bossier City/Shreveport unless substantially modified. The Company
anticipates selling the Crescent City Riverboat, in which case the Company
will be required either to reinvest the proceeds in Casino Magic-Bossier City
or apply such proceeds to a repurchase offer for the Notes. The Company is
currently marketing the Crescent City Riverboat and, although it has had
discussions with several prospective purchasers, no purchase offers acceptable
to the Company have been received. In addition, Casino Magic currently has an
application pending for a gaming license in Crawford County, Indiana. If
Casino Magic is successful in obtaining a gaming license in Indiana, and if
the Crescent City Riverboat has not been sold prior to that time, it is
anticipated that, subject to the availability of adequate financing and the
agreement of corporate partners of Casino Magic, if any, to such purchase, an
affiliated company of Casino Magic might purchase the Crescent City Riverboat
at fair market value. The Company can give no assurances that it will be able
to dispose of the Crescent City Riverboat on acceptable terms or in a timely
manner.
The Casino Magic-Bossier City facilities currently utilize approximately 12 of
the site's 23 acres, allowing substantial room for future expansion. The
Company intends to expand Casino Magic-Bossier City through the future
development of an adjacent 400-room hotel and related amenities, including
restaurants, banquet space, a theater, a swimming pool, a health club and a
child care facility. Subject to the restrictions in the Indenture, including
pro forma compliance with the indebtedness coverage and loan to value ratios
set forth therein, the Company is permitted to incur indebtedness to finance
the costs of constructing the hotel. In the event that the Company determines
to incur such indebtedness on a secured basis, the Indenture provides that (i)
the Trustee will release the land on which the hotel is to be built from the
lien for the benefit of the Notes and (ii) the Company will have the right to
grant a security interest for the benefit of the new lender in such real
property and all improvements constructed thereon, including the hotel. Under
such circumstances, the Holders of the Notes will have no security interest in
the hotel or the land on which it is constructed. The development and
construction of subsequent improvements is largely dependent upon the
9
<PAGE>availability of financing, which could be obtained from a combination of
sources, including proceeds from a future sale of the Crescent City Riverboat,
financing for the planned hotel and operating cash flow of Casino
Magic-Bossier City; however, no assurances can be given that such funds or
financing will be available or that such hotel and related facilities will
ever be developed. See "Management's Discussion and Analysis - Liquidity and
Capital Resources."
In a referendum on November 5, 1996 (the "Louisiana Referendum"), voters in
both Caddo and Bossier parishes approved a continuation of riverboat gaming in
such parishes; voters in all other Louisiana parishes in which riverboat
gaming is currently conducted also approved a continuation of that form of
gaming in their respective parishes. Current Louisiana law limits the number
of riverboat casino licenses in the state to 15, of which all have been
awarded, and limits the concentration of riverboat casino licenses in any one
parish to six. Six of those licenses (including the Company's, another
licensee which received approval to relocate from the New Orleans market and
the fifteenth licensee will locate in this market) have been granted in the
Bossier City/Shreveport Market which encompasses both Caddo and Bossier
parishes. The relative success of gaming operations in the Bossier
City/Shreveport Market, compared to other Louisiana markets may increase the
possibility that existing licenses may be relocated to the Bossier
City/Shreveport Market. However, the relocation of existing licenses to
another parish or of riverboats within the same parish will be restricted by
an amendment to the Louisiana Constitution passed in September 1996 (the
"Constitutional Amendment") which requires, among other things, a local
parish-wide election to approve by majority vote the licensing of any
additional riverboats in a parish with existing licensed riverboats or the
relocation of any operating riverboat to a different berth in the same parish.
See "Risk Factors-Competition."
The Company was incorporated as a Louisiana corporation on June 11, 1993 under
the name Crescent City Capital Development Corporation ("Crescent City"), and
was owned by a corporation with which Jefferson Corp. and Casino Magic had no
affiliation. In April 1995, Crescent City commenced gaming activities in New
Orleans, Louisiana for a 65-day period before a bankruptcy proceeding was
commenced against it in July 1995. In May 1996, Casino Magic, through
Jefferson Corp., purchased all of the capital stock of Crescent City for $50.0
million, plus the assumption of $5.7 million of equipment financing pursuant
to a court-approved plan of reorganization (the "Plan of Reorganization"). The
purchase price was paid in cash plus the issuance of $35.0 million principal
amount of senior secured notes (the "Louisiana Notes") which were repaid from
proceeds of the Note Offering in August 1996. See "Business-Background."
The Company's principal executive and administrative offices are located at
1701 Old Minden Road, Bossier City, Louisiana 71111. The Company's telephone
number is (318)746-0711.
10
<PAGE>CASINO MAGIC CORP.
Casino Magic, through its wholly owned subsidiaries, develops, owns and
operates casinos and related amenities primarily in the southeastern United
States, including two major facilities on the Mississippi Gulf Coast. Casino
Magic owns and operates a major dockside casino and entertainment complex and
adjacent hotel in Bay St. Louis, Mississippi ("Casino Magic-BSL") and a major
dockside casino and entertainment complex ("Casino Magic-Biloxi") in the midst
of a four-casino "Strip" in Biloxi, Mississippi. Casino Magic also owns and
operates two small casinos in Argentina. Casino Magic's principal executive
and administrative offices are located at 711 Casino Magic Drive, Bay St.
Louis, Mississippi 39520. Casino Magic's telephone number is (601) 466-8000.
Since late 1995, Casino Magic has strengthened its management team with the
addition of a new Chief Executive Officer, Chief Financial Officer, Chief
Operating Officer, and several other key executives who collectively possess
substantial development and operational experience within the gaming industry.
The new management team and the Company's Board of Directors have identified
Casino Magic's strategic priorities as (i) focused development of domestic
growth projects, particularly Casino Magic-Bossier City, and (ii) increased
attention to, and investment in, its core Mississippi properties. Management
of Casino Magic believes that establishing a significant brand name presence
will be an increasingly important competitive tool in each of its existing and
future markets.
The Company entered into a management agreement (the "Management Agreement")
with Casino Magic and the Manager, Casino Magic Management Services, Corp, a
wholly owned subsidiary of Casino Magic, on August 22, 1996, pursuant to which
Casino Magic licensed the use of the "Casino Magic" name to the Company and
the Manager will manage Casino Magic-Bossier City. Although the Manager
entity does not itself have significant prior management experience, pursuant
to the Management Agreement each of the principal executive officers of Casino
Magic, who each have significant gaming experience, will provide management
services to the Company. See "Management".
11
<PAGE> THE EXCHANGE OFFER
SECURITIES OFFERED:
$115.0 million aggregate principal amount of 13% Series B First Mortgage Notes
due 2003 with Contingent Interest. The form and terms of the Series B Notes
are substantially identical to the Series A Notes in all material respects,
except that the Series B Notes will be registered under the Securities Act,
and therefore will not bear legends restricting the transfer thereof.
THE EXCHANGE OFFER:
Each $1,000 principal amount of the Series B Notes is being offered in
exchange for $1,000 principal amount of the Series A Notes. The issuance of
the Series B Notes is intended to satisfy obligations of the Company and
Jefferson Corp. contained in the Registration Rights Agreement relating to the
Series A Notes. For procedures for tendering, see "The Exchange Offer."
TENDERS, EXPIRATION DATE; WITHDRAWAL:
The Exchange Offer will expire at 5:00 p.m., New York City time, on May ,
1997, or such later date and time to which it is extended (the "Expiration
Date"). The Exchange Offer is not conditioned upon any minimum principal
amount of Series A Notes being tendered for exchange. Tenders of Series A
Notes pursuant to the Exchange Offer may be withdrawn at any time prior to the
Expiration Date. In the event the Company does not accept for exchange any
Series A Notes for any reason, the Company will promptly return such Series A
Notes to the Holders thereof.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER:
The Exchange Offer is subject to certain customary conditions, including, the
absence of any action or proceeding which might materially impair the ability
of the Company to proceed with the Exchange Offer, changes in statutory or
other law which could impair the Company's ability to proceed with the
Exchange Offer or the failure to obtain a governmental approval which the
Company may deem necessary to consummate the Exchange Offer. Such conditions
may be waived by the Company. See "The Exchange Offer -- Certain Conditions
to the Exchange Offer."
PROCEDURES FOR TENDERING SERIES A NOTES:
Each holder of Series A Notes wishing to accept the Exchange Offer must
complete, sign and date the Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein and therein, and mail or
otherwise deliver such Letter of Transmittal, or such facsimile, together with
such Series A Notes and any other required documentation to the Exchange Agent
(as defined herein) at the address set forth herein. By executing the Letter
of Transmittal, each holder will represent to the Company that, among other
things, (i) any Series B Notes to be received by it will be acquired in the
ordinary course of its business, (ii) it has no arrangement with any person to
participate in the distribution of the Series B Notes, and (iii) it is not an
"affiliate," as defined in Rule 405 of the Securities Act, of the Company.
12
<PAGE>BENEFICIAL OWNERS:
Any beneficial owner whose Series A Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender such Series A Notes in the Exchange Offer should contact such
registered holder to tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's own behalf, such owner must,
prior to completing and executing the Letter of Transmittal and delivering his
Series A Notes, either make appropriate arrangements to register ownership of
the Series A Notes in such owner's name or obtain a properly completed bond
power from the registered holder. The transfer of registered ownership may
take considerable time and may not be completed prior to the Expiration Date.
GUARANTEED DELIVERY PROCEDURES:
Holders of Series A Notes who wish to tender their Series A Notes and whose
Series A Notes are not immediately available or who cannot deliver their
Series A Notes, the Letter of Transmittal or any other documents required by
the Letter of Transmittal to the Exchange Agent, prior to the Expiration Date,
must tender their Series A Notes according to the guaranteed delivery
procedures set forth in "The Exchange Offer -- Guaranteed Delivery
Procedures."
REGISTRATION OBLIGATIONS:
The Company agreed to use its best efforts to consummate the registered
Exchange Offer pursuant to which holders of the Series A Notes will be offered
an opportunity to exchange their Series A Notes for the Series B Notes which
will be issued without legends restricting the transfer thereof. In the event
that applicable interpretations of the staff of the SEC do not permit the
Company to effect the Exchange Offer or in certain limited circumstances, the
Company has agreed to file a shelf registration statement covering resales of
the Series A Notes and to use its best efforts to cause such shelf
registration statement to be declared effective under the Securities Act and,
subject to certain exceptions, keep such shelf registration statement
effective until the earlier of three years following the date of original
issuance of the Series A notes or such time as all the Series A Notes have
been sold thereunder or are otherwise no longer restricted securities.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS:
For a discussion of certain federal income tax considerations relating to the
exchange of the Series A Notes for the Series B Notes, see "Certain Federal
Income Tax Considerations."
USE OF PROCEEDS:
There will be no proceeds to the Company from the exchange pursuant to the
Exchange Offer.
RISK FACTORS:
For a discussion of certain material factors to be considered by Holders prior
to tendering their Series A Notes, see "Risk Factors."
13
<PAGE> EXCHANGE AGENT:
First Union Bank of Connecticut (the "Exchange Agent") has agreed to serve as
Exchange Agent in connection with the Exchange Offer.
SUMMARY DESCRIPTION OF THE SERIES B NOTES
The form and terms of Series B Notes are substantially identical to the Series
A Notes in all material respects, except that the Series B Notes will be
registered under the Securities Act, and therefore will not bear legends
restricting the transfer thereof. For a more complete description of the
Notes, see "Description of the Notes." Prospective investors are urged to
read this Prospectus in its entirety, including, without limitation, the "Risk
Factors" beginning on page 17. See also "Description of Notes - Certain
Definitions" for the definition of certain capitalized terms used and referred
to as defined herein.
SECURITIES OFFERED:
Up to $115.0 million aggregate amount of the Company's 13% Series B First
Mortgage Notes due 2003 with Contingent Interest.
MATURITY DATE:
August 15, 2003.
FIXED INTEREST:
13% per annum.
CONTINGENT INTEREST:
Contingent Interest is payable on the Notes, on each interest payment date, in
an aggregate amount equal to 5% of the Company's Adjusted Consolidated Cash
Flow (as defined herein) for the Accrual Period last completed prior to such
interest payment date; provided that no Contingent Interest shall be payable
with respect to any period prior to the Commencement Date. Payment of all or a
portion of any installment of Contingent Interest may be deferred, at the
option of the Company, if, and only to the extent that, (i) the payment of
such portion of Contingent Interest will cause the Company's Adjusted Fixed
Charge Coverage Ratio (as defined herein) for the Company's most recently
completed Reference Period (as defined herein) prior to such interest payment
date to be less than 1.5 to 1.0 on a pro forma basis after giving effect to
the assumed payment of such Contingent Interest and (ii) the principal amount
of the Notes corresponding to such Contingent Interest has not then matured
and become due and payable (at stated maturity, upon acceleration, upon
redemption, upon maturity of a repurchase obligation or otherwise). The
aggregate amount of Contingent Interest payable in any Semiannual Period will
be reduced pro rata for reductions in the outstanding principal amount of
Notes prior to the close of business on the record date immediately preceding
such payment of Contingent Interest. The payment of Contingent Interest is
subject to certain restrictions set forth herein. See "Description of
Notes-Principal, Maturity and Interest."
14
<PAGE>INTEREST PAYMENT DATES:
Each February 15 and August 15, commencing February 15, 1997.
GUARANTEES:
The Series B Notes will be fully and unconditionally guaranteed on a senior
secured basis by Jefferson Corp. and by all future subsidiaries of the Company
(collectively, the "Guarantors"). However, as of the date of the Indenture
and as of December 31, 1996 Jefferson Corp. had no material assets other than
the capital stock of the Company, had no material liabilities other than the
Jefferson Guarantee, had no subsidiaries other than the Company, and had no
independent operations, the Jefferson Guarantee having been granted primarily
to more effectively secure the Notes rather than to provide financial credit
support; in addition, because of restrictions imposed upon the business
activities of Jefferson Corp. under the Indenture, it is not likely that
Jefferson Corp. will have significant assets at any time in the future. See
"Description of Notes-Guarantees."
RANKING:
The Series B Notes will be senior secured obligations of the Company and will
rank pari passu in right of payment with any existing and future senior
Indebtedness of the Company, including any Series A Notes which are not
tendered for exchange. As of December 31, 1996, the total senior Indebtedness
of the Company was approximately $121.7 million, consisting of $115.0 million
aggregate principal amount of Notes and $6.7 million in equipment financing.
In addition, the Company anticipates incurring up to $800,000 in additional
equipment financing in the near future. The existing and contemplated
equipment financing will be effectively senior to the Notes to the extent of
the security interest granted in equipment financed by means of such
Indebtedness. The Series B Notes will rank senior in right of payment to all
subordinated Indebtedness of the Company if any (the Company had no
subordinated Indebtedness at December 31, 1996).
In addition, subject to the restrictions in the Indenture, the Company is
permitted to incur indebtedness to finance the costs of constructing a hotel
at Casino Magic-Bossier City on a secured basis. In the event that the
Company determines to incur such indebtedness on a secured basis, the
Indenture provides that (i) The Trustee will release the land on which the
hotel is to be built from the lien for the benefit of the Notes and (ii) the
Company will have the right to grant a security interest for the benefit of
the new lender in such real property and all improvements constructed thereon,
including the hotel. Under such circumstances, the Holders of the Notes will
have no security interest in the hotel or the land on which it is constructed.
15
<PAGE>
Furthermore, construction began before the mortgage on the real estate at
Casino Magic-Bossier City that secures the Notes was recorded. In Louisiana,
the priority of a mechanic's lien arising out of a particular construction
project relates back to the date on which construction of the project was
first commenced by any contractor. Accordingly, contractors, subcontractors
and suppliers providing goods or services in connection with Casino
Magic-Bossier City who otherwise comply with local law requirements may have a
lien on the project senior in priority to the lien of the mortgage. However,
the Cash Collateral and Disbursement Agreement requires that no progress
payments be released unless lien subordinations or releases have been obtained
from all material subcontractors and suppliers and the Company has obtained
such lien subordinations or releases from all subcontractors and suppliers to
whom payments, have been made. With respect to any vessel, or interests
therein, which serve as collateral for the Notes, parties providing goods and
services, as well as tort claimants, could have priority over the lien of the
collateral documents encumbering such vessel, to the extent such parties
remain unpaid.
SECURITY:
The Notes will be secured by a first priority security interest, subject to
Permitted Liens, in substantially all of the existing and future assets of the
Company, including the Bossier Riverboat and substantially all of the other
assets that comprise Casino Magic-Bossier City, and in the Crescent City
Riverboat. The Jefferson Guarantee is secured by a pledge of all of the
capital stock of the Company. See "Description of Notes-Security."
OPTIONAL REDEMPTION:
The Series B Notes will not be redeemable prior to August 15, 2000 (except as
otherwise required by a Gaming Authority). The Series B Notes will be
redeemable at the option of the Company, in whole or in part, on or after
August 15, 2000, at the redemption prices set forth herein plus accrued and
unpaid interest thereon to the redemption date. See "Description of
Notes-Optional Redemption."
CHANGE OF CONTROL:
In the event of a Change of Control, the Holders of the Series B Notes will
have the right to require the Company to purchase such Holders' Series B Notes
at a purchase price equal to 101% of the aggregate principal amount thereof
plus accrued and unpaid interest thereon to the date of purchase. The
Company may not have sufficient funds available to purchase all of the
outstanding Notes were they to be tendered in response to an offer made as a
result of a Change in Control. See "Description of Notes-Repurchase at the
Option of Holders-Change of Control."
16
<PAGE>CERTAIN COVENANTS:
The Indenture pursuant to which the Series A Notes have been issued and the
Series B Notes will be issued contains certain covenants that limit the
ability of the Company and its subsidiaries to, among other things, incur
additional Indebtedness, issue preferred stock, pay dividends, make
investments or make other restricted payments, incur liens, enter into mergers
or consolidations, enter into transactions with affiliates or sell assets. See
"Description of Notes-Certain Covenants."
RISK FACTORS
This Prospectus contains certain forward-looking statements. Discussions
containing such forward-looking statements may be found in the material set
forth under "Summary," "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Liquidity and Capital Resources,"
"Business" and "Description of Notes," as well as within this Prospectus
generally. Actual results may differ materially from those projected in the
forward-looking statements. Those Holders considering exchanging Series A
Notes for Series B Notes should carefully consider the following factors,
together with other information contained herein, before exchanging the Series
A Notes for Series B Notes.
SUBSTANTIAL LEVERAGE AND ABILITY TO SERVICE DEBT
After the Note Offering, the Company is highly leveraged, with substantial
debt service in addition to construction and operating expenses. Prior to May
1996, the Company was owned by entities unaffiliated with Casino Magic or
Jefferson Corp., and in May 1996, Casino Magic, through Jefferson Corp.,
purchased all of the capital stock of the Company (formerly known as Crescent
City Capital Development Corporation) pursuant to a court approved Plan of
Reorganization. Pursuant to the Plan of Reorganization, Crescent City was
discharged from substantially all of its liabilities prior to the acquisition.
From the May 1996 acquisition of Crescent City until the October 4, 1996
opening of Casino Magic-Bossier City, the Company's activities were limited to
development activities and, as a result, the Company had no revenues or
earnings. From inception through December 31, 1996, the Company had generated
revenues of approximately $12.7 million and a net loss of $10.0 million. The
Company believes that such revenue levels were adversely affected by closing
for 15-days attributable to flooding and by the lack of competitive amenities
during the period of operations with temporary land based facilities.
Although revenues have increased during the first quarter of fiscal 1997 to
approximately $23.2 million, such revenue levels have not attained the levels
of more seasoned competitive casinos in the Bossier City/Shreveport Market.
Although the Company continues to implement additional marketing and promotion
programs to increase revenues, there can be no assurance it will be successful
in doing so. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations." As of December 31, 1996, the total senior
Indebtedness of the Company was approximately $121.7 million, consisting of
$115.0 million aggregate principal amount of Series A Notes and $6.7 million
of equipment financing. See "Capitalization." The existing equipment
financing contains, and any additional equipment financing is likely to
contain, cross-default provisions with respect to the Company's other material
indebtedness, including the Notes, so that an Event of Default (as defined
herein)
17
<PAGE>would also constitute an event of default with respect to such equipment
financing. The existing and contemplated equipment financing will be
effectively senior to the Notes to the extent of the security interest granted
in equipment financed by means of such indebtedness.
The Company's ability to meet its debt obligations is entirely dependent upon
the Company's future operating performance, which is itself dependent on a
number of factors, many of which are outside of the Company's control,
including prevailing economic conditions and financial, business, regulatory
and other factors affecting the Company's operations and business.
There can be no assurance that the Company will be profitable or will generate
sufficient operating cash flow to enable the Company to (i) service its
Indebtedness, including the Notes or (ii) purchase Notes tendered pursuant to
an offer to repurchase in circumstances required by the terms of the
Indenture. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations-Liquidity and Capital Resources" and "Description of
Notes."
If the Company is unable to generate sufficient cash flow, it could be
required to adopt one or more alternatives, such as reducing or delaying
planned capital expenditures, selling assets, restructuring debt or obtaining
additional equity capital. There can be no assurance that any of these
alternatives could be effected on satisfactory terms, and any need to resort
to alternative sources of funds could impair the Company's competitive
position and reduce its future cash flow. Jefferson Corp. does not have, and
is not likely in the future to have, significant assets or operations which
could provide a source of liquidity or capital to the Company. Casino Magic
will have no obligations under the Notes, nor does it have any obligation to
provide any financing to the Company. In addition, Casino Magic will be
restricted from providing additional capital to the Company, subject to
certain exceptions, by the terms of certain debt agreements to which it is
subject, including the indenture governing the $135.0 million aggregate
principal amount of 11 % First Mortgage Notes due 2001 issued by an indirect
subsidiary of Casino Magic and guaranteed by Casino Magic (the "Casino Magic
Notes").
The degree to which the Company is leveraged could have important consequences
to the Holders, including, but not limited to, the following: (i) the
Company's increased vulnerability to adverse general economic and industry
conditions, (ii) the dedication of a substantial portion of the Company's
operating cash flow to the payment of principal and interest on Indebtedness,
thereby reducing the funds available for operations and further development of
Casino Magic-Bossier City and (iii) the Company's impaired ability to obtain
additional financing for future working capital, capital expenditures,
acquisitions or other general corporate purposes. There can be no assurance
that any such additional financing will be available in the future on terms
satisfactory to the Company, if at all. Failure by the Company to obtain any
required additional financing in the future could have a material adverse
effect on its financial condition and results of operations.
18
<PAGE>CONSTRUCTION AND BUDGET RISKS
The Company commenced casino operations on the completed and fully equipped
Bossier Riverboat on October 4, 1996 using temporary mooring, boarding and
paved parking facilities and opened the substantially completed permanent
landside portion of its casino and entertainment complex on December 31, 1996.
Including amounts expended in May 1996 in connection with Jefferson Corp.'s
acquisition of the Company (other than the $10.1 million allocated to the
purchase price of the Crescent City Riverboat which is being held for sale by
the Company, with the proceeds of any such sale intended to be used for the
further development of Casino Magic-Bossier City), the total project cost for
Casino Magic-Bossier City has been approximately $118.2 million which
includes: (i) approximately $13.6 million expended for the acquisition of the
23-acre site, (ii) $45.6 million attributable to the deferred gaming license
cost and gaming equipment acquired in Jefferson Corp.'s May 1996 acquisition
of the Company, (iii) $20.0 million expended for the acquisition of the
Bossier Riverboat, and (iv) $39.0 million as the final amended development and
construction budget for the buildings and other improvements at Casino
Magic-Bossier City (including approximately $8.4 million of preopening costs,
opening bankroll and additional gaming equipment but excluding fees and
expenses of the Note Offering and the initial interest payment on the Notes).
Such project cost exceeded the initial construction budget for Casino
Magic-Bossier City by approximately $5.0 million , although the excess cost
was entirely funded by the construction reserves established in connection
with the Note Offering.
Any future construction projects, such as a future hotel development at the
site of Casino Magic-Bossier City, will also entail significant construction
risks, including, but not limited to, cost overruns, delay in receipt of
governmental approvals, shortages of materials or skilled labor, labor
disputes, unforeseen environmental or engineering problems, work stoppages,
fire and other natural disasters, construction scheduling problems and weather
interferences. The development and construction of subsequent improvements is
largely dependent upon the availability of financing, which could be obtained
from a combination of sources, including proceeds from a future sale of the
Crescent City Riverboat, financing for the planned hotel and operating cash
flow of Casino Magic-Bossier City; however, no assurances can be given that
such funds or financing will be available or that such hotel and related
facilities will ever be developed.
The Company purchased the Bossier Riverboat from Boyd Gaming Corporation for
$20.0 million at the closing of the Note Offering. Boyd Gaming Corporation
did not provide the Company with any representations or warranties with
respect to the fitness or suitability of the Bossier Riverboat. Furthermore,
warranties relating to the Bossier Riverboat may not be available from the
builder or any suppliers of engines or any component thereof. Accordingly, the
Company may have no contractual recourse in the event defects are discovered
on the Bossier Riverboat and the Company would be required to make any
required repairs or modifications at its own expense.
19
<PAGE>RISK OF NEW VENTURE; LACK OF PRIOR OPERATING HISTORY
From the May 1996 acquisition of Crescent City until the October 4, 1996
opening of Casino Magic-Bossier City, the Company's activities were limited to
development activities and, as a result, the Company had no revenues, earnings
or operations. See "Business-Background." Although several members of Casino
Magic's management have experience constructing and operating riverboat
casinos in the Bossier City/Shreveport Market and elsewhere, neither the
Company nor the Manager, which manages the Company's gaming operations, had
prior to the October 4, 1996 opening of Casino Magic-Bossier City's temporary
facility been involved in constructing or operating a riverboat casino in the
Bossier City/Shreveport Market. Moreover, Casino Magic-Bossier City is a
start-up development and, as such, is subject to all of the risks inherent in
establishing a new business enterprise, including, but not limited to,
unanticipated operating problems, as well as having no proven ability to
market and operate a new venture in the Bossier City/Shreveport Market, where
neither the Company nor Casino Magic had previously conducted business. The
Company will rely on the Manager to manage Casino Magic-Bossier City and will
grant it a significant degree of independence in operating matters, including
day-to-day financial control and authority over hiring and training personnel.
There can be no assurance that the Company or the Manager will be able to
successfully market Casino Magic-Bossier City or that the operations thereof
will be profitable or will generate sufficient operating cash flow to enable
the Company to make payments of principal and interest on the Notes. The
Series B Notes, like the Series A Notes, will be without recourse to Casino
Magic or its affiliates other than the Company and Jefferson Corp.
COMPETITION
General
The Company will be highly dependent on the Bossier City/Shreveport Market and
on the principal markets to which it caters, such as the Dallas-Fort Worth
market. Current Louisiana law limits the number of riverboat casino licenses
in the state to 15, all of which have been awarded, and limits the
concentration of riverboat casino licenses in any one parish to six. Six
gaming licenses (including the Company's, a riverboat owned by Hilton
Corporation currently operating in the New Orleans market has received
approval to relocate to the Bossier City/Shreveport Market in late 1997 and a
sixth gaming company, Hollywood Casino, has received approval to obtain a
license to operate a dockside riverboat casino in the Bossier City/Shreveport
Market) have been granted in the Bossier City/Shreveport Market which
encompass both Caddo and Bossier parishes. Fourteen riverboat casinos
(including the Company's) currently operate in Louisiana, all of which have
opened since 1993.
Of the 14 riverboat casinos currently operating in Louisiana, three in
addition to Casino Magic-Bossier City are currently licensed and have been
operating in the Bossier City/Shreveport Market since 1994 and offer
substantially similar gaming facilities. Casino Magic-Bossier City will face
competition from those existing operations, particularly to the extent that
they add to or enhance existing amenities. For example, one Bossier
City/Shreveport casino operator is near completion of a 606-room all suites
hotel at its riverboat casino location in Bossier City.
20
<PAGE>In addition, in September, 1996, a riverboat located in the New Orleans
market received approval to relocate to the Bossier City/Shreveport Market.
The relocation of this riverboat will occur after the land-based casino in New
Orleans opens or on October 31, 1997, whichever event occurs first.
Furthermore, an additional operator, has been awarded the final riverboat
gaming license and will operate a sixth dockside riverboat casino in the
Bossier City/Shreveport Market, which will further increase the Company's
competition. The relative success of gaming operations in the Bossier
City/Shreveport Market compared to other Louisiana markets may increase the
possibility that existing licenses may be relocated to the Bossier
City/Shreveport Market. However, the relocation of existing licenses to
another parish or of riverboats within the same parish will be restricted by
the Constitutional Amendment which requires, among other things, a local
parish-wide election to approve, by majority vote, the licensing of any
additional riverboats in a parish with existing licensed riverboats or the
relocation of any operating riverboat to a different berth in the same parish.
Certain of the Company's competitors have more experienced management and
greater name recognition, marketing capabilities and financial resources than
the Company. The Company may also face increasing competition from the new and
existing casinos developed elsewhere in Louisiana, on the Mississippi Gulf
Coast (including other casinos operated by Casino Magic) and surrounding
market areas and other jurisdictions throughout the United States and abroad,
including from established gaming centers such as those in Nevada and Atlantic
City, New Jersey. The Company also faces competition from other forms of
lawful gaming, such as state-sponsored lotteries and video lottery terminals,
pari-mutuel betting on horse and dog racing and bingo parlors, as well as from
other forms of entertainment. It is possible that increased competition could
have a material adverse effect on the Company.
RISK OF TEXAS GAMING LEGALIZATION
Casino gaming is currently prohibited in several nearby jurisdictions which
are important to the Bossier City/Shreveport Market. As a result, residents of
these jurisdictions, principally Texas, comprise a significant portion of the
customers of existing gaming operations in Bossier City/Shreveport and of the
anticipated customers of Casino Magic-Bossier City.
Although casino gaming is not currently permitted in Texas and the Texas
Attorney General has issued an opinion that gaming in Texas would require an
amendment to the Texas Constitution, the Texas Legislature has considered from
time to time various proposals to authorize casino gaming, but to date has not
done so. A constitutional amendment would require a two-thirds vote of those
present and voting in each house of the Texas Legislature and approval by the
electorate in a referendum. The legalization of casino gaming in Texas and the
opening of one or more casinos in the Dallas-Fort Worth area, which is a major
market for Bossier City/Shreveport gaming operations, would have a material
adverse effect on the Company's results of operations.
21
<PAGE>DEPENDENCE UPON SINGLE GAMING SITE
The Company does not currently anticipate having operations other than Casino
Magic-Bossier City and therefore may be entirely dependent upon Casino
Magic-Bossier City for its revenues. Because the Company may be entirely
dependent on a single gaming site for its revenues, it will consequently be
subject to greater risks than a geographically diversified gaming operation,
including, but not limited to, risks related to local economic and competitive
conditions, changes in local governmental regulations and natural and other
disasters. Any decline in the number of residents in the Bossier
City/Shreveport Market, a downturn in the overall economy of the Bossier
City/Shreveport Market, a decrease in gaming activities in the Bossier
City/Shreveport Market or an increase in competition could have a material
adverse effect on the Company.
POSSIBLE CONFLICTS OF INTEREST
Affiliates of the Company, including Casino Magic, are actively involved in
the gaming industry. Casinos owned or managed by such affiliated persons may
directly or indirectly compete with the Company. The potential for conflicts
of interest exists among the Company and affiliated persons for future
business opportunities that may not be presented to the Company. However, the
Company and Casino Magic have agreed that Casino Magic and its other
affiliates will not engage in other gaming activities within a 200-mile radius
of Casino Magic-Bossier City, excluding the cities of Lake Charles, Louisiana
and Vicksburg, Mississippi.
GAMING AND OTHER GOVERNMENT REGULATION
Gaming Regulation
Although in the Louisiana Referendum on November 5, 1996 voters in both Caddo
and Bossier parishes approved a continuation of riverboat gaming in such
parishes, Louisiana law does not provide for any moratorium that must expire
before future referenda on gaming could be mandated or allowed. There can be
no assurance that future referenda on gaming activities will not occur, that
voters in the parish in which the Company operates will not subsequently vote
to discontinue, limit or, alternatively, further expand riverboat gaming in
that parish, or that the Louisiana legislature will not mandate other
referenda or electoral confirmations or otherwise limit, restrict, prohibit
or, alternatively, further expand gaming in Louisiana.
The Company's casino will be subject to extensive regulation by the State of
Louisiana. In May 1996, regulatory oversight of gaming operations in
Louisiana, including riverboat gaming, was transferred to and vested in the
Louisiana Gaming Control Board (the "Louisiana Board"). The Louisiana Board
will consist of nine members appointed by the governor of Louisiana. A
chairman and five other members of the Board, constituting a quorum to conduct
business, had been appointed by the governor as of December 31, 1996. The
Company and certain of its key personnel are required to obtain and hold
22
<PAGE>various licenses and approvals and are subject to other forms of
regulation under applicable Louisiana law. Additionally, certain beneficial
owners, lenders and landlords of the Company may be required to be licensed.
Generally, Louisiana gaming authorities have broad discretion in granting,
suspending, renewing and revoking licenses and requiring various persons and
entities to be found suitable. The suspension or revocation of the gaming
license held by the Company or the failure to obtain a renewal of its gaming
license would have a material adverse effect on the Company's business. In
some circumstances, the suspension or revocation of a gaming license in one
jurisdiction may trigger the suspension or revocation of a license or affect
eligibility for a license in another jurisdiction and the Company could
accordingly be adversely affected by regulatory actions in other jurisdictions
directed principally at Casino Magic or its employees. If additional gaming
regulations are adopted in Louisiana in the future, those regulations could
impose additional restrictions or costs that could have a material adverse
effect on the Company.
Substantially all loans, leases, private sales of securities, extensions of
credit and similar financing transactions entered into by the Company, must
be reported to the Louisiana Board within thirty days after the consummation
of any such transactions. The Louisiana Board is required to investigate all
reported loans or extensions of credit, and to either approve or disapprove
the same. If disapproved, the pertinent loan or extension of credit must be
rescinded by the Company. The Company's Note Offering was approved by the
Louisiana Board on October 29, 1996.
Gaming companies are typically subject to significant taxes and fees in
addition to normal federal and state corporate income taxes, and such taxes
and fees are subject to increase at any time. Additionally, from time to time,
certain federal legislators have proposed the imposition of a federal tax on
gaming revenues. Any such federal tax or any material increase in existing
taxes or fees would adversely affect the Company.
The operations of the Company are subject to a variety of other regulations in
addition to gaming regulations, including, without limitation, environmental
regulations, alcoholic beverage regulations and regulations applicable to
marine vessels.
Security Ownership Regulations
Typically, gaming authorities, including those in Louisiana, have
discretionary authority to require a Holder of a security such as the Notes to
file an application, to be investigated and to be found suitable as an owner,
debtholder or landlord of a gaming establishment for any reason, including in
the event of a foreclosure on and the taking of possession of the collateral
by the Trustee following a default under the applicable indenture. While
individual holders of securities such as the Notes are generally not required
to be investigated and found suitable, gaming authorities retain the
discretion to do so for any reason, including but not limited to, a default,
or where the Holder of the debt instrument seeks to exercise a material or
significant influence over the gaming operations of the entity in question or
to elect one or more members of its Board of Directors. Each Holder shall be
deemed to have agreed (to the extent permitted by law) that if the relevant
23
<PAGE>gaming authorities determine that such Holder or beneficial owner of the
Notes must be licensed, qualified or found suitable under applicable law
(whether as the result of a foreclosure sale or for any other reason), and if
such Holder or beneficial owner is not so licensed, qualified or found
suitable, such Holder shall dispose of such Holder's Notes within the time
frame and in accordance with the procedures prescribed by the applicable
gaming regulatory authorities. Any Holder required to apply for licensing,
qualification or a finding of suitability must pay all investigative fees and
costs of the gaming authorities in connection with such an investigation. In
addition, the Indenture provides that if any Gaming Authority requires a
Holder or beneficial owner of the Notes to be licensed, qualified or found
suitable under any applicable gaming law and such Holder or beneficial owner
fails to apply for a license, qualification or a finding of suitability within
30 days after being requested to do so by the gaming authority, or if such
Holder or such beneficial owner is not so licensed, qualified or found
suitable (a "Disqualified Holder"), the Disqualified Holder must immediately
dispose of his Notes or the Company shall have the option to redeem all of the
Disqualified Holder's Notes, at the lesser of (i) the aggregate principal
amount of such Notes, or (ii) the Disqualified Holder's cost thereof.
Immediately upon a determination of unsuitability, the Disqualified Holder
shall have no further rights whatsoever with respect to the Notes and shall
not have the right (i) to exercise, directly or indirectly through any
Trustee, nominee or any other person or entity, any right conferred by the
Notes, nor (ii) to receive any interest or any other distribution or payment
with respect to the Notes nor any remuneration in any form from the Company
for services rendered or otherwise.
Possible Legislation
On August 3, 1996, President Clinton signed a bill creating a nine-member
National Gambling Impact Study Commission to study the economic and social
impact of gaming and report its findings to Congress and the President within
two years after the first meeting of the Commission. The Commission could
recommend changes in state or federal gaming policies. The President, House
Speaker and Senate Majority Leader are each to select three of the
Commission's members. Additional federal regulation of the gaming industry
could occur as a result of investigations or hearings by the committee, which
could have a material adverse effect on the Company.
MECHANICS' LIENS
Laws in Louisiana provide certain contractors, subcontractors and material
suppliers with a lien on the property being improved by their services or
supplies in order to secure their right to be paid. Such parties may seek
foreclosure on their liens if they are not paid in full.
Furthermore, construction began before the mortgage on the real estate at
Casino Magic-Bossier City that secures the Notes was recorded. In Louisiana,
the priority of a mechanic's lien arising out of a particular construction
project relates back to the date on which construction of the project was
24
<PAGE>first commenced by any contractor. Accordingly, contractors,
subcontractors and suppliers providing goods or services in connection with
Casino Magic-Bossier City who otherwise comply with local law requirements may
have a lien on the project senior in priority to the lien of the mortgage.
However, the Cash Collateral and Disbursement Agreement requires that no
progress payments be released unless lien subordinations or releases have been
obtained from all material subcontractors and suppliers and the Company has
obtained such lien subordinations or releases from all subcontractors and
suppliers to whom payments have been made. With respect to any vessel, or
interests therein, which serve as collateral for the Notes, parties providing
goods and services, as well as tort claimants, could have priority over the
lien of the collateral documents encumbering such vessel, to the extent such
parties remain unpaid.
ABILITY TO REALIZE ON COLLATERAL; BANKRUPTCY CONSIDERATIONS
The Series A Notes are, and the Series B Notes will be, secured by a first
priority lien, subject to Permitted Liens, on substantially all of the assets
of the Company, including the Bossier Riverboat, the real property and
improvements constructed thereon in Bossier City and the Crescent City
Riverboat. The Company's Louisiana gaming license is not pledgeable or
transferable. Under Louisiana gaming laws and the regulations promulgated
thereunder, the Trustee may be precluded from or otherwise limited in selling
collateral at a foreclosure sale. In addition, the Trustee may be delayed in
its efforts to sell collateral due to various legal restrictions, including,
without limitation, requirements that an operator of a gaming facility be
licensed by state authorities or that prior approval of a sale or disposition
of collateral be obtained.
After application of any proceeds from a foreclosure sale, the Trustee may be
entitled to a deficiency judgment under certain circumstances. However, there
can be no assurance that the Trustee would be successful in obtaining any
deficiency judgment, what the amount of any such judgment if obtained might
be, or that the Company or Jefferson Corp. would be able to satisfy any such
judgment, if obtained.
In addition to being subject to gaming law restrictions, the Trustee's ability
to foreclose upon and sell collateral will be subject to the procedural and
other restrictions of state real estate law or the Uniform Commercial Code or,
in the case of gaming vessels, certain federal admiralty law statutes.
Furthermore, any efforts by the Trustee to demand and foreclose upon any
collateral of Jefferson Corp. could be limited by the invocation of state law
suretyship defenses and fraudulent transfer laws. See "Description of
Notes-Remedies Upon Default Under Notes."
The right of the Trustee under the Indenture, as the secured party under the
Collateral Documents related thereto, to foreclose upon and sell the
collateral subject thereto upon an acceleration after any Event of Default is
likely to be significantly impaired by applicable bankruptcy laws if a
bankruptcy proceeding were to be commenced by or against the Company or
Jefferson Corp. prior to or possibly even after the Trustee has foreclosed
upon and sold the collateral. In view of the broad discretionary powers of a
bankruptcy court, it is impossible to predict if payments under the Notes
25
<PAGE>would be made following commencement of and during a bankruptcy case,
whether or when the Trustee could foreclose upon or sell the collateral or
whether or to what extent Holders of the Notes would be compensated for any
delay in payment or loss of value of the collateral. Furthermore, to the
extent a bankruptcy court were to determine that the value of the collateral
is not sufficient to repay all amounts due on the Notes, the Holders would
hold "undersecured claims." Applicable federal bankruptcy laws do not permit
the payment and/or accrual of interest, costs and attorneys' fees for
"undersecured claims" during the debtor's bankruptcy case.
In the event of a foreclosure sale of the assets comprising Casino
Magic-Bossier City or of the capital stock of the Company, licensing
requirements of applicable gaming authorities may limit the number of
potential bidders for such assets or such stock and may delay the sale
thereof, which could adversely affect the sale price therefor in such event.
Furthermore, such licensing requirements may limit the Trustee's ability to
foreclose upon the collateral.
The Company intends to expand Casino Magic-Bossier City through the future
development of an adjacent 400-room hotel and related amenities, including
restaurants, banquet space, a theater, a swimming pool, a health club and a
child care facility. Subject to the restrictions in the Indenture, including
pro forma compliance with the indebtedness coverage and loan to value ratios
set forth therein, the Company is permitted to incur indebtedness to finance
the costs of constructing the hotel. In the event that the Company determines
to incur such indebtedness on a secured basis, the Indenture provides that (i)
the Trustee will release the land on which the hotel is to be built from the
lien for the benefit of the Notes and (ii) the Company will have the right to
grant a security interest for the benefit of the new lender in such real
property and all improvements constructed thereon, including the hotel. Under
such circumstances the Holders of the Notes will have no security interest in
the hotel or the land on which it is constructed. The development and
construction of subsequent improvements is largely dependent upon the
availability of financing, which could be obtained from a combination of
sources, including proceeds from a future sale of the Crescent City Riverboat,
financing for the planned hotel and operating cash flow of Casino
Magic-Bossier City; however, no assurances can be given that such funds or
financing will be available or that such hotel and related facilities will
ever be developed.
Certain of the Company's affiliates are involved in activities that are
related to the Company's business and assets. In addition, the Company and
many of its affiliates have overlapping officers and directors. In the event
that an affiliate of the Company is the subject of a proceeding under the
United States Bankruptcy Code, the creditors of such affiliated entity or the
trustee in bankruptcy may argue that the assets and liabilities of the various
entities, including the Company, should be consolidated so as to cause the
assets of the Company to be available for satisfaction of claims against the
bankrupt affiliate. Although the Company believes that it is a distinct and
separate legal entity from its affiliates, there can be no assurance that in
the event of a bankruptcy of one of its affiliated entities a bankruptcy court
would not order consolidation of the assets of the Company and its affiliates.
26
<PAGE>FRAUDULENT CONVEYANCE CONSIDERATIONS
The Company and Jefferson Corp. have granted, and all future subsidiaries of
the Company will grant, security interests in collateral to the Trustee,
including, without limitation, in certain after-acquired property of the
Company and its subsidiaries, to secure the Notes. Various fraudulent
conveyance and revocatory laws have been enacted for the protection of
creditors and may be utilized by a court of competent jurisdiction to avoid
any security interest in collateral granted by the Company, Jefferson Corp. or
future subsidiaries of the Company. The requirements for establishing a
fraudulent conveyance or revocatory transfer vary depending on the law of the
jurisdiction which is being applied. Generally, if under federal and certain
state statutes in a bankruptcy, reorganization, rehabilitation or similar
proceeding in respect of the Company, Jefferson Corp. or future subsidiaries
of the Company, or in a lawsuit by or on behalf of creditors against the
Company, Jefferson Corp. or future subsidiaries of the Company, a court were
to find that (a) the Company, Jefferson Corp. or such a future subsidiary of
the Company (each hereinafter referred to as a "Grantor"), as the case may be,
incurred the indebtedness in connection with the Notes (including the
Guarantees thereof) or granted security interests in the collateral with the
intent of hindering, delaying or defrauding current or future creditors of the
Grantor, or (b)(i) the Grantor received less than reasonably equivalent value
or fair consideration for incurring the indebtedness in connection with the
Notes (including the Guarantees thereof) or for granting security interests in
the collateral and (ii) the Grantor, (A) was insolvent or was rendered
insolvent by reason of incurring the indebtedness in connection with the Notes
(including the Guarantees thereof) or the granting of security interests in
the collateral, (B) was engaged or about to engage in a business or
transaction for which its assets constituted unreasonably small capital, (C)
intended to incur, or believed that it would incur, debts beyond its ability
to pay as such debts matured (as all of the foregoing terms are defined in or
interpreted under the applicable fraudulent conveyance or revocatory
statutes), or (D) was a defendant in an action for money damages, or had a
judgment for money damages docketed against it (if, in either case, after
final judgment the judgment is unsatisfied), such court could, subject to
applicable statutes of limitations, with respect to the Grantor, avoid in
whole or in part the security interests granted in the collateral or
subordinate claims with respect to the Notes (including the Guarantees
thereof) to all other debts of the Grantor. The measures for insolvency for
purposes of the foregoing considerations will vary depending upon the law
applied in any such proceeding. Generally, however, a company will be
considered insolvent if the sum of its debts was greater than the fair salable
value of all of its assets at a fair valuation or if the present fair salable
value of its assets was less than the amount that would be required to pay its
probable liability on its existing debts, as they become fixed in amount and
mature.
27
<PAGE>CASINO MAGIC INDENTURE VIOLATION
On June 13, 1996, Casino Magic sold the capital stock of Atlantic-Pacific
Corp., which operates "Goldiggers," a small casino-hotel in Deadwood, South
Dakota, with approximately 8,500 square feet of gaming area and nine hotel
rooms, to Royal Casino Group, Inc. ("RCG"), an unaffiliated party whose common
stock trades in the over-the-counter market. Goldiggers generated revenues of
$2.1 million and a loss from operations, excluding depreciation and
amortization expense, of approximately $536,000 during 1995 and, except for
its negative cash flow impact, had not been regarded by Casino Magic as
material to its operations for several years. In consideration for the sale of
such stock, Casino Magic received shares of RCG Series A Convertible Preferred
Stock and warrants to acquire shares of RCG common stock. The indenture
governing the Casino Magic Notes required that at least 85% of the
consideration received by Casino Magic in respect of such asset sale be in the
form of cash. By selling such securities for cash to a subsidiary that is not
subject to the investment covenants of such indenture, Casino Magic has taken
steps which it believes are sufficient to cure such violation, although there
can be no assurance that Holders of the Casino Magic Notes will not allege
that such actions constitute an event of default or seek to accelerate the
payment thereof. If the payment of the Casino Magic Notes were accelerated,
Casino Magic would be required to refinance such obligations, and if such
refinancing could not be obtained, Casino Magic could be forced to seek
bankruptcy protection. In the latter event, Holders of the Notes would be
adversely affected if there were to be a substantive consolidation of the
Company with Casino Magic in Casino Magic's bankruptcy proceeding and no
assurance can be given that such substantive consolidation would not occur.
See "-Ability to Realize on Collateral; Bankruptcy Considerations."
ADVERSE WEATHER CONDITIONS
A flood or other severe weather conditions could adversely affect the
Company's gaming operations. The Company commenced gaming operations on the
completed and fully equipped Bossier Riverboat on October 4, 1996, using
temporary mooring, boarding and paved parking facilities, and opened the
permanent landside portions of its casino and entertainment complex on
December 31, 1996. From October 4, 1996 through December 31, 1996, Casino
Magic-Bossier City was forced to close approximately 15 days due to unusually
high flood stage river levels. Closures due to flood stage river levels
should not occur at the completed permanent facility. The Company maintains
insurance policies that provide coverage for casualty losses resulting from
severe weather, including floods. However, floods or other severe weather
could cause significant physical damage to the Company's casino and for a
period of time could potentially result in reduced hours of operation or
access to the casino, or the complete closure of the casino for a period of
time, any of which would have a material adverse effect on the Company.
ENVIRONMENTAL MATTERS
The Company is subject to a wide variety of federal, state and local laws and
regulations relating to the use, storage, discharge, emission and disposal of
hazardous materials and the protection of natural resources, such as wetlands
and endangered species. While management believes that the Company is
28
<PAGE>presently in material compliance with all environmental laws, failure to
comply with such laws could result in the imposition of severe penalties,
conditions or restrictions in connection with project development or
operations by government agencies or courts that could adversely affect such
development or operations. The Company completed a Phase I environmental site
assessment (the "Phase I ESA") at the Bossier City site in November 1993,
prior to the publication of the ASTM Standard Practice for Environmental Site
Assessments: Phase I Site Assessment Process in June 1994 (Designation: E
1527-94) (a current, widely accepted industry standard). The Phase I ESA,
which was updated by visual inspection only, in August 1995, includes certain
suggestions relative to certain conditions and areas of potential
environmental concerns. The Phase I ESA, and subsequent soil and groundwater
sampling conducted in October 1995, did not, however, identify any
environmental conditions or non-compliance at the site, the remediation,
mitigation or correction of which management believes would have a material
adverse impact on the business or financial condition of the Company. The
Company is not aware of any environmental conditions or non-compliance not
identified in the Phase I ESA, the August 1995 update, or the subsequent soil
and groundwater sampling.
Under environmental laws and regulations, a beneficiary of a deed of trust or
mortgage on real property, such as the Trustee, may be held liable, under
certain circumstances, for the costs of remediating or preventing releases or
threatened releases of hazardous materials at a mortgaged property, and for
other rights and liabilities relating to hazardous materials, although such
liability rarely has been imposed. Under the Indenture and the Collateral
Documents (as defined herein), the Trustee is indemnified against its costs,
expenses and liabilities, including environmental cleanup costs and
liabilities. Remediation costs could potentially reduce foreclosure proceeds
available to the Holders of the Notes. If the Holders exercise that right,
they could be subject to the risks discussed above.
RESTRICTIONS ON EXCHANGE OFFER
Issuance of Series B Notes in exchange for Series A Notes pursuant to the
Exchange Offer will be made only after a timely receipt by the Exchange Agent
of a properly completed and duly executed Letter of Transmittal, including all
other documents required by such Letter of Transmittal. Therefore, Holders of
Series A Notes desiring to tender such Series A Notes in exchange for Series B
Notes should allow sufficient time to ensure timely delivery. The Exchange
Agent and the Company are under no duty to give notification of defects or
irregularities with respect to the tenders of Series A Notes for exchange.
Each broker-dealer that received Series B Notes for its own account in
exchange for Series A Notes, where such Series A Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of Series B Notes. See "Plan of Distribution" and "The
Exchange Offer."
29
<PAGE>CONSEQUENCES OF FAILURE TO EXCHANGE
Series A Notes that are not tendered or are tendered but not accepted will,
following the consummation of the Exchange Offer, continue to be subject to
the existing restrictions upon transfer thereof and the Company will have no
further obligation to provide for the registration under the Securities Act of
such Series A Notes. All untendered Series A Notes will continue to be
subject to the restrictions on transfer set forth in the Indenture and the
Series A Notes.
To the extent that Series A Notes are tendered and accepted in the Exchange
Offer, the trading market for untendered and tendered but unaccepted Series A
Notes, if any, could be adversely affected.
ABSENCE OF PUBLIC MARKET
The Series A Notes are eligible for trading in the Private Offerings, Resale
and Trading through Automated Linkages ("PORTAL") market by "qualified
institutional buyers" (as defined in Rule 144A under the Securities Act,
"QIBs"). The Series B Notes are new securities for which there currently is
no active trading market. The Initial Purchasers have advised the Company
that they currently intend to make a market in the Series B Notes. However,
the Initial Purchasers are not obligated to do so and any market-making may be
discontinued at any time without notice. There can be no assurance as to the
liquidity of any markets that may develop for the Series B Notes, the ability
of Holders to sell their Series B Notes, or the price at which Holders would
be able to sell their Series B Notes. Future trading prices of the Series B
Notes will depend upon many factors including among other things, prevailing
interest rates, the market for similar securities and other factors, including
general economic conditions and the financial condition of, performance of and
prospects for the Company. The Company does not intend to apply for listing
of the Series B Notes on any securities exchange or for quotation through the
National Association of Securities Dealers Automated Quotation System.
30 <PAGE>THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Series A Notes were sold by the Company on August 22, 1996, to three
Initial Purchasers, Wasserstein Perella Securities, Inc., Jefferies & Company,
Inc. and Deutsche Morgan Grenfell, which in turn sold the Series A Notes to
institutional investors or certain other accredited investors. In connection
therewith, the Company entered into the Registration Rights Agreement, which
provided that, promptly following the sale of the Series A Notes by the
Initial Purchasers, the Company would file with the SEC a registration
statement under the Securities Act with respect to an issue of Series B Notes
of the Company identical in all material respects to the Series A Notes, would
use its best efforts to cause such registration statement to become effective
under the Securities Act and, upon the effectiveness of that registration
statement, would offer to the Holders of the Series A Notes the opportunity to
exchange their Series A Notes for a like principal amount of Series B Notes
which would be issued without restrictive legends and may be reoffered and
resold by the Holder without restrictions or limitations under the Securities
Act. Copies of the Registration Rights Agreement have been filed as an
exhibit to the Registration Statement of which this Prospectus is a part. The
term "Holder" with respect to the Exchange Offer means any person in whose
name Notes are registered on the books of the Company or any other person who
has obtained a properly completed bond power from the registered Holder.
Based on interpretations by the staff of the SEC, Series B Notes issued
pursuant to the Exchange Offer in exchange for Series A Notes may be offered
for resale, resold or otherwise transferred by any Holder thereof (other than
any broker-dealer who acquired such Series A Notes directly from the Company
to resell pursuant to Rule 144A under the Securities Act or any such Holder
which is an "affiliate" of the Company within the meaning of Rule 405 under
the Securities Act) without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such Series B Notes
are acquired in the ordinary course of such Holder's business and such Holder
has no arrangement with any person to participate in the distribution of such
Series B Notes. If any Holder has any arrangement or understanding with
respect to the distribution of the Series B Notes to be acquired pursuant to
the Exchange Offer, such Holder (i) could not rely on the applicable
interpretations of the staff of the SEC and (ii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. In addition, each broker-dealer that
holds Series A Notes acquired for its own account as a result of market-making
activities or other trading activities and that receives Series B Notes for
its own account in exchange for Series A Notes, where such Series A Notes were
acquired by such broker-dealer as a result of market-making activities or
other trading activities, must acknowledge that it will deliver a prospectus
in connection with any resale of such Series B Notes. See "Plan of
Distribution."
31
<PAGE>By tendering in the Exchange Offer, each Holder of Series A Notes will
represent to the Company that, among other things, (i) the Series B Notes
acquired pursuant to the Exchange Offer are being obtained in the ordinary
course of business of the person receiving such Series B Notes, whether or not
such person is such Holder, (ii) neither the Holder of Series A Notes nor any
such other person intends to participate or has an arrangement or
understanding with any person to participate in the distribution of such
Series B Notes, (iii) neither the Holder nor any such other person is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act, and (iv) the Holder and such other person acknowledge that (a) any person
participating in the Exchange Offer for the purpose of distributing the Series
B Notes must, in the absence of an exemption therefrom, comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale of the Series B Notes and cannot rely on
the interpretations by the staff of the SEC referenced above, and (b) failure
to comply with such requirements in such instance could result in such Holder
incurring liability under the Securities Act for which such Holder is not
indemnified by the Company.
Following the consummation of the Exchange Offer, Holders of Series A Notes
not tendered will not have any further registration rights and the Series A
Notes will continue to be subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for the Series A Notes could be
adversely affected.
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING SERIES A NOTES
Upon the terms and subject to the conditions set forth in this Prospectus and
in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), the Company will accept for exchange Series A Notes which are
properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. As used herein, the term "Expiration Date" means 5:00 p.m.,
New York City time, on May , 1997; provided, however, that if the Company, in
its sole discretion, has extended the period of time for which the Exchange
Offer is open, the term "Expiration Date" means the latest time and date to
which the Exchange Offer is extended.
As of the date of this Prospectus, an aggregate of $115,000,000 principal
amount of Series A Notes was outstanding. This Prospectus, together with the
Letter of Transmittal, is first being sent on or about April , 1997, to all
Holders of Series A Notes known to the Company. The Company's obligation to
accept Series A Notes for exchange pursuant to the Exchange Offer is subject
to certain conditions as set forth below under "- Certain Conditions to the
Exchange Offer".
32
<PAGE>The Company expressly reserves the right at any time or from time to
time to extend the period of time during which the Exchange Offer is open and
thereby delay acceptance for exchange of any Series A Notes, by giving written
notice of such extension to the Holders thereof. During any such extension,
all Series A Notes previously tendered will remain subject to the Exchange
Offer and may be accepted for exchange by the Company. Any Series A Notes not
accepted for exchange for any reason will be returned without expense to the
tendering Holder thereof as promptly as practicable after the expiration or
termination of the Exchange Offer.
The Company reserves the right, in its sole discretion, (i) to delay accepting
for exchange any Series A Notes, to extend the Exchange Offer or to terminate
the Exchange Offer if any of the conditions set forth below under "Certain
Conditions" to the Exchange Offer shall not have been satisfied by giving oral
or written notice of such delay, extension or termination to the Exchange
Agent or (ii) to amend the terms of the Exchange Offer in any manner. Any
such delay in acceptance, extension, termination or amendment will be followed
as promptly as practicable by written notice thereof to the registered holders
of Series A Notes. If the Exchange Offer is amended in a manner determined by
the Company to constitute a material change, the Company will promptly
disclose such amendment in a manner reasonably calculated to inform the
Holders of the Series A Notes of such amendment and the Company will extend
the Exchange Offer as necessary to provide the Holders with a period of five
to ten business days, after such amendment, depending upon the significance of
the amendment and the manner of disclosure to the registered Holders, if the
Exchange Offer would otherwise expire during such periods. In the case of any
extension of the Exchange Offer, the Company will also give written notice by
means of a press release or other public announcement no later than 9:00 a.m.,
New York City time, on the next business day after the previously scheduled
Expiration Date.
PROCEDURES FOR TENDERING SERIES A NOTES
The tender to the Company of Series A Notes by a Holder thereof as set forth
below and the acceptance thereof by the Company will constitute a binding
agreement between the tendering Holder and the Company upon the terms and
subject to the conditions set forth in this Prospectus and in the accompanying
Letter of Transmittal. Except as set forth below, a Holder who wishes to
tender Series A Notes for exchange pursuant to the Exchange Offer must
transmit a properly completed and duly executed Letter of Transmittal,
including all other documents required by such Letter of Transmittal, to First
Union Bank of Connecticut, the Exchange Agent, at the address set forth below
under "Exchange Agent" on or prior to the Expiration Date. In addition,
either (i) certificates for such Series A Notes must be received by the
Exchange Agent along with the Letter of Transmittal, (ii) a timely
confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such
Series A Notes, if such procedure is available, into the Exchange Agent's
account at The Depository Trust Company (the "Book-Entry Transfer Facility")
pursuant to the procedure for book-entry transfer described below, must be
received by the Exchange Agent prior to the Expiration Date, or (iii) the
Holder must comply with the guaranteed delivery procedures described below.
33
<PAGE> THE METHOD OF DELIVERY OF SERIES A NOTES, LETTERS OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF
SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY
INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT
TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL
OR SERIES A NOTES SHOULD BE SENT TO THE COMPANY.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed unless the Series A Notes surrendered for exchange
pursuant thereto are tendered (i) by a registered Holder of the Series A Notes
who has not completed the box entitled "Special Issuance Instructions" or
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution (as defined below). In the event that
signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, are required to be guaranteed, such guarantees must be by a firm which
is a member of a registered national securities exchange or a member of the
National Association of Securities Dealers, Inc. or by a commercial bank or
trust company having an office or correspondent in the United States
(collectively, "Eligible Institutions"). If Series A Notes are registered in
the name of a person other than a signer of the Letter of Transmittal, the
Series A Notes surrendered for exchange must be endorsed by, or be accompanied
by a written instrument or instruments of transfer or exchange, in
satisfactory form as determined by the Company in its sole discretion, duly
executed by the registered Holder with the signature thereon guaranteed by an
Eligible Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Series A Notes tendered for exchange will be
determined by the Company in its sole discretion, which determination shall be
final and binding. The Company reserves the absolute right to reject any and
all tenders of any particular Series A Notes not properly tendered or to not
accept any particular Series A Notes which acceptance might, in the judgment
of the Company or its counsel, be unlawful. The Company also reserves the
absolute right to waive any defects or irregularities or conditions of the
Exchange Offer as to any particular Series A Notes either before or on the
Expiration Date (including the right to waive the ineligibility of any Holder
who seeks to tender Series A Notes in the Exchange Offer). The interpretation
of the terms and conditions of the Exchange Offer as to any particular Series
A Notes either before or after the Expiration Date (including the Letter of
Transmittal and the instructions thereto) by the Company shall be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Series A Notes for exchange must be cured within
such reasonable period of time as the Company shall determine. Neither the
Company, the Exchange Agent nor any other person shall be under any duty to
give notification of any defect or irregularity with respect to any tender of
Series A Notes for exchange, nor shall any of them incur any liability for
failure to give such notification.
If the Letter of Transmittal is signed by a person or persons other than the
registered Holder or Holders of Series A Notes, such Series A Notes must be
endorsed or accompanied by appropriate powers of attorney, in either case
signed exactly as the name or names of the registered Holder or Holders that
appear on the Series A Notes.
34
<PAGE>If the Letter of Transmittal or any Series A Notes or powers of attorney
are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and,
unless waived by the Company, proper evidence satisfactory to the Company of
their authority to so act must be submitted.
By tendering, each Holder will represent to the Company that, among other
things, the Series B Notes acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of business of the person receiving such
Series B Notes, whether or not such person is the Holder, that neither the
Holder nor any such other person has an arrangement or understanding with any
person to participate in the distribution of such Series B Notes and that
neither the Holder nor any such other person is an "affiliate", as defined
under Rule 405 of the Securities Act, of the Company.
ACCEPTANCE OF SERIES A NOTES FOR EXCHANGE; DELIVERY OF SERIES B NOTES
Upon satisfaction or waiver by the Company of all of the conditions to the
Exchange Offer on or prior to the Expiration Date, the Company will accept,
promptly after the Expiration Date, all Series A Notes properly tendered and
will issue the Series B Notes promptly after acceptance of the Series A Notes.
See "- Certain Conditions to the Exchange Offer" below. For purposes of the
Exchange Offer, the Company shall be deemed to have accepted properly tendered
Series A Notes for exchange when, as and if the Company has given oral or
written notice thereof to the Exchange Agent.
In all cases, issuance of Series B Notes for Series A Notes that are accepted
for exchange pursuant to the Exchange Offer will be made only after timely
receipt by the Exchange Agent of certificates for such Series A Notes or a
timely Book-Entry Confirmation of such Series A Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility, a properly completed and
duly executed Letter of Transmittal and all other required documents. If any
tendered Series A Notes are not accepted for any reason set forth in the terms
and conditions of the Exchange Offer or if Series A Notes are submitted for a
greater principal amount than the Holder desires to exchange, such unaccepted
or non-exchanged Series A Notes will be returned without expense to the
tendering Holder thereof (or, in the case of Series A Notes tendered by
book-entry transfer into the Exchange Agent's account at the Book-Entry
Transfer Facility pursuant to the book-entry transfer procedures described
below, such non-exchanged Series A Notes will be credited to an account
maintained with such Book-Entry Transfer Facility) as promptly as practicable
after the expiration or termination of the Exchange Offer.
35
<PAGE> BOOK ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect to
the Series A Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Series A Notes by causing
the Book-Entry Transfer Facility to transfer such Series A Notes into the
Exchange Agent's account at the Book-Entry Transfer Facility in accordance
with such Book-Entry Transfer Facility's procedures for transfer. However,
although delivery of Series A Notes may be effected through book-entry
transfer at the Book-Entry Transfer Facility, the Letter of Transmittal or
facsimile thereof, with any required signature guarantees and any other
required documents, must, in any case, be transmitted to and received by the
Exchange Agent at one of the addresses set forth below under "Exchange Agent"
on, or prior to the Expiration Date or the guaranteed delivery procedures
described below must be complied with.
GUARANTEED DELIVERY PROCEDURES
If a registered Holder of the Series A Notes desires to tender such Series A
Notes and the Series A Notes are not immediately available, or time will not
permit such Holder's Series A Notes or other required documents to reach the
Exchange Agent before the Expiration Date, or the procedure for book-entry
transfer cannot be completed on a timely basis, a tender may be effected if
(i) the tender is made through an Eligible Institution, (ii) prior to the
Expiration Date, the Exchange Agent receives from such Eligible Institution a
properly completed and duly executed Letter of Transmittal (or a facsimile
thereof) and Notice of Guaranteed Delivery, substantially in the form provided
by the Company (by telegram, telex, facsimile transmission, mail or hand
delivery), setting forth the name and address of the Holder of Series A Notes
and the amount of Series A Notes tendered, stating that the tender is being
made thereby and guaranteeing that within five business days after the date of
execution of the Notice of Guaranteed Delivery, the certificates for all
physically tendered Series A Notes, in proper form for transfer, or a
Book-Entry Confirmation, as the case may be, and any other documents required
by the Letter of Transmittal will be deposited by the Eligible Institution
with the Exchange Agent, and (iii) the certificates for all physically
tendered Series A Notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and all other documents required by the
Letter of Transmittal, are received by the Exchange Agent within five business
days after the date of execution of the Notice of Guaranteed Delivery.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the following terms
and conditions, which are part of the Exchange Offer.
The party tendering Series A Notes for exchange (the "Transferor") exchanges,
assigns and transfers the Series A Notes to the Company and irrevocably
constitutes and appoints the Exchange Agent as the Transferor's agent and
attorney-in-fact to cause the Series A Notes to be assigned, transferred and
exchanged. The Transferor represents and warrants that it has full power and
authority to tender, exchange, assign and transfer the Series A
36
<PAGE>Notes and to acquire Series B Notes issuable upon the exchange of such
tendered Series A Notes, and that, when the same are accepted for exchange,
the Company will acquire good and unencumbered title to the tendered Series A
Notes, free and clear of all liens, restrictions, charges and encumbrances and
not subject to any adverse claim. The Transferor also warrants that it will,
upon request, execute and deliver any additional documents deemed by the
Exchange Agent or the Company to be necessary or desirable to complete the
exchange, assignment and transfer of tendered Series A Notes or transfer
ownership of such Series A Notes on the account books maintained by the
Book-Entry Transfer Facility. The Transferor further agrees that acceptance
of any tendered Series A Notes by the Company and the issuance of Series B
Notes in exchange therefor shall constitute the performance in full by the
Company of its obligations under the Registration Rights Agreement and that
the Company shall have no further obligations or liabilities thereunder. All
authority conferred by the Transferor will survive the death, bankruptcy or
incapacity of the Transferor and every obligation of the Transferor shall be
binding upon the heirs, legal representatives, successors, assigns, executors
and administrators of such Transferor.
By executing the letter of Transmittal, each Holder will make to the Company
the representations set forth above under the heading "-Purpose and Effect of
the Exchange Offer."
WITHDRAWAL RIGHTS
Tenders of Series A Notes may be withdrawn at any time prior to the Expiration
Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at the address set forth below under "Exchange
Agent." Any such notice of withdrawal must specify the name of the person
having tendered the Series A Notes to be withdrawn, identify the Series A
Notes to be withdrawn (including the principal amount of such Series A Notes),
and (where certificates for Series A Notes have been transmitted) specify the
name in which such Series A Notes are registered, if different from that of
the withdrawing Holder. If certificates for Series A Notes have been
delivered or otherwise identified to the Exchange Agent, then, prior to the
release of such certificates, the withdrawing Holder must also submit the
serial numbers of the particular certificates to be withdrawn and a signed
notice of withdrawal with signatures guaranteed by an Eligible Institution
unless such Holder is an Eligible Institution. If Series A Notes have been
tendered pursuant to the procedure for book-entry transfer described above,
any notice of withdrawal must specify the name and number of the account at
the Book-Entry Transfer Facility to be credited with the withdrawn Series A
Notes and otherwise comply with the procedures of such facility. All
questions as to the validity, form and eligibility (including time of receipt)
of such notices will be determined by the Company, whose determination shall
be final and binding on all parties. Any Series A Notes so withdrawn will be
deemed not to have been validly tendered for exchange for purposes of the
Exchange Offer. Any Series A Notes which have been tendered for exchange, but
which are not exchanged for any reason, will be returned to the Holder thereof
without cost to such Holder (or, in the case of Series A Notes tendered by
book-entry transfer into the Exchange Agent's account at the Book-Entry
37
<PAGE>Transfer Facility pursuant to the book-entry transfer procedures
described above, such Series A Notes will be credited to an account maintained
with such Book-Entry Transfer Facility for the Series A Notes) as soon as
practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Series A Notes may be re-tendered by
following one of the procedures described under "-Procedures for Tendering
Series A Notes" above at any time on or prior to the Expiration Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Company shall
not be required to accept for exchange, or to issue Series B Notes in exchange
for, any Series A Notes and may terminate or amend the Exchange Offer, if at
any time before the Expiration Date , there shall be threatened, instituted or
pending any action or proceeding before, or any injunction, order or decree
shall have been issued by, any court or governmental agency or other
governmental regulatory or administrative agency or commission (i) seeking to
restrain or prohibit the making or consummation of the Exchange Offer or any
other transaction contemplated by the Exchange Offer, or assessing or seeking
any damages as a result thereof, or (ii) resulting in a material delay in the
ability of the Company to accept for exchange or to exchange some or all of
the Series A Notes pursuant to the Exchange Offer, or any statute, rule,
regulation, order or injunction shall be sought, proposed, introduced,
enacted, promulgated or deemed applicable to the Exchange Offer or any of the
transactions contemplated by the Exchange Offer by any government or
governmental authority, domestic or foreign, or any action shall have been
taken, proposed or threatened by any government, governmental authority,
agency or court, domestic or foreign, that in the sole judgment of the Company
might directly or indirectly result in any of the consequences referred to in
clause (i) or (ii) above or in the sole judgment of the Company, might result
in the Holders of Series B Notes having obligations with respect to resales
and transfers of Series B Notes which exceed those described in the
interpretation of the SEC referred to on the cover page of this Prospectus, or
would otherwise make it inadvisable to proceed with the Exchange Offer.
The foregoing condition is for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any
such condition or may be waived by the Company in whole or in part at any time
and from time to time prior to the Expiration Date in its reasonable
discretion. The failure of the Company at any time to exercise any of the
foregoing rights shall not be deemed a waiver of any such right and each such
right shall be deemed an ongoing right which may be asserted at any time and
from time to time.
In addition, the Company will not accept for exchange any Series A Notes
tendered, and no Series B Notes will be issued in exchange for any such Series
A Notes, if at such time any stop order shall be threatened or in effect with
respect to the Registration Statement of which this Prospectus constitutes a
part or with respect to the qualification of the Indenture under the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act").
38
<PAGE>EXCHANGE AGENT
First Union Bank of Connecticut has been appointed as the Exchange Agent for
the Exchange Offer. All executed Letters of Transmittal should be directed to
the Exchange Agent at the address set forth below. Questions and requests for
assistance, requests for additional copies of this Prospectus or of the Letter
of Transmittal and requests for Notices of Guaranteed Delivery should be
directed to the Exchange Agent, addressed as follows:
Delivery to: First Union Bank of Connecticut, Exchange Agent
By Mail or by Hand
10 State Street Square
Hartford, Connecticut 06103-3698
Attention: Corporate Trust Department
By Facsimile:
(860)-247-1356
Confirm By Telephone:
(860)-247-1353
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF
INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A
VALID DELIVERY.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers and regular
employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay
the Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection
therewith.
The cash expenses to be incurred in connection with the Exchange Offer will be
paid by the Company and are estimated in the aggregate to be $100,000. The
Company will pay all transfer taxes, if any, applicable to the exchange of
Series A Notes pursuant to the Exchange Offer. If a transfer tax is imposed
for any reason other than the transfer and exchange of Series A Notes to the
Company or its order pursuant to the Exchange Offer, then the amount of any
such transfer taxes (whether imposed on the registered Holder or any other
persons) will be payable by the tendering Holder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted with the Letter
of Transmittal, the amount of such transfer taxes will be billed directly to
such tendering Holder.
39
<PAGE>No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those
contained in this Prospectus. If given or made, such information or
representations should not be relied upon as having been authorized by the
Company. Neither the delivery of this Prospectus nor any exchange made
hereunder shall, under any circumstances, create any implication that there
has been no change in the affairs of the Company since the respective dates as
of which information is given herein. The Exchange Offer is not being made to
(nor will tenders be accepted from or on behalf of) Holders of Series A Notes
in any jurisdiction in which the making of the Exchange Offer or the
acceptance thereof would not be in compliance with the laws of such
jurisdiction. However, the Company may, at its discretion, take such action
as it may deem necessary to make the Exchange Offer in any such jurisdiction
and extend the Exchange Offer to Holders of Series A Notes in such
jurisdiction. In any jurisdiction the securities laws or blue sky laws of
which require the Exchange Offer to be made by a licensed broker or dealer,
the Exchange Offer must be made on behalf of the Company by one or more
registered brokers or dealers which are licensed under the laws of such
jurisdiction.
ACCOUNTING TREATMENT
The Series B Notes will be recorded at the same carrying value as the Series A
Notes. Accordingly, no gain or loss for accounting purposes will be
recognized. The expenses of the Exchange Offer will be amortized over the
term of the Series B Notes.
OTHER
Participation in the Exchange Offer is voluntary and Holders should carefully
consider whether to accept. Holders of the Series A Notes are urged to
consult their financial and tax advisors in making their own decisions on what
action to take.
As a result of the making of, and upon acceptance for exchange of all validly
tendered Series A Notes pursuant to the terms of this Exchange Offer, the
Company will have fulfilled a covenant contained in the terms of the Series A
Notes and the Registration Rights Agreement. Holders of the Series A Notes
who do not tender their certificates in the Exchange Offer will continue to
hold such certificates and will be entitled to all the rights, and limitations
applicable thereto under the Indenture except for any such rights under the
Registration Rights Agreement. All untendered Series A Notes will continue to
be subject to the restrictions on transfer set forth in the Indenture and the
Series A Notes. To the extent that Series A Notes are tendered and accepted
in the Exchange Offer, the trading market, if any, for untendered Series A
Notes could be adversely affected.
40
<PAGE>USE OF PROCEEDS
SERIES B NOTES
The Exchange Offer is intended to satisfy certain obligations of the Company
under the Registration Rights Agreement. The Company will not receive any
proceeds from the issuance of the Series B Notes offered hereby. In
consideration for issuing the Series B Notes as contemplated in this
Prospectus, the Company will receive, in exchange, Series A Notes in like
principal amount. The form and terms of the Series B Notes are substantially
identical in all material respects to the form and terms of the Series A
Notes, except as otherwise described herein under "The Exchange Offer -- Terms
of the Exchange Offer." The Series A Notes surrendered in exchange for the
Series B Notes will be retired and cancelled and cannot be reissued.
Accordingly, issuance of the Series B Notes will not result in any increase in
the outstanding debt of the Company.
SERIES A NOTES
On August 22, 1996, the Company received approximately $110,300,000 of net
proceeds from the Note Offering. Of that amount, (i) $20.0 million was used
to purchase the Bossier Riverboat simultaneously with the closing of the Note
Offering, (ii) approximately $45.1 million was applied to repay indebtedness
including accrued interest thereon through the date of closing of the Note
Offering, and (iii) approximately $45.2 million was deposited in the Cash
Collateral Accounts for the purposes of funding the continuing construction of
Casino Magic-Bossier City, any initial operating losses and the initial
interest payment on the Notes, which was made on February 15, 1997. As of
April 1, 1997, Casino Magic-Bossier City was Operating (as defined herein),
the initial stage of development thereof had been completed at a total project
cost of approximately $118.2 million (taking into account all pre-Note
Offering development costs other than cost of the Crescent City Riverboat, as
shown in the first of the following two tables, and the cost of the Bossier
Riverboat plus all post-Note Offering construction costs as shown in the
second of the following two tables). As of April 1, 1997, all but
approximately $1.3 million had been disbursed from the Cash Collateral
Accounts in accordance with the Cash Collateral and Disbursement Agreement and
the Company's request for the disbursement of the remaining funds was pending.
41
<PAGE>
SOURCES AND CASINO MAGIC-BOSSIER CITY DEVELOPMENT - USES OF FUNDS
The pre-Note Offering sources and uses of funds for the development of Casino
Magic-Bossier City, including the acquisition of the Company by Jefferson
Corp. and the purchase of the land on which Casino Magic-Bossier City is
located, were as follows:
Pre-Note Offering(through August 21, 1996)(in millions)
Sources Uses
- -------- -------
Equipment financing $ 5.7 Acquisition of Crescent City $50.0(1)
Louisiana Notes 35.0 Land acquisition 12.7
Real estate acquisition note 6.8 Gaming equipment 5.7
Capital contributions from
Casino Magic 22.3 Site development 2.5
Advances from Casino Magic 2.0 Purchase of additional land 0.9
---- ----
Total $ 71.8 Total $71.8
======= =====
A portion of the proceeds of the Note Offering was used to repay indebtedness
incurred prior to the Note Offering for the development of Casino
Magic-Bossier City and the remaining proceeds were applied primarily for the
further development, construction, equipping and opening of Casino
Magic-Bossier City as shown in the following table.
Post-Note Offering
(in millions)
Sources Uses
- -------- -------
Series A Notes due 2003 $115.0 Repayment of existing indebtedness:
Equipment financing 1.8(2) Real estate acquisition note $6.9(4)
Louisiana Notes 36.2(3)
Advances from Casino Magic 2.0
--------
Total repayment of indebtedness 45.1
Purchase of Bossier Riverboat 20.0
Construction of Casino Magic-Bossier City:
Bossier Riverboat improvements 2.2
Pavilion 11.6
Parking 6.7
Gaming equipment 1.6
Furniture, fixtures & equipment 1.3
Site development 4.4
Temporary facilities 2.1
Preopening costs 4.9
Opening bankroll 1.7
--------
Post-Note Offering construction cost 36.5(5)
--------
Initial Interest payment on Notes 7.3
Working capital 3.2
Note Offering fees and expenses 4.7
----- --------
Total $116.8 Total $116.8
======= ========
42
<PAGE>
(1)Represents primarily the deferred gaming license cost related to Crescent
City's gaming license, but also includes approximately $10.1 million
attributable to the Crescent City Riverboat, which is being held for sale.
The proceeds of any such sale will be applied to the further development of
Casino Magic-Bossier City.
(2) The Company anticipates incurring approximately $0.8 million of additional
equipment financing in connection with Casino Magic-Bossier City. The Company
presently has no commitments for such financing although it has secured a
commitment from a bank for a $2.5 million unsecured revolving credit facility
which will be available as an alternative financing source.
(3) Includes $1.2 million interest on the Louisiana Notes to August 23, 1996.
(4) Includes $0.1 million interest on the real estate acquisition note to
August 23, 1996.
(5) Gives effect to the final amended construction and development budget. As
a result, the total construction budget for Casino Magic-Bossier City was
$39.0 million, including $2.5 million expended prior to the Note Offering for
site development, but excluding land acquisition costs and the acquisition
cost of the Bossier Riverboat and of Crescent City Capital Development
Corporation and the concurrent assumption of gaming equipment financing.
43<PAGE>CAPITALIZATION
The following table sets forth the cash and cash equivalents and
capitalization of the Company: (i) at December 31, 1996, (ii) as adjusted to
give effect to the Exchange Offer, assuming that all of the Series A Notes are
exchanged for Series B Notes.
December 31, 1996
---------------------------------
(in thousands)
As
Actual Adjusted (1)
-------- ----------
Cash and cash equivalents $ 3,959 $ 3,959
Restricted cash $ 16,900 $ 16,900
-------- --------
Current maturities of long-term
and capital lease obligations 1,879 1,879
-------- --------
Long-term debt
Series A Notes 115,000 -
Series B Notes - 115,000
Gaming equipment financing 4,850 4,850
-------- --------
Total long-term debt, including
current maturities 119,850 119,850
-------- --------
Total shareholder's equity 12,234 12,234
-------- ---------
Total capitalization $ 149,330 $ 149,330
======== ========
______________
(1) As adjusted for the exchange of Series A Notes for Series B Notes.
SELECTED FINANCIAL DATA
Beginning in April 1995, Crescent City conducted gaming activities in New
Orleans, Louisiana for a 65-day period before a bankruptcy proceeding was
commenced against it. Pursuant to the court approved Plan of Reorganization,
Crescent City was acquired by Jefferson Corp. in May 1996. Because the
Company is operating in a different market, with a different vessel and
facility, with different management, ownership, and employees and using a
different name and marketing theme, management believes that the financial
position and operating results of Crescent City prior to the acquisition are
not meaningful to the Company or prospective investors, and such financial
information is therefore not presented.
44
<PAGE>
The selected financial data of the Company presented below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements of
Jefferson Corp. and notes thereto included elsewhere in this Prospectus. The
historical balance sheet data at December 31, 1996 have been derived from the
consolidated financial statements of Jefferson Corp. which have been audited
by Arthur Andersen LLP, independent auditors of Jefferson Corp. and the
Company. The Company had no operations until the opening of Casino
Magic-Bossier City on October 4, 1996, and, accordingly, no revenues or
expenses were incurred other than interest income, expense and capitalized
interest prior to October 4, 1996. All normal operating expenses were
capitalized under preopening costs until October 4, 1996, in accordance with
the Company's accounting policies.
Income Statement Data:
Period
May 13, 1996 (inception)
through December 31, 1996
---------
(in thousands,
except per share data)
Revenues $ 12,738
Costs and expenses 20,077
----------
Loss from operations (7,340)
Other (income) expense:
Interest income (489)
Interest expense 7,342
Capitalized interest (4,148)
Other (818)
----------
Total other expenses 2,705
(Loss) before income taxes (10,044)
Income taxes --
----------
Net (loss) (10,044)
==========
Net (loss) per share $(10,004.40)
==========
-----------------------
December 31, 1996
-------------
BALANCE SHEET DATA:
Cash and cash equivalents $ 3,959
Restricted cash 16,900
Total assets 149,330
Total long-term debt, including
current maturities 121,729
Total liabilities 137,096
Shareholder's equity 12,234
Ratio of earnings to fixed charges -- (a)
_______________
(a) Earnings were inadequate to cover fixed charges of approximately
$7,342,000 by $14,192,010.
45
<PAGE>MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with, and is qualified
in its entirety by, the Company's financial statements, the notes thereto, and
certain other financial information included elsewhere in this Prospectus.
The discussions regarding proposed Company developments and operations
included in "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" and "NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS" contain forward looking statements that involve a number of risks
and uncertainties, including with respect to the Company's ability to fund
planned developments and debt service obligations over the next twelve months
with currently available cash and marketable securities and with cash flow
from operations. The Company's ability to meet its debt obligations is
entirely dependent upon Casino Magic-Bossier City's future operating
performance, which is itself dependent on a number of factors, many of which
are outside of the Company's control, including prevailing economic conditions
and financial, business, regulatory and other factors affecting the Company's
operations and business. The development and construction of subsequent
improvements is largely dependent upon the availability of financing, which
could be obtained from a combination of sources, including proceeds from a
future sale of the Crescent City Riverboat, financing for the planned hotel
and operating cash flow of Casino Magic-Bossier City; however, no assurances
can be given that such funds or financing will be available or that such hotel
and related facilities will ever be developed. See "Risk Factors".
DEVELOPMENT ACTIVITIES
On May 13, 1996 Jefferson Corp. acquired all the outstanding capital stock of
Crescent City pursuant to the Plan of Reorganization. Crescent City
discontinued all of its gaming activities in June 1995 after only a very brief
period of operations in the New Orleans market and its only significant assets
at the time of the Plan of Reorganization consisted of the Crescent City
Riverboat, a Louisiana gaming license, and the furniture, fixtures and gaming
equipment located on the Crescent City Riverboat. As a result of the foregoing
factors and because the Company is operating in a different market, with a
different vessel and facility, different management and ownership and with a
different name and marketing theme, management believes that the financial
position and operating results of Crescent City prior to the acquisition are
not meaningful to the Company or prospective investors, and such financial
information is therefore not presented. Pursuant to the Plan of
Reorganization, Crescent City was discharged from substantially all of its
liabilities prior to the acquisition. From that time until the October 4, 1996
opening of Casino Magic-Bossier City using temporary boarding, mooring and
paved parking facilities, the Company had been in the development stage and
its activities had been limited to arranging for the design, preliminary site
work, construction, and financing for Casino Magic-Bossier City.
46
<PAGE>RESULTS OF OPERATIONS
FROM MAY 13, 1996 (INCEPTION) THROUGH DECEMBER 31, 1996:
The Company had no operations until the opening of Casino Magic-Bossier City
on October 4, 1996. No revenues or expenses were incurred other than interest
income, expense and capitalized interest prior to October 4, 1996. All normal
operating expenses were capitalized under preopening costs until October 4,
1996, in accordance with the Company's accounting policies.
The Company anticipated that its initial results might be adversely affected
by opening with limited facilities while construction was proceeding on the
permanent land-based amenities, as well as by the expensing of preopening
costs. During the period from October 4, 1996 through December 31, 1996,
Casino Magic-Bossier City generated revenues of approximately $12.6 million
with only limited food, beverage and retail services. Such revenues were
achieved in spite of the fact that high water on the Red River, which flooded
the Company's temporary parking area, caused the casino to be closed for
fifteen days in November and December including two weekends, one the
Thanksgiving holiday weekend. The substantially completed permanent Casino
Magic-Bossier City facility, which opened on December 31, 1996, is located
above the flood plain so that high water should not cause a closing in the
future. Management believes that the Company's initial revenue results will
not be indicative of future operations. The Company believes that such
revenue levels were also adversely affected by the lack of competitive
amenities during the period of operations with temporary land based
facilities. Although revenues have increased during the first quarter of
fiscal 1997 to approximately $23.2 million, such revenue levels have not
attained the levels of more seasoned competitive casinos in the Bossier
City/Shreveport Market. Although the Company continues to implement
additional marketing and promotion programs to increase revenues, there can be
no assurance it will be successful in doing so.
Total costs and expenses for the period May 13 1996, (inception) through
December 31, 1996 were $20.1 million. These costs were significantly affected
by several factors including: (i) most operating expenses were unusually high
as a percentage of revenues due to the 15-day closure of the casino
operations, which reduced revenues, although the Company continued to incur
certain payroll and most other operating costs during the closure periods;
(ii) additional costs incurred because of opening and closing procedures
necessary when the casino twice ceased operations during the high water
periods; (iii) clean-up costs incurred due to high water during this period;
(iv) increased marketing costs due to efforts to inform customers of closures
and subsequent reopenings; and (v) the Company incurred $6.5 million in
preopening costs.
47
<PAGE>
The Company incurred $2.7 million in other (income) and expenses for the
period May 13 1996 (inception) through December 31, 1996. This consisted of
$7.3 million in interest expense on the Notes. Of this amount, the Company
capitalized interest of $4.1 million relating to the construction of Casino
Magic-Bossier City's entertainment facility and had interest income of $0.5
million earned on funds held in the Cash Collateral Accounts. No Contingent
Interest was incurred or paid during this period.
The Company incurred neither an income tax expense or benefit during the
period from May 13, 1996 (inception) through December 31, 1996. The Company
is included in a consolidated group subject to a tax sharing agreement between
itself, all affiliated companies and its ultimate parent Casino Magic. See
"Certain Transactions".
The Company had a net loss of $10.0 million, or $10,004.40 loss per share in
the period ended from May 13, 1996 (inception) through December 31, 1996. The
net loss is attributable to the Company having had no operations until October
4, 1996, incurring $6.5 million in preopening costs, the closure of the casino
due to high water for 15 days in November and December 1996, and the casino's
beginning of operations before a substantial portion of the casino's amenities
were completed.
Future operating results will be subject to significant business, economic,
regulatory and competitive uncertainties and contingencies, many of which are
beyond the control of the Company. While the Company believes that Casino
Magic-Bossier City will not be subject to closures based on unusually high
river waters and will be able to attract a sufficient number of customers and
achieve the level of activity necessary to permit the Company to meet its
payment obligations in connection with the Notes, including any Contingent
Interest obligations, there can be no assurances with respect thereto.
48
<PAGE>LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Company had unrestricted cash and marketable
securities of $4.0 million. In addition, the Company had $16.9 million in
restricted cash on deposit in Cash Collateral Accounts (substantially all of
which has been disbursed subsequent to December 31, 1996) relating to the
Notes issued to fund the construction of Casino Magic-Bossier City. For the
year ended December 31, 1996, the Company generated $5.6 million of cash flow
from operating activities. Net cash provided by financing activities was
$89.4 million including capital contributions of $22.3 million and $116.7
million of proceeds from the incurrence of long term debt, offset in part by
$44.2 million of long-term debt and notes which were repaid. The Company
spent $74.1 million in net investing activities, including $67.6 million for
acquisitions of property, equipment and other long-term assets.
The acquisition of the Company and the land upon which Casino Magic-Bossier
City is located, as well as the Company's other development stage activities,
were initially funded by capital contributions and advances from Casino Magic,
and the issuance or assumption of certain indebtedness, most of which was
repaid with proceeds from the Note Offering. Jefferson Corp. acquired the
initial 20 acres of the Casino Magic-Bossier City site for a total purchase
price of $12.7 million, paid through the issuance of $5.3 million in Casino
Magic common stock, $0.6 million in cash and the issuance of the $6.8 million
Louisiana Land Note. In May 1996, Jefferson Corp. acquired the Company for a
purchase price of $50.0 million, of which $15.0 million was paid in cash and
the remainder was funded through the issuance of $35.0 million of Louisiana
Notes, plus the assumption of equipment financing, of which $5.7 million was
outstanding at December 31, 1996 (an additional $1.0 million of equipment
financing was incurred subsequent to May 1996 but prior to December 31, 1996).
In July 1996, the Company acquired an additional three acres of land which are
contiguous with or within the boundaries of the 20-acre site. This subsequent
land acquisition was funded with a $0.9 million advance from Casino Magic.
Through the date of closing of the Note Offering, the total advances from
Casino Magic to the Company for Casino Magic-Bossier City construction and
development activities were $3.4 million (this amount is exclusive of $20.9
million for Casino Magic's original capital contributions, consisting of real
estate acquired for Casino Magic common stock and $15 million in cash). Of
this $3.4 million advance, $1.4 million was contributed as capital and the
balance was repaid to Casino Magic in August 1996 from the proceeds of the
sale of the Series A Notes.
At the time of the May 1996 acquisition, Crescent City owned the Crescent City
Riverboat, gaming and related equipment and surveillance equipment and a
license to conduct riverboat gaming operations in Louisiana. The Crescent
City Riverboat is one of the largest cruising riverboats designed for gaming
in the United States and could not be used at Casino Magic-Bossier City
because of the Crescent City Riverboat's size. Therefore, the Company
purchased the Bossier Riverboat for use at Casino Magic-Bossier City for $20
million with proceeds of the Note Offering in August 1996. The Company
intends to sell the Crescent City Riverboat and use the proceeds to finance
the further development of Casino Magic-Bossier City.
49
<PAGE>The Company is currently marketing the Crescent City Riverboat and,
although it has had discussions with several prospective purchasers, no
purchase offers acceptable to the Company have been received. In addition,
Casino Magic currently has an application pending for a gaming license in
Crawford County, Indiana. If Casino Magic is successful in obtaining a gaming
license in Indiana, and if the Crescent City Riverboat has not been sold prior
to that time, it is anticipated that, subject to the availability of adequate
financing and the agreement of corporate partners of Casino Magic, if any, to
such purchase, an affiliated company of Casino Magic might purchase the
Crescent City Riverboat at fair market value. The Company can give no
assurances that it will be able to sell the Crescent City Riverboat on
acceptable terms or in a timely manner. The other assets acquired as a part
of the acquisition of Louisiana Corp., which included gaming, surveillance and
related equipment, are being used at Casino Magic-Bossier City.
To fund the initial development of Casino Magic-Bossier City, on August 22,
1996, the Company sold $115.0 million aggregate principal amount of Series A
Notes. Contingent Interest is payable on the Notes, on each interest payment
date, in an aggregate amount equal to 5% of the Company's Adjusted
Consolidated Cash Flow for the Accrual Period last completed prior to such
interest payment date; provided that no Contingent Interest is payable with
respect to any period prior to the Commencement Date. Payment of all or a
portion of any installment of Contingent Interest may be deferred, at the
option of the Company, if, and only to the extent that, (i) the payment of
such portion of Contingent Interest will cause the Company's Adjusted Fixed
Charge Coverage Ratio for the Company's most recently completed Reference
Period prior to such interest payment date to be less than 1.5 to 1.0 on a pro
forma basis after giving effect to the assumed payment of such Contingent
Interest and (ii) the principal amount of the Notes corresponding to such
Contingent Interest has not then matured and become due and payable (at stated
maturity, upon acceleration, upon redemption, upon maturity of a repurchase
obligation or otherwise). The aggregate amount of Contingent Interest payable
in any Accrual Period will be reduced pro rata for reductions in the
outstanding principal amount of Notes prior to the close of business on the
record date immediately preceding such payment of Contingent Interest.
The net proceeds received by the Company from the sale of the Series A Notes,
after deducting underwriting discounts and commissions and offering expenses,
were approximately $110.3 million. The Company used $45.1 million of the net
proceeds from the Note Offering to repay in full the $2.0 million non-equity
advances from Casino Magic, a real estate acquisition note and the Louisiana
Notes, including accrued interest through the closing, and used $20.0 million
to purchase the Bossier Riverboat. The $45.2 million remaining net proceeds
from the sale of the Series A Notes were deposited into the Cash Collateral
Accounts and invested in Cash Equivalents pending disbursement pursuant to the
Cash Collateral and Disbursement Agreement. As of April 1, 1997, all but
approximately $1.3 million had been disbursed or requested for disbursement
from the Cash Collateral Accounts in accordance with the Cash Collateral and
Disbursement Agreement and the Company's request for the disbursement of the
remaining funds was pending. In addition, the Company has obtained a
commitment from a bank for a $2.5 million unsecured revolving credit facility
which is expected to be available as a financing source for the Company.
50
<PAGE>
The Company opened Casino Magic-Bossier City on October 4, 1996 using a
temporary boarding facility and opened the permanent landside portions of the
casino and entertainment complex on December 31, 1996. The Company expects to
fund its working capital and debt service requirements from operating cash
flow, which management believes will be sufficient for such purposes. However,
the adequacy of the Company's operating cash flow will depend, among other
things, upon customer acceptance of Casino Magic-Bossier City, efficiency of
operations, depth of customer demand, the effectiveness of marketing and
promotional efforts and the successful performance by the Manager of the
responsibilities delegated to it.
The Casino Magic-Bossier City development currently utilizes approximately 12
of the site's 23 acres, allowing substantial room for future expansion. The
Company intends to expand Casino Magic-Bossier City through the future
development of an adjacent 400-room hotel and related amenities, including
restaurants, banquet space, a theater, a swimming pool, a health club and a
child care facility. Subject to the restrictions in the Indenture, including
pro forma compliance with the indebtedness coverage and loan to value ratios
set forth therein, the Company is permitted to incur indebtedness to finance
the costs of constructing the hotel. In the event that the Company determines
to incur such indebtedness on a secured basis, the Indenture provides that (i)
the Trustee will release the land on which the hotel is to be built from the
lien for the benefit of the Notes and (ii) the Company will have the right to
grant a security interest for the benefit of the new lender in such real
property and all improvements constructed thereon, including the hotel. Under
such circumstances the Holders of the Notes will have no security interest in
the hotel or the land on which it is constructed. The development and
construction of these subsequent improvements is estimated to range from $35.0
million to $45.0 million and is dependent upon the availability of financing,
which could be obtained from a combination of sources, including proceeds from
a future sale of the Crescent City Riverboat, financing for the hotel and
operating cash flow of Casino Magic-Bossier City; however, no assurances can
be given that such funds or financing will be available or that such hotel and
related amenities will ever be developed.
RECENT PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of." SFAS No. 121 requires that long-lived
assets and certain identifiable intangibles to be held and used be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. Additionally, long-lived assets and
certain identifiable intangible assets to be disposed of are required to be
reported at the lower of carrying amount or fair value, less selling costs.
SFAS No. 121 is effective for fiscal years beginning after December 15, 1995.
The adoption of this statement did not have a material impact on the financial
statements of the Company.
51
<PAGE>BUSINESS
GENERAL
The Company has developed a new dockside riverboat casino and entertainment
complex, Casino Magic-Bossier City, on a 23-acre site in Bossier City,
Louisiana. The Company commenced gaming operations on the completed and fully
equipped Bossier Riverboat on October 4, 1996, using temporary mooring,
boarding and paved parking facilities, opened the substantially completed
permanent landside operations of its casino and entertainment complex on
December 31, 1996 and completed all of the final steps necessary to qualify
Casino Magic-Bossier City as Operating on April 1, 1997. The casino site
enjoys high visibility and convenient access from Interstate Highway 20, a
major artery between Bossier City/Shreveport and the Dallas-Fort Worth area
approximately 180 miles to the west. The Company conducts its casino
operations on the Bossier Riverboat, which measures 254 feet long and 78 feet
wide with approximately 58,000 square feet of interior space, including 30,000
square feet of gaming space (the maximum allowed under current Louisiana law)
with 984 slot machines and 44 table games. Casino Magic-Bossier City also
includes a 37,000 square foot entertainment pavilion and covered parking for
approximately 1,550 cars. The entertainment pavilion includes a 350-seat
buffet restaurant, a gift shop, a bar and lounge area, and a stage area
designed to showcase live entertainment, including dance productions, bands
and individual performers, with an open seating area that will accommodate up
to 300 customers. Casino Magic-Bossier City has been designed to highlight a
new "Magic" theme which Casino Magic intends to implement at its other
properties to strengthen the "Casino Magic" brand identity.
Including amounts expended in May 1996 in connection with Jefferson Corp.'s
acquisition of the Company (other than the $10.1 million allocated to the
purchase price of the Crescent City Riverboat which is being held for sale by
the Company, with the proceeds of any such sale intended to be used for the
further development of Casino Magic-Bossier City), the total project cost for
Casino Magic-Bossier City has been approximately $118.2 million which
includes: (i) approximately $13.6 million expended for the acquisition of the
23-acre site, (ii) $45.6 million attributable to the deferred gaming license
cost and gaming equipment acquired in Jefferson Corp.'s May 1996 acquisition
of the Company, (iii) $20.0 million expended for the acquisition of the
Bossier Riverboat, and (iv) $39.0 million as the final amended development and
construction budget for the buildings and other improvements at Casino
Magic-Bossier City (including approximately $8.4 million of preopening costs,
opening bankroll and additional gaming equipment but excluding fees and
expenses of the Note Offering and the initial interest payment on the Notes).
At the closing of the Note Offering, approximately $45.2 million of the net
proceeds thereof were deposited in Cash Collateral Accounts to be disbursed
only in accordance with the Cash Collateral and Disbursement Agreement
executed at the closing of the Note Offering for purposes of funding the
construction of Casino Magic-Bossier City, and initial operating losses and
the initial interest payment on the Notes, which was made on February 15,
1997. As of April 1, 1997, all but approximately $1.3 million had been
disbursed or requested for disbursement from the Cash Collateral Accounts in
accordance with the Cash Collateral and Disbursement Agreement and the
Company's request for the disbursement of the remaining funds was pending.
52
<PAGE>In May 1996, Casino Magic, through its wholly owned subsidiary,
Jefferson Corp., acquired the Company (which at the time of acquisition held
the Louisiana gaming license that is being used for Casino Magic-Bossier City)
for $50.0 million and the assumption of $5.7 million in equipment financing.
The assets acquired as a part of such transaction included gaming and related
equipment and surveillance equipment which the Company is using at Casino
Magic-Bossier City and a second riverboat owned by the Company, the Crescent
City Riverboat. The Crescent City Riverboat is one of the largest cruising
riverboats designed for gaming in the United States, measuring approximately
430 feet by 100 feet with 88,000 square feet of interior space spread across
three decks. While the Crescent City Riverboat is part of the collateral for
the Notes, the Company did not intend to use the Crescent City Riverboat in
connection with its gaming activities at Casino Magic-Bossier City since the
Crescent City Riverboat is too large to navigate the Red River to Bossier
City/Shreveport unless substantially modified. The Company anticipates
selling the Crescent City Riverboat, in which case the Company will be
required either to reinvest the proceeds in Casino Magic-Bossier City or apply
such proceeds to a repurchase offer for the Notes. The Company is currently
marketing the Crescent City Riverboat and, although it has had discussions
with several prospective purchasers, no purchase offers acceptable to the
Company have been received. In addition, Casino Magic currently has an
application pending for a gaming license in Crawford County, Indiana. If
Casino Magic is successful in obtaining a gaming license in Indiana, and if
the Crescent City Riverboat has not been sold prior to that time, it is
anticipated that, subject to the availability of adequate financing and the
agreement of corporate partners of Casino Magic, if any, to such purchase, an
affiliated company of Casino Magic might purchase the Crescent City Riverboat
at fair market value. The Company can give no assurances that it will be able
to dispose of the Crescent City Riverboat on acceptable terms or in a timely
manner.
The Casino Magic-Bossier City development currently utilizes approximately 12
of the site's 23 acres, allowing substantial room for future expansion. The
Company intends to expand Casino Magic-Bossier City through the future
development of an adjacent 400-room hotel and related amenities, including
restaurants, banquet space, a theater, a swimming pool, a health club and a
child care facility. Subject to the restrictions in the Indenture, including
pro forma compliance with the indebtedness coverage and loan to value ratios
set forth therein, the Company is permitted to incur indebtedness to finance
the costs of constructing the hotel. In the event that the Company determines
to incur such indebtedness on a secured basis, the Indenture provides that (i)
the Trustee will release the land on which the hotel is to be built from the
lien for the benefit of the Notes and (ii) the Company will have the right to
grant a security interest for the benefit of the new lender
53
<PAGE>in such real property and all improvements constructed thereon,
including the hotel. Under such circumstances, the Holders of the Notes will
have no security interest in the hotel or the land on which it is constructed.
The development and construction of these subsequent improvements is
dependent upon the availability of financing, which could be obtained from a
combination of sources, including proceeds from a future sale of the Crescent
City Riverboat, the availability of financing for the hotel and operating cash
flow of Casino Magic-Bossier City; however, no assurances can be given that
such funds or financing will be available or that such hotel and related
amenities will ever be developed.
BOSSIER CITY/SHREVEPORT MARKET
The Company believes the Bossier City/Shreveport Market presents it with a
significant gaming development opportunity based upon the strong population
density of its target market (which includes the Dallas-Fort Worth
metropolitan area, for which the Bossier City/Shreveport Market is the nearest
current gaming market) and the current regulations allowing dockside riverboat
gaming in Bossier City/Shreveport. The Bossier City/Shreveport Market is the
only market in Louisiana that currently permits continuous dockside gaming
without requiring cruising or simulated cruising schedules. This allows Casino
Magic-Bossier City to operate 24 hours a day with uninterrupted and convenient
casino access for gaming patrons.
MARKETING STRATEGY
The Company intends to focus its marketing activities on the 6.6 million
adults residing within a 200-mile radius of Bossier City/Shreveport, including
residents of the Dallas-Fort Worth area, located approximately 180 miles to
the west. Casino Magic-Bossier City's convenient location provides easy and
convenient access from Interstate Highway 20, the major east-west artery
connecting Dallas-Fort Worth to Bossier City/Shreveport.
The Company intends to employ marketing programs similar to those which have
been successfully utilized at Casino Magic's other properties. The Company is
engaging in a variety of advertising, direct mail and promotional programs
intended to encourage initial and repeat visits to Casino Magic-Bossier City,
including:
Magic Money Players Club. The Company is utilizing the Magic Money Players
Club at Casino Magic-Bossier City. Management believes that this slot club,
which Casino Magic successfully utilizes at its other properties, will be an
important marketing tool. Management believes that, like a frequent flier
airline card or cash-back credit card, it promotes customer loyalty and
frequent use. Guests who enroll in this free club complete a questionnaire
that provides the Company with useful demographic information, including name,
address, age, entertainment interests and gaming preferences. Specific groups
can be targeted for direct-mail offers and promotions, and each member of the
Magic Money Players Club receives a bi-monthly newsletter that includes
upcoming events, entertainment schedules, current membership incentives and
photos of recent winning patrons.
54
<PAGE>
The Magic Money Players Club also provides customer benefits such as cash
rewards and club perquisites designed to increase length of stay and frequency
of visits. Because gaming members earn points that are redeemable for cash,
the Magic Money Players Club provides an effective way to give back to loyal
customers a portion of their play. Active members with high play levels are
also rewarded with complimentary entertainment and event tickets, as well as
free dining.
Promotions, Special Events and Entertainment. Gaming promotions are a major
focus of the Company's marketing effort. Similar to programs employed at
Casino Magic's other properties, the Company schedules mid-week gaming
promotions designed to attract players and increase customer counts. The
Company uses local advertising and direct mail to target the player base and
general public for large promotions. Additional direct-mail offers, including
gaming packages, car drawings, free buffets, event tickets and party
invitations will be sent to high-end players.
As it has for its other properties, Casino Magic monitors promotions utilized
for Casino Magic-Bossier City through the Magic Money Players Club for cost
effectiveness. Management believes that the success of each promotion not only
depends on player appeal, but also on the level of internal and external
advertising related to the promotion. The objective of each promotion is to
accomplish at least one of the following strategies: add to the Company's
player base, generate more frequent visits from the existing player base, or
increase the length of stay and play levels of the player base.
Motor Coach Programs. The Company also promotes motor coach group package
programs for Casino Magic-Bossier City, which the Company believes has been an
important part of Casino Magic's marketing programs for its other properties.
Intended to maintain customer volume during traditionally non-peak times,
Magic Bus programs typically originate at locations 50 to 200 miles from the
casino, are completed in one day and are generally organized by one of the
participants. The motor coach program experience that Casino Magic has gained
in Mississippi is expected to be beneficial for the development of similar
programs in connection with Casino Magic-Bossier City.
Advertising Programs. Casino Magic uses television, radio and outdoor and
print media to promote its services and name recognition. Casino Magic's
advertising programs are designed and executed by Casino Advertising, Inc., a
wholly owned subsidiary of Casino Magic. The Company believes that Casino
Magic's in-house operations will ensure the Company of timely product
delivery, a more focused creative direction, a standardized image and overall
cost efficiency.
55
<PAGE>COMPETITION
The Company will be highly dependent on the Bossier City/Shreveport Market and
on the principal markets to which it caters, such as the Dallas-Fort Worth
market, and it expects to compete most directly with the three other casinos
currently operating in the Bossier/Shreveport market. There are currently 14
riverboat casinos operating in Louisiana, all of which have opened since
September 1993. Of these 14 riverboat casinos, three in addition to Casino
Magic-Bossier City are currently licensed and have been operating in the
Bossier City/Shreveport Market since 1994 and offer substantially similar
gaming facilities. Casino Magic-Bossier City will face competition from those
existing operations, particularly to the extent that they add to or enhance
existing amenities. For example, one Bossier City/Shreveport casino operator
will soon complete a 606-room all suites hotel at its riverboat casino
location in Bossier City. In addition, in September, 1996, a riverboat
located in the New Orleans market received approval to relocate to the Bossier
City/Shreveport Market. The relocation of this riverboat will occur after the
land-based casino in New Orleans opens or on October 31, 1997, whichever event
occurs first. Furthermore, Hollywood Casino has received a license to operate
a sixth dockside gaming facility in the Bossier City/Shreveport Market.
Certain of the Company's competitors have more experienced management and
greater name recognition, marketing capabilities and financial resources. In
attempting to attract customers to its casino, the Company may also face
increasing competition from the new or existing casinos developed elsewhere in
Louisiana, on the Mississippi Gulf Coast (including other casinos operated by
Casino Magic) and surrounding market areas and other jurisdictions throughout
the United States and abroad, and from established gaming centers such as
those in Nevada and Atlantic City, New Jersey. The Company also faces
competition from other forms of lawful gaming, such as state-sponsored
lotteries and video lottery terminals, pari-mutuel betting on horse and dog
racing, and bingo parlors, as well as from other forms of entertainment. It is
possible that increased competition could have a material adverse effect on
the Company.
On November 5, 1996, voters in both Caddo and Bossier parishes approved a
continuation of riverboat gaming in such parishes. Voters in all other
Louisiana parishes in which riverboat gaming is currently conducted also
approved a continuation of that form of gaming in their respective parishes.
Current Louisiana law limits the number of riverboat casino licenses in the
state to 15, of which 14 have been awarded, and limits the concentration of
riverboat casino licenses in any one parish to six. Five of those licenses
(including the Company's and another recently approved relocation from the New
Orleans market) have been granted in the Bossier City/Shreveport Market which
encompasses both the Caddo and Bossier parishes. The relative success of
gaming operations in the Bossier City/Shreveport Market, as compared to other
Louisiana Markets, may increase the possibility that existing licenses may be
relocated to the Bossier City/Shreveport Market. However, the relocation of
existing licenses to another parish or of riverboats within the same parish
will be restricted by the Constitutional Amendment which requires, among other
things, a local parish-wide election to approve, by majority vote, the
licensing of any additional riverboats in a parish with existing licensed
riverboats or the relocation of any operating riverboat to a different berth
in the same parish.
56
<PAGE>
Casino gaming is currently prohibited in several jurisdictions upon which the
Bossier City/Shreveport gaming industry draws. As a result, residents of these
jurisdictions, principally Texas, comprise a significant portion of the
customers of existing gaming operations in the Bossier City/Shreveport area
and of the anticipated customers of Casino Magic-Bossier City. Although casino
gaming is not currently permitted in Texas and the Texas Attorney General has
issued an opinion that gaming in Texas would require an amendment to the Texas
Constitution, the Texas Legislature has considered from time to time various
proposals to authorize casino gaming, but to date has not done so. A
constitutional amendment would require a two-thirds vote of those present and
voting in each house of the Texas Legislature and approval by the electorate
in a referendum. The legalization of casino gaming in Texas and the opening of
one or more casinos in the Dallas-Fort Worth area, which is a major market for
Bossier City/Shreveport gaming operations, would have a material adverse
effect on the Company's Casino Magic-Bossier City operations.
DESIGN AND CONSTRUCTION TEAM
Kuhlmann design Group, Inc. ("KdG") has been the architect for Casino
Magic-Bossier City and has provided basic architectural, interior design and
in-house engineering services, utilizing local engineers for many of the more
specialized areas such as marine design, surveying, traffic design and
off-site utility design. KdG has substantial experience in the past several
years in projects similar to Casino Magic-Bossier City, including the Isle of
Capri Casino in Bossier City.
W.S. Bellows Construction Company ("Bellows") has been the general contractor
for Casino Magic-Bossier City. Casino Magic and Bellows originally entered
into a standard form AIA cost-plus construction contract, which provided for a
contractor's fee of 4% of the cost of the work. Casino Magic assigned such
contract to the Company on the closing of the Note Offering. As of October 18,
1996, the Company finalized all plans and specifications for Casino
Magic-Bossier City, agreed upon a guaranteed maximum price of $19.4 million
(which was modified to a limited extent by subsequent change orders) with
Bellows for completion of the principal structural improvements at Casino
Magic-Bossier City (the landside pavilion, parking garage and certain site
improvements) in accordance with such plans and amended the construction
budget accordingly.
57
<PAGE>CASINO MAGIC CORP.
Casino Magic, through the Manager, will manage Casino Magic-Bossier City
pursuant to a management agreement entered into with the Company at the
closing of the Note Offering. Casino Magic will have no obligation under the
Notes or the Jefferson Guarantee nor does it have any obligation to provide
financing to the Company. Casino Magic, through its wholly owned
subsidiaries, develops, owns and operates casinos and related amenities
primarily in the southeastern United States, including two major facilities on
the Mississippi Gulf Coast. Casino Magic owns and operates Casino Magic-BSL in
Bay St. Louis, Mississippi, and Casino Magic-Biloxi in the midst of a
four-casino "Strip" in Biloxi, Mississippi. Casino Magic also owns or operates
two small casinos in Argentina. Prior to September 30, 1996, Casino Magic
managed two American-style casinos in Greece until December 1996, in one of
which it had a 49% interest. Casino Magic incurred an earnings charge of
approximately $27.0 million related to the write-off of the investment in such
Greek casino.
The following summarizes certain properties owned or managed by Casino Magic
at December 31, 1996.
Casino
square Slot Table Hotel
footage machines games rooms
------- -------- ----- -----
EXISTING OPERATIONS:
Bay St. Louis 39,500 1,101 44 201
Biloxi 47,700 1,196 36 --
Casino Magic-Bossier City 30,000 986 44 --
Argentina (1) 29,000 395 54 --
------- ----- ---- ----
Total Existing Operations 146,200 3,678 178 201
___________________
(1) Represents two casinos.
Since late 1995, Casino Magic has strengthened its management team with the
addition of a new Chief Executive Officer, Chief Financial Officer, Chief
Operating Officer and several other key executives who collectively possess
substantial development and operational experience within the gaming industry.
Casino Magic's new management team and the Company's Board of Directors have
identified its strategic priorities as (i) focused development of domestic
growth projects, particularly Casino Magic-Bossier City, and (ii) increased
attention to, and investment in, its core Mississippi properties. In addition,
management is redefining and developing a new "Magic" theme throughout its
properties to enhance the customer experience, as well as to strengthen the
"Casino Magic" brand identity. Management of Casino Magic believes that
establishing a significant brand name presence will be an increasingly
important competitive tool in each of its existing and future markets.
58
<PAGE>MANAGEMENT AGREEMENT
Term. The Company entered into a management agreement with Casino Magic and
the Manager ("Management Agreement") for a ten year term at the closing of the
Note Offering on August 22, 1996. Based upon management agreements which
Casino Magic has negotiated with third parties in its international
operations, the Company believes that the terms thereof are as favorable as
those the Company could have achieved with a non-affiliated third party.
Management Fee. In consideration for the license of the "Casino Magic" name
and the services provided under the Management Agreement, the Company agreed
to pay the Manager a management fee equal to 10% of Adjusted Consolidated Cash
Flow. The payment of management fees commences at such time as Casino
Magic-Bossier City is Operating. The management fee will be paid monthly to
the extent that the Company's Fixed Charge Coverage Ratio is at least 1.5 to
1.0 after giving effect to such payment. If the management fee cannot be paid,
the management fee will accrue. No management fee will be payable if a
default or event of default has occurred and is continuing under the
Indenture. In the event of a bankruptcy, reorganization, insolvency,
dissolution or other winding-up of the Company, payment of the management fee
will be subordinated to the prior payment in full in cash of all obligations
under the Indenture and the Notes.
Expenses. Except where the Management Agreement expressly provides
otherwise, all costs, expenses, funding or operating deficits and operating
capital, real property and personal property taxes, insurance premiums and
other liabilities incurred in connection with the operation of Casino
Magic-Bossier City shall be the sole and exclusive financial responsibility of
the Company. The Company will advance to the Manager or otherwise provide, on
a timely and prompt basis, the funds necessary to conduct the affairs and
maintenance of Casino Magic-Bossier City, including legal and accounting fees
incurred by the Company and payable to third parties in connection with the
Company's reporting requirements.
Accounting and Financial Records. The Manager will cause the Company's
employees to maintain a complete accounting system in connection with the
operation of Casino Magic-Bossier City. Books and records will be maintained
in accordance with generally accepted accounting principles, on a calendar
year basis, and will be retained at Casino Magic-Bossier City.
Employees. All persons employed in connection with the operations of Casino
Magic-Bossier City above the General Manager level will not be deemed
employees of the Company, however, all those at the General Manager level and
below will be employees of the Company. The Company will not be responsible
for the compensation of persons who are not deemed employees of the Company.
The Manager is also responsible for determining the fitness and qualifications
of all casino employees, subject to Louisiana riverboat gaming licensing
standards.
Bank Accounts. The Company will establish bank accounts that are necessary
for the operation of Casino Magic-Bossier City. Gross revenues from operations
will be deposited in the bank accounts and the Company will pay out of the
bank accounts, to the extent of the funds therein, all of its operating
expenses and other amounts as directed by the Manager.
59
<PAGE>EVENTS OF DEFAULT
Manager. The Manager will be in default under the Management Agreement if it
fails to perform or materially comply with any of the covenants, agreements,
terms or conditions contained in the Management Agreement applicable to the
Manager and such failure continues for a period of 30 days after written
notice thereof from the Company specifying in detail the nature of such
failure, or, if such failure is of a nature that it cannot, with due diligence
and good faith, be cured within 30 days, if the Manager fails to proceed
promptly and with due diligence and in good faith to cure the same and
thereafter to prosecute the curing of such failure to completion with due
diligence within 90 days thereafter.
The Company. If the Company (a) fails to make any monetary payment required
under the Management Agreement on or before the due date and such failure
continues for five business days after written notice from the Manager
specifying such failure, (b) fails to pay the entire management fee for a
period of six consecutive months, or (c) fails to perform or materially comply
with any of the other covenants, agreements, terms or conditions contained in
the Management Agreement applicable to the Company (other than monetary
payments) and such failure continues for a period of 30 days after written
notice thereof from the Manager to the Company specifying in detail the nature
of such failure, the Company will be in default under the Management
Agreement. Notwithstanding the foregoing, failure to pay any management fee
which is not permitted to be paid under the Indenture will not be a default
under the Management Agreement.
Termination. The Management Agreement shall terminate upon the occurrence of
the following:
(a) upon the occurrence of an event of default under the Management
Agreement and the expiration of the time to cure such event of default; or
(b) upon the consummation of a condemnation of substantially all of
Casino Magic-Bossier City.
BACKGROUND
The Company was incorporated on June 11, 1993, as a Louisiana corporation,
under the name Crescent City Capital Development Corporation (as defined
herein, "Crescent City") and was a wholly owned subsidiary of Capital Gaming
International, Inc., a corporation with which Jefferson Corp. and Casino Magic
had no affiliation. Crescent City obtained a Louisiana gaming license and on
April 4, 1995 began gaming operations on a riverboat docked on the Mississippi
River at New Orleans, Louisiana. On June 9, 1995, Crescent City ceased gaming
operations and on July 26, 1995, an involuntary bankruptcy petition was filed
against Crescent City, which was subsequently converted by Crescent City into
a voluntary proceeding under Chapter 11 of the Bankruptcy Code in the United
States Bankruptcy Court for the Eastern District of Louisiana (Case No.
95-12735 (TMB). The Bankruptcy Court confirmed Crescent City's Plan of
Reorganization on April 29, 1996. Casino Magic, through Jefferson Corp.,
agreed to purchase Crescent City contingent upon the receipt of approvals from
the Louisiana State Police and the Louisiana Gaming Commission of the change
of ownership of Crescent City and the relocation of the gaming license site
from New Orleans to Bossier City, Louisiana. All such approvals were obtained
by April 30, 1996 and on May 13, 1996 Jefferson Corp.'s purchase of the
outstanding capital stock of Crescent City was effected as part of the Plan of
Reorganization.
60
<PAGE>Prior to Jefferson Corp.'s acquisition of Crescent City, Crescent City
had discontinued all gaming activities and its only significant assets
consisted of the Crescent City Riverboat, a three deck self-powered riverboat
upon which Crescent City had conducted its gaming operations, its gaming
license and the furniture, fixtures and gaming equipment which were located on
the Crescent City Riverboat.
PROPERTY
Jefferson Corp. was the fee simple owner of 23 acres of land on the Red River
in Bossier City, Louisiana (with 3 of those acres having been acquired in July
1996 for $900,000 in cash advanced as a capital contribution to Jefferson from
Casino Magic). Jefferson Corp. transferred the fee simple interest in the 23
acres to the Company at the closing of the Note Offering.
As part of the Company's acquisition of Crescent City pursuant to the Plan of
Reorganization, the Company acquired the Crescent City Riverboat, one of the
largest cruising riverboats designed for gaming in the United States. The
Crescent City measures approximately 430 feet by 100 feet with a total area of
88,000 square feet. The Company does not intend to use the Crescent City
Riverboat in connection with its gaming activities at Casino Magic-Bossier
City. The Company anticipates selling the Crescent City Riverboat. The
Crescent City Riverboat is currently berthed in Morgan City, Louisiana. The
Company is currently marketing the Crescent City Riverboat and, although it
has had discussions with several prospective purchasers, no purchase offers
acceptable to the Company have been received. In addition, Casino Magic
currently has an application pending for a gaming license in Crawford County,
Indiana. If Casino Magic is successful in obtaining a gaming license in
Indiana, and if the Crescent City Riverboat has not been sold prior to that
time, it is anticipated that, subject to the availability of adequate
financing and the agreement of corporate partners of Casino Magic, if any, to
such purchase, an affiliated company of Casino Magic might purchase the
Crescent City Riverboat at fair market value. The Company can give no
assurances that it will be able to dispose of the Crescent City Riverboat on
acceptable terms or in a timely manner.
Subsequent to the original purchase price allocation significant changes were
made based on additional information. The Crescent City Riverboat, which
could not be used at Casino Magic-Bossier City's gaming site and is held for
sale, originally was valued at Crescent City's book value. Subsequently, an
appraisal of the estimated market value of the Crescent City Riverboat was
determined and the original value given to the Crescent City Riverboat of
approximately $31,000,000 was reduced to approximately $10,000,000. Since the
Company was required to purchase the Crescent City Riverboat in order to
obtain its Louisiana gaming license, this change in the valuation of the
Crescent City Riverboat increased the amount initially allocated to the
Louisiana gaming license from approximately $16,000,000 to approximately
$37,000,000.
61
<PAGE>SERVICE MARKS
Casino Magic is the owner of U.S. service mark registrations for the service
marks "Casino Magic", "A Cut Above" and "Casino Magic Getaways" granted by the
U.S. Patent and Trademark Office on July 13, 1993, June 21, 1994, and October
18, 1994, respectively. Casino Magic is also the owner of a Canadian service
mark registration for "Casino Magic" granted on March 3, 1995. Casino Magic
has filed service mark registration applications for the "Casino Magic"
service mark in Greece and Mexico. A service mark application with respect to
the service mark "Magic Money TM"has been filed with the U.S. Patent and
Trademark Office, and an opposition proceeding is currently underway in
connection with such application. Casino Magic through its subsidiaries also
uses and claims rights to several additional service marks. Casino Magic
licenses the right to use such marks and related marks to the Company on a
royalty-free basis in connection with the operation of Casino Magic-Bossier
City pursuant to the Management Agreement. There are no assurances that any of
the service marks used by the Company, whether or not registered, will be free
from future challenge by others as to prior use or as otherwise being
unprotectable.
PERSONNEL
As of December 31, 1996, the Company had approximately 1,200 employees.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
REGULATORY MATTERS
The ownership and operation of a casino gaming business within the United
States are subject to extensive and complex governmental regulation and
control under federal, state or local laws and regulations. These laws and
regulations are subject to change, including the repeal of laws which permit
gaming. The Company and certain of its officers, directors, key employees,
shareholders and other affiliates ("Regulated Persons") will be subject to
strict legal and regulatory requirements, including mandatory licensing and
approval requirements, suitability requirements, and ongoing regulatory
oversight with respect to its gaming operations. Such legal and regulatory
requirements and oversight will be administered and exercised by the relevant
regulatory agency or agencies in its jurisdiction of operation.
The Company and the Regulated Persons will need to satisfy licensing, approval
and suitability requirements of the Louisiana gaming authorities. These
requirements generally concern the responsibility, financial stability and
character of the owners and managers of gaming operations, as well as persons
financially interested or involved in operations. In general, the procedures
for gaming licensing, approval and findings of suitability require that the
Company and each Regulated Person submit detailed background and financial
information and that the Company demonstrate that the proposed gaming
operation has adequate financial resources generated from suitable sources and
adequate procedures to comply with the operating controls and requirements
imposed by law and regulation in each jurisdiction. This submission is
normally followed by a thorough investigation by the regulatory authorities.
An application for any gaming license, approval or finding of suitability may
be denied for any cause that the regulatory authorities deem reasonable. There
62
<PAGE>can be no assurance that the Company or the Regulated Persons will
maintain all of the necessary licenses, approvals and findings of suitability
to permit the Company to continue its development plans and casino operations.
Once a license or approval is obtained, the Company will be required to
periodically submit detailed financial and operating reports to regulatory
authorities. Such licenses and approvals may be subject to periodic renewal
and generally are not transferable. The regulatory authorities may at any time
revoke, suspend, condition, limit or restrict a license, approval, or finding
of suitability for any cause they deem reasonable. Fines for violations may be
levied against the Holder of a license and in some jurisdictions gaming
operation revenues can be forfeited to the state under certain circumstances.
The laws, regulations and procedures pertaining to gaming are subject to the
interpretation of the regulatory authorities and may be amended. Any changes
in such laws or regulations, or their current interpretations, could have a
material adverse effect on the Company.
LOUISIANA GAMING REGULATIONS
In 1991 the Louisiana legislature enacted the Louisiana Riverboat Economic
Development and Gaming Control Act, La. Rev. Stat. Ann 4:501, et seq. (the
"Louisiana Gaming Act"). The Louisiana Gaming Act authorized the licensing of
up to 15 riverboats to conduct gaming on designated rivers and waterways.
Pursuant to the Louisiana Gaming Act, the Riverboat Gaming Commission (the
"Louisiana Commission"), was created within the Department of Public Safety
and Corrections for the State of Louisiana. Additionally, a riverboat gaming
regulatory group within the Louisiana State Police (the "State Police") was
created. The Louisiana Commission and the State Police were authorized to and
did promulgate the existing rules and regulations governing the licensing and
operations of riverboats.
The Louisiana legislature in the First Extraordinary Session, 1996, enacted
new legislation (the "Louisiana Board Act") which transferred the regulatory
oversight of most gaming operations in Louisiana, including riverboat gaming,
to the Gaming Control Board (the "Louisiana Board"), effective as of May 1,
1996. The Louisiana Commission was abolished as of that same date. The
Louisiana Board will consist of nine members appointed by the Governor of
Louisiana. As of December 31, 1996, the chairman and five members of the
Louisiana Board have been appointed, which constitutes a quorum necessary for
the Louisiana Board to conduct business.
The Louisiana Board is empowered to regulate four forms of gaming activities
and operations in the state: riverboat, video poker, the land-based casino in
New Orleans, and all state regulated aspects of Indian gaming (excluded is the
regulation and oversight of horse racing and off-track betting, the state
lottery, and charitable gaming). Accordingly, the Louisiana Board has all
regulatory authority, control, and jurisdiction, including investigation,
licensing, and enforcement, and all power incidental to or necessary for such
regulatory authority, control and jurisdiction, over all aspects of gaming
activities and operations as authorized pursuant to the provisions of the
Louisiana Gaming Act, the Louisiana Economic Development and Gaming
Corporation Act (Land-Based Casino in New Orleans), and the Video Draw Poker
Devices Control Act.
The Louisiana Board has been authorized to promulgate rules and regulations to
govern the aforesaid types of gaming in Louisiana; however, all administrative
rules and regulations promulgated by entities whose powers have been
transferred to the Louisiana Board are to be considered valid and remain in
effect until repealed by the Louisiana Board.
63
<PAGE>The construction, ownership and operation of riverboat gaming vessels
will now be subject to regulation by the Louisiana Board. The independent
authority previously granted to the State Police by the Louisiana Gaming Act
has been significantly reduced by the Louisiana Board Act. The State Police
will now conduct investigations and audits regarding the qualifications of
applicants for licenses or permits requiring suitability determinations,
submit all investigative reports to the Louisiana Board, conduct audits to
assist the Louisiana Board, issue certain licenses and permits in accordance
with rules adopted by the Louisiana Board, and perform all other duties and
functions necessary for the efficient and thorough regulation and control of
gaming activities and operations under the Louisiana Board's jurisdiction.
The Louisiana Board Act did not repeal the Louisiana Gaming Act, the original
1991 statute authorizing riverboat gaming in Louisiana, but rather amended it
to transfer licensing and regulatory authority to the Louisiana Board and to
redefine the authority of the State Police. Otherwise the Louisiana Gaming Act
remains in effect. Accordingly, the Louisiana Gaming Act continues to
authorize up to 15 licenses to conduct gaming activities on riverboats, with
no more than six licenses to be granted to riverboats operating in any one
parish.
Local regulation remains restricted to the imposition of an admission fee of
up to $2.50 per passenger ($3.00 per passenger in Shreveport and Bossier
City).
The voters of the State of Louisiana, in a September 1996 statewide election,
approved the Constitutional Amendment. The Amendment requires a local option
elections in parishes before new forms of gaming could be conducted therein or
before existing forms of gaming may be conducted in new areas. For example,
the Constitutional Amendment requires a local option referendum before an
additional riverboat could move into a parish, regardless of whether such
parish has authorized the continuation of riverboat gaming in such parish. On
November 5, 1996, voters in both Caddo and Bossier parishes approved a
continuation of riverboat gaming in such parishes; voters in all other
Louisiana parishes in which riverboat gaming is currently conducted also
approved a continuation of that form of gaming in their respective parishes.
Licenses may be and have been issued for dockside riverboat gaming along the
Red River in the Bossier City/Shreveport area. Dockside gaming is presently
prohibited at other locations in the state. A riverboat gaming license has an
initial term of five years, with subsequent annual renewals thereafter.
Pursuant to the decision of the State Police at a hearing held on April 30,
1996, the Louisiana riverboat gaming license acquired by the Company has an
unexpired term of five years less the sixty-five days that the previous
licensee conducted riverboat gaming operations. The unexpired term of the
license has recommenced as of October 4, 1996, the date that the Company began
riverboat gaming operations in Bossier City. Upon expiration of the Company's
Louisiana license, the Company must apply for renewal. The application for
renewal consists of a sworn statement of all changes in information, including
financial information, provided in any previous applications. The transfer of
a license is prohibited. The Louisiana Board may restrict, suspend or revoke a
license or permit. Suspension or revocation of the Company's license would
have a material adverse effect upon the business of the Company.
64
<PAGE>Pursuant to the existing laws, rules and regulations, the Company must
submit detailed financial, operating and other reports to the Louisiana Board
periodically. Substantially all loans, leases, private sales of securities,
extensions of credit and similar financing transactions entered into by any of
the Regulated Persons must be reported to the Louisiana Board within thirty
days after the consummation of any such transactions. The Louisiana Board is
required to investigate all reported loans or extensions of credit, and to
either approve or disapprove the same. If disapproved, the pertinent loan or
extension of credit must be rescinded by the appropriate Regulated Person. The
Company's Note Offer was approved by the Louisiana Board on October 29, 1996.
The Company is also required to periodically submit detailed financial and
operating reports to the Louisiana Board and furnish any other information
which the Louisiana Board may require.
The applicant for a gaming license, its directors, officers, key personnel,
partners, and persons holding a 5% or greater equity interest in the applicant
will be required to be found suitable by the Louisiana Board. This requires
the filing of an extensive application to the Louisiana Board disclosing
personal, financial, criminal, business and other information. The applicant
is required to pay all costs of investigation. There can be no assurance that
such person will be found suitable by the Louisiana Board. An application for
licensing of an individual may be denied for any cause deemed reasonable by
the Louisiana Board. Any individual who is found to have a material
relationship to or a material involvement with the Company may be required to
be investigated in order to be found suitable or be licensed as a business
associate of an applicant. Key employees, controlling persons or others who
exercise significant influence upon the management or affairs of the Company
may also be deemed to have such a relationship or involvement.
If the Louisiana Board were to find a director, officer or key employee
unsuitable for licensing or unsuitable to continue having a relationship with
an applicant, the applicant would have to suspend, dismiss and sever all
relationships with such person. The applicant would have similar obligations
with regard to any person who refuses to file appropriate applications. Each
gaming employee must obtain a gaming employee permit which may be revoked upon
the occurrence of certain specified events.
The sale, assignment, transfer, pledge or disposition of securities which
represent 5% or more of the total outstanding equity shares issued by a
corporate licensee is subject to Louisiana Board approval. After a license is
granted, any person acquiring an economic interest of 5% or more in a license
must obtain the Louisiana Board's prior approval for the transaction. Failure
to obtain that approval is grounds for license revocation. A security issued
by a corporate licensee must generally disclose these restrictions.
If the Louisiana Board finds that an individual Holder of a corporate
licensee's securities or a director, partner, officer or manager of the
licensee is not qualified pursuant to the existing laws, rules and
regulations, and if as a result the licensee is no longer qualified to
continue as a licensee, it can propose action necessary to protect the public
65
<PAGE>interest, including the suspension or revocation of a license or permit.
It may also issue, under penalty of revocation of license, a condition of
disqualification naming the person and declaring that such person may not (a)
receive dividends or interest on securities of the licensee, (b) exercise any
right conferred by securities of the licensee, (c) receive remuneration or any
other economic benefit from the licensee or continue in an ownership or
economic interest in the licensee or remain as a director, partner, officer,
or manager of the licensee.
Fees for riverboat gaming include a $50,000 first-year operation fee for each
riverboat increasing to $100,000 per year per riverboat thereafter, plus 18.5%
of net gaming proceeds.
FEDERAL REGULATION
On August 3, 1996, President Clinton signed a bill creating a nine-member
National Gambling Impact Study Commission to study the economic and social
impact of gaming and report its findings to Congress and the President within
two years after the first meeting of the Commission. The Commission could
recommend changes in state or federal gaming policies. The President, House
Speaker and Senate Majority Leader each select three of the Commission's
members. Additional federal regulation of the gaming industry could occur as a
result of investigations or hearings by the committee, which legislation could
have a material adverse affect on the Company.
NON-GAMING REGULATION
The Company is subject to certain federal, state and local safety and health
laws, regulations and ordinances that apply to non-gaming businesses
generally, such as the Clean Air Act, Clean Water Act, Occupational Safety and
Health Act, Resource Conservation Recovery Act and the Comprehensive
Environmental Response, Compensation and Liability Act. The Company has not
made, and does not anticipate making, material expenditures with respect to
such environmental laws and regulations. However, the coverage and attendant
compliance costs associated with such laws, regulations and ordinances may
result in future additional costs to the Company's operations. For example, in
1990 the U.S. Congress enacted the Oil Pollution Act to consolidate and
rationalize mechanisms under various oil spill response laws. The Department
of Transportation has proposed regulations requiring owners and operators of
certain vessels to establish through the U.S. Coast Guard evidence of
financial responsibility in the amount of $5.5 million for clean-up of oil
pollution. This requirement would be satisfied by either proof of adequate
insurance (including self-insurance) or the posting of a surety bond or
guaranty.
Traditional riverboats capable of cruising, including those that are not
required to cruise, must comply with U.S. Coast Guard requirements as to boat
design, on-board facilities, equipment, personnel and safety. Each of them
must be approved by the American Bureau of Shipping ("ABS") for stabilization
and flotation, and may also be subject to local zoning and building codes, if
such local codes have been implemented at the berthing site. They must hold
Certificates of Documentation and Inspection issued by the U.S. Coast Guard.
The U.S. Coast Guard requirements establish design standards, set limits on
the operation of the vessels and require individual licensing of all personnel
involved with the operation of the vessels. Loss of a vessel's ABS approval or
of its Certificates of Documentation and Inspection would preclude its use as
a floating casino.
66
<PAGE>All shipboard employees of the Company, even those who have nothing to
do with the actual operation of the vessel, such as dealers, waiters and
security personnel, may be subject to the Jones Act which, among other things,
exempts those employees from state limits on workers' compensation awards.
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The Company, drawing upon the gaming and development expertise of Casino
Magic, has assembled an experienced management team to oversee the development
and operation of Casino Magic-Bossier City. The name, age and respective
position of each director and executive officer of the Company, each of whom
holds a comparable position with Casino Magic, are as follows:
NAME AGE POSITION
----- ---- ---------
Marlin F. Torguson .........52 Chairman of the Board
James E. Ernst .............46 President, Chief Executive Officer
and a Director
Jay S. Osman ...............36 Executive Vice President, Chief
Financial Officer and Treasurer
Robert A. Callaway .........49 Vice President/General Counsel
and Secretary
Juris Basens ...............42 Vice President/Chief Operating Officer
Ken Schultz ................47 Vice President/Construction and
Development
David L. Paltzik ...........54 Vice President/Marketing
Allen Kokesch ..............45 Director
Roger H. Frommelt ..........60 Director
E. Thomas Welch ............58 Director
Marlin F. Torguson. Mr. Torguson has been Casino Magic's Chairman of the
Board since December 1, 1994 and has served in the same capacity for the
Company since May 1996. Mr. Torguson was President and Chief Executive Officer
of Casino Magic from April 1992 through November 1994, and, from April 1992 to
February 1993, Mr. Torguson also served as Casino Magic's Chief Financial
Officer and Treasurer. Mr. Torguson has been a 50% owner and a Vice President
of G.M.T. Management Co. since December 1983. G.M.T. Management Co. was
responsible for the operation and management of the Jackpot Junction Casino
from December 1983 until January 1, 1992. Jackpot Junction Casino is a gaming
casino owned by the Mdewakanton band and the Sioux Indian tribe, located in
Morton, Minnesota, approximately 120 miles west of Minneapolis, Minnesota.
James E. Ernst. Mr. Ernst became Casino Magic's President, Chief Executive
Officer and a director in December 1995 and has served in the same capacity
for the Company since May 1996. From June 1992 until September 1995, Mr. Ernst
served as President and Chief Executive Officer of Casino America, Inc., a
casino developer and operator which has gaming operations in Mississippi and
Louisiana, including a Bossier City casino developed during his tenure with
that company. From June 1991 to June 1992, Mr. Ernst was President of
Steamboat Development Co., an operator of riverboat casinos in Iowa. From 1976
to June 1991, Mr. Ernst was with the public accounting firm of McGladrey &
Pullen in their Davenport, Iowa office; Mr. Ernst was a partner with such firm
from 1982 through his departure.
67
<PAGE>Jay S. Osman. Mr. Osman became Casino Magic's Executive Vice
President, Chief Financial Officer and Treasurer, in October 1995 and has
served in the same capacity for the Company since May 1996. Mr. Osman served
as Corporate Director of Financial Planning, Budgets and Analysis at Boyd
Gaming Corporation, a casino developer and operator based in Las Vegas,
Nevada, from August 1995 to October 1995. Mr. Osman served as Vice President
of Finance and Administration, Chief Financial Officer and Assistant Secretary
of Belle Casinos, Inc., a casino developer and operator based in Biloxi,
Mississippi, from June 1993 through August 1995. From December 1989 through
May 1993, Mr. Osman acted as Manager of Financial Analysis for Bally's Park
Place, an Atlantic City, New Jersey-based casino operator and developer which
is a subsidiary of Bally Entertainment Corporation. In August 1994, Belle
Casinos, Inc. filed a bankruptcy proceeding under Chapter 11 in the United
States Bankruptcy Court in Biloxi, Mississippi, which was subsequently
converted into a liquidation proceeding. As a related matter, a lawsuit was
brought by certain creditors of Belle Casinos, Inc. against its directors and
executive officers, including Mr. Osman; Mr. Osman has been dismissed without
prejudice as a defendant in such lawsuit.
Robert A. Callaway. Mr. Callaway has been Casino Magic's Vice
President/General Counsel since September 1994 and its Secretary since
December 1994 and has served in the same capacity for the Company since May
1996. Prior to joining Casino Magic, Mr. Callaway was a partner in the law
firm of Beckley, Singleton, DeLanoy, Jemison & List, in Reno and Las Vegas,
Nevada. Mr. Callaway's association with the firm, where his practice focused
on legal and regulatory issues relating to the gaming industry, began in 1987.
For the five years immediately prior to joining such firm, Mr. Callaway served
with the office of the Attorney General of the State of Nevada as counsel for
the Nevada State Gaming Control Board and Nevada Gaming Commission.
Juris Basens. Mr. Basens became Casino Magic's Vice President and Chief
Operating Officer in July 1996 and has also served the Company in such
capacity since that date. Prior to joining Casino Magic, Mr. Basens served as
Vice President and Chief Operating Officer of Casino America, Inc. from July
1994 until July 1996. From March 1993 through June 1994, Mr. Basens was the
General Manager of the Isle of Capri Casino in Bossier City. From October 1991
to March 1993, Mr. Basens was the General Manager of the Par-A-Dice Riverboat
Casino in East Peoria, Illinois. From August 1990 to October 1991, Mr. Basens
was the General Manager of Steamboat Development Corporation's Diamond Lady
Riverboat Casino in Bettendorf, Iowa. From 1989 to 1990, Mr. Basens was
employed in various management positions at Carnival's Crystal Palace Casino
in Nassau, Bahamas. From 1978 to 1989, Mr. Basens was employed in various
management positions at Resorts International Casino Hotel.
Ken Schultz. Mr. Schultz joined Casino Magic as Vice President/Construction
and Development in June 1996 and has also served the Company in such capacity
since that date. Mr. Schultz served as Vice President of Construction and
Development for Casino America, Inc. from July 1995 to June 1996. Prior to
joining Casino America, Inc. Mr. Schultz had been involved in the development
and construction of the Isle of Capri Casino-Bossier City, Louisiana, the Isle
of Capri Casino-Lake Charles, Louisiana, and the Isle of Capri Casino Crowne
Plaza Resort-Biloxi, Mississippi through DeBartolo Property Management, Inc.
He had been associated with DeBartolo Property Management, Inc. as Vice
President of Construction Services since 1989.
68
<PAGE>David L. Paltzik. Mr. Paltzik joined Casino Magic as Vice
President-Marketing in July 1996 and has also served the Company in such
capacity since that date. From June 1992 until joining Casino Magic, Mr.
Paltzik was Vice President-Marketing at Casino America, Inc., where he was
Vice President-Marketing of Riverboat Services, Inc., a wholly owned
subsidiary of Casino America, from May 1991 until June 1992.
Allen J. Kokesch. Mr. Kokesch has served as a director of Casino Magic since
August 1992 and has served as a director of the Company since May 1996. Mr.
Kokesch served as Executive Vice President of Casino Magic from December 1992
through December 1994 and as Casino Magic's general manager from April 1992 to
December 1992. From September 1984 to April 1992, Mr. Kokesch was the general
manager of Jackpot Junction Casino located in Morton, Minnesota.
Roger H. Frommelt. Mr. Frommelt has served as a director of Casino Magic
since October 1992 and has served as a director of the Company since May 1996.
Mr. Frommelt served as Casino Magic's Secretary from May 1993 until December
1994 when he was appointed Casino Magic's Assistant Secretary. Mr. Frommelt is
the President and a principal shareholder of Frommelt & Eide, Ltd., a law firm
located in Minneapolis, Minnesota. He has been engaged in the private practice
of law in Minneapolis, Minnesota since 1965, practicing with Frommelt & Eide,
Ltd. and its predecessor partnership since 1974.
E. Thomas Welch. Mr. Welch has served as a director of Casino Magic since
May 1993 and has served as a director of the Company since May 1996. Mr. Welch
has been the President of Resource Bank & Trust, located in Minneapolis,
Minnesota since March 1987. Mr. Welch is also a member of the Board of
Directors of Eastcliff Funds, Inc., a mutual fund company located in
Minneapolis, Minnesota.
MANAGEMENT AGREEMENT AND EXECUTIVE COMPENSATION
Each of the foregoing executive officers of the Company is also a full-time
salaried employee of Casino Magic and in accordance with the Management
Agreement will not be compensated by the Company but will provide management
services to the Company with respect to the operations of Casino Magic-Bossier
City. See "Business-Management Agreement" and "-Casino Magic Executive
Compensation."
69
<PAGE>CASINO MAGIC EXECUTIVE COMPENSATION
The following table sets forth certain compensation information for the Chief
Executive Officer of Casino Magic during the year ended December 31, 1996, and
Casino Magic's four most highly compensated executive officers, other than the
Chief Executive Officer, who served as executive officers at December 31,
1996. The foregoing persons are collectively referred to herein as the "Named
Executive Officers." Compensation information is shown for fiscal years 1996,
1995 and 1994.
Annual Other Securities All
Compen- Annual Restricted Underlying Other
Name/ sations Compen- Stock Options/ Compen-
Principal Salary Bonus sation Awards SARs sation
Position Year ($) ($) ($) ($) (#) ($)
- --------- ----- ------- ----- ------- ------- ------- --------
James E. Ernst.. 1996 425,000 -- 58,813(2) -- 590,000(5) 276,870(10)
President and 1995(1) 16,923 -- --(4) -- 590,000(6) 9,839(11)
Chief Executive
Officer
Marlin F. Torguson
Chairman of 1996 425,000 -- 191,522(3) -- -- 6,695(11)
the Board 1995 425,000 -- --(4) -- -- 2,832(12)
1994 423,833 -- --(4) -- -- 1,500(13)
Jay S. Osman 1996 208,654 -- --(4) -- 90,000(7) 4,330(14)
Executive 1995(1) 38,512 20,000 --(4) 132,500(9) 75,000(8) --
Vice President
Treasurer and
Chief Financial Officer
Robert A.
Callaway ...... 1996 208,654 -- --(4) 135,938(9) 90,000(7) 7,245(15)
Vice President/ 1995(1) 181,154 -- --(4) -- 40,000(8) 481(13)
General Counsel 1994 51,040 -- --(4) -- 35,000(9) 4,650(16)
and Secretary
Kenneth N.
Schultz 1996(1) 95,385 82,000 --(4) -- -- 11,190(17)
Vice President/Construction
70
<PAGE>(1) No compensation information is provided for any prior year as the
named Executive Officer was employed by the Company only during the years for
which compensation information is provided.
(2) Amount allocated as income relating to personal use of corporate airplane
in 1996.
(3) $188,672 of this amount was allocated as income relating to personal use
of corporate airplane in 1996
(4) Did not receive perquisites or other personal benefits from the Company
in excess of $50,000 or 10 percent of the Named Executive Officer's total
annual salary and bonus paid for the years indicated.
(5) The exercise price of options to purchase the Company's Common Stock
granted in 1995 was reduced to $3.625 per share in 1996.
(6) Same as the 590,000 share options which were repriced in 1996 as
reflected in Note 5.
(7) An option to purchase 15,000 shares of the Company's Common Stock was
granted in 1996 exercisable at $3.625 per share, and the exercise price of
options previously granted for 75,000 shares was reduced to $3.625 per share.
(8) Options are included in the 90,000 share options which were repriced in
Note 7.
(9) Messrs. Osman and Callaway were each awarded a total of 25,000 restricted
shares of the Company's Common Stock that vest over a four year period. As of
December 31, 1996, 3,750 shares having a value of $9,258(based on the closing
trade price on that date)had vested in favor of each of Messrs. Osman and
Callaway, but have not yet been delivered.
(10) Partial forgiveness of indebtedness owed by Mr. Ernst to the Company in
the amount of $239,542, in 1996 and $8,208 in 1995, and $37,328 in 1996 and
$1,631 in 1995, in compensation resulting from an interest-free loan made by
the Company to Mr. Ernst which assumes a 10% annual market rate of interest.
See "Employment, Termination and Change in Control Arrangements."
(11) Contribution of $2,375 made by the company to 401(k) plan and payment of
$4,320 premium on group term life insurance policy.
(12) Contribution of $1,500 made by the Company to 401(k) plan and automobile
allowance of $1,332.
(13) Contributions to 401(k) plan made by the Company.
(14) Automobile allowance of $4,000 and payment of $330 premium on group term
life insurance policy.
(15) Automobile allowance of $4,000 contribution of $2,375 made by the
Company to 410(k) plan, and payment of $870 premium on group term life
insurance policy.
(16) Living allowance.
(17) Automobile allowance of $2,500 and payment of $213 premium on group term
life insurance policy.
(18) Automobile allowance of $2,500 and payment of $600 premium on group term
life insurance policy.
71
<PAGE>OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
The following table provides certain information regarding the number of stock
options to purchase shares of Casino Magic's common stock granted to the Named
Executive Officers during the year ended December 31, 1996.
Percentage of
Total Options
Granted to Potential Realizable
Number of Employees Value at Assumed
Securities in Per Share Annual Rates of Stock
Underlying Fiscal Exercise Price Appreciation
Options Year or Base Expiration for Option Term
Name Granted 1995 Price(1) Date 5% 10%
----- -------- ----- ------- -------- -------------------
James E. Ernst 490,000(1) 36.5% $3.625 12/19/01 $490,745 1,084,418
100,000(1) 7.5% $3.625 12/20/01 $100,152 221,310
Jay S. Osman 75,000(1) 5.6% $3.625 10/10/01 $ 75,114 165,982
15,000(1) 1.1% $3.625 4/23/01 $ 15,023 33,196
Robert A. Callaway 35,000(1) 2.6% $3.625 10/10/01 $ 35,053 77,458
40,000(1) 3.0% $3.625 9/18/00 $ 40,061 88,524
15,000(1) 1.1% $3.625 4/23/01 $ 15,023 33,196
(1) The exercise price of such options was repriced in July 1996 to $3.63.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END
OPTION/SAR VALUES
The following table provides certain information regarding the exercise of
stock options to purchase shares of Casino Magic's common stock during the
year ended December 31, 1996, by the Named Executive Officers, and the fiscal
year-end value of stock options held by such officers.
Number of Securities
Underlying Unexercised Value of Unexercised In-
Options/SARs at the-Money Options/SARs
Number of Shares Fiscal Year End (#) at Fiscal Year End ($)
Acquired
Name On Exercise Exercisable Unexercisable Exercisable Unexercisable
------ ----------- ----------- ------------- --------- -------------
Marlin F. Torguson None 600,000 -- $631,250 --
James E. Ernst None 118,000 472,000 -- --
Jay S. Osman None 15,000 75,000 -- --
Robert A. Callaway None 23,750 66,250 -- --
Kenneth N. Schultz None None None -- --
________________
(1) Based on a fiscal year end of December 31, 1996, and a closing Casino
Magic common stock price of $2-15/32 per share on December 31, 1996. The value
of in-the-money options is calculated as the difference between the fair
market value of the Casino Magic common stock underlying the options at fiscal
year end and the exercise price of the options. Exercisable options refer to
those options that are exercisable as of December 31, 1996, while
unexercisable options refer to those options that become exercisable at
various times thereafter.
72
<PAGE>DIRECTOR COMPENSATION
Each non-employee member of the Casino Magic Board of Directors is entitled to
receive $2,000 for attendance at each Board of Directors meeting and $500 for
attendance at each meeting of a Committee of the Board of Directors, or of the
non-employee directors, provided that if a meeting of the Board of Directors
and a Committee or non-employee director meeting were attended by a Director
on the same day, the maximum compensation for attendance at such meetings was
$2,000 per day. Casino Magic has granted stock options to non-employee
members of the Board of Directors. However, no such grants were made in 1996.
EMPLOYMENT AND TERMINATION
Marlin F. Torguson. Mr. Torguson, Casino Magic's Chairman of the Board,
originally entered into an employment agreement with Casino Magic in June
1992, which has since been amended. Salaries and bonuses under the agreement
became discretionary in 1994, and the Compensation Committee authorized Mr.
Torguson to receive a salary at the annual rate of $425,000. Mr. Torguson is
entitled to (i) an annual family travel allowance and (ii) a bonus payable in
such amounts and under such terms and conditions as the Board of Directors or
the Compensation Committee may determine. Casino Magic also provides Mr.
Torguson with an automobile allowance. The employment agreement is terminable
by Casino Magic or Mr. Torguson upon four weeks' prior written notice.
However, if terminated by Casino Magic without cause, Casino Magic will be
obligated to pay Mr. Torguson a severance allowance equal to one year's salary
at the rate being paid at termination.
James E. Ernst. Mr. Ernst, Casino Magic's President and Chief Executive
Officer, entered into an employment agreement dated December 20, 1995, which
provides for, among other things, an initial annual base salary of $425,000,
and a $500,000 loan subject to partial repayment by Mr. Ernst based on the
number of days he is employed by Casino Magic during the two-year period
beginning December 20, 1995. Under the terms of the repayment formula,
approximately $684 of the original $500,000 loan to Mr. Ernst is forgiven each
day over the two-year period. Interest at an annual rate of 8% is payable on
the outstanding balance of the loan, beginning as of the date Mr. Ernst's
employment is terminated. Additionally, pursuant to the agreement, Casino
Magic granted to Mr. Ernst a non-statutory option to purchase up to 490,000
shares of Casino Magic's common stock at a price of $3.625 per share vesting
over a five-year period at the rate of 98,000 shares per year. Mr. Ernst also
received an incentive stock option to purchase up to 100,000 shares of Casino
Magic's common stock, which vests over a five-year period at the rate of
20,000 shares per year. The exercise price of such options is $3.63 per share.
The initial term of the employment agreement is two years and is terminable by
Casino Magic or the employee upon 30 days' prior written notice. However, if
terminated by Casino Magic without cause, Casino Magic will be obligated to
pay Mr. Ernst a severance allowance equal to six months' salary at the rate
being paid at termination. As of April 1, 1997. Mr. Ernst's base salary, by
agreement with Casino Magic, was reduced to $375,000 for the remainder of
1997, with an opportunity to receive a bonus of $100,000 if certain prescribed
performance criteria are met.
73
<PAGE>Jay S. Osman. Mr. Osman became Casino Magic's Executive Vice
President, Chief Financial Officer and Treasurer in October 1995. Mr. Osman
and Casino Magic entered into a two-year employment agreement in October 1995,
which agreement has been extended through October 18, 1998. Under the
agreement Mr. Osman is currently paid an annual base salary of $210,000,
received a $20,000 bonus paid upon commencement of employment and the right to
participate in any bonus plan established for executives of Casino Magic.
Additionally, the agreement obligates Casino Magic to grant to Mr. Osman a
restricted stock award of 25,000 shares of Casino Magic's common stock which
vest over a four-year period, and an option to purchase 75,000 shares of
Casino Magic's common stock which vests over a four-year period. The exercise
price of such options is $3.625 per share.
Robert A. Callaway. Mr. Callaway, Casino Magic's Vice President/General
Counsel and Secretary, entered into a two-year employment agreement with
Casino Magic in September 1994, which agreement has been extended through
September 18, 1997. Under the agreement Mr. Callaway is currently paid an
annual salary of $210,000, received a one-time bonus of $10,000 and has the
right to participate in any bonus plan established by Casino Magic for its
employees. In connection with such agreement, Casino Magic granted Mr.
Callaway an option to purchase 35,000 shares of Casino Magic's common stock.
The Company subsequently granted Mr. Callaway options to purchase an
additional 40,000 shares of Casino Magic's common stock. Each such option
vests over a four year period. The exercise price of such options is $3.625
per share. Casino Magic has also subsequently agreed to grant Mr. Callaway a
restricted stock award of 25,000 shares of Casino Magic's common stock, which
vest over a four-year period.
Juris Basens. Mr. Basens became Casino Magic's Vice President/Chief
Operating Officer in July 1996, and Mr. Basens and Casino Magic entered into a
two-year employment agreement at the time of Mr. Basens' commencing
employment. The agreement provides, among other things, for an initial annual
base salary of $200,000 and the right to participate in any bonus plan
established for executives of Casino Magic. Additionally, the agreement
obligates Casino Magic to grant to Mr. Basens a restricted stock award of
25,000 shares of Casino Magic's common stock to vest over a four-year period,
and an option to purchase 75,000 shares of Casino Magic's common stock at or
above fair market value to vest over a four-year period. Mr. Basens received a
signing bonus of $20,000.
Kenneth N. Schultz. Mr. Schultz became Casino Magic's Vice President in
charge of Construction and Development on June 25, 1996, and Mr. Schultz and
Casino Magic entered into a two-year employment agreement at the time of Mr.
Schultz' commencing employment. The agreement provides for, among other
things, an initial annual base salary of $200,000 and the right to participate
in any bonus plan established for executives of Casino Magic. Additionally,
the agreement obligates Casino Magic to grant to Mr. Schultz a restricted
stock award of 25,000 shares of Casino Magic's common stock to vest over a
four-year period, and an option to purchase 75,000 shares of Casino Magic's
common stock at or above fair market value to vest over a four-year period.
Mr. Schultz received a signing bonus of $82,500.
74
<PAGE>David L. Paltzik. Mr. Paltzik became Casino Magic's Vice
President/Marketing in July 1996, and Mr. Paltzik and Casino Magic entered
into a two-year employment agreement at the time of Mr. Paltzik's commencing
employment. The agreement provides for, among other things, an initial annual
base salary of $200,000 and the right to participate in any bonus plan
established for executives of Casino Magic. Additionally, the agreement
obligates Casino Magic to grant to Mr. Paltzik a restricted stock award of
25,000 shares of Casino Magic's common stock to vest over a four-year period,
and an option to purchase 75,000 shares of Casino Magic's common stock at or
above fair market value to vest over a four-year period. Mr. Paltzik received
a signing bonus of $20,000.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the year ended December 31, 1996, E. Thomas Welch and Allen J. Kokesch
served as members of the Compensation Committee. During 1996, no member of
Casino Magic's Compensation Committee was an officer, former officer or
employee of the Company or any of its subsidiaries. No executive officer of
Casino Magic served as a member of: (i) the compensation committee of another
entity in which one of the executive officers of such entity served on Casino
Magic's Compensation Committee; (ii) the Board of Directors of another entity
in which one of the executive officers of such entity served on Casino Magic's
Compensation Committee; or (iii) the compensation committee of another entity
in which one of the executive officers of such entity served as a member of
Casino Magic's Board of Directors, during the year ended December 31, 1996.
PRINCIPAL SHAREHOLDERS
Casino Magic is the sole shareholder of Jefferson Corp. which is the sole
shareholder of the Company. The following table sets forth certain information
as of March 21, 1997 with respect to the beneficial ownership of Casino Magic
common stock by: (i) each director of the Company; (ii) each named executive
officer of the Company; (iii) each other person known to hold 5% or more of
the outstanding shares of Casino Magic common stock; and (iv) the named
executive officers and directors of the Company as a group. Unless otherwise
indicated, the persons listed in the table below have sole voting and
investment powers with respect to the shares indicated.
75
<PAGE> Number of
Shares of Casino Magic Percentage of
Common Stock Casino Magic
Name of Beneficial Owner Beneficially Owned Common Stock Outstanding
- ------------------------ -------------------- ------------------------
Marlin F. Torguson ......... 8,908,000 (1) 24.6%
James E. Ernst ............. 233,000 (2) *
Allen Kokesch .............. 1,087,000 (3) 3.1%
Roger H. Frommelt .......... 103,000 (4) *
E. Thomas Welch ............ 75,000 (5) *
Jay S. Osman ............... 55,450 (6) *
Robert A Callaway .......... 29,000 (7) *
Kenneth N. Schultz None *
Grand Casinos, Inc. (8) .... 2,125,000 6.0%
13795 First Avenue North
Minneapolis, MN 55441
All named executive ........ 10,492,050 (9) 28.7%
officers and directors
as a group (8 persons)
*Less than one percent
(1)Includes 600,000 shares that Mr. Torguson has the right to acquire upon
exercise of outstanding stock options.
(2)Includes 118,000 shares that Mr. Ernst has the right to acquire upon
exercise of outstanding stock options.
(3)Includes 201,050 shares owned of record by the spouse of Mr. Kokesch of
which Mr. Kokesch disclaims beneficial ownership.
(4)Includes 100,000 shares that Mr. Frommelt has the right to acquire upon
exercise of outstanding stock options.
(5)Includes 72,000 shares that Mr. Welch has the right to acquire upon
exercise of outstanding stock options and 3,000 shares held beneficially be
Mr. Welch under a 401(k) plan.
(6)Includes 23,750 shares subject to options that are currently exercisable or
will become exercisable within 60 days and restricted stock awards for 25,000
shares.
(6)Includes 18,750 shares that Mr. Osman has the right to acquire upon
exercise of outstanding stock options.
(7)Includes 27,500 shares that Mr. Callaway has the right to acquire upon
exercise of outstanding stock options.
(8)The shares are held of record by GCA Acquisition Subsidiary, Inc., a wholly
owned subsidiary of Grand Casino, Inc.
(9)Includes the shares described in notes (1)-(7) above. The percentage of
outstanding shares of Casino Magic Common Stock as shown in the table above is
calculated based upon 35,637,083 shares outstanding as of the close of
business on March 21, 1997 and assumes that in each case the person only, or
the group only, currently exercised his or its rights to acquire all shares
under outstanding stock options which have vested or will vest on or before
May 1, 1997.
76
<PAGE> CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Concurrently with the closing of the Note Offering, the Company entered into a
Management Agreement with Casino Magic and the Manager for a term through
August 22, 2006, pursuant to which Casino Magic will license the "Casino
Magic" name to the Company and the Manager will provide management services to
the Company. Casino Magic is the direct parent corporation of Jefferson Corp.
which holds a 100% beneficial ownership interest in the Company. In
consideration for the services provided under the Management Agreement, the
Company has agreed to pay the Manager a management fee equal to 10% of
Adjusted Consolidated Cash Flow, subject to certain limitations set forth in
the Indenture. See "Business-Management Agreement" and "Management."
The Company and Jefferson Corp. are and all future subsidiaries of the Company
will be, parties to a Tax-Sharing Agreement (as defined herein) between Casino
Magic and each of its domestic subsidiaries (the "Consolidated Group")
pursuant to which Casino Magic will file a consolidated federal income tax
return on behalf of the Consolidated Group and timely pay the Consolidated
Group's federal income tax liability and the Company, Jefferson Corp. and each
such future subsidiary will pay Casino Magic an amount equal to their
respective share of the Consolidated Group's federal income tax liability
calculated in the manner prescribed in such Tax-Sharing Agreement.
The acquisition of the Company and the land upon which Casino Magic-Bossier
City is located, as well as the Company's other development stage activities,
were initially funded by capital contributions and advances from Casino Magic,
and the issuance or assumption of certain indebtedness, most of which was
repaid with proceeds from the Note Offering. Jefferson Corp. acquired the
initial 20 acres of the Casino Magic-Bossier City site for a total purchase
price of $12.7 million, paid through the issuance of $5.3 million in Casino
Magic common stock, $0.6 million in cash and the issuance of the $6.8 million
Louisiana Land Note. In May 1996, Jefferson Corp. acquired the Company for a
purchase price of $50.0 million, of which $15.0 million was paid in cash and
the remainder was funded through the issuance of $35.0 million of Louisiana
Notes, plus the assumption of equipment financing, of which $5.7 million was
outstanding at December 31, 1996, 1996. In July 1996, the Company acquired an
additional three acres of land which are contiguous with or within the
boundaries of the 20-acre site. This subsequent land acquisition was funded
with a $0.9 million advance from Casino Magic. Through the date of closing of
the Note Offering, the total advances from Casino Magic to the Company for
Casino Magic-Bossier City construction and development activities were $3.4
million (this amount is exclusive of $20.9 million for Casino Magic's original
capital contributions, consisting of real estate acquired for Casino Magic
common stock and $15 million in cash). Of this $3.4 million advance, $1.4
million was contributed as capital and the balance was repaid to Casino Magic
in August 1996 from the proceeds of the sale of the Series A Notes.
77
<PAGE> DESCRIPTION OF NOTES
GENERAL
On August 22, 1996, the Company issued $115,000,000 principal amount of Series
A Notes under an indenture (the "Indenture") among the Company, Jefferson
Corp. and First Union Bank of Connecticut, as trustee (the "Trustee"), in a
private transaction. The Series B Notes will evidence the same debt as the
Series A Notes, and together with the Series A Notes will constitute one class
under the Indenture, a copy of which has been filed as an exhibit to the
Registration Statement of which this Prospectus constitutes a part. The form
and terms of the Series B Notes are substantially identical to the Series A
Notes in all material respects, except that the Series B Notes will be
registered under the Securities Act, and therefore will not bear legends
restricting the transfer thereof. The terms of the Notes include those stated
in the Indenture, the Collateral Documents and those made part of the
Indenture by reference to the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act"). The Notes are subject to all such terms, and Holders
of Notes are referred to the Indenture, the Collateral Documents and the Trust
Indenture Act for a statement thereof. The following summary of certain
provisions of the Indenture and the Collateral Documents, while summarizing
the material terms of such Indenture, does not purport to be complete and is
qualified in its entirety by reference to the Indenture, including the
definitions therein of certain terms used below, and such Collateral
Documents. A copy of the proposed form of Indenture and each of the Collateral
Documents are available as set forth under "-Additional Information." The
definitions of certain terms used in the following summary are set forth below
under "-Certain Definitions."
The Notes will be senior secured obligations of the Company and will rank pari
passu in right of payment with any existing and future senior Indebtedness of
the Company. The Notes will rank senior in right of payment to all
subordinated Indebtedness of the Company, if any. The Notes are and, upon
issuance pursuant to the Exchange Offer, the Series B Notes will be guaranteed
on a senior secured basis by Jefferson Corp. (the "Jefferson Guarantee") and
all future Subsidiaries of the Company (the "Subsidiary Guarantees" and,
together with Jefferson Guarantee, the "Guarantees"). As of December 31, 1996,
the total senior Indebtedness of the Company was approximately $121.7 million.
GUARANTEES
The Indenture provides that (i) Jefferson Corp. and (ii) if the Company or any
of its Subsidiaries shall acquire or create another Subsidiary after the date
of the Indenture, then such newly acquired or created Subsidiary, shall
execute a Guarantee and deliver an opinion of counsel, containing customary
qualifications, limitations and exceptions, relating to the enforceability and
authorization of such Guarantee in accordance with the terms of the Indenture,
pursuant to which Jefferson Corp. or such newly acquired or created
Subsidiary, as the case may be, shall become a Guarantor,
on a senior secured basis, of the Company's obligations under the Series B
Notes and the Indenture. The obligations of each Guarantor under its Guarantee
will be limited so as to reduce the risk that such obligations would be found
to constitute a fraudulent conveyance under applicable law. See, however,
"Risk Factors-Fraudulent Conveyance Considerations."
78
<PAGE>The Indenture provides that no Guarantor may consolidate with or merge
with or into (whether or not such Guarantor is the surviving Person), another
corporation, Person or entity whether or not affiliated with such Guarantor
unless (i) subject to the provisions of the following paragraph, the Person
formed by or surviving any such consolidation or merger (if other than such
Guarantor) assumes, pursuant to a supplemental indenture and appropriate
Collateral Documents in form and substance reasonably satisfactory to the
Trustee, all the obligations of such Guarantor under the Notes, the Indenture
and the Collateral Documents; (ii) immediately after giving effect to such
transaction, no Default or Event of Default exists; (iii) such Guarantor, or
any Person formed by or surviving any such consolidation or merger, would have
Consolidated Net Worth (immediately after giving effect to such transaction),
equal to or greater than the Consolidated Net Worth of such Guarantor
immediately preceding the transaction; (iv) the Company would be permitted by
virtue of the Company's pro forma Fixed Charge Coverage Ratio, immediately
after giving effect to such transaction, to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the
covenant described below under the caption "-Certain Covenants-Incurrence of
Indebtedness and Issuance of Preferred Stock"; (v) the Fixed Charge Coverage
Ratio of such Guarantor, or any Person formed by or surviving any such
consolidation or merger, for the Reference Period immediately preceding the
date on which such consolidation or merger occurred, determined on a pro forma
basis (including a pro forma application of the proceeds therefrom) as if such
consolidation or merger had occurred at the beginning of such Reference
Period, would be no less than 85% of such Guarantor 's or such Person's Fixed
Charge Coverage Ratio for such Reference Period prior to giving effect to such
consolidation or merger; (vi) 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 (vii) such transaction would not
require any Holder or beneficial owner of Notes to obtain a Gaming License or
be qualified under the laws of any applicable gaming jurisdiction; provided,
that such Holder or beneficial owner would not have been required to obtain a
Gaming License or be qualified under the laws of any applicable gaming
jurisdiction in the absence of such transaction; provided, further, however,
that the requirements set forth in the preceding clauses (iii), (iv) and (v)
will not prohibit any merger or consolidation among the Company and one or
more Wholly Owned Subsidiaries of the Company.
The Indenture provides that in the event of a sale or other disposition of all
or substantially all of the assets of any Guarantor, by way of merger,
consolidation or otherwise, or a sale or other disposition of all of the
Capital Stock of any Guarantor, then such Guarantor (in the event of a sale or
other disposition, by way of such a merger, consolidation or otherwise, of all
of the capital stock of such Guarantor) or the corporation acquiring the
property (in the event of a sale or other disposition of all or substantially
all of the assets of such Jefferson Corp.) will be released and relieved of
any obligations under its Guarantee and the Collateral Documents; provided
that the Net Proceeds of such sale or other disposition are applied in
accordance with the applicable provisions of the Indenture. See "-Repurchase
at the Option of Holders-Asset Sales."
79
<PAGE>However, as of the date of the Indenture and as of December 31, 1996
Jefferson Corp. had no material assets other than the capital stock of the
Company, had no material liabilities other than the Jefferson Guarantee, had
no subsidiaries other than the Company, and had no independent operations, the
Jefferson Guarantee having been granted primarily to more effectively secure
the Notes rather than to provide financial credit support; in addition,
because of restrictions imposed upon the business activities of Jefferson
Corp. under the Indenture it is not likely that Jefferson Corp. will have
significant assets at any time in the future.
So long as any of the Notes are outstanding, Jefferson Corp. is prohibited
under the Indenture from conducting any business or investment activities
other than; (a) to hold its investment in the Company, (b) to be a Guarantor
under the Indenture and to do all things necessary or incident thereto (c) to
make payments, dividends, or distributions to Casino Magic from funds or
property received by Jefferson Corp. from the Company in accordance with the
terms of the Indenture, and (d) otherwise exist as subsidiary of Casino Magic
acting as a holding company of the Company, including all activities
incidental or related to any the foregoing, including without limitation, (i)
performing its obligations under the Tax Sharing Agreement, (ii) receiving
funds from Casino Magic in the form of capital contributions which may be
contributed as a capital contribution to the Company, (iii) owning and voting
the capital stock of the Company, and (iv) preparing financial statements and
other reports.
PRINCIPAL, MATURITY AND INTEREST
The Notes will be limited in aggregate principal amount to $115 million and
will mature on August 15, 2003.
Interest on the Notes will accrue at the rate of 13% per annum (the "Fixed
Interest") and will be payable semi-annually in arrears on February 15 and
August 15, commencing on February 15, 1997, to Holders of record on the
immediately preceding February 1 and August 1. Fixed Interest on the Notes
will accrue from the most recent date to which such interest has been paid or,
if no such interest has been paid, from the date of original issuance. Fixed
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
In addition, the Notes will bear Contingent Interest, calculated as described
below, from the Commencement Date to the date of payment of the Notes.
Installments of accrued or deferred Contingent Interest will become due and
payable semi-annually on each February 15 and August 15 after the Commencement
Date to the Holders of record at the close of business on the preceding
February 1 or August 1; provided that all or a portion of such installment of
Contingent Interest is not permitted to be deferred on such date; and provided
further, that no Contingent Interest is payable with respect to any period
prior to the Commencement Date. Additionally, all installments of accrued or
deferred Contingent Interest will become due and payable (and may not be
further deferred) with respect to any principal amount of the Notes that
matures (whether at stated maturity, upon acceleration, upon redemption, upon
maturity of repurchase obligation or otherwise) upon such maturity of such
principal amount of the Notes.
80
<PAGE>The Company, at its option, may defer payment of all or a portion of any
installment of Contingent Interest then otherwise due if, and only to the
extent that, (a) the payment of such portion of Contingent Interest will cause
the Company's Adjusted Fixed Charge Coverage Ratio for the Company's most
recently completed Reference Period prior to such interest payment date to be
less than 1.5 to 1.0 on a pro forma basis after giving effect to the assumed
payment of such Contingent Interest (but may not defer such portion, which, if
paid, would not cause such Adjusted Fixed Charge Coverage Ratio to be less
than 1.5 to 1.0) and (b) the principal amount of the Notes corresponding to
such Contingent Interest has not then matured and become due and payable (at
stated maturity, upon acceleration, upon redemption, upon maturity of
repurchase obligation or otherwise). Contingent Interest that is deferred
shall become due and payable, in whole or in part, on the earlier of (i) the
next succeeding interest payment date on which all or a portion of such
Contingent Interest is not permitted to be deferred, and (ii) upon the
maturity of the corresponding principal amount of the Notes (whether at stated
maturity, upon acceleration, upon redemption, upon maturity of repurchase
obligation or otherwise). No interest will accrue on any Contingent Interest
deferred and which does not become due and payable. To the extent permitted by
law, interest will accrue on overdue Fixed Interest or Contingent Interest at
the same rate as the Fixed Interest plus one percent (1%) per annum.
Each installment of Contingent Interest is calculated to accrue (an "Accrual
Period") from, but not including, the most recent date to which Contingent
Interest has been provided for or which Contingent Interest had been
calculated and deferred (or from and including the Commencement Date if no
installment of Contingent Interest has been paid, provided for or deferred)
to, and including, either (a) in the case of Contingent Interest payable on
the first Interest Payment Date subsequent to the Commencement Date (i)
December 31, 1996, if the Commencement Date ends during the Semiannual Period
ending on December 31, 1996, and (ii) June 30, 1997, if the Commencement Date
occurs during the Semiannual Period ending on June 30, 1997 and (b) in all
other cases, (i) the last day of the next Semiannual Period if the
corresponding principal amount of the Notes has not become due and payable on
(ii) the date of payment if the corresponding principal amount of the Notes
has become due and payable (whether at stated maturity or upon acceleration,
redemption or maturity of repurchase obligation or otherwise). With respect to
each Accrual Period, interest will accrue daily on the principal amount of
each Note outstanding during such period as follows: (i) for any portion of an
Accrual Period which consists of all or part of a Semiannual Period that ends
during such Accrual Period, 1/180 of the Contingent Interest with respect to
such principal amount for such Semiannual Period until fully accrued and (ii)
for any other portion of an Accrual Period, 1/180 of the Contingent Interest
with respect to such principal amount for the most recently completed
Semiannual Period that began after the Commencement Date.
Any reference in this Prospectus to "accrued and unpaid interest" on the Notes
includes the amount of Fixed Interest, unpaid Contingent Interest and
Liquidated Damages, if any, due and payable thereon.
81
<PAGE>"Adjusted Fixed Charge Coverage Ratio" means with respect to any Person
for any period, the ratio of the Adjusted Consolidated Cash Flow of such
Person and its Subsidiaries for such period to the Fixed Charges of such
Person and its Subsidiaries for such period (calculated in the same manner as
the Fixed Charge Coverage Ratio is calculated); provided that the amount of
Contingent Interest on a pro forma basis shall equal the Contingent Interest
accrued and reflected in the financial statements for the last two Semiannual
Periods with respect to which Contingent Interest was accruable or payable or,
if two such Semiannual Periods have not occurred, then the amount accrued and
reflected in the financial statements with respect to the most recently
completed Reference Period beginning after the Commencement Date.
"Commencement Date" means the first day on which Casino Magic-Bossier City
becomes Operating.
"Contingent Interest" means with respect to any principal amount of Notes as
of any date after the Commencement Date, an amount equal to the product of (i)
5% of the Company's Adjusted Consolidated Cash Flow for the Accrual Period
last completed times (ii) a fraction, the numerator of which is the amount of
such principal and the denominator of which is $115.0 million.
"Semiannual Period" means each period that begins on July 1 and ends on the
next succeeding December 31 or each period that begins on January 1 and ends
on the next succeeding June 30.
Principal, premium, if any, interest and Liquidated Damages, if any, on the
Notes will be payable at the office or agency of the Company maintained for
such purpose within the City and State of New York or, at the option of the
Company, payment of interest and Liquidated Damages, if any, may be made by
check mailed to the Holders of the Notes at their respective addresses set
forth in the register of Holders of the Notes; provided that all payments with
respect to (i) Global Notes and (ii) $5.0 million or more in principal amount
of Certificated Notes the Holders of which have given wire transfer
instructions to the Company will be required to be made by wire transfer of
immediately available funds to the accounts specified by the Holders thereof.
Until otherwise designated by the Company, the Company's office or agency in
New York will be the office of the Trustee maintained for such purpose. The
Notes will be issued in denominations of $1,000 and integral multiples
thereof.
OPTIONAL REDEMPTION
The Notes will not be redeemable at the Company's option prior to August 15,
2000. Thereafter, the Notes will be subject to redemption at the option of the
Company, in whole or in part, upon not less than 30 nor more than 60 days'
notice, at the redemption prices (expressed as percentages of principal
amount) set forth below plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the applicable redemption date, if redeemed during
the twelve-month period beginning on August 15 of the years indicated below:
YEAR PERCENTAGE
------ --------------
2000 106.500%
2001 104.332%
2002 102.166%
82
<PAGE>Notwithstanding the foregoing or any other provision of the Indenture,
if any Gaming Authority requires that a Holder or beneficial owner of the
Notes must be licensed, qualified or found suitable under any applicable
Gaming Law in order to maintain any or obtain any applied-for Gaming License
or franchise of the Company or any of its Subsidiaries under any applicable
Gaming Law, and such Holder or beneficial owner fails to apply for a license,
qualification or finding of suitability within 30 days after being requested
to do so by such Gaming Authority (or such lesser period that may be required
by such Gaming Authority or Gaming Law) or if such Holder or beneficial owner
is not so licensed, qualified or found suitable by such Gaming Authority (a
"Disqualified Holder"), the Company shall have the right, at its option, (i)
to require such Disqualified Holder or beneficial owner to dispose of such
Disqualified Holder's or beneficial owner's Notes within 30 days of notice of
such finding by the applicable Gaming Authority that such Disqualified Holder
or beneficial owner will not be licensed, qualified or found suitable as
directed by such Gaming Authority (or such earlier date as may be required by
the applicable Gaming Authority or Gaming Law) or (ii) to call for redemption
of the Notes of such Holder or beneficial owner at a redemption price equal to
the lesser of 100% of the principal amount thereof or the price at which such
Holder or beneficial owner acquired such Notes together with, in either case,
accrued and unpaid interest and Liquidated Damages, if any, thereon to the
earlier of the date of redemption or the date of the finding of unsuitability
by such Gaming Authority, which may be less than 30 days following the notice
of redemption if so ordered by such Gaming Authority. In connection with any
such redemption, and except as otherwise may be required by a Gaming
Authority, the Company shall comply with the procedures contained in the
Indenture for redemption of the Notes. Immediately upon a determination of
unsuitability, the Disqualified Holder shall have no further rights whatsoever
with respect to the Notes (i) to exercise, directly or indirectly, through any
trustee, nominee or any other Person or entity, any right conferred by the
Notes or (ii) to receive any interest or any other distribution or payment
with respect to the Notes, or any remuneration in any form from the Company
for services rendered or otherwise, except the redemption price of the Notes.
Under the Indenture, the Company is not required to pay or reimburse any
Holder or beneficial owner of Notes who is required to apply for such license,
qualification or finding of suitability for the costs of such application
including investigator costs. Such expenses will, therefore, be the obligation
of such Holder or beneficial owner. See "Risk Factors-Gaming and Other
Government Regulation" and "Regulatory Matters."
MANDATORY REDEMPTION
The Indenture provided that if the voters in the November 5, 1996 Louisiana
Referendum disapproved the continuation of riverboat gaming in either Bossier
Parish or Caddo Parish, Louisiana, then within 90 days after the end of each
Operating Year, the Company would have been required to make certain Excess
Cash Flow Redemptions (as defined in the Indenture) with respect to the Notes.
On November 5, 1996, voters in both Caddo and Bossier parishes approved a
continuation of riverboat gaming in their respective parishes. Accordingly,
such Excess Cash Flow Redemptions will not be required under the Indenture.
83
<PAGE>REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
Upon the occurrence of a Change of Control, each Holder of Notes will have the
right to require the Company to repurchase all or any part (equal to $1,000 or
an integral multiple thereof) of such Holder's Notes pursuant to the offer
described below (the "Change of Control Offer") at an offer price in cash
equal to 101% of the aggregate principal amount thereof plus accrued and
unpaid interest and Liquidated Damages, if any, thereon to the date of
repurchase (the "Change of Control Payment"). Within 30 days following any
Change of Control, the Company will mail a notice to each Holder describing
the transaction or transactions that constitute the Change of Control and
offering to repurchase Notes pursuant to the procedures required by the
Indenture and described in such notice. The Company will comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities
laws and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Notes as a result of a
Change of Control.
On the Change of Control Payment Date, the Company will, to the extent lawful,
(i) accept for payment all Notes or portions thereof properly 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 (iii) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating
the aggregate principal amount of Notes or portions thereof being repurchased
by the Company. The Paying Agent will promptly mail to each Holder of Notes so
tendered the Change of Control Payment for such Notes, and the Trustee will
promptly 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 a
principal amount of $1,000 or an integral multiple thereof. The Company will
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
The Change of Control provisions described above will be applicable whether or
not any other provisions of the Indenture are applicable. Except as described
above with respect to a Change of Control, the Indenture does not contain
provisions that permit the Holders of the Notes to require that the Company
repurchase or redeem the Notes in the event of a takeover, recapitalization or
similar transaction.
The source of funds for any repurchase of Notes upon a Change of Control will
be the Company's cash or cash generated from operations or other sources,
including borrowings or sales of assets; however, there can be no assurance
that sufficient funds will be available at the time of any Change of Control
to make any required repurchases of the Notes tendered in response to an offer
made as a result of a Change in Control. Any failure by the Company to
repurchase Notes tendered pursuant to a Change of Control Offer will
constitute an Event of Default which, during the continuation thereof, would
entitle the Trustee or the Holders of at least 25% in principal amount of the
then outstanding Notes to declare the Notes to be due and payable immediately
and to pursue any and all available remedies under the Indenture and
Collateral Documents. See "Events of Default and Remedies."
84
<PAGE>The Company 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
Company and repurchases all Notes validly tendered and not withdrawn under
such Change of Control Offer.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of Casino Magic or the Company and their respective
Subsidiaries, taken as a whole. Although there is a developing body of case
law interpreting the phrase "substantially all," there is no precise
established definition of the phrase under New York law, which is the law
governing the Indenture and the Notes. Accordingly, the ability of a Holder of
Notes to require the Company to repurchase such Notes as a result of a sale,
lease, transfer, conveyance or other disposition of less than all of the
assets of Casino Magic or the Company and their respective Subsidiaries, taken
as a whole, to another Person or group may be uncertain.
Asset Sales
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, engage in an Asset Sale unless (i) the Company or the
Subsidiary, as the case may be, receives consideration at the time of such
Asset Sale at least equal to the fair market value (evidenced by a resolution
of the Board of Directors of the Company set forth in an Officers' Certificate
delivered to the Trustee) of the assets or Equity Interests issued or sold or
otherwise disposed of and (ii) (a) with respect to an Asset Sale of the
Crescent City Riverboat, at least 25% of the consideration received by the
Company therefor is in the form of Cash Equivalents and the remaining
consideration is in the form of Permitted Securities or (b) with respect to
any Asset Sale of any other asset, at least 85% of the consideration therefor
received by the Company or such Subsidiary is in the form of Cash Equivalents;
provided, that the amount of (x) any liabilities (as shown on the Company's or
such Subsidiary's most recent balance sheet) of the Company or any Subsidiary
(other than contingent liabilities and liabilities that are by their terms
subordinated in right of payment to the Notes or any Guarantee thereof) that
are assumed by the transferee of any such assets pursuant to an agreement that
releases and indemnifies the Company or such Subsidiary from further liability
with respect thereto and (y) any notes or other obligations received by the
Company or any such Subsidiary from such transferee that are within 30 days
converted by the Company or such Subsidiary into cash or as to which the
Company or such Subsidiary has received at or prior to the consummation of the
Asset Sale a commitment from a nationally recognized investment, merchant or
commercial bank to convert into cash within 90 days of the consummation of
such Asset Sale unless not actually converted into cash within such 90-day
period (to the extent of the cash received), shall be deemed to be Cash
Equivalents for purposes of this provision. Notwithstanding the foregoing, the
Company shall not engage in any transfer, lease, conveyance or disposition,
other than a sale, of the Crescent City Riverboat.
85
<PAGE>
Within 180 days after the receipt by the Company or any of its Subsidiaries of
any Net Proceeds from an Asset Sale, the Company or such Subsidiary, as the
case may be, may (i) apply such Net Proceeds to the making of a capital
expenditure or the acquisition of long-term assets, in either case, which
shall be owned by the Company or such Subsidiary and be used by or useful to
the Company or such Subsidiary in any line of business in which the Company or
such Subsidiary is permitted to be engaged pursuant to the covenant described
under "-Certain Covenants-Line of Business," or (ii) contractually commit to
apply such Net Proceeds to the payment of the costs of construction of real
property improvements (including, without limitation, to commit to apply Net
Proceeds from an Asset Sale of the Crescent City Riverboat to the construction
of the Casino Magic-Bossier City Hotel), which improvements shall be owned by
the Company or such Subsidiary and be used by or useful to the Company or such
Subsidiary in any line of business in which the Company or such Subsidiary is
permitted to be engaged pursuant to the covenant described under "-Certain
Covenants-Line of Business;" provided, however, that the Net Proceeds from an
Asset Sale of the Crescent City Riverboat may be applied only to the making of
a capital expenditure or the acquisition of long-term assets or the payment of
the costs of construction of real property improvements, in any case, to be
used by the Company at Casino Magic-Bossier City or the Casino Magic-Bossier
City Hotel; provided, further, that, in any case, the Company or such
Subsidiary, as the case may be, grants to the Trustee, on behalf of the
Holders, a first priority perfected security interest on any such properties
or assets acquired or constructed with the Net Proceeds of any such Asset Sale
on the terms set forth in the Indenture and the Collateral Documents. Pending
the final application of any such Net Proceeds, the Company or such Subsidiary
shall invest such Net Proceeds in Cash Equivalents which shall be pledged to
the Trustee as security for the Notes. Any Net Proceeds from an Asset Sale
(other than Net Proceeds from an Asset Sale of the Crescent City Riverboat)
that are not applied or invested as provided in the first sentence of this
paragraph will be deemed to constitute "Excess Proceeds." When the aggregate
amount of Excess Proceeds exceeds $10.0 million, the Company will be required
to make an offer to all Holders of Notes (an "Asset Sale Offer") to purchase
the maximum principal amount of Notes that may be purchased out of the Excess
Proceeds at an offer price in cash in an amount equal to 101% (or, to the
extent that the Excess Proceeds relate to an Asset Sale of the Crescent City
Riverboat, 100%) of the principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages, if any, thereon to the date of purchase,
which date shall be no less than 30 or more than 60 days from the date of such
Asset Sale Offer, in accordance with the procedures set forth in the
Indenture. To the extent that the aggregate amount of Notes tendered pursuant
to an Asset Sale Offer is less than the Excess Proceeds, the Company may,
subject to the provisions in the Indenture and the Collateral Documents, use
any remaining Excess Proceeds for any general corporate purpose. If the
aggregate principal amount of Notes surrendered by Holders thereof exceeds the
amount of Excess Proceeds, the Trustee shall select the Notes to be purchased
in the manner described below under the caption "-Selection and Notice." Upon
completion of an Asset Sale Offer, the amount of Excess Proceeds shall be
reset at zero.
86
<PAGE>Event of Loss
The Indenture provides that within 360 days after any Event of Loss with
respect to any Note Collateral comprising Casino Magic-Bossier City on the
date that it becomes Operating with a fair market value (or replacement cost,
if greater) in excess of $1.0 million, the Company or the affected Subsidiary
of the Company, as the case may be, may apply the Net Loss Proceeds from such
Event of Loss to the rebuilding, repair, replacement or construction of
improvements to Casino Magic-Bossier City, with no concurrent obligation to
make any purchase of any Notes; provided that (i) the Company delivers to the
Trustee within 90 days of such Event of Loss a written opinion from a
reputable architect that Casino Magic-Bossier City with at least the Minimum
Facilities can be rebuilt, repaired, replaced, or constructed and Operating
within 180 days of such Event of Loss, (ii) an Officers' Certificate
certifying that the Company has available from Net Loss Proceeds or other
sources sufficient funds to complete such rebuilding, repair, replacement or
construction, and (iii) the Net Loss Proceeds are less than $25.0 million. If
the Net Loss Proceeds to be used for such rebuilding, repair, replacement or
construction exceeds $12.0 million, then such Net Loss Proceeds shall be
deposited in the Construction Disbursement Account and disbursed in accordance
with the Cash Collateral and Disbursement Agreement. Any Net Loss Proceeds
from an Event of Loss with respect to any Note Collateral comprising Casino
Magic-Bossier City on the date that it becomes Operating that are not
reinvested or are not permitted to be reinvested as provided in the first
sentence of this paragraph will be deemed "Excess Loss Proceeds." When the
aggregate amount of Excess Loss Proceeds exceeds $10.0 million, the Company
shall make an offer to all Holders (an "Event of Loss Offer") to purchase the
maximum principal amount of Notes that may be purchased out of the Excess Loss
Proceeds, at a purchase price in cash in an amount equal to 100% of the
principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the date of purchase, which date shall not be less
than 30 or more than 60 days from the date of such Event of Loss Offer, in
accordance with the procedures set forth in the Indenture. If the aggregate
principal amount of Notes tendered pursuant to an Event of Loss Offer exceeds
the Excess Loss Proceeds, the Trustee will select the Notes to be purchased in
the manner described below under the caption "-Selection and Notice." To the
extent that the aggregate amount of Notes tendered pursuant to any Event of
Loss Offer is less than the Excess Loss Proceeds, the Company may, subject to
the other provisions of the Indenture and the Collateral Documents, use any
remaining Excess Loss Proceeds for general corporate purposes. Upon completion
of any such Event of Loss Offer, the amount of Excess Loss Proceeds shall be
reset at zero. Pending any permitted rebuilding, repair, replacement or
construction or the completion of any Event of Loss Offer, the Company or the
affected Subsidiary, as the case may be, shall pledge to the Trustee as
additional Note Collateral any Net Loss Proceeds or other cash on hand
required for such permitted rebuilding, repair, replacement or construction
pursuant to the terms of the Collateral Documents relating to Casino
Magic-Bossier City. Such pledged funds will be released to the Company to pay
for or reimburse the Company for the actual cost of such permitted rebuilding,
repair, replacement or construction, or such Event of Loss Offer, pursuant to
the terms of the Collateral Documents relating to Casino Magic-Bossier City.
Pending the final application of the Net Loss Proceeds, such proceeds shall be
invested in Cash Equivalents which shall be pledged to the Trustee as security
for the Notes. The Indenture also requires the Company or such Subsidiary to
87
<PAGE>grant to the Trustee, on behalf of the Holders, a first priority lien,
subject to Permitted Liens, on any properties or assets rebuilt, repaired,
replaced or constructed with such Net Loss Proceeds on the terms set forth in
the Indenture and the Collateral Documents.
The Indenture also provides that with respect to any Event of Loss pursuant to
clause (iii) of the definition of "Event of Loss" that has a fair market value
(or replacement cost, if greater) in excess of $5.0 million, the Company (or
the affected Subsidiary, as the case may be), will be required to receive
consideration at least (i) equal to the fair market value (evidenced by a
resolution of the Board of Directors of the Company set forth in an Officers'
Certificate delivered to the Trustee) of the assets subject to an Event of
Loss and (ii) at least 90% of which is in the form of Cash Equivalents.
SELECTION AND NOTICE
If less than all of the Notes are to be purchased in an Asset Sale Offer or
Event of Loss Offer, or redeemed at any time, selection of Notes for purchase
or redemption will be made by the Trustee in compliance with the requirements
of the principal national securities exchange, if any, on which the Notes are
listed, or, if the Notes are not so listed, on a pro rata basis, by lot or
such other method as the Trustee shall deem fair and appropriate (and in such
manner as complies with applicable legal requirements); provided, that no
Notes of $1,000 or less shall be purchased or redeemed in part. Notices of
purchase or redemption shall be mailed by first class mail, postage prepaid,
except as otherwise provided in the Indenture, at least 30 but not more than
60 days before the purchase or redemption date to each Holder of Notes to be
purchased or redeemed at such Holder's registered address. If any Note is to
be purchased or redeemed in part only, any notice of purchase or redemption
that relates to such Note shall state the portion of the principal amount
thereof that has been or is to be purchased or redeemed. A new Note in
principal amount equal to the unpurchased or unredeemed portion of any Note
purchased or redeemed in part will be issued in the name of the Holder thereof
upon cancellation of the original Note. On and after the purchase or
redemption date, unless the Company defaults in payment of the purchase or
redemption price, interest and Liquidated Damages, if any, shall cease to
accrue on Notes or portions thereof purchased or called for redemption.
CERTAIN COVENANTS
Restricted Payments
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly: (i) declare or pay any dividend
or make any other payment or distribution on account of the Company's or any
of its Subsidiaries' Equity Interests (including, without limitation, any
payment in connection with any merger or consolidation involving the Company)
or to the direct or indirect Holders of the Company's Equity Interests in any
capacity (other than dividends or distributions payable in Equity Interests
(other than Disqualified Stock) of the Company or dividends or distributions
payable by a Wholly Owned Subsidiary or Substantially Owned Subsidiary of the
Company or any Wholly Owned Subsidiary or Substantially Owned Subsidiary of
the Company); (ii) purchase, redeem or otherwise acquire or retire for value
any Equity Interests of the Company or any direct or indirect parent of the
Company or other Affiliate of the Company (other than any such Equity
88
<PAGE>Interests owned by the Company or any Wholly Owned Subsidiary or
Substantially Owned Subsidiary of the Company that is a Guarantor); (iii) make
any principal payment on, or purchase, redeem, defease or otherwise acquire or
retire for value any Indebtedness that is pari passu with or subordinated in
right of payment to the Notes (other than Notes), in each case except at final
stated maturity and, in the case of pari passu Indebtedness, except in
accordance with any sinking fund or mandatory redemption provisions 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 and after giving effect to such
Restricted Payment:
(a) no Default or Event of Default shall have occurred and be continuing or
would occur as a consequence thereof; and
(b) the voters in the Louisiana Referendum have approved the continuation of
riverboat gaming in both Bossier Parish and Caddo Parish, Louisiana, a
condition which has been satisfied as of November 5, 1996; and
(c) all Contingent Interest accrued through the interest payment date
immediately preceding the date of such Restricted Payment has been paid; and
(d) the Company would, at the time of such Restricted Payment and after giving
pro forma effect thereto as if such Restricted Payment had been made at the
beginning of the applicable Reference Period, have been permitted to incur at
least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage
Ratio test set forth in the first paragraph of the covenant described below
under caption "-Incurrence of Indebtedness and Issuance of Preferred Stock";
and
(e) such Restricted Payment, together with the aggregate amount of all other
Restricted Payments made by the Company and its Subsidiaries after the date of
the Indenture (excluding Restricted Payments permitted by clauses (A) (1),
(2), (3), (5) and (B) of the next succeeding paragraph), is less than the sum
of (i) 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 prior to the date of the Indenture 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, less 100% of such deficit), plus (ii)
100% of the aggregate net cash proceeds received by the Company from the issue
or sale since the date of the Indenture of Equity Interests of the Company or
of debt securities of the Company that have been converted into such Equity
Interests (other than Equity Interests (or convertible debt securities) sold
to a Subsidiary of the Company and other than Disqualified Stock or debt
securities that have been converted into Disqualified Stock), plus (iii) to
the extent that any Restricted Investment that was made after the date of the
Indenture is sold for cash or otherwise liquidated or repaid for cash, the
lesser of (A) the cash return of capital with respect to such Restricted
Investment (less the cost of disposition, if any) and (B) the initial amount
of such Restricted Investment.
(A) If (i) no Default or Event of Default has occurred and is continuing, or
would occur as a consequence thereof, and (ii) the voters in the Louisiana
Referendum have approved the continuation of riverboat gaming in Bossier
Parish and Caddo Parish, Louisiana, (a condition which has been
89
<PAGE>satisfied as of November 5, 1996) and (iii) all Contingent Interest
accrued through the interest payment date immediately preceding the date of
such Restricted Payment has been paid, the foregoing provisions will not
prohibit (1) the payment of any dividend within 60 days after the date of
declaration thereof, if at such date of declaration such payment would have
complied with the provisions of the Indenture; (2) the redemption, repurchase,
retirement or other acquisition of any Equity Interests of the Company in
exchange for, or out of the proceeds of, the substantially concurrent sale
(other than to a Subsidiary of the Company) of other Equity Interests of the
Company (other than any Disqualified Stock); provided that the amount of any
such net cash proceeds that are utilized for any such redemption, repurchase,
retirement or other acquisition shall be excluded from clause (e) (ii) of the
preceding paragraph; (3) the defeasance, redemption or repurchase of
Indebtedness that is pari passu with or subordinated in right of payment to
the Notes with the net cash proceeds from an incurrence of applicable
Permitted Refinancing Indebtedness or the substantially concurrent sale (other
than to a Subsidiary of the Company) of Equity Interests of the Company (other
than Disqualified Stock); provided that the amount of any such net cash
proceeds that are utilized for any such redemption, repurchase, retirement or
other acquisition shall be excluded from clause (e) (ii) of the preceding
paragraph; (4) the payment of Restricted Payments not otherwise permitted in
an aggregate amount not to exceed $10.0 million; provided that the Fixed
Charge Coverage Ratio for the Company's most recently ended Reference Period
preceding the date on which such Restricted Payment is made would have been at
least 2.5 to 1.0, determined on a pro forma basis, as if the Restricted
Payment had been made at the beginning of such Reference Period; (5) the
payment on a monthly basis of Management Fees to the Manager pursuant to the
covenant described below under the caption "-Restrictions on Payment of
Management Fees" in an amount not to exceed 10% of the Adjusted Consolidated
Cash Flow of the Company for the Company's most recently ended Reference
Period; (6) repurchases by the Company of its outstanding Capital Stock which
are required to be made under applicable Gaming Law; provided, however, that
the declaration of each dividend paid in accordance with clause (1) above and
each payment, redemption or repurchase made under clauses (4) or (6) shall
each be counted for purposes of computing amounts expended pursuant to clause
(e) in the immediately preceding paragraph, and (B) if no Default or Event of
Default has occurred and is continuing, or would occur as a consequence
thereof, the foregoing provisions will not prohibit payments to Casino Magic
pursuant to the Tax Sharing Agreement.
The amount of all Restricted Payments (other than cash) shall be the fair
market value (in the case of any individual Restricted Payment or series of
related Restricted Payments in an amount greater than $100,000), evidenced by
a resolution of the Board of Directors set forth in an Officers' Certificate
delivered to the Trustee) on the date of the Restricted Payment of the
asset(s) proposed to be transferred by the Company or such Subsidiary, as the
case may be, pursuant to the Restricted Payment. Not less than once each
fiscal quarter, the Company shall deliver to the Trustee an Officers'
Certificate stating that each Restricted Payment made during the prior fiscal
quarter was permitted and setting forth the basis upon which the calculations
required by the covenant "-Restricted Payments" were computed, which
calculations may be based upon the Company's latest available financial
statements.
90
<PAGE>Incurrence of Indebtedness and Issuance of Preferred Stock
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guaranty or otherwise become directly or indirectly liable, contingently or
otherwise (collectively, "incur"), with respect to any Indebtedness (including
Acquired Debt) and that the Company will not issue any Disqualified Stock and
will not permit any of its Subsidiaries to issue any shares of preferred stock
or other Disqualified Stock; provided, however, that so long as no Default or
Event of Default has occurred or is continuing the Company may incur
Indebtedness (including Acquired Debt) or issue shares of Disqualified Stock
if:
(i) the Fixed Charge Coverage Ratio of the Company for the Company's most
recently ended Reference Period immediately preceding the date on which such
additional Indebtedness is incurred or such Disqualified Stock is issued would
have been at least 2.5 to 1.0, determined on a pro forma basis (including a
pro forma application of the net proceeds therefrom), as if the additional
Indebtedness had been incurred, or the Disqualified Stock had been issued, as
the case may be, at the beginning of such Reference Period; and
(ii) the final maturity of such Indebtedness is beyond the maturity date of
the Notes and the Weighted Average Life to Maturity of such Indebtedness is
greater than the remaining Weighted Average Life to Maturity, of the Notes.
So long as no Default or Event of Default has occurred and is continuing, the
foregoing provisions will not apply to:
(i) the incurrence by the Company and its Subsidiaries of Indebtedness
represented by the Notes or a Guarantee or obligations arising under the
Collateral Documents, to the extent that such obligations would constitute
Indebtedness;
(ii) the incurrence by the Company of Permitted Refinancing Debt in exchange
for, or the net proceeds of which are used to extend, refinance, renew,
replace, defease or refund, Indebtedness that was permitted by the Indenture
to be incurred;
(iii) the incurrence by the Company or any of its Subsidiaries of intercompany
Indebtedness between or among the Company and any of its Substantially Owned
Subsidiaries; provided, however, that (A) such Indebtedness is expressly
subordinate to the payment in full of all Obligations with respect to the
Notes, or the Guarantees, as the case may be, (B)(1) any subsequent issuance
or transfer of Equity Interests that results in any such Indebtedness being
held by a Person other than the Company or a Substantially Owned Subsidiary
and (2) any sale or other transfer of any such Indebtedness to a Person that
is not either the Company or a Substantially Owned Subsidiary shall be deemed,
in each case, to constitute an incurrence of such Indebtedness by the Company
or such Subsidiary, as the case may be, and (C) if any Subsidiary is the
obligor on such Indebtedness, such Indebtedness is represented by a Subsidiary
Intercompany Note that is pledged to the Trustee as security for the Notes;
91
<PAGE>(iv) the incurrence by the Company of Hedging Obligations that are
incurred for the purpose of fixing or hedging interest rate risk with respect
to any floating rate Indebtedness that is permitted by the terms of the
Indenture to be outstanding;
(v) the incurrence by the Company of Indebtedness (in addition to Indebtedness
permitted by any other clause of this paragraph) in an aggregate principal
amount (or accreted value, as applicable) at any time outstanding not to
exceed $5.0 million;
(vi) the incurrence by the Company of Indebtedness (including without
limitation pursuant to any FF&E Financing Agreement which was incurred prior
to the Issue Date and which will be deemed to be Indebtedness which is
permitted by the Indenture to be incurred), the proceeds of which are utilized
solely to purchase FF&E; provided, however, that (A) the principal amount of
such Indebtedness does not exceed the cost (including sales and excise taxes,
installation and delivery charges and other direct costs of, and other direct
expenses paid or charged in connection with, such purchase) of the FF&E
purchased with the proceeds thereof and (B) the aggregate principal amount of
such Indebtedness does not exceed $7.5 million outstanding at any time prior
to the opening of the Casino Magic-Bossier City Hotel and $10.0 million
thereafter; and
(vii) the incurrence by the Company of secured Indebtedness to finance the
Project Costs of the Casino Magic-Bossier City Hotel in an aggregate principal
amount at any time outstanding not to exceed 50% of the aggregate Project
Costs of such Casino Magic-Bossier City Hotel if the Fixed Charge Coverage
Ratio of the Company for the Company's most recently ended Reference Period
immediately preceding the date on which such additional Indebtedness is
incurred would have been at least 2.5 to 1.0, determined on a pro forma basis
(including a pro forma application of the net proceeds therefrom), as if the
additional Indebtedness had been incurred at the beginning of such Reference
Period.
Liens
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly, create, incur, assume or suffer
to exist any Lien on any asset now owned or hereafter acquired, or any income
or profits therefrom or assign or convey any right to receive income
therefrom, except Permitted Liens.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any encumbrance or restriction on the
ability of any Subsidiary to (i)(a) pay dividends or make any other
distributions to the Company or any of its Subsidiaries (1) on its Capital
Stock or (2) with respect to any other interest or participation in, or
measured by, its profits, or (b) pay any Indebtedness owed to the Company or
any of its Subsidiaries, (ii) make loans or advances to the Company or any of
its Subsidiaries or (iii) transfer any of its properties or assets to the 100
Company or any of its Subsidiaries, except for such encumbrances or
restrictions existing under or by reason of (a) the Indenture, the Notes or
the Collateral Documents, (b) applicable law or (c) by reason of customary
non-assignment provisions in leases entered into in the ordinary course of
business. 92
<PAGE>Merger, Consolidation, or Sale of Assets
The Indenture provides that the Company may not consolidate or merge with or
into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially
all of its properties or assets in one or more related transactions, to
another corporation, Person or entity unless (i) the Company is the surviving
corporation or the entity or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United
States, any state thereof or the District of Columbia; (ii) the entity or
Person formed by or surviving any such consolidation or merger (if other than
the Company) or the entity or Person to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made assumes all the
obligations of the Company under the Notes, the Indenture and the Collateral
Documents pursuant to a supplemental indenture or other documents or
instruments in a form reasonably satisfactory to the Trustee; (iii)
immediately after such transaction 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 simultaneous with such loss, suspension or
material impairment; (v) except in the case of a merger of the Company with or
into a Wholly Owned Subsidiary of the Company, the Company or the entity or
Person formed by or surviving any such consolidation or merger (if other than
the Company), or to which such sale, assignment, transfer, lease, conveyance
or other disposition shall have been made (A) 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, (B) will, upon
the consummation of such transaction and after giving pro forma effect thereto
as if such transaction had occurred at the beginning of the applicable
Reference Period, be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the
first paragraph of the covenant described above under the caption "-Incurrence
of Indebtedness and Issuance of Preferred Stock" and (C) will have a Fixed
Charge Coverage Ratio for the Reference Period immediately preceding the date
on which such transaction occurred, determined on a pro forma basis (including
a pro forma application of the proceeds therefrom) as if such transaction had
occurred at the beginning of such Reference Period, that is no less than 85%
of the Company's or such Person's Fixed Charge Coverage Ratio for such period
prior to giving effect to such transaction; and (vi) such transaction would
not require any Holder or beneficial owner of Notes to obtain a Gaming License
or be qualified or found suitable under the law of any applicable gaming
jurisdiction; provided, that such Holder or beneficial owner would not have
been required to obtain a Gaming License or be qualified or found suitable
under the laws of any applicable gaming jurisdiction in the absence of such
transaction.
93
<PAGE>Transactions with Affiliates
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, make any payment to, or sell, lease, transfer or
otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any contract,
agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any Affiliate (each of the foregoing, an "Affiliate Transaction"), unless
(i) such Affiliate Transaction is on terms that are no less favorable to the
Company or the relevant Subsidiary than those that would have been obtained in
a comparable transaction by the Company or such Subsidiary with an unrelated
Person and (ii) the Company delivers to the Trustee (a) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $1.0 million, a resolution of the Board
of Directors set forth in an Officers' Certificate certifying that such
Affiliate Transaction complies with clause (i) above and that such Affiliate
Transaction has been approved by a majority of the disinterested members of
the Board of Directors and (b) with respect to any Affiliate Transaction or
series of related Affiliate Transactions involving aggregate consideration in
excess of $5.0 million, an opinion as to the fairness to the Holders of such
Affiliate Transaction from a financial point of view issued by an accounting,
appraisal or investment banking firm of national standing; provided, however,
that (w) payments made pursuant to the Tax Sharing Agreement or the Management
Agreement, (x) any employment or indemnification agreement entered into by the
Company or any of its Subsidiaries in the ordinary course of business on terms
customary in the gaming industry, (y) transactions between or among the
Company and/or its Subsidiaries, and (z) Restricted Payments and Permitted
Investments that are permitted by the provisions of the Indenture described
above under the caption "-Restricted Payments," in each case, shall not be
deemed Affiliate Transactions.
Construction
The Indenture provides that the Company will cause construction of Casino
Magic-Bossier City, including the furnishing, fixturing and equipping thereof,
to be prosecuted with diligence and continuity in a good and workmanlike
manner substantially in accordance with the Plans and within the Construction
Budget. The Indenture also provides that the Company will cause Casino
Magic-Bossier City to be Operating by the Operating Deadline.
Limitations on Use of Proceeds
As required by the Indenture, the Company used $20 million of the net proceeds
from the Note Offering to purchase the Bossier Riverboat pursuant to the
Vessel Purchase Agreement, free and clear of any Liens, and to grant to the
Trustee for the benefit of the Notes a first priority perfected security
interest in the Bossier Riverboat and, of the remaining Net Proceeds from the
Note Offering, the Company deposited approximately $45.2 million in the Cash
Collateral Accounts, including $7.3 million in the Interest Reserve Account,
$3.2 million in the Operating Reserve Account, $29.7 million in the
Construction Disbursement Account, and $5.0 million in the Completion Reserve
Account, in each case to be disbursed only in accordance with the Cash
Collateral and Disbursement Agreement.
94
<PAGE> Limitation on Status as Investment Company
The Indenture prohibits the Company and Jefferson Corp. from being required to
register as an "investment company" (as that term is defined in the Investment
Company Act of 1940, as amended), or from otherwise becoming subject to
regulation under the Investment Company Act of 1940.
Sale and Leaseback Transactions
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, enter into any sale and leaseback transaction; provided
that the Company may enter into a sale and leaseback transaction if (i) the
Company could have (a) incurred Indebtedness in an amount equal to the
Attributable Debt relating to such sale and leaseback transaction pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of the
covenant described above under the caption "-Incurrence of Additional
Indebtedness and Issuance of Preferred Stock" and (b) incurred a Lien to
secure such Indebtedness pursuant to the covenant described above under the
caption "-Liens," (ii) the gross cash proceeds of such sale and leaseback
transaction are at least equal to the fair market value (as determined in good
faith by the Board of Directors of the Company and set forth in an Officers'
Certificate delivered to the Trustee) of the property that is the subject of
such sale and leaseback transaction and (iii) the transfer of assets in such
sale and leaseback transaction is permitted by, and the Company applies the
proceeds of such transaction in compliance with, the covenant described above
under the caption "-Repurchase at the Option of Holders-Asset Sales."
Restrictions on Preferred Stock of Subsidiaries
The Indenture provides that the Company will not permit any of its
Subsidiaries to issue any preferred stock, or permit any Person to own or hold
an interest in any preferred stock of any such Subsidiary, except for
preferred stock issued to the Company or a Wholly Owned Subsidiary of the
Company.
Limitation on Issuances and Sales of Capital Stock of Wholly Owned
Subsidiaries
Except with respect to transactions in which a Wholly Owned Subsidiary becomes
a Substantially Owned Subsidiary, the Indenture provides that the Company (i)
will not, and will not permit any Wholly Owned Subsidiary of the Company to,
transfer, convey, sell, lease or otherwise dispose of any Capital Stock of any
Wholly Owned Subsidiary of the Company to any Person (other than the Company
or a Wholly Owned Subsidiary of the Company), unless (a) such transfer,
conveyance, sale, lease or other disposition is of all the Capital Stock of
such Wholly Owned Subsidiary and (b) the cash Net Proceeds from such transfer,
conveyance, sale, lease or other disposition are applied in accordance with
the covenant described above under the caption "-Repurchase at the Option of
Holders-Asset Sales," and (ii) will not permit any Wholly Owned Subsidiary of
the Company to issue any of its Equity Interests (other than, if necessary,
shares of its Capital Stock constituting directors' qualifying shares) to any
Person other than to the Company or a Wholly Owned Subsidiary of the Company.
95
<PAGE>Line of Business
The Indenture provides that the Company will not, and will not permit any
Subsidiary to, engage in any business or investment activities other than the
gaming business and such business activities as are incidental or related
thereto including, without limitation, related hotel, sports and entertainment
activities and food services; provided that such incidental or related
business activities are engaged only at or in conjunction with any Gaming
Facility owned and operated by the Company or any Substantially Owned
Subsidiary of the Company. Notwithstanding any other provision of the
Indenture, the Company shall not, and shall not permit any of its Subsidiaries
to, engage in any business, development or investment activity other than at
or in conjunction with Casino Magic-Bossier City until Casino Magic-Bossier
City is Operating and the Casino Magic-Bossier City Hotel is an Operating
Hotel.
Advances to Subsidiaries
The Indenture provides that all advances (other than equity contributions of
not more than $1,000) to Subsidiaries made by the Company from time to time
after the date of the Indenture will be evidenced by unsecured Subsidiary
Intercompany Notes in favor of the Company that will be pledged to the Trustee
as Note Collateral to secure the Notes. Each Subsidiary Intercompany Note will
be payable upon demand, and will bear interest at the same rate as the Notes.
A form of Subsidiary Intercompany Note will be attached as an exhibit to the
Indenture. Repayments of principal with respect to any Subsidiary Intercompany
Note may be used by the Company, subject to the other provisions of the
Indenture and the Collateral Documents for any general corporate purpose.
Payments for Consent
The Indenture provides that neither the Company nor any of its Subsidiaries
will, directly or indirectly, pay or cause to be paid any consideration,
whether by way of interest, fee or otherwise, to any Holder of any Notes for
or as an inducement to any consent, waiver or amendment of any of the terms or
provisions of the Indenture or the Notes unless such consideration is offered
to be paid or is paid to all Holders of the Notes that consent, waive or agree
to amend in the time frame set forth in the solicitation documents relating to
such consent, waiver or agreement.
Reports
The Indenture provides that, whether or not required by the rules and
regulations of the SEC (and within 15 days of the date that is or would be
prescribed thereby) so long as any Notes are outstanding, the Company will
furnish to the Holders of Notes (i) all annual and quarterly financial
information that would be required to be contained in a filing with the SEC on
Forms 10-K (without exhibits) and 10-Q if the Company were required to file
such Forms, including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" that describes the financial condition
and results of operations of the Company and its Subsidiaries and, with
respect to the annual information only, a report thereon by the Company's
certified independent accountants and (ii) all current reports that would be
96
<PAGE> required to be filed with the SEC on Form 8-K if the Company were
required to file such reports. In addition, whether or not required by the
rules and regulations of the SEC, the Company will file a copy of all such
information and reports with the SEC for public availability (unless the SEC
will not accept such a filing) and make such information available to
securities analysts and prospective investors upon request. In addition, the
Company and Jefferson Corp. have agreed that, for so long as any Series A
Notes remain outstanding, they will furnish to the Holders and to securities
analysts and prospective investors, upon their request, the information
required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.
Insurance
The Indenture provides that the Company will, and will cause its Subsidiaries
to, maintain insurance with responsible carriers against such risks and in
such amounts as is customarily carried by similar businesses with such
deductibles, retentions, self insured amounts and coinsurance provisions as
are customarily carried by similar businesses of similar size, including,
without limitation, property and casualty, and, with respect to insurance on
the Note Collateral, shall have provided insurance certificates evidencing
such insurance to the Trustee prior to the Issuance Date and shall thereafter
provide such certificates prior to the anniversary or renewal date of each
such policy, which certificate shall expressly state the expiration date for
each policy listed. Customary insurance coverage shall be deemed to include
the following:
(i) workers' compensation insurance to the extent required to comply with all
applicable state, territorial, or United States laws and regulations, or the
laws and regulations of any other applicable jurisdiction;
(ii) comprehensive general liability insurance with minimum limits of $1.0
million;
(iii) umbrella or excess liability insurance providing excess liability
coverages over and above the foregoing underlying insurance policies up to a
minimum limit of $25.0 million;
(iv) business interruption insurance (which, with respect to the Bossier
Riverboat, covers reasonable continuing expenses for loss attributable to the
loss or damage to the Bossier Riverboat); and
(v) property insurance protecting the property against loss or damage by fire,
lightning, windstorm, tornado, water damage, vandalism, riot, earthquake,
civil commotion, malicious mischief, hurricane, and such other risks and
hazards as are from time to time covered by an "all-risk" policy or a property
policy covering "special" causes of loss. Such insurance shall provide
coverage in not less than the lesser of 120% of the outstanding principal
amount of the Notes plus accrued and unpaid interest and 100% of actual
replacement value (as determined at each policy renewal based on the F.W.
Dodge Building Index or some other recognized means) of any improvements
customarily insured consistent with industry standards and with a deductible
no greater than 2% of the insured value of Casino Magic-Bossier City or such
greater amount as is available on commercially reasonable terms (other than
earthquake or flood insurance, for which the deductible may be up to 10% of
such replacement value).
97
<PAGE>All insurance with respect to the Note Collateral required under the
Indenture (except worker's compensation) shall name the Company and the
Trustee as additional insurers or loss payees, as the case may be, with losses
in excess of $10.0 million payable jointly to the Company and the Trustee
(unless a Default or Event of Default has occurred and is then continuing, in
which case all losses are payable solely to the Trustee), with no recourse
against the Trustee for the payment of premiums, deductibles, commissions or
club calls, and for at least 30 days notice of cancellation. All such
insurance policies will be issued by carriers having an A.M. Best & Company,
Inc. rating of A or higher and a financial size category of not less than X,
or if such carrier is not rated by A.M. Best & Company, Inc., having the
financial stability and size deemed appropriate by an opinion from a reputable
insurance broker. The Indenture will provide that the Company will deliver to
the Trustee on the Issuance Date and each anniversary thereafter a certificate
of an insurance agent stating that the insurance policies obtained by the
Company and its Subsidiaries comply with this covenant and the related
applicable provisions of the Collateral Documents.
Collateral Documents
The Indenture provides that neither the Company nor any of its Subsidiaries
will amend, waive or modify, or take or refrain from taking any action that
has the effect of amending, waiving or modifying any provision of the
Collateral Documents, to the extent that such amendment, waiver, modification
or action could have an adverse effect on the rights of the Trustee or the
Holders of the Notes; provided, that: (i) the Note Collateral may be released
or modified as expressly provided in the Indenture and in the Collateral
Documents; (ii) any Guarantee and pledges may be released as expressly
provided in the Indenture and in the Collateral Documents; and (iii) the
Indenture and any of the Collateral Documents may be otherwise amended, waived
or modified as set forth under the caption "-Amendment, Supplement and
Waiver."
Restriction on Payment of Management Fees
The Company shall not, directly or indirectly, pay to Casino Magic or any of
its Affiliates any Management Fee except pursuant to the Management Agreement
and in accordance with the Indenture. No payment of Management Fees, either
current or accrued, shall be made if at the time of payment of such Management
Fees, (i) a Default or an Event of Default shall have occurred and be
continuing or shall occur as a result thereof or (ii) the Company's Fixed
Charge Coverage Ratio for the Reference Period immediately preceding the date
of such payment would have been less than 1.5 to 1.0 (calculated on a pro
forma cash basis after only deducting such fees to the extent paid in cash and
not deferred for such period including any fees deferred from a prior period
to be paid in cash during such period and not deducting any such fees to the
extent deferred and not paid in cash during such period). Any Management Fees
not permitted to be paid pursuant to this covenant will be deferred and will
accrue and may be paid only at such time that they would otherwise be
permitted to be paid hereunder. The right to receive payment of the Management
Fee shall be subordinate in right of payment to the right of the Holders of
the Notes to receive payment pursuant to the Notes. The terms of the
Management Agreement cannot be amended to increase amounts to be paid
thereunder, or in any other manner which would be adverse to the Company or
the Holders of the Notes, including without limitation, to amend the
requirement that the Management Fee payable thereunder be based on the
Company's Adjusted Consolidated Cash Flow; provided, however, that the
foregoing shall not prohibit any amendment required under any Gaming Law or by
any Gaming Authority.
98
<PAGE>Additional Subsidiary Guarantees
The Indenture provides that if the Company or any of its Subsidiaries shall
acquire or create another Subsidiary after the date of the Indenture, then
such newly acquired or created Subsidiary shall execute a Guarantee and
deliver an opinion of counsel, in accordance with the terms of the Indenture.
Further Assurances
The Indenture provides that the Company will (and will cause each of its
Subsidiaries to) do, execute, acknowledge, deliver, record, re-record, file,
re-file, register and re-register, as applicable, any and all such further
acts, deeds, conveyances, security agreements, mortgages, assignments,
estoppel certificates, financing statements and continuations thereof,
termination statements, notices of assignment, transfers, certificates,
assurances and other instruments as may be required from time to time in order
(i) to carry out more effectively the purposes of the Collateral Documents,
(ii) to subject to the Liens created by any of the Collateral Documents any of
the properties, rights or interests required to be encumbered thereby, (iii)
to perfect and maintain the validity, effectiveness and priority of any of the
Collateral Documents and the Liens intended to be created thereby, and (iv) to
better assure, convey, grant, assign, transfer, preserve, protect and confirm
to the Trustee any of the rights granted now or hereafter intended by the
parties thereto to be granted to the Trustee or under any other instrument
executed in connection therewith or granted to the Company under the
Collateral Documents or under any other instrument executed in connection
therewith.
SECURITY
Subject to Permitted Liens, the Notes and the Guarantees are secured by a
first lien on the Note Collateral owned by the Company or any Guarantor,
respectively, whether now owned or hereafter acquired. The Note Collateral
securing the Notes includes, without limitation, and subject to Permitted
Liens (i) the fee simple interest in all of the real property comprising
Casino Magic-Bossier City, additions and improvements and component parts
related thereto, issues and profits therefrom, furniture, fixtures, machinery
and equipment forming a part thereof or used in connection therewith, (ii) the
Bossier Riverboat, the Crescent City Riverboat and all other vessels and
related improvements and personal property related thereto held by the
Company, (iii) all of the Company's accounts receivable, general intangibles,
inventory and other personal property and
100
<PAGE>(iv) certain construction contracts, operating agreements, the
Management Agreement, other agreements, licenses and permits entered into by,
or granted to the Company or any Guarantor in connection with the development,
construction, ownership and operation of Casino Magic-Bossier City. Such liens
and security interests may be subordinate or junior to mechanics' liens, which
under applicable Louisiana law may have priority over the mortgage of the real
property comprising Casino Magic-Bossier City and additions, improvements and
component parts relating thereto; provided, however, that, as the Indenture
requires, the title insurance obtained for the benefit of the Holders insures
against losses from the enforcement of such mechanics' liens. In addition, the
lien of the Holders may be subordinate to, or may not include (if precluded by
the terms of such security interests) security interests granted in connection
with indebtedness incurred to purchase FF&E. Holders of the Notes will have a
preferred ship's mortgage in the Bossier Riverboat and the Crescent City
Riverboat. Secured lenders of indebtedness incurred to purchase FF&E may be
granted a limited preferred ship's mortgage in the Bossier Riverboat for the
sole purpose of perfecting such lenders' security interest in such FF&E.
Subject to the restrictions in the Indenture, including pro forma compliance
with the covenant described under the caption "-Certain Covenants-Incurrence
of Indebtedness and Issuance of Preferred Stock," the Company is permitted to
incur indebtedness to finance the costs of constructing the Casino
Magic-Bossier City Hotel. In the event that the Company determines to incur
such indebtedness on a secured basis, the Indenture provides that (i) the
Trustee will release the land on which the hotel is to be built from the lien
for the benefit of the Notes and (ii) the Company will have the right to grant
a security interest for the benefit of the new lender in such real property
and all improvements constructed thereon, including the hotel. Under such
circumstances the Holders will have no security interest in the hotel or the
land on which it is constructed.
The Jefferson Guarantee is secured by a pledge of all of the Capital Stock of
the Company and secured by a first priority security interest in substantially
all existing and future assets of such entity. In addition, the Notes will be
secured by a pledge of the Capital Stock of each Subsidiary now or hereafter
owned by the Company and of any Subsidiary Intercompany Notes held by the
Company unless such pledge would in any way jeopardize obtaining or
maintaining a Gaming License or would require the Trustee or a Holder or
beneficial owner of the Notes to be licensed, qualified or found suitable by
any applicable Gaming Authority.
So long as no Default or Event of Default shall have occurred and be
continuing, and subject to certain terms and conditions in the Indenture and
the Collateral Documents, the Company and its Subsidiaries will be entitled to
receive all cash dividends, interest and other payments made upon or with
respect to the Note Collateral pledged by them and to exercise any voting and
other consensual rights pertaining to the Note Collateral pledged by them.
Upon the occurrence and during the continuance of a Default or Event of
Default, (a) all rights of the Company and its Subsidiaries to exercise such
voting or other consensual rights shall cease, and all such rights shall
become vested in the Trustee which, to the extent permitted by law, shall have
the sole right to exercise such voting and other consensual rights and (b) all
rights of the Company and its Subsidiaries to receive all cash dividends,
100
<PAGE>interest and other payments made upon or with respect to the pledged
collateral will cease and such cash dividends, interest and other payments
will be paid to the Trustee, and (c) the Trustee may sell the pledged
collateral or any part thereof in accordance with the terms of the Collateral
Documents. All funds distributed under the Collateral Documents and received
by the Trustee for the benefit of the Holders of the Notes will be distributed
by the Trustee in accordance with the provisions of the Indenture.
Under the terms of the Collateral Documents, the Trustee will determine the
circumstances and manner in which the pledged collateral shall be disposed of,
including, but not limited to, the determination of whether to release all or
any portion of the pledged collateral from the Liens created by the Collateral
Documents and whether to foreclose on the pledged collateral following a
Default or Event of Default. Moreover, upon the full and final payment and
performance of all Obligations of the Company under the Indenture and the
Notes, the Collateral Documents shall terminate and the pledged collateral
shall be released. In addition, in the event that the Capital Stock of any
Subsidiary of the Company is sold and the Net Proceeds are applied in
accordance with the terms of the covenant entitled "-Repurchase at the Option
of Holders-Asset Sales," the Trustee shall release the Liens in favor of the
Trustee in the assets sold; provided, that the Trustee shall have received
from the Company an Officers' Certificate certifying that such Net Proceeds
have been or will be so applied.
The proceeds of any sale of the Note Collateral in whole pursuant to the
Indenture and the related Collateral Documents following an Event of Default
may not be sufficient to satisfy payments due on the Notes. In addition, the
ability of the Holders of the Notes to realize upon the Note Collateral may be
limited pursuant to gaming laws, in the event of a bankruptcy and pursuant to
other applicable laws, including securities laws, all as described below. See
"-Remedies Upon Default Under Notes" below, and "Risks Factors-Ability to
Realize on Collateral; Bankruptcy Considerations," "-Mechanics' Liens," and
"-Fraudulent Conveyance Considerations."
The Indenture provides that the Net Proceeds of all Asset Sales (if unapplied
Net Proceeds of Asset Sales exceed $2.0 million at any time) and the Net Loss
Proceeds of all Events of Loss of any Note Collateral other than Note
Collateral existing on the date that Casino Magic-Bossier City began Operating
(other than Permitted Investments), as well as Excess Proceeds, shall be
promptly and without any commingling deposited with the Trustee subject to a
lien in favor of the Trustee for the benefit of the Holders of the Notes
unless and until applied as permitted under the covenant described under
"-Repurchase at the Option of Holders-Asset Sales" or "-Event of Loss," as the
case may be. The Trustee shall release to the Company any Excess Proceeds or
Excess Loss Proceeds, as the case may be, that remain after making an offer to
purchase the Notes in compliance with the covenant described under
"-Repurchase at the Option of Holders-Asset Sales" or "-Event of Loss," as
the case may be. Amounts so paid to the Trustee shall be invested or released
in accordance with the provisions of the Indenture.
101
<PAGE> Certain Gaming Law Limitations
The Trustee's ability to foreclose upon the Note Collateral will be limited by
relevant gaming laws, which generally require that persons who own or operate
a casino or purchase, possess or sell gaming equipment hold a valid gaming
license. No person can hold a license in the State of Louisiana unless the
person is found qualified or suitable by the relevant Gaming Authorities. In
order for the Trustee or a purchaser at or after foreclosure to be found
qualified or suitable, such Gaming Authorities would have discretionary
authority to require the Trustee, any or all of the Holders of the Notes and
any such purchaser 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 a
filing fee and all costs of such investigation. If the Trustee is unable or
chooses not to qualify, be found suitable, or licensed to own, operate or sell
such assets, it would have to retain or sell to an entity licensed to operate
or sell such assets. 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 would have an adverse effect on the sale price of the Note Collateral.
Therefore, the practical value of realizing on the Note Collateral may,
without the appropriate approvals, be limited.
Certain Bankruptcy Limitations
The right of the Trustee to repossess and dispose of the Note Collateral upon
the occurrence of an Event of Default is likely to be significantly impaired
by applicable bankruptcy law if a bankruptcy proceeding were to be commenced
by or against the Company or a Guarantor prior to the Trustee having
repossessed and disposed of the Note Collateral. Under the Bankruptcy Code, a
secured creditor such as the Trustee 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
(and the proceeds, products, offspring, rents or profits of such collateral)
even though the debtor is in default under the applicable debt instruments,
provided that the secured creditor is given "adequate protection." The meaning
of the term "adequate protection" may vary according to circumstances, but it
is intended in general to protect the value of the secured creditor's interest
in the collateral and may include, if approved by the court, cash payments or
the granting of additional security for any diminution in the value of the
collateral as a result of the stay of repossession or the disposition or any
use of the collateral by the debtor during the pendency of the bankruptcy
case. The court has broad discretionary powers in all these matters, including
the valuation of the Note Collateral. In addition, since the enforcement of
the Lien of the Trustee in cash, deposit accounts and cash equivalents (other
than the Construction Disbursement Account) may be limited in a bankruptcy
proceeding, the Holders of the Notes may not have any consent rights with
respect to the use of those funds by the Company or any of its Subsidiaries
during the pendency of the proceeding. In view of these considerations, 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 Note Collateral or whether or to what extent
Holders of the Notes would be compensated for any delay in payment or loss of
value of the Note Collateral.
102
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages, if any, with respect to, the Notes or under any Guarantee;
provided, that payments of Contingent Interest that are permitted to be
deferred as provided in the Notes will not become due for this purpose until
such payment is required to be made pursuant to the terms of the Notes; (ii)
default in payment when due of the principal of or premium, if any, on the
Notes; (iii) failure by the Company to comply with the provisions described
under the captions "Mandatory Redemption," "Repurchase at the Option of
Holders-Change of Control," "Asset Sales," "Event of Loss," "Certain
Covenants-Restricted Payments," "Incurrence of Indebtedness and Issuance of
Preferred Stock," "-Merger, Consolidation or Sale of Assets" or "-Limitation
on Use of Proceeds" or certain covenants of the First Preferred Ship Mortgage
on the Bossier Riverboat or the Crescent City Riverboat; (iv) failure by the
Company for 30 days after notice to comply with any of its other agreements in
the Indenture or the Notes; (v) default under 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 Company or any of its
Subsidiaries (or the payment of which is guaranteed by the Company or any of
its Subsidiaries) whether such Indebtedness or guarantee now exists, or is
created after the date of the Indenture, which default (a) is caused by a
failure to pay principal of or premium, if any, or interest on such
Indebtedness prior to the expiration of the grace period provided in such
Indebtedness on the date of such default (a "Payment Default") or (b) results
in the acceleration of such Indebtedness prior to its express maturity and, in
each case, the principal amount of any such Indebtedness, together with the
principal amount of any other such Indebtedness under which there has been a
Payment Default or the maturity of which has been so accelerated, aggregates
$5.0 million or more; (vi) failure by the Company or any of its Subsidiaries
to pay final judgments aggregating in excess of $5.0 million, which judgments
are not paid, discharged or stayed for a period of 60 days; (vii) breach by
the Company or any Guarantor of any material representation or warranty set
forth in the Collateral Documents, or failure by the Company or any Guarantor
for three business days after notice to comply with any covenant set forth in
103
<PAGE>the Collateral Documents requiring the payment of money or failure by
the Company or any Guarantor for 30 days after notice to comply with any other
covenant set forth in the Collateral Documents, or repudiation by the Company
or any Guarantor of its obligations under the Collateral Documents or the
unenforceability of the Collateral Documents against the Company or any
Guarantor for any reason; (viii) certain events of bankruptcy or insolvency
with respect to the Company or any of its Significant Subsidiaries; (ix)
revocation, termination, suspension or other cessation of effectiveness of any
Gaming License which results in the cessation or suspension of gaming
operations for a period of more than 90 consecutive days at any Gaming
Facility of the Company or any of its Subsidiaries; (x) the failure of Casino
Magic-Bossier City to be Operating by the Operating Deadline or to remain
Operating thereafter, except as the hours of operation of Casino Magic-Bossier
City may be limited by any Gaming Authority or Gaming Law; or (xi) except as
permitted by the Indenture, any Guarantee shall be held in any judicial
proceeding to be unenforceable or invalid or shall cease for any reason to be
in full force and effect or any Guarantor, or any Person acting on behalf of
any Guarantor, shall deny or disaffirm its obligations under its Guarantee.
If any Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the then outstanding Notes may declare
all the Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Company, any Significant
Subsidiary of the Company or any group of Subsidiaries of the Company that,
taken together, would constitute a Significant Subsidiary of the Company, all
outstanding Notes will become due and payable without further action or
notice. Holders of the Notes may not enforce the Indenture or the Notes except
as provided in the Indenture. Subject to certain limitations, Holders of a
majority in principal amount of the then outstanding Notes may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of the Notes notice of any continuing Default or Event of Default
(except a Default or Event of Default relating to the payment of principal or
interest) if it determines that withholding notice is in their interest.
In the case of any Event of Default occurring by reason of any willful action
(or inaction) taken (or not taken) by or on behalf of the Company with the
intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Notes. If an Event of Default occurs prior to
August 15, 2000, by reason of any willful action (or inaction) taken (or not
taken) by or on behalf of the Company with the intention of avoiding the
prohibition on redemption of the Notes prior to August 15, 2000, then the
premium specified in the Indenture shall also become immediately due and
payable to the extent permitted by law upon the acceleration of the Notes.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of
the Notes waive any existing Default or Event of Default and its consequences
under the Indenture except a continuing Default or Event of Default in the
payment of interest or Liquidated Damages, if any, on, premium, if any, or the
principal of, the Notes.
104
<PAGE>The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is 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.
REMEDIES UPON DEFAULT UNDER NOTES
Specific rights and remedies of the Trustee, as the secured party under the
Collateral Documents, include the right of the Trustee under federal or state
law to foreclose upon and sell Note Collateral encumbered thereby and to apply
the net proceeds realized upon such Note Collateral to the Indebtedness
evidenced by the Notes in accordance with the terms of the Indenture and the
Collateral Documents. The Collateral Documents generally provide for the
application of the internal laws of the state in which the Collateral is
located or federal admiralty law, while the Indenture, the Notes and the
Guarantees of Jefferson Corp. and of any future subsidiaries of the Company
provide or will provide, with certain exceptions, for the application of the
internal laws of the state of New York. There is no certainty that the
stipulated governing law would be applied by any court with respect to the
enforcement of remedies under the Notes, the Indenture, the Guarantees, or the
Collateral Documents.
Enforcement of rights under certain of the Collateral Documents requires that
the Trustee initiate a judicial foreclosure against the Note Collateral. In
such event, the Trustee would be required to file a suit in the appropriate
local court. If the court found in favor of the Trustee, judgment of
foreclosure and order of sale would be entered, and the court would order the
sale of the affected Note Collateral, and such foreclosure would be subject to
certain notice and other procedural limitations. With respect to vessels
constituting Note Collateral, or leasehold or other interests therein, 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 with
the United States Marshal. After application of proceeds of such sale to the
Indebtedness, the Trustee may be entitled to a deficiency judgment under
certain circumstances; however, there can be no assurance that the Trustee
would be successful in obtaining any deficiency judgment, what the amount of
any such judgment if obtained might be, or that the Company or the Guarantors
would be able to satisfy any such judgment, if obtained.
Due to the legal restrictions on the ability to engage in gaming activities in
gaming jurisdictions, the Trustee may incur delays or possibly frustration in
its efforts to sell all or a portion of the Note Collateral. Operators of
gaming facilities are required to be licensed by Gaming Authorities and may be
required by Gaming Authorities to file applications, to be investigated and to
be found suitable as owners or landlords of a gaming establishment. Such
requirements for approval by Gaming Authorities may delay or preclude a sale
of the Note Collateral to a potential buyer at a foreclosure sale or sales.
This may effectively limit the number of potential bidders and may delay such
sales, either of which could adversely affect the sale price of the Note
Collateral. In addition, the disposition of Note Collateral consisting of
gaming devices may be subject to the prior approval of the applicable Gaming
Authority. Moreover, the gaming industry could become subject to different or
additional regulations during the term of the Notes, which could further
adversely affect the practical rights and remedies that the Trustee would have
upon the occurrence of an event of default under the Notes or the Indenture.
105
<PAGE>In addition to being subject to gaming law restrictions, the Trustee's
ability to foreclose upon and sell Note Collateral will be subject to the
procedural and other restrictions of state real estate law or the Uniform
Commercial Code or, in the case of gaming vessels, certain federal admiralty
law statutes. Further, certain limitations exist under federal admiralty law
statutes on the ability of non-U.S. citizens to realize upon Note Collateral
consisting of vessels documented under the laws of the United States. In
addition, the Note Collateral includes stock of a company, and may in the
future include stock of other companies, that is not publicly traded and may
only be sold in compliance with applicable Federal and state securities laws.
This may effectively limit the number of potential bidders for such stock or
other Note Collateral and may delay such sales, either of which could
adversely affect the sale price of such Note Collateral. In addition, certain
direct or indirect leasehold interests, contracts and other assets may not be
sold without the consent of certain third parties.
With regard to proceeding against any Guarantor and its assets, the Trustee
may either foreclose upon any intercompany loans made by the Company to such
Guarantor and pledged by the Company to secure the Notes or proceed under the
Guarantee of such Guarantor, or both. If the Trustee chooses to foreclose upon
intercompany loans, the necessity of first foreclosing on the pledge of such
loans might result in delay and increase the risk that a petition for relief
under bankruptcy or insolvency law could be filed by or against any one or
more of the Company and Guarantor. If, on the other hand, the Trustee chooses
to proceed by demand and foreclosure upon a Guarantee of a Guarantor, its
ability to realize upon Note Collateral could be limited by the invocation of
state-law suretyship defenses and fraudulent transfer laws.
The ability to foreclose upon and dispose of Note Collateral directly or
indirectly securing the Notes is also likely to be significantly impaired or
delayed by applicable bankruptcy laws if a bankruptcy case were to be
commenced by or against the Company or Guarantor owning the Note Collateral.
Under applicable bankruptcy laws, the Trustee and the Holders of Notes would
be prohibited from foreclosing upon, taking possession or disposing of the
Note Collateral absent bankruptcy court approval. Moreover, the Company or
such Guarantor would be permitted to retain and use Note Collateral as long as
the Trustee and the Holders of Notes are being provided "adequate protection"
in the form of a cash payment or periodic cash payments or an additional or
replacement lien or in some other form approved by the court in its
discretion. While this requirement is generally intended to protect the value
of the security, it cannot be predicted what form of "adequate protection"
might be approved by the court in the particular case. The court has broad
discretionary powers in all these matters, including the valuation of Note
Collateral. In view of these considerations, it is not possible to predict for
how long payments on the Notes would be delayed following the filing of a
bankruptcy case, whether or when the Trustee could foreclose upon or take
possession of or sell the Note Collateral or to what extent the Holders of the
Notes would be compensated for any delay in payment or loss of value of the
Note Collateral.
The Indenture provides that the Company will, and will cause each Guarantor
to, execute, acknowledge, deliver, record, re-record, file, re-file, register
and re-register, any and all such further acts, deeds, conveyances, security
agreements, mortgages, assignments, estoppel certificates, financing
106
<PAGE>statements and continuations thereof, termination, statements, notice of
assignment, transfers, certificates, assurances and other instruments as
reasonably may be required from time to time in order (i) to carry out more
effectively the purposes of the Collateral Documents, (ii) to subject to the
Liens created by any of the Collateral Documents any of the properties, rights
or interests required to be encumbered thereby, (iii) to perfect and maintain
the validity, effectiveness and priority of any of the Collateral Documents
and the Liens intended to be created thereby and (iv) to better assure,
convey, grant, assign, transfer, preserve, protect and confirm to the Trustee
any and all rights granted or now or hereafter intended by the parties thereto
to be granted to the Trustee or the Company under the Collateral Documents, or
under any other instrument executed in connection therewith.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company or
the Guarantors, as such, shall have any liability for any obligations of the
Company or the Guarantors under the Notes, the Indenture, any Guarantee or the
Collateral Documents, as applicable, or for any claim based on, in respect of,
or by reason of, such obligations or their creation. Each Holder of Notes by
accepting a Note waives and releases all such liability. The waiver and
release are part of the consideration for issuance of the Notes. Such waiver
may not be effective to waive liabilities under the federal securities laws
and it is the view of the SEC that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its and
the Guarantors' 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 and Liquidated Damages, if any, on such Notes when such payments are
due from the trust referred to below, (ii) the Company's obligations with
respect to the Notes concerning issuing temporary Notes, registration of
Notes, mutilated, destroyed, lost or stolen Notes and the maintenance of an
office or agency for payment and money for security payments held in trust,
(iii) the rights, powers, trusts, duties and immunities of the Trustee, and
the Company's obligations in connection therewith and (iv) the Legal
Defeasance provisions of the Indenture. In addition, the Company may, at its
option and at any time, elect to have the obligations of the Company and the
Guarantors released with respect to certain covenants that are described in
the Indenture ("Covenant Defeasance") and thereafter any omission to comply
with such obligations shall not constitute a Default or Event of Default with
respect to the Notes. In the event Covenant Defeasance occurs, 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
Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient,
in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and interest and
107
<PAGE>Liquidated Damages, if any, on the outstanding Notes on the stated date
for payment thereof or on the applicable redemption date, as the case may be,
and the Company must specify whether the Notes are being defeased to maturity
or to a particular redemption date; (ii) in the case of Legal Defeasance, the
Company shall have delivered to the Trustee an opinion of counsel in the
United States reasonably acceptable to the Trustee confirming that (A) the
Company has received from, or there has been published by, the Internal
Revenue Service a ruling or (B) since the date of the Indenture, there has
been a change in the applicable federal income tax law, in either case to the
effect that, and based thereon such opinion of counsel shall confirm that, the
Holders of the outstanding 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 Company shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that the Holders of the outstanding Notes
will not recognize income, gain or loss for federal income tax purposes as a
result of such Covenant Defeasance and will be subject to federal income tax
on the same amounts, in the same manner and at the same times as would have
been the case if such Covenant Defeasance had not occurred; (iv) no Default or
Event of Default shall have occurred and be continuing on the date of such
deposit (other than a Default or Event of Default resulting from the borrowing
of funds to be applied to such deposit) or insofar as Events of Default from
bankruptcy or insolvency events are concerned, at any time in the period
ending on the 91st day after the date of deposit; (v) such Legal Defeasance or
Covenant Defeasance will not result in a breach or violation of, or constitute
a default under any material agreement or instrument (other than the
Indenture) to which the Company or any of its Subsidiaries is a party or by
which the Company or any of its Subsidiaries is bound; (vi) the Company must
have delivered to the Trustee an opinion of counsel to the effect that after
the 91st day following the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or similar
laws affecting creditors' rights generally; (vii) the Company must deliver to
the Trustee an Officers' Certificate stating that the deposit was not made by
the Company with the intent of preferring the Holders of Notes over the other
creditors of the Company with the intent of defeating, hindering, delaying or
defrauding creditors of the Company or others; and (viii) the Company must
deliver to the Trustee an Officers' Certificate and an opinion of counsel,
each stating that all conditions precedent provided for 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 Company may require a
Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note
selected for redemption. Also, the Company is not required to transfer or
exchange any Note for a period of 15 days before a selection of Notes to be
redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
108
<PAGE> AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next three succeeding paragraphs, the Indenture, the
Notes, the Guarantees or the Collateral Documents may be amended or
supplemented with the consent of the Holders of at least a majority in
principal amount of the Notes then outstanding (including, without limitation,
consents obtained in connection with a purchase of, or tender offer or
exchange offer for, Notes), and any existing default or compliance with any
provision of the Indenture or the Notes may be waived with the consent of the
Holders of a majority in principal amount of the then outstanding Notes
(including consents obtained in connection with a tender offer or exchange
offer for Notes).
Without the consent of the Holders of at least 85% in aggregate principal
amount of the Notes then outstanding, an amendment or waiver may not affect
the Liens in favor of the Trustee and the Holders of the Notes created under
the Collateral Documents in a manner adverse to the Holders (other than
pursuant to the release of Note Collateral in accordance with the provisions
of the Indenture and of the applicable Collateral Documents) or release all or
substantially all of the Note Collateral.
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 change the fixed
maturity of any Note or alter the provisions with respect to the redemption of
the Notes (other than provisions relating to the covenants described above
under the caption "-Repurchase at the Option of Holders-Change of Control" and
"-Asset Sales," which shall require the consent of the Holders of at least
662/3% in principal amount of the Notes then outstanding), (iii) reduce the
rate of or change the time for payment of interest on any Note, (iv) waive a
Default or Event of Default in the payment of principal of or premium, or
Liquidated Damages, if any, or interest on the Notes (except a rescission of
acceleration of the Notes by the Holders of at least a majority in aggregate
principal amount of the Notes and a waiver of the payment default that
resulted from such acceleration), (v) make any Note payable in money other
than that stated in the Notes, (vi) make any change in the provisions of the
Indenture relating to waivers of past Defaults or the rights of Holders of
Notes to receive payments of principal of, premium or Liquidated Damages, if
any, or interest on the Notes, (vii) waive a redemption payment with respect
to any Note (other than a payment required by one of the covenants described
above under the caption "-Repurchase at the Option of Holders"), or (viii)
make any change in the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any Holder of Notes, the
Company and the Trustee may amend or supplement the Indenture, the Notes, the
Guarantee or the Collateral Documents to cure any ambiguity, defect or
inconsistency, to provide for uncertificated Notes in addition to or in place
of certificated Notes, to provide for the assumption of the Company's and the
Guarantors' obligations to Holders of Notes in the case of a merger or
consolidation, to make any change that would provide any additional rights or
benefits to the Holders of Notes or that does not adversely affect the legal
rights under the Indenture or the Collateral Documents of any such Holder, or
to comply with requirements of the SEC in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act. The Indenture
and the Security Agreement were so amended in March 1997, in connection with a
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<PAGE>refinancing of certain of the gaming equipment financing assumed by the
Company in May 1996, to correct a defect or ambiguity and confirm that such
gaming equipment financing was a portions of the Indebtedness permitted to be
incurred to FF&E.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage
in other transactions; however, if it acquires any conflicting interest it
must eliminate such conflict within 90 days, apply to the SEC for permission
to continue or resign.
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the
Indenture at the request of any Holder of Notes, unless such Holder shall have
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture, the
Collateral Documents and Registration Rights Agreement without charge by
writing to Casino Magic of Louisiana, Corp., 711 Casino Magic Drive, Bay St.
Louis, Mississippi, 39520, Attention: Corporate Secretary.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth in the next paragraph, the Series B Notes to be resold as
set forth herein will initially be issued in the form of one or more Global
Notes (collectively, the "Global Note"). The Global Note will be deposited on
the date of the closing of the sale of the Series B Notes offered hereby (the
"Closing Date") with, or on behalf of, The Depository Trust Company (the
"Depositary") and registered in the name of Cede & Co., as nominee of the
Depositary (such nominee being referred to herein as the "Global Note
Holder").
Series B Notes that are issued as described below under "-Certificated
Securities" will be issued in the form of registered definitive certificates
(the "Certificated Securities"). Upon the transfer of Certificated Securities,
such Certificated Securities may, unless the Global Note has previously been
exchanged for Certificated Securities, be exchanged for an interest in the
Global Note representing the principal amount of Series B Notes being
transferred.
The Depositary is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the
"Participants" or the "Depositary's Participants") and to facilitate the
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<PAGE>clearance and settlement of transactions in such securities between
Participants through electronic book-entry changes in accounts of its
Participants. The Depositary's Participants include securities brokers and
dealers (including the Initial Purchasers), banks and trust companies,
clearing corporations and certain other organizations. Access to the
Depositary's system is also available to other entities such as banks,
brokers, dealers and trust companies (collectively, the "Indirect
Participants" or the "Depositary's Indirect Participants") that clear through
or maintain a custodial relationship with a Participant, either directly or
indirectly. Persons who are not Participants may beneficially own securities
held by or on behalf of the Depositary only thorough the Depositary's
Participants or the Depositary's Indirect Participants.
Ownership of the Notes evidenced by the Global Note will be shown on, and the
transfer of ownership thereof will be effected only through, records
maintained by the Depositary (with respect to the interests of the
Depositary's Participants), the Depositary's Participants and the Depositary's
Indirect Participants. Prospective purchasers are advised that the laws of
some states require that certain persons take physical delivery in definitive
form of securities that they own. Consequently, the ability to transfer Notes
evidenced by the Global Note will be limited to such extent. For certain other
restrictions on the transferability of the Notes, see "Notice to Investors."
So long as the Global Note Holder is the registered owner of any Notes, the
Global Note Holder will be considered the sole Holder under the Indenture of
any Notes evidenced by the Global Note. Beneficial owners of Notes evidenced
by the Global Note will not be considered the owners or Holders thereof under
the Indenture for any purpose, including with respect to the giving of any
directions, instructions or approvals to the Trustee thereunder. Neither the
Company nor the Trustee will have any responsibility or liability for any
aspect of the records of the Depositary or for maintaining, supervising or
reviewing any records of the Depositary relating to the Notes.
Payments in respect of the principal of, premium, if any, interest and
Liquidated Damages, if any, on any Notes registered in the name of the Global
Note Holder on the applicable record date will be payable by the Trustee to or
at the direction of the Global Note Holder in its capacity as the registered
Holder under the Indenture. Under the terms of the Indenture, the Company and
the Trustee may treat the persons in whose names Notes, including the Global
Note, are registered as the owners thereof for the purpose of receiving such
payments. Consequently, neither the Company nor the Trustee has or will have
any responsibility or liability for the payment of such amounts to beneficial
owners of Notes. The Company believes, however, that it is currently the
policy of the Depositary to immediately credit the accounts of the relevant
Participants with such payments, in amounts proportionate to their respective
holdings of beneficial interests in the relevant security as shown on the
records of the Depositary. Payments by the Depositary's Participants and the
Depositary's Indirect Participants to the beneficial owners of Notes will be
governed by standing instructions and customary practice and will be the
responsibility of the Depositary's Participants or the Depositary's Indirect
Participants.
Certificated Securities
Subject to certain conditions, any person having a beneficial interest in the
Global Note may, upon request to the Trustee, exchange such beneficial
interest for Notes in the form of Certificated Securities. Upon any such
issuance, the Trustee is required to register such Certificated Securities in
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<PAGE>the name of, and cause the same to be delivered to, such person or
persons (or the nominee of any thereof). In addition, if (i) the Company
notifies the Trustee in writing that the Depositary is no longer willing or
able to act as a Depositary and the Company is unable to locate a qualified
successor within 90 days or (ii) the Company, at its option, notifies the
Trustee in writing that it elects to cause the issuance of Notes in the form
of Certificated Securities under the Indenture, then, upon surrender by the
Global Note Holder of its Global Note, Notes in such form will be issued to
each person that the Global Note Holder and the Depositary identify as being
the beneficial owner of the related Notes.
Neither the Company nor the Trustee will be liable for any delay by the Global
Note Holder or the Depositary in identifying the beneficial owners of Notes
and the Company and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the Global Note Holder or the
Depositary for all purposes.
Same-Day Settlement and Payment
The Indenture will require that payments in respect of the Notes represented
by the Global Note (including principal, premium, if any, interest and
Liquidated Damages, if any) be made by wire transfer of immediately available
funds to the accounts specified by the Global Note Holder. If requested by a
Holder who holds $5.0 million or more in principal amount of Certificated
Notes, and with respect to all Global Notes, the Company will make all
payments of principal, premium, if any, interest and Liquidated Damages, if
any, by wire transfer of immediately available funds to the accounts specified
by the Holders thereof or, if no such account is specified, by mailing a check
to each such Holder's registered address. Secondary trading in long-term notes
and debentures of corporate issuers is generally settled in clearing-house or
next-day funds. In contrast, the Notes represented by the Global Note are
expected to be eligible to trade in the PORTAL Market and to trade in the
Depositary's Same-Day Funds Settlement System, and any permitted secondary
market trading activity in such Notes will, therefore, be required by the
Depositary to be settled in immediately available funds. The Company expects
that secondary trading in the Certificated Securities will also be settled in
immediately available funds.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
The Company and the Initial Purchasers entered into the Registration Rights
Agreement on August 22, 1996. Pursuant to the Registration Rights Agreement,
the Company agreed to file with the SEC the Exchange Offer Registration
Statement on the appropriate form under the Securities Act with respect to the
Series B Notes. Upon the effectiveness of the Exchange Offer Registration
Statement, the Company will offer to the Holders of Transfer Restricted
Securities pursuant to the Exchange Offer who are able to make certain
representations the opportunity to exchange their Transfer Restricted
Securities for Series B Notes. If (i) the Company is not required to file the
Exchange Offer Registration Statement or permitted to consummate the Exchange
Offer because the Exchange Offer is not permitted by applicable law or SEC
policy or (ii) any Holder of Transfer Restricted Securities notifies the
Company within the specified time period that (A) it is prohibited by law or
SEC policy from participating in the Exchange Offer or (B) that it may not
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<PAGE>resell the Series B Notes acquired by it in the Exchange Offer to the
public without delivering a prospectus and the prospectus contained in the
Exchange Offer Registration Statement is not appropriate or available for such
resales or (C) that it is a broker-dealer and owns Series A Notes acquired
directly from the Company or an affiliate of the Company, the Company will
file with the SEC a Shelf Registration Statement to cover resales of the
Series A Notes by the Holders thereof who satisfy certain conditions relating
to the provision of information in connection with the Shelf Registration
Statement. The Company will use its best efforts to cause the applicable
registration statement to be declared effective as promptly as possible by the
SEC. For purposes of the foregoing, "Transfer Restricted Securities" means
each Series A Note until (i) the date on which such Note has been exchanged by
a person other than a broker-dealer for a Series A Note in the Exchange Offer,
(ii) following the exchange by a broker-dealer in the Exchange Offer of a
Series A Note for a Series B Note, the date on which such Series B Note is
sold to a purchaser who receives from such broker-dealer on or prior to the
date of such sale a copy of the prospectus contained in the Exchange Offer
Registration Statement, (iii) the date on which such Series A Note has been
effectively registered under the Securities Act and disposed of in accordance
with the Shelf Registration Statement or (iv) the date on which such Series A
Note is distributed to the public pursuant to Rule 144 under the Act.
The Registration Rights Agreement provides that (i) the Company will file an
Exchange Offer Registration Statement with the SEC on or prior to 60 days
after the Closing Date, (ii) the Company will use its best efforts to have the
Exchange Offer Registration Statement declared effective by the SEC on or
prior to 100 days after the Closing Date, (iii) unless the Exchange Offer
would not be permitted by applicable law or Commission policy, the Company
will commence the Exchange Offer and use its best efforts to issue on or prior
to 30 business days after the date on which the Exchange Offer Registration
Statement was declared effective by the SEC, Series B Notes in exchange for
all Series A Notes tendered prior thereto in the Exchange Offer and (iv) if
obligated to file the Shelf Registration Statement, the Company will use its
best efforts to file the Shelf Registration Statement with the SEC on or prior
to 30 days after such filing obligation arises (and in any event within 190
days after the Closing Date) and to cause the Shelf Registration to be
declared effective by the SEC on or prior to 60 days after such obligation
arises.
Although the Company has filed this registration statement to satisfy the
obligations described above, there can be no assurance that such registration
statement will become effective. If (a) the Company fails to file any of the
Registration Statements required by the Registration Rights Agreement on or
before the date specified for such filing, (b) any of such Registration
Statements is not declared effective by the SEC on or prior to the date
specified for such effectiveness (the "Effectiveness Target Date"), (c) the
Company fails to Consummate the Exchange Offer within 30 business days of the
Effectiveness Target Date with respect to the Exchange Offer Registration
Statement, or (d) the Shelf Registration Statement or the Exchange Offer
Registration Statement is declared effective but thereafter ceases to be
effective or usable in connection with resales of Transfer Restricted
Securities during the periods specified in the Registration Rights Agreement
(each such event referred to in clauses (a) through (d) above a "Registration
Default"), then the Company is required to pay Liquidated Damages to each
113
<PAGE>Holder of Notes, with respect to the first 90-day period immediately
following the occurrence of such Registration Default in an amount equal to
$.05 per week per $1,000 principal amount of Notes held by such Holder. The
amount of the Liquidated Damages will increase by an additional $.05 per week
per $1,000 principal amount of Notes with respect to each subsequent 90-day
period until all Registration Defaults have been cured, up to a maximum amount
of Liquidated Damages of $.50 per week per $1,000 principal amount of Notes.
All accrued Liquidated Damages will be paid by the Company on each Damages
Payment Date to the Global Note Holder by wire transfer of immediately
available funds or by federal funds check and to Holders of Certificated
Securities by wire transfer to the accounts specified by them or by mailing
checks to their registered addresses if no such accounts have been specified.
Following the cure of all Registration Defaults, the accrual of Liquidated
Damages will cease. Pursuant to the foregoing, on March 12, 1997, the Company
paid Liquidated Damages through February 15, 1997 of approximately $61,600
attributable to the failure to have caused the Registration Statement to have
become effective on or prior to the Effectiveness Target Date.
Holders of Notes will be required to make certain representations to the
Company (as described in the Registration Rights Agreement) in order to
participate in the Exchange Offer and will be required to deliver information
to be used in connection with the Shelf Registration Statement and to provide
comments on the Shelf Registration Statement within the time periods set forth
in the Registration Rights Agreement in order to have their Notes included in
the Shelf Registration Statement and benefit from the provisions regarding
Liquidated Damages set forth above.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference is
made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i) Indebtedness
of any other Person existing at the time such other Person is merged with or
into or became a Subsidiary of such specified Person, including, without
limitation, Indebtedness incurred in connection with, or in contemplation of,
such other Person merging with or into or becoming a Subsidiary of such
specified Person, and (ii) Indebtedness secured by a Lien encumbering any
asset acquired by such specified Person.
"Adjusted Consolidated Cash Flow" means, with respect to the Company for any
period, the Consolidated Cash Flow of the Company for such period plus an
amount equal to the aggregate Management Fees paid or accrued by the Company
for such period, to the extent such Management Fees were deducted in computing
Consolidated Net Income for purposes of computing such Consolidated Cash Flow.
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<PAGE>
"Adjusted Fixed Charge Coverage Ratio" means with respect to any Person for
any period, the ratio of the Adjusted Consolidated Cash Flow of such Person
and its Subsidiaries for such period to the Fixed Charges of such Person and
its Subsidiaries for such period (calculated in the same manner as the Fixed
Charge Coverage Ratio is calculated); provided that the amount of Contingent
Interest on a pro forma basis shall equal the Contingent Interest accrued and
reflected in the financial statements for the last two Semiannual Periods with
respect to which Contingent Interest was accruable or payable or, if two such
Semiannual Periods have not occurred, then the amount accrued and reflected in
the financial statements with respect to the most recently completed Reference
Period beginning after the Commencement Date.
"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,
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of such Person, whether
through the ownership of voting securities, by agreement or otherwise;
provided that beneficial ownership of 10% or more of the voting securities of
a Person shall be deemed to be control.
"Asset Sale" means, for any person, (i) the sale, transfer, lease, conveyance
or other disposition (or series thereof) (including, without limitation, by
merger or consolidation or by exchange of assets whether by operation of law
or otherwise or by way of a sale and leaseback) of any assets of such person,
including, without limitation, assets consisting of Capital Stock held by such
person) other than a disposition of inventory in the ordinary course of
business; provided that the sale, lease, conveyance or other disposition of
all or substantially all of the assets of the Company and its Subsidiaries
taken as a whole will be governed by the provisions of the Indenture described
above under the caption "-Repurchase at the Option of Holders-Change of
Control" and/or the provisions described above under the caption "-Certain
Covenants-Merger, Consolidation or Sale of Assets" and not by the provisions
of the Asset Sale covenant, (ii) the issue or sale by the Company or any of
its Subsidiaries of Equity Interests of any of the Company's Subsidiaries, in
the case of clauses (i) or (ii), for net proceeds of, or with a fair market
value in excess of $250,000 with respect to each disposition or series of
related dispositions and (iii) an Event of Loss with respect to any assets of
the Company or any of its Subsidiaries other than Note Collateral existing on
the date that Casino Magic-Bossier City becomes Operating. Notwithstanding the
foregoing, (i) a transfer of assets by the Company to a Substantially Owned
Subsidiary of the Company or by a Substantially Owned Subsidiary of the
Company to the Company or to another Substantially Owned Subsidiary of the
Company, (ii) an issuance of Equity Interests by a Substantially Owned
Subsidiary of the Company to the Company or to another Substantially Owned
Subsidiary of the Company, (iii) a Restricted Payment that is permitted by the
covenant described above under the caption "-Certain Covenants-Restricted
Payments," (iv) the sale of a Restricted Investment and (v) any Event of Loss
with respect to Note Collateral comprising Casino Magic-Bossier City on the
date that it becomes Operating, in each case, will not be deemed to be an
Asset Sale.
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<PAGE>"Attributable Debt" in respect of a sale and leaseback transaction
means, at the time of determination, the present value (discounted at the rate
of interest implicit in such transaction, determined in accordance with GAAP)
of the obligation of the lessee for net rental payments during the remaining
term of the lease included in such sale and leaseback transaction (including
any period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Bossier Riverboat" means that certain riverboat gaming vessel "Mary's Prize"
Official No. 1028011 purchased by the Company from Boyd Gaming Corporation
pursuant to that certain Buy-Sell Agreement dated August 2, 1996.
"Capital Lease Obligation" means, at the time any determination thereof is to
be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance
with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock, (ii)
in the case of an association or business entity, any and all shares,
interests, participation, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"Cash Collateral Accounts" means collectively, the Construction Disbursement
Account, the Completion Reserve Account, the Interest Reserve Account, the
Operating Reserve Account and the Escrow Account.
"Cash Collateral and Disbursement Agreement" means the Cash Collateral and
Disbursement Agreement among the Company, the Trustee, and the Disbursement
Agent, in connection with Casino Magic-Bossier City.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued or
directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than six
months from the date of acquisition, (iii) certificates of deposit and
eurodollar time deposits with maturities of six months or less from the date
of acquisition, bankers' acceptances with maturities not exceeding six months
and overnight bank deposits, in each case with any domestic commercial bank
having capital and surplus in excess of $500 million and a Keefe Bank Watch
Rating of "B" or better, (iv) repurchase obligations with a term of not more
than seven days for underlying securities of the types described in clauses
(ii) and (iii) above entered into with any financial institution meeting the
qualifications specified in clause (iii) above, (v) commercial paper having
one of the two highest ratings obtainable from Moody's Investors Service, Inc.
or Standard & Poor's Ratings Group and in each case maturing within six months
after the date of acquisition, and (vi) investment funds investing solely in
securities of the types described in clauses (ii), (iii), (iv) or (v) above.
"Casino Magic" means Casino Magic Corp., a Minnesota corporation.
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<PAGE>"Casino Magic-Bossier City" means the project to develop, construct,
equip and open the Casino Magic-Bossier City dockside riverboat casino,
substantially as described in this Prospectus, which is located on an
approximately 23-acre site along the Red River in Bossier City, Louisiana, and
which will consist of, among other things, (i) a recently constructed
riverboat which measures 254 feet long and 78 feet wide, and contains
approximately 58,000 square feet of interior space, including 30,000 square
feet of gaming space with approximately 984 slot machines and 50 table games,
(ii) a 37,000 square foot entertainment pavilion, and related amenities
(including a 350-seat buffet restaurant, a gift shop, a bar and lounge area
and a stage area designed to showcase live entertainment, including dance
productions, bands and individual performers with an open seating area that
will accommodate up to 300 people) and (iii) covered parking for 1,550 cars,
and any future developments or improvements in connection therewith. For
purposes of this definition, the phrase "substantially as described" with
respect to any of the numbers herein shall be deemed to have been satisfied if
the actual number is at least 85% of the respective number listed herein, in
each case, with the same overall qualities and amenities as provided in the
Construction Budget and Plans.
"Casino Magic-Bossier City Hotel" means the planned future hotel with at least
325 rooms and related amenities adjacent to Casino Magic-Bossier City,
including without limitation, the real property on which such hotel is
located.
"Change of Control" means the occurrence of any of the following events: (a)
any "person" or "group" (as such terms are used in Sections 13(d) and 14(d)
under the Exchange Act) is or becomes the beneficial owner (as defined in
Rules 13d-3 and 13d-5 under the Exchange Act, except that a person will be
deemed to have "beneficial ownership" of all securities that such person has
the right to acquire, whether such right is exercisable immediately or only
after the passage of time) directly or indirectly of more than 30% of the
total combined voting power of the outstanding Voting Stock of Casino Magic,
if the Permitted Holders (i) beneficially own a lower percentage of the
combined voting power of the outstanding Voting Stock of Casino Magic than
such other person or group on such date and (ii) do not have the then
effective right or ability by voting power, contract or otherwise to elect or
designate for election a majority of the Board of Directors of Casino Magic;
(b) Casino Magic consolidates with, or merges with or into, another person or
sells, assigns, conveys, transfers, leases or otherwise disposes of all or
substantially all of the assets of Casino Magic and its Subsidiaries taken as
a whole to any person, or any person consolidates with, or merges with or
into, Casino Magic, pursuant to a transaction in which the outstanding Voting
Stock of Casino Magic is converted into or exchanged for cash, securities
(other than Voting Stock of Casino Magic) or other property; (c) during any
consecutive two-year period, individuals who at the beginning of such period
constituted the Boards of Directors of Casino Magic and the Company (together
with any new directors whose election by such Board of Directors or whose
nomination for election by the stockholders of Casino Magic or the Company, as
the case may be, was approved by a vote of 662/3% of the directors then still
in office who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved) cease for any
reason to constitute a majority of the Board of Directors of Casino Magic or
the Company, as the case may be, then in office; (d) any order, judgment or
117
<PAGE>decree shall be entered against Casino Magic or the Company decreeing
the dissolution or split up of Casino Magic and such order shall remain
undischarged or unstayed for a period in excess of 60 days; (e) the sale,
assignment, conveyance, transfer, lease or other disposition (other than by
way of merger or consolidation), in one or a series of related transactions,
of all or substantially all of the assets of the Company and its Subsidiaries
taken as a whole to any person other than Casino Magic or a Wholly Owned
Subsidiary of Casino Magic; or (f) at any time the Company or Jefferson Corp.
ceases to be a Wholly Owned Subsidiary of Jefferson Corp. or Casino Magic,
respectively.
"Collateral Documents" means, collectively, that certain Mortgage by and
between the Company and the Trustee, that certain First Preferred Ship
Mortgage on the whole of the Bossier Riverboat by and between the Company and
the Trustee, that certain First Preferred Ship Mortgage on the whole of the
Crescent City Riverboat, that certain Security Agreement by and between the
Company and the Trustee, that certain Security Agreement by and between
Jefferson Corp. and the Trustee, that certain Stock Pledge and Security
Agreement by and between Jefferson Corp. and the Trustee, that certain
Accounts Pledge Agreement by and between the Company, the Disbursement Agent
and the Trustee, that certain Collateral Assignment by and between the Company
and the Trustee, the Cash Collateral and Disbursement Agreement, Uniform
Commercial Code financing statements, or any other agreements, instruments,
documents or filings that evidence, set forth or limit the Lien of the Trustee
in the Note Collateral (as such terms are defined in the Indenture).
"Commencement Date" means the first day on which Casino Magic-Bossier City
becomes Operating.
"Company" means Casino Magic of Louisiana, Corp., a Louisiana corporation.
"Completion Reserve Account" means that certain account to be maintained by
the Disbursement Agent pursuant to the terms of the Cash Collateral and
Disbursement Agreement, into which approximately $5.0 million of the proceeds
from the sale of the Notes was deposited.
"Consolidated Cash Flow" means, with respect to any Person for any period, the
Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary loss plus any net loss realized in connection with
an Asset Sale (to the extent such losses were deducted in computing such
Consolidated Net Income), plus (ii) provision for taxes based on income or
profits of such Person and its Subsidiaries for such period, to the extent
that such provision for taxes was included in computing such Consolidated Net
Income, plus (iii) Consolidated Interest Expense of such Person and its
Subsidiaries for such period, to the extent that any such expense was deducted
in computing such Consolidated Net Income, plus (iv) depreciation and
amortization (including amortization of goodwill and other intangibles but
excluding amortization of prepaid cash expenses that were paid in a prior
period) of such Person and its Subsidiaries for such period to the extent that
such depreciation or amortization was deducted in computing such Consolidated
Net Income, in each case, on a consolidated basis and determined in accordance
with GAAP, plus (v) preopening expenses, if any, related to Casino
Magic-Bossier City, to the extent that such preopening expenses were included
in
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<PAGE>computing such Consolidated Net Income. Notwithstanding the foregoing,
the provision for taxes on the income or profits of, and the depreciation and
amortization of, a Subsidiary of the referent Person shall be added to
Consolidated Net Income to compute Consolidated Cash Flow only to the extent
(and in same proportion) that the Net Income of such Subsidiary was included
in calculating the Consolidated Net Income of such Person and only if a
corresponding amount would be permitted at the date of determination to be
dividended to such Person by such Subsidiary without prior governmental
approval (that has not been obtained), and without direct or indirect
restriction pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to that Subsidiary or its stockholders.
"Consolidated Interest Expense" means, with respect to any person for any
period, without duplication, (i) the consolidated interest expense of such
Person and its Subsidiaries for such period, whether paid or accrued
(including, without limitation, amortization of original issue discount,
non-cash interest payments, the interest component of any deferred payment
obligations, the interest component of all payments associated with Capital
Lease Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect of
letter of credit or bankers' acceptance financing, and net payments (if any)
pursuant to Hedging Obligations) and (ii) the consolidated interest expense of
such Person and its Subsidiaries that was capitalized during such period, and
(iii) any interest expense on Indebtedness of another Person that is
Guaranteed by such Person or one of its Subsidiaries or secured by a Lien on
assets of such Person or one of its Subsidiaries (whether or not such
Guarantee or Lien is called upon), and (iv) to the extent not included above,
Contingent Interest, whether paid or accrued, to the extent such expense was
deducted in computing Consolidated Net Income.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP; provided
that (i) the Net Income (but not loss) of any Person that is not a Subsidiary
or that is accounted for by the equity method of accounting shall be included
only to the extent of the amount of dividends or distributions paid in cash to
the referent Person or a Wholly Owned Subsidiary thereof that is a Guarantor,
(ii) the Net Income of any Subsidiary shall be excluded to the extent that the
declaration or payment of dividends or similar distributions by that
Subsidiary of that Net Income is not at the date of determination permitted
without any prior governmental approval (that has not been obtained) or,
directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Subsidiary or its stockholders, (iii) the Net
Income of any Person acquired in a pooling of interests transaction for any
period prior to the date of such acquisition shall be excluded, and (iv) the
cumulative effect of a change in accounting principles shall be excluded.
119
<PAGE>"Consolidated Net Worth" means, with respect to any Person as of any
date, the sum of (i) the consolidated equity of the common stockholders of
such Person and its consolidated Subsidiaries as of such date plus (ii) the
respective amounts reported on such Person's balance sheet as of such date
with respect to any series of preferred stock (other than Disqualified Stock)
that by its terms is not entitled to the payment of dividends unless such
dividends may be declared and paid only out of net earnings in respect of the
year of such declaration and payment, but only to the extent of any cash
received by such Person upon issuance of such preferred stock, less (x) all
write-ups (other than write-ups resulting from foreign currency translations
and write-ups of tangible assets of a going concern business made within 12
months after the acquisition of such business) subsequent to the date of the
Indenture in the book value of any asset owned by such Person or a
consolidated Subsidiary of such Person, (y) all investments as of such date in
unconsolidated Subsidiaries and in Persons that are not Subsidiaries (except,
in each case, Permitted Investments), and (z) all unamortized debt discount
and expense and unamortized deferred charges as of such date, all of the
foregoing determined in accordance with GAAP.
"Construction Budget" means itemized schedules setting forth on a line item
basis all of the costs (including financing costs) estimated to be incurred in
connection with the financing, design, development, construction, equipping
and opening of Casino Magic-Bossier City, as such schedules are delivered to
the Disbursement Agent on the Issue Date and as amended from time to time in
accordance with the terms of the Cash Collateral and Disbursement Agreement.
"Construction Disbursement Account" means that certain account, to be
maintained by the Disbursement Agent pursuant to the terms of the Cash
Collateral and Disbursement Agreement, into which approximately $29.7 million
of the proceeds from the sale of the Series A Notes was deposited.
"Contingent Interest" means with respect to any principal amount of Notes as
of any date after the Commencement Date, an amount equal to the product of (i)
5% of the Company's Adjusted Consolidated Cash Flow for the Accrual Period
last completed times (ii) a fraction, the numerator of which is the amount of
such principal and the denominator of which is $115.0 million.
"Crescent City Riverboat" means the riverboat gaming vessel "Crescent City
Queen," Official Number 1028319, measuring approximately 430 feet by 100 feet
with a total area of approximately 88,000 square feet spread across three
decks, owned by the Company on the date of the Indenture.
"Default" means any event that is or with the passage of time or the giving of
notice or both would be an Event of Default.
"Disbursement Agent" means First National Bank of Commerce.
120
<PAGE>"Disqualified Stock" means any Capital Stock that, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable
at the option of the Holder thereof, in whole or in part, on or prior to the
date that is 91 days after the date on which the Notes mature.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Event of Loss" means, with respect to any property or asset (tangible or
intangible, real or personal), any of the following: (i) any loss, destruction
or damage of such property or asset; (ii) any actual condemnation, seizure or
taking by exercise of the power of eminent domain or otherwise of such
property or asset, or confiscation of such property or asset or the
requisition of the use of such property or asset; or (iii) any settlement in
lieu of clause (ii) above or with respect to the institution of any
proceedings for any such condemnation, seizure, taking, confiscation or
requisition.
"Excess Cash Flow" means, with respect to the Company for any Reference
Period, the Consolidated Cash Flow of the Company and its Subsidiaries for
such Reference Period, minus (i) provision for taxes based on income or
profits of the Company and its Subsidiaries for such Reference Period, to the
extent that such provision for taxes was included in computing such
Consolidated Cash Flow, minus (ii) consolidated interest expense of the
Company and its Subsidiaries for such Reference Period, whether paid or
accrued and whether or not capitalized (including, without limitation,
amortization of original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest component
of all payments associated with Capital Lease Obligations, imputed interest
with respect to Attributable Debt, commissions, discounts and other fees and
charges incurred in respect of letter of credit or bankers acceptance
financing, and net payments (if any) pursuant to Hedging Obligations), to the
extent that any such expense was deducted in computing such Consolidated Cash
Flow, minus (iii) up to $1.5 million in combined capital expenditures of the
Company and its Subsidiaries that are actually made during such Reference
Period (excluding any capital expenditures made with the proceeds from the
sale of the Notes), minus (iv) principal payments on Indebtedness permitted to
be incurred pursuant to the covenant described under the caption "-Certain
Covenants-Incurrence of Indebtedness and Issuance of Preferred Stock," minus
(v) non-interest payments in respect of Capital Lease Obligations, in each
case, on a consolidated basis and determined in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any period,
the ratio of the Consolidated Cash Flow of such Person and its Subsidiaries
for such period to the Fixed Charges of such Person and its Subsidiaries for
such period. In the event that the Company or any of its Subsidiaries incurs,
assumes, guarantees or redeems any Indebtedness (other than revolving credit
borrowings) or issues preferred stock subsequent to the commencement of the
period for which the Fixed Charge Coverage Ratio is being calculated but prior
to the date on which the event for which the calculation of the Fixed Charge
121
<PAGE>Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge
Coverage Ratio shall be calculated giving pro forma effect to such incurrence,
assumption, guarantee or redemption of Indebtedness, or such issuance or
redemption of preferred stock, as if the same had occurred at the beginning of
the applicable Reference Period. In addition, for purposes of making the
computation referred to above, (i) acquisitions that have been made by the
Company or any of its Subsidiaries, including through mergers or
consolidations and including any related financing transactions, during the
Reference Period or subsequent to such Reference Period and on or prior to the
Calculation Date shall be deemed to have occurred on the first day of the
Reference Period and Consolidated Cash Flow for such Reference Period shall be
calculated without giving effect to clause (iii) of the proviso set forth in
the definition of Consolidated Net Income, and (ii) the Consolidated Cash Flow
attributable to discontinued operations, as determined in accordance with
GAAP, and operations or businesses disposed of prior to the Calculation Date,
shall be excluded, and (iii) the Fixed Charges attributable to discontinued
operations, as determined in accordance with GAAP, and operations or
businesses disposed of prior to the Calculation Date, shall be excluded, but
only to the extent that the obligations giving rise to such Fixed Charges will
not be obligations of the referent Person or any of its Subsidiaries following
the Calculation Date.
"Fixed Charges" means, with respect to any Person for any period, without
duplication, the sum of (i) the Consolidated Interest Expense and (ii) the
product of (a) all cash dividend payments (and non-cash dividend payments in
the case of a Person that is a Subsidiary) on any series of preferred stock or
Disqualified Stock of such Person, times (b) a fraction, the numerator of
which is one and the denominator of which is one minus the then current
combined federal, state and local statutory tax rate of such Person, expressed
as a decimal, in each case, on a consolidated basis and in accordance with
GAAP.
"FF&E" means furniture, fixtures or equipment used in the ordinary course of
the business of the Company and its Subsidiaries.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
"Gaming Authority" means any agency, authority, board, bureau, commission,
department, office or instrumentality of any nature whatsoever of the United
States of America or foreign government, any state, province or any city or
other political subdivision, whether now or hereafter existing, or any officer
or official thereof, including without limitation, the Louisiana Gaming
Control Board 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 Facility" means any tangible vessel, building or other structure used
or expected to be used to enclose space in which gaming business is conducted
and (i) wholly or partially owned, directly or indirectly, by the Company or
any of its Subsidiaries or (ii) any portion or aspect of which is managed or
used, or expected to be managed or used, by the Company or any of its
Subsidiaries.
122
<PAGE>
"Gaming Law" means the gaming laws of any jurisdiction or jurisdictions to
which the Company, any of its Subsidiaries or any of Guarantors is, or may at
any time after the date of the Indenture, be subject.
"Gaming License" means every license, franchise or other authorization
required to own, lease, operate or otherwise conduct gaming activities of the
Company or any of its Subsidiaries, including without limitation, all such
licenses granted under the Louisiana Riverboat Economic Development and Gaming
Control Act and regulated under the Louisiana Gaming Control Law, the
regulations promulgated pursuant to each such law, and other applicable
federal, state, foreign or local laws.
"Government Securities" means direct obligations of, or obligations guaranteed
by, the United States of America for the payment of which guarantee or
obligations the full faith and credit of the United States is pledged.
"guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) 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.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money (including
accrued and unpaid Contingent Interest) or evidenced by bonds, notes,
debentures or similar instruments or letters of credit (or reimbursement
agreements in respect thereof) or banker's acceptances or representing Capital
Lease Obligations or the balance deferred and unpaid of the purchase price of
any property or representing any Hedging Obligations, except any such balance
that constitutes an accrued expense or trade payable, if and to the extent any
of the foregoing indebtedness (other than letters of credit and Hedging
Obligations) would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, as well as all indebtedness of others
secured by a Lien on any asset of such Person (whether or not such
indebtedness is assumed by such Person) and, to the extent not otherwise
included, the Subsidiary Guarantee by such Person of any indebtedness of any
other Person.
"Independent Construction Consultant" means that certain independent
construction consultant to be retained in connection with the construction of
Casino Magic-Bossier City.
"Interest Reserve Account" means that certain account, to be maintained by the
Disbursement Agent pursuant to the terms of the Cash Collateral and
Disbursement Agreement, into which approximately $7.3 million of the proceeds
from the sale of the Notes were deposited and used to purchase the Pledged
Securities.
123
<PAGE>"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates), including, without limitation,
in the form of direct or indirect loans (including guarantees of Indebtedness
or other obligations), advances or capital contributions (excluding
commission, travel and similar advances to officers and employees made in the
ordinary course of business), purchases or other acquisitions for
consideration of Indebtedness, Equity Interests or other securities, together
with all items that are or would be classified as investments on a balance
sheet prepared in accordance with GAAP; provided that an acquisition of
assets, Equity Interests or other securities by the Company for consideration
consisting of common equity securities of the Company shall not be deemed to
be an Investment. If the Company or any Subsidiary of the Company sells or
otherwise disposes of any Equity Interests of any direct or indirect
Subsidiary of the Company such that, after giving effect to any such sale or
disposition, such Person is no longer a Subsidiary of the Company, the Company
shall be deemed to have made an Investment on the date of any such sale or
disposition equal to the fair market value of the Equity Interests of such
Subsidiary not sold or disposed of.
"Issue Date" means the closing date for the sale and original issuance of the
Series A Notes.
"Jefferson Corp." means Jefferson Casino Corporation, a Louisiana corporation.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the
nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement
under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Louisiana Referendum" means the local option elections held on November 5,
1996 on a parish-by-parish basis in the State of Louisiana to determine
whether to continue to permit existing forms of gaming authorized by law to be
conducted in each such parish. Voters in both Caddo and Bossier parishes
approved a continuation of riverboat gaming in such parishes.
"Management Agreement" means that certain Management Agreement dated as of the
date of the Indenture among Casino Magic, the Manager and the Company relating
to the license of the Casino Magic name and the management of Casino
Magic-Bossier City, as in effect on the date of the Indenture.
"Management Fees" means any management fees payable to a subsidiary of Casino
Magic for services rendered pursuant to the Management Agreement.
"Manager" means Casino Magic Management Services, Inc., a wholly owned
subsidiary of Casino Magic.
124
<PAGE>"Minimum Facilities" means, with respect to Casino Magic-Bossier City, a
riverboat casino with at least 810 operating slot machines and 40 operating
table games (but in no event less than 1,050 total gaming positions), a 35,000
square foot entertainment pavilion, related amenities (including a buffet
restaurant, a gift shop, a bar and lounge area, and a stage area with an open
seating area) and covered parking for at least 1,255 cars.
"Net Income" means, with respect to any Person, the net income (loss) of such
Person, determined in accordance with GAAP and before any reduction in respect
of preferred stock dividends, excluding, however, (i) any gain (but not loss),
together with any related provision for taxes on such gain (but not loss),
realized in connection with (a) any Asset Sale (including, without limitation,
dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Subsidiaries or the
extinguishment of any Indebtedness of such Person or any of its Subsidiaries
and (ii) any extraordinary or nonrecurring gain (but not loss), together with
any related provision for taxes on such extraordinary or nonrecurring gain
(but not loss).
"Net Loss Proceeds" means the aggregate cash proceeds received by the Company
or any of its Subsidiaries in respect of any Event of Loss, including, without
limitation, insurance proceeds from condemnation awards or damages awarded by
any judgment, net of the direct costs in recovery of such Net Loss Proceeds
(including, without limitation, legal, accounting, appraisal and insurance
adjuster fees and any relocation expenses incurred as a result thereof),
amounts required to be applied to the repayment of Indebtedness (to the
extent, in the case of revolving credit Indebtedness, such Indebtedness is
permanently reduced) secured by a Lien on the asset or assets that were the
subject of such Event of Loss, and any taxes paid or payable as a result
thereof.
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Subsidiaries in respect of any Asset Sale (including, without
limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation
expenses incurred as a result thereof, taxes paid or payable as a result
thereof (after taking into account any available tax credits or deductions and
any tax sharing arrangements), amounts required to be applied to the repayment
of Indebtedness (to the extent, in the case of revolving credit Indebtedness,
such Indebtedness is permanently reduced) secured by a Lien on the asset or
assets that were the subject of such Asset Sale and any reserve for adjustment
in respect of the sale price of such asset or assets established in accordance
with GAAP.
"Note Collateral" means all assets, now owned or hereafter acquired, of the
Company or any Guarantor pledged or assigned to the Trustee in the Collateral
Documents, which will initially include all real estate, improvements and all
personal property owned by the Company, all accounts held by or for the
benefit of the Company, in each case with certain exceptions, and the Capital
Stock of the Company.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
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<PAGE>"Operating" means, with respect to Casino Magic-Bossier City, the time
that (i) all Gaming Licenses have been granted and have not been revoked or
suspended, (ii) all Liens (other than the Liens created by the Collateral
Documents or Permitted Liens) related to the construction of Casino
Magic-Bossier City have been paid or, if payment is not yet due or if such
payment is contested in good faith by the Company, sufficient funds remain in
the Construction Disbursement Account to discharge such Liens or such Liens
have been bonded with bonds in form and substance sufficient to satisfy such
Liens, (iii) the contractor, the project architect and the Independent
Construction Consultant of Casino Magic-Bossier City shall have delivered a
certificate to the Trustee certifying that Casino Magic-Bossier City is
complete in accordance with the Plans therefor and all applicable building
laws, ordinances and regulations, (iv) Casino Magic-Bossier City is in a
condition (including installation of furnishings, fixtures and equipment) to
receive guests in the ordinary course of business, (v) gaming and other
operations in accordance with applicable law are open to the general public
and are being conducted at Casino Magic-Bossier City, (vi) a permanent or
temporary certificate of occupancy has been issued for Casino Magic-Bossier
City by the parish in Louisiana in which Casino Magic-Bossier City will
operate, (vii) a notice of completion of Casino Magic-Bossier City has been
duly recorded, (viii) the Bossier Riverboat has been documented by the U.S.
Coast Guard in the name of the Company and the U.S. Coast Guard has issued a
final Certificate of Inspection for the Bossier Riverboat.
"Operating Deadline" means April 30, 1997.
"Operating Hotel" means, with respect to the Casino Magic-Bossier City Hotel,
the time that (i) all Liens (other than Permitted Liens) related to the
construction of the Casino Magic-Bossier City Hotel have been paid or, if
payment is not yet due or if such payment is contested in good faith,
sufficient funds have been escrowed to discharge such Liens or such Liens have
been bonded with bonds in form and substance sufficient to satisfy such Liens,
(ii) the project manager and the project architect shall have delivered a
certificate to the Trustee certifying that the Casino Magic-Bossier City Hotel
is complete in accordance with the plans therefor and all applicable building
laws, ordinances and regulations, (iii) the Casino Magic-Bossier City Hotel is
in a condition (including installation of furnishings, fixtures and equipment)
to receive guests in the ordinary course of business, and (iv) hotel
operations are open to the general public and are being conducted at the
Casino Magic-Bossier City Hotel.
"Operating Reserve Account" means that certain account, to be maintained by
the Disbursement Agent pursuant to the terms of the Cash Collateral and
Disbursement Agreement, into which approximately $3.2 million of the proceeds
from the sale of the Notes were deposited.
"Operating Year" means (i) the period beginning on the date that gaming
operations commence at the Casino Magic-Bossier City casino through December
31, 1997 and (ii) thereafter, each succeeding full fiscal year of the Company.
"Permitted Holders" means (i) Mr. Marlin F. Torguson and Mr. Allan J. Kokesch,
(ii) any lineal descendants of any person described in the preceding clause
(i), (iii) the spouse of any person described in the preceding clauses (i) or
(ii), (iv) any controlled Affiliate of any person described in the preceding
clauses (i), (ii) or (iii) and (v) any trust solely for the benefit of any
person described in clauses (i) , (ii) or (iii) of this definition.
126
<PAGE>"Permitted Investments" means (a) any Investment in the Company or in
any Substantially Owned Subsidiary of the Company that is evidenced by Capital
Stock or Subsidiary Intercompany Notes that are pledged to the Trustee as
Collateral for the Notes; (b) any Investment in Cash Equivalents; (c) any
Investment by the Company or any Subsidiary of the Company in a Person that is
evidenced by Capital Stock or Subsidiary Intercompany Notes that are pledged
to the Trustee as Collateral for the Notes, if as a result of such Investment
(i) such Person becomes a Substantially Owned Subsidiary of the Company and a
Guarantor that is engaged in the same or a similar line of business as the
Company and its Subsidiaries were engaged in on the date of the Indenture or
(ii) such Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is liquidated
into, the Company or a Substantially Owned Subsidiary of the Company that is a
Guarantor and that is engaged in the same or a similar line of business as the
Company and its Subsidiaries were engaged in on the date of the Indenture; (d)
any Investment made as a result of the receipt of non-cash consideration from
an Asset Sale that was made pursuant to and in compliance with the covenant
described above under the caption "-Repurchase at the Option of Holders-Asset
Sales"; and (e) deposits and accounts with, and certificates of deposit issued
by, domestic banks of recognized standing and having capital, surplus and
undivided profits of at least $25 million (which are not affiliated with the
Company) doing business in the jurisdictions in which the Company or any
Subsidiary does business.
"Permitted Liens" means (i) Liens in favor of the Company; provided, that if
such Liens are on any Note Collateral, that such Liens are either collaterally
assigned to the Trustee or subordinate to the Lien in favor of the Trustee
securing the Notes or any Guarantee; (ii) Liens on property of a Person
existing at the time such Person is merged into or consolidated with the
Company or any Subsidiary of the Company; provided that such Liens were in
existence prior to the contemplation of such merger or consolidation and do
not extend to any assets other than those of the Person merged into or
consolidated with the Company or such Subsidiary; (iii) Liens on property
existing at the time of acquisition thereof by the Company or any Subsidiary
of the Company, provided that such Liens were in existence prior to the
contemplation of such acquisition and do not extend to any assets other than
those of the Subsidiary so acquired; (iv) Liens to secure the performance of
statutory obligations, surety or appeal bonds, performance bonds or other
obligations of a like nature incurred in the ordinary course of business; (v)
Liens existing on the date of the Indenture; (vi) Liens for taxes, assessments
or governmental charges or claims that are not yet delinquent or that are
being contested in good faith by appropriate proceedings promptly instituted
and diligently concluded, provided that any reserve or other appropriate
provision as shall be required in conformity with GAAP shall have been made
therefor; (vii) statutory Liens of landlords and carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen or other like Liens arising in
the ordinary course of business and with respect to amounts not yet delinquent
or being contested in good faith by an appropriate process of law, and for
which a reserve or other appropriate provision, if any, as shall be required
by GAAP shall have been made, and, with respect to such Liens arising in
connection with Casino Magic-Bossier City, for which the Company has obtained
the title insurance endorsements required under the Cash Collateral and
127
<PAGE> Disbursement Agreement; (viii) Liens on FF&E to secure Indebtedness
permitted by clause (vi) of the second paragraph of the covenant described
under the caption "-Certain Covenants-Incurrence of Indebtedness and Issuance
of Preferred Stock"; (ix) Liens on assets comprising the Casino Magic-Bossier
City Hotel to secure secured Indebtedness permitted by clause (vii) of the
second paragraph of the covenant described under the caption "-Certain
Covenants-Incurrence of Indebtedness and Issuance of Preferred Stock";
provided, that the Holder of such Lien enters into a reciprocal easement
agreement in the form attached as an exhibit to the Indenture; (x) Liens
securing obligations in respect of the Indenture, the Notes or Guarantees;
(xi) pledges or deposits in the ordinary course of business to secure lease
obligations or nondelinquent obligations under workers' compensation,
unemployment insurance or similar legislation; (xii) easements, rights-of-way,
restrictions, minor defects or irregularities in title and other similar
charges or encumbrances not interfering in any material respect with the
business of the Company or any Subsidiary incurred in the ordinary course of
business; and (xiii) Liens arising from filing UCC financing statements for
precautionary purpose in connection with true leases of personal property that
are otherwise permitted under the Indenture and under which the Company or any
Subsidiary is lessee.
"Permitted Refinancing Debt" means any Indebtedness of the Company or any of
its Subsidiaries issued in exchange for, or the net proceeds of which are used
to extend, refinance, renew, replace, defease or refund other Indebtedness of
the Company or any of its Subsidiaries; provided that: (i) the principal
amount (or accreted value, if applicable) of such Permitted Refinancing
Indebtedness does not exceed the principal amount (or accreted value, if
applicable) of the Indebtedness so extended, refinanced, renewed, replaced,
defeased or refunded (plus the amount of related prepayment penalties, fees
and reasonable expenses incurred in connection therewith); (ii) such Permitted
Refinancing Indebtedness has a final maturity date later than the final
maturity date of, and has a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of, the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded is subordinated in right of payment to the Notes, such Permitted
Refinancing Indebtedness has a final maturity date later than the final
maturity date of, and is subordinated in right of payment to, the Notes on
terms at least as favorable to the Holders of Notes as those contained in the
documentation governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and (iv) such Indebtedness is incurred by the
Company.
"Permitted Securities" means, with respect to an Asset Sale of the Crescent
City Riverboat, (i) notes or other obligations issued by the transferee to the
Company that (A) mature no later than the date that the Notes mature, (B) bear
interest at a rate no lower than the rate per annum equal to 350 basis points
over the average rate for United States Treasury Securities of comparable
maturity, (C) are secured by a first priority ship mortgage in favor of the
Company and (D) are issued by an issuer whose Fixed Charge Coverage Ratio for
its most recently ended four full fiscal quarters for which internal financial
statements are available immediately preceding the date of such issuance is
not less than 1.75 to 1.0 and (ii) voting equity securities that are (A)
issued by an issuer that (1) has a class of equity securities that is traded
on the New York Stock Exchange, the American Stock Exchange or the Nasdaq
128
<PAGE>Stock Market, (2) has equity market value as of the date of the
consummation of such Asset Sale of $100,000,000 or more, provided, that such
voting equity securities constitute no more than 3% of the total outstanding
voting equity securities of such issuer, and (3) has senior unsecured debt
securities rated in a ratings category equal to or higher than the Notes, as
rated by both of Moody's Investors Service and Standard & Poor's Ratings Group
and (B) registered and freely tradable by the Company under applicable state
and federal securities laws and listed for trading on a national securities
exchange or the Nasdaq Stock Market.
"Plans" means the plans and specifications for Casino Magic-Bossier City, as
delivered to the Company by the architect for Casino Magic-Bossier City on or
before the date of the Indenture, including without limitation, preliminary
plans so delivered, and as finalized, amended, supplemented or otherwise
modified from time to time in accordance with the terms of the Cash Collateral
and Disbursement Agreement.
"Pledged Securities" means the securities purchased by the Company with a
portion of the proceeds from the sale of the Notes, which shall consist of
Government Securities, deposited or to be deposited in the Interest Reserve
Account.
"Project Costs" means, with respect to the development, construction and
opening of the Casino Magic-Bossier City Hotel, the aggregate costs required
to complete such development, construction and opening in accordance with the
budget and the plans therefor and applicable legal requirements, as set forth
in an Officers' Certificate submitted to the Trustee, setting forth in
reasonable detail all amounts theretofore expended in connection with such
development, construction and opening, including direct costs related thereto
such as construction management, architectural, engineering and interior
design fees, site work, utility installations and hook-up fees, construction
permits, certificates and bonds, land acquisition costs, costs of furniture,
fixtures, furnishings, machinery and equipment, non-construction supplies and
pre-opening payroll, but excluding principal or interest payments on any
Indebtedness (other than interest which is required to be capitalized in
accordance with GAAP, which shall be included in determining Project Costs).
"Reference Period" means, with respect to any Person, the four full fiscal
quarters (or, with respect to the Company, such lesser number of full fiscal
quarters as have ended after the commencement of gaming operations at Casino
Magic-Bossier City casino) ended immediately prior to any date upon which any
determination is to be made.
"Restricted Investment" means an Investment other than a Permitted Investment.
"Semiannual Period" means each period that begins on July 1 and ends on the
next succeeding December 31 or each period that begins on January 1 and ends
on the next succeeding June 30.
129
<PAGE>
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Exchange Act, as such Regulation is in effect on the date
hereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total
voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers
or trustees thereof is at the time 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 (a) the sole
general partner or the managing general partner of which is such Person or a
Subsidiary of such Person or (b) the only general partners of which are such
Person or of one or more Subsidiaries of such Person (or any combination
thereof).
"Subsidiary Intercompany Notes" means the intercompany notes senior to any
subordinated debt of, and pari passu with, all existing Senior Debt of the
issuing Subsidiary, issued by Subsidiaries of the Company in favor of the
Company to evidence advances by the Company, in each case, in the form
attached as an exhibit to the Indenture.
"Substantially Owned Subsidiary" of any Person means a Subsidiary of such
Person at least 80% of the outstanding Capital Stock or other ownership
interests of which (other than directors' qualifying shares) shall at the time
be owned by such Person or by one or more Wholly Owned Subsidiaries of such
Person or by such Person and one or more Wholly Owned Subsidiaries of such
Person.
"Tax Sharing Agreement" means the Tax Allocation Agreement, dated as of
October 14, 1993, as in effect on the Issue Date except for the contemplated
addition of Subsidiaries, among Casino Magic Finance Corp., Casino Magic,
Biloxi Casino Corp., Mardi Gras Casino Corp. and each of the other existing or
future direct or indirect domestic Subsidiaries of Casino Magic.
"Voting Stock" means any class or classes of Capital Stock pursuant to which
the Holders thereof have the general voting power under ordinary circumstances
to elect at least a majority of the Board of Directors, managers or trustees
of any persons (irrespective of whether or not, at the time, stock of any
other class or classes will have, or might have, voting power by reason of the
happening of any contingency).
"Weighted Average Life to Maturity" means, when applied to any Indebtedness at
any date, the number of years obtained by dividing (i) the sum of the products
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, by (ii) the then outstanding principal
amount of such Indebtedness.
130
<PAGE> "Wholly Owned Subsidiary" of any Person means a Subsidiary of such
Person all of the outstanding Capital Stock or other ownership interests of
which (other than directors' qualifying shares) shall at the time be owned by
such Person or by one or more Wholly Owned Subsidiaries of such Person or by
such Person and one or more Wholly Owned Subsidiaries of such Person.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of certain federal income tax
consequences expected to result from the Exchange Offer. This summary is
based on current provisions of the Internal Revenue Code of 1986, as amended
(the "Code"), applicable Treasury Regulations, judicial authority, and current
administrative rulings and pronouncements of the Internal Revenue Service (the
"Service"). There can be no assurance that the Service will not take a
contrary view, and no ruling from the Service has been or will be sought.
Legislative, judicial, or administrative changes or interpretations may be
forthcoming that could alter or modify the statements and conclusions set
forth herein. Any such changes or interpretations may or may not be
retroactive and could affect the tax consequences to Holders.
The tax treatment of a Holder of Notes may vary depending upon such Holder's
particular situation. Certain Holders (including, but not limited to, certain
financial institutions, insurance companies, broker-dealers, tax-exempt
organizations, foreign corporations, persons who are not citizens or residents
of the United States, and persons holding the Notes as part of a "straddle,"
"hedge" or "conversion transaction") may be subject to special rules not
discussed below. This discussion is limited to Holders who will hold the
Notes as "capital assets" (generally, property held for investment) within the
meaning of Section 1221 of the Code.
EXCHANGE
The exchange of a Series A Note for a Series B Note pursuant to the Exchange
Offer should be treated as a modification of the Series A Notes that does not
constitute a material change in its terms. In that event, (i) a Series B Note
would be treated as a continuation of the corresponding Series A Note, (ii) an
exchanging Holder would not recognize any gain or loss on the exchange, (iii)
the holding period for the Series B Note would include the holding period for
the Series A Note and (iv) the basis of the Series B Note would be the same as
the basis of the Series A Note.
The Exchange Offer will result in no Federal income tax consequences to a
nonexchanging Holder.
INVESTORS CONSIDERING THE EXCHANGE OFFER SHOULD CONSULT THEIR OWN TAX ADVISORS
AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE EXCHANGE OF THE NOTES,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL, OR FOREIGN TAX
LAWS.
RECOGNITION OF INTEREST INCOME
On June 11, 1996, the Service issued final Treasury Regulations (the "Final
Regulations") governing the treatment of debt instruments issued on or after
August 13, 1996 that provide for one or more contingent payments.
131
<PAGE>Because the Notes provide for one or more contingent payments of
interest, the Final Regulations will apply to the Notes. Pursuant to the Final
Regulations, the Company must construct a projected payment schedule for the
Notes and Holders generally must recognize interest income on a constant yield
basis (similar to the method prescribed for including original issue discount
("OID") in income) based on the projected payment schedule, with certain
adjustments if actual payments differ from projected payments.
In particular the projected payment schedule will be determined by including
all noncontingent payments and the "expected value" of all contingent payments
on the Notes. The projected payment schedule must produce the "comparable
yield," which is the yield at which the Company would issue a fixed rate debt
instrument with terms and conditions similar to those of the Notes. The
Company intends to take the position that the "comparable yield" is 14.5%. The
amount of interest that accrues each accrual period is the product of the
"comparable yield" and the Note's "adjusted issue price" at the beginning of
each accrual period (generally, the six month period ending on each interest
payment date). The "adjusted issue price" of a Note is equal to the price
first paid for a substantial amount of the Notes, increased by interest
previously accrued on the Note (determined without adjustments), and decreased
by the amount of any noncontingent payments and the projected amount of any
contingent payments previously made on the Note. Except for adjustments made
for differences between actual and projected payments, the amount of interest
included in income by a Holder of a Note is the sum of the "daily portions" of
interest income with respect to the Note for each day during the taxable year
(or portion thereof) on which such Holder held such Note. The "daily portions"
of interest income are determined by allocating to each day in any accrual
period a ratable portion of the interest income allocable to that accrual
period. If actual payments differ from projected payments, then Holders will
generally be required in any given taxable year either to include additional
interest in gross income (in the case the actual payments exceed projected
payments in such taxable year) or to reduce the amount of interest income
otherwise accounted (in case the actual payments are less than the projected
payments in such taxable year).
132
<PAGE>If the Notes are sold or otherwise disposed of when there are remaining
contingent payments under the projected payment schedule, then any gain
recognized upon such sale or other disposition will be ordinary interest
income. Any loss recognized will be ordinary loss to the extent the Holder's
total interest inclusions on a Note exceed the total amount of ordinary loss
the Holder took into account pursuant to the adjustments described in the
second preceding sentence.
Thus, under the rules described in the preceding paragraph, based upon the
"comparable yield" and "expected value" used to determine the projected
payment schedule, Holders of Notes may be required to include amounts in
income prior to the receipt of cash payments attributable to such income. The
Company will provide to Holders the projected payment schedule for the Note.
Holders are strongly urged to consult their tax advisors with respect to the
application of the contingent payment rules described above to the Notes.
SALE, RETIREMENT OR OTHER TAXABLE DISPOSITION
Except as provided for above, a Holder in general will recognize gain or loss
upon the sale, redemption, retirement, or other taxable disposition of such
Note in an amount equal to the difference between (i) the amount of cash and
the fair market value of property received in exchange therefor (except to the
extent attributable to the payment of accrued interest or original issue
discount, which generally will be taxable to a Holder as ordinary income) and
(ii) the Holder's adjusted tax basis in such Note. A Holder's tax basis in a
Note generally will be equal to the price paid for such Note, increased by the
amount of original issue discount, if any, included in gross income prior to
the date of disposition, and decreased by the amount of any cash payments of
such original issue discount on such Note received prior to disposition. To
the extent not treated as ordinary income or loss as described above, any gain
or loss recognized on the sale, redemption, retirement, or other taxable
disposition of a Note generally will be capital gain or loss. Any such capital
gain or loss generally will be long-term capital gain or loss if the Note had
been held for more than one year.
LIQUIDATED DAMAGES
The Company intends to take the position that the Liquidated Damages, if any,
described above under "Description of Notes-Registration Rights; Liquidated
Damages" will be taxable to the Holder as ordinary income in accordance with
the Holder's method of accounting for federal income tax purposes. The Service
may take a different position, however, which could affect the timing of both
the Holder's income and the Company's deduction with respect to the Liquidated
Damages.
BACKUP WITHHOLDING
A Holder of Notes may be subject to backup withholding at the rate of 31% with
respect to interest paid on, original issue discount accrued on and gross
proceeds from a sale or other disposition of the Notes unless (i) such Holder
is a corporation or comes within certain other exempt categories and, when
required, demonstrates this fact or (ii) provides a correct taxpayer
identification number, certifies as to no loss of exemption from backup
withholding and otherwise complies with applicable requirements of the backup
withholding rules. A Holder of Notes who does not provide the Company with his
or her correct taxpayer identification number may be subject to penalties
imposed by the Service.
133
<PAGE>The Company will report to the Holders of the Notes and the Service the
amount of any "reportable payments" (including any original issue discount
accrued on the Notes) and any amount withheld with respect to the Notes during
the calendar year.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Series B Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Series B Notes. This Prospectus, as it may
be amended or supplemented from time to time, may be used by a broker-dealer
in connection with any resale of Series B Notes received in exchange for
Series A Notes where such Series A Notes were acquired as a result of
market-making activities. The Company has agreed that for a period of one
year from the Expiration Date, it will make this Prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any
such resale. In addition, until April , 1997 (90 days from the date of this
Prospectus), all dealers effecting transactions in the Series B Notes may be
required to deliver a prospectus.
The Company will not receive any proceeds from any sale of Series B Notes by
broker-dealers. Series B 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 Series B Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such Series B Notes. Any
broker-dealer that resells Series B Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Series B Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Series B Notes and any commissions or concessions received by
any such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that by acknowledging that
it will deliver, and by delivering, a prospectus as required, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
For a period of one year from the Expiration Date, the Company will send a
reasonable number of additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such
documents in the Letter of Transmittal. The Company will pay all the expenses
incident to the Exchange offer (which shall not include the expenses of any
Holder in connection with resales of the Series B Notes). The Company has
agreed to indemnify Holders of the Notes, including any broker-dealers
participating in the Exchange Offer, against certain liabilities, including
liabilities under the Securities Act.
134
<PAGE>LEGAL MATTERS
Certain legal matters regarding the Series B Notes and the Exchange Offer will
be passed upon for the Company by Akin, Gump, Strauss, Hauer & Feld, L.L.P.,
San Antonio, Texas.
EXPERTS
The financial statements as of and for the period ending December 31, 1996,
included in this prospectus and elsewhere in the registration statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in accounting and
auditing.
135
<PAGE>INDEX TO FINANCIAL STATEMENTS
CONTENTS PAGES
- ------------------------------------------------------------ -------
Report of Independent Public Accountants F-2
Financial Statements:
Consolidated Statement of Operations for the period
May 13, 1996 (date of inception) through December 31, 1996 F-3
Consolidated Balance Sheet as of December 31, 1996 F-4
Consolidated Statement of Changes in Equity for the period from
May 13, 1996 (date of inception) through December 31, 1996. F-5
Consolidated Statement of Cash Flows for the period
May 13, 1996 (date of inception) through December 31, 1996 F-6
Notes to Consolidated Financial Statements F-7
Exhibit I-Consolidating Balance Sheet as of December 31, 1996 I-1
Exhibit II-Consolidating Statement of Operations for the period
May 13, 1996 (date of inception) through December 31, 1996 I-3
F-1<PAGE>REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Jefferson Casino Corporation:
We have audited the accompanying consolidated balance sheet of Jefferson
Casino Corporation (a Louisiana corporation and a wholly owned subsidiary of
Casino Magic Corp.) and subsidiary (see Note 1) as of December 31, 1996 and
the related consolidated statements of operations, changes in equity and cash
flows for the period from inception (May 13, 1996) through December 31, 1996.
These financial statements and the exhibits referred to below are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements 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 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Jefferson Casino Corporation
and subsidiary as of December 31, 1996 and the results of their operations and
development stage activities and their cash flows for the period from
inception (May 13, 1996) through December 31, 1996 in conformity with
generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The consolidating balance sheet as of
December 31, 1996 and consolidating statement of operations for the period
from inception (May 13, 1996) through December 31, 1996 (Exhibits I and II
respectively) are presented for purposes of additional analysis and are not a
required part of the basic financial statements. This information has been
subjected to the auditing procedures applied in our audit of the basic
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
New Orleans, Louisiana,
February 28, 1997
F-2<PAGE> CASINO CORPORATION AND ITS SUBSIDIARY
CASINO MAGIC OF LOUISIANA, CORP.
CONSOLIDATED STATEMENT OF OPERATIONS
MAY 13, 1996
(INCEPTION)
THROUGH
DECEMBER 31,
1996
-------------
REVENUES:
Casino $ 12,664,451
Other operating revenues 73,349
------------
12,737,800
------------
COSTS AND EXPENSES:
Casino 7,123,353
Other operating costs and expenses 36,294
Advertising and marketing 1,695,039
General and administrative 2,258,779
Property operation maintenance and energy cost 1,060,727
Rents, property taxes and insurance 246,169
Depreciation and amortization 1,136,883
Preopening costs 6,520,158
------------
20,077,402
------------
Loss from operations (7,339,602)
Other (income) expense:
Interest expense 7,342,000
Capitalized interest (4,147,612)
Interest income (488,774)
Other income and expense (818)
------------
2,704,796
------------
(LOSS) BEFORE INCOME TAXES: (10,044,398)
------------
INCOME TAX EXPENSE (BENEFIT) --
------------
NET (LOSS) $(10,044,398)
============
NET INCOME (LOSS) PER COMMON SHARE $ (10,004.40)
============
WEIGHTED AVERAGE COMMON SHARES - 1,000
See notes to consolidated financial statements.
F-3
<PAGE> JEFFERSON CASINO CORPORATION AND ITS SUBSIDIARY
CASINO MAGIC OF LOUISIANA, CORP.
CONSOLIDATED BALANCE SHEET
DECEMBER 31,
ASSETS 1996
Current assets: ------------
Cash and cash equivalents $ 3,959,126
Restricted cash 16,899,654
Other current assets 964,997
------------
Total current assets 21,823,777
------------
Property and equipment:
Land and improvements 14,716,035
Riverboat and improvements 20,427,361
Leasehold improvements 74,075
Furniture and equipment 12,239,594
Construction in progress 27,105,683
-----------
74,562,748
Less accumulated depreciation and amortization (740,922)
------------
Total property and equipment, net 73,821,826
------------
Other long-term assets:
Deferred gaming license cost, net of accumulated
amortization of $395,489 38,337,333
Property held for sale 10,101,182
Debt issuance costs, net of accumulated
amortization of $322,594 5,096,981
Other long-term assets 148,846
------------
Total other long-term assets 53,684,342
------------
$149,329,945
============
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Notes and contracts payable $ 4,486,710
Current maturities of long-term debt 1,878,605
Accounts payable 2,837,908
Accrued expenses 535,661
Accrued interest 5,581,119
Accrued payroll and related benefits 1,720,191
Accrued progressive gaming liabilities 113,432
Other current liabilities 92,123
------------
Total current liabilities 17,245,749
------------
Long-term debt, net of current maturities 119,850,193
------------
Commitments and contingencies
Common stock, no par value, 10,000 shares authorized,
1,000 shares issued and outstanding -
Additional paid-in capital 22,278,401
Retained earnings (deficit) (10,044,398)
------------
Total shareholder's equity 12,234,003
------------
$149,329,945
============
See notes to consolidated financial statements.
F-4
<PAGE>JEFFERSON CASINO CORPORATION AND ITS SUBSIDIARY
CASINO MAGIC OF LOUISIANA, CORP.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Common Stock Additional Retained
Shares Amount Paid-in-Capital Earnings Total
-----------------------------------------------------------------
Balance at
May 13, 1996 -- $ -- $ -- $ -- $ --
Stock issued 1,000 -- 20,925,401 -- 20,925,401
Paid-in-Capital -- -- 1,353,000 -- 1,353,000
Net loss -- -- -- (10,044,398) (10,044,398)
------ ----- ----------- ---------- ----------
Balance at
December 31, 1996 1,000 $ -- $22,278,401 $(10,044,398) $12,234,003
===== ======= =========== ============ ===========
See notes to consolidated financial statements.
F-5
<PAGE>JEFFERSON CASINO CORPORATION AND ITS SUBSIDIARY
CASINO MAGIC OF LOUISIANA, CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
MAY 13, 1996
(INCEPTION)
THROUGH
DECEMBER 31,
1996
------------
Cash flows from operations:
Net income (loss) $(10,044,398)
Depreciation 740,922
Amortization 395,961
Gain on disposal of property and equipment (818)
Amortization of debt issuance costs 322,594
Preopening costs 6,520,158
Increase in prepaid expenses (166,824)
(Increase) decrease in notes accounts
receivable, net of allowance for doubtful
accounts (345,116)
(Increase) decrease in other current assets (131,147)
Increase in accounts payable 2,180,746
Increase in accrued expenses 535,661
Increase in accrued interest 3,715,909
Increase in accrued payroll and related
benefits 1,720,191
Increase in accrued progressive
gaming liabilities 113,432
-----------
Net cash provided (used) by operations 5,557,270
-----------
Cash flows from investing activities:
Acquisitions of property and equipment (52,098,366)
Acquisition of property held for sale (70,944)
Acquisition of gaming license (15,250,000)
Expenditures for preopening costs (6,520,158)
Other, net (148,846)
------------
Net cash used in investing activities (74,088,314)
------------
Cash flows from financing activities:
Proceeds from issuance of notes payable and
long-term debt 116,700,000
Principal payments on notes payable
and long-term debt (44,169,002)
Advances from affiliated companies --
Capital contributions received 22,278,401
Debt issue costs (5,419,575)
Other, net --
-----------
Net cash provided by financing activities 89,389,824
----------
Net increase in cash and cash equivalents 20,858,780
Cash and cash equivalents, beginning of period -
-----------
Cash and cash equivalents, including restricted
cash, end of period $ 20,858,780
============
See notes to consolidated financial statements.
F-6
<PAGE> SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental schedule of non-cash investing and financing activities:
Property and equipment and property held for sale
financed with long- term debt or capital
contributions $ 32,493,913
Construction in progress and preopening costs
and other included in accounts payable 5,074,056
Gaming license acquisition financed
with long-term debt 21,617,612
See notes to consolidated financial statements.
F-7<PAGE>JEFFERSON CASINO CORPORATION AND ITS SUBSIDIARY
CASINO MAGIC OF LOUISIANA, CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION AND BASIS OF PRESENTATION:
On May 13, 1996 ("Inception"), Jefferson Casino Corporation, a Louisiana
corporation and a wholly owned subsidiary of Casino Magic Corp. ("Casino
Magic"), commenced development stage activities by acquiring all of the
outstanding capital stock of Crescent City Capital Development Corporation, a
Louisiana corporation. Immediately following the acquisition, the name of
Crescent City Capital Development Corporation ("Crescent City") was changed to
Casino Magic of Louisiana, Corp. ("Louisiana Corp."). The consolidated
financial statements include the accounts of Jefferson Casino Corporation
("Jefferson Corp.") and Louisiana Corp., its wholly owned subsidiary. All
significant intercompany accounts and transactions have been eliminated.
Jefferson Corp., together with its consolidated subsidiary, is referred to as
"Jefferson" or the "Company". Jefferson, through Louisiana Corp., has
developed a new dockside riverboat casino and entertainment complex in Bossier
City, Louisiana ("Casino Magic-Bossier City"). Casino Magic-Bossier City
opened on October 4, 1996, using a temporary facility, thereby completing its
development stage activities, and opened the permanent facility on December
31, 1996. The permanent facility has been developed on a 23 acre site and
includes; a 37,000 square foot land based pavilion, which includes a 350 seat
buffet, a fine dining restaurant, fast food and entertainment areas; a parking
garage for approximately 1,550 cars and surface parking for another
approximately 400 cars; the 30,000 square foot casino has approximately 986
slot machines and approximately 44 table games and operates 24 hours a day
dockside. Prior to October 4, 1996, Jefferson had no material revenues or
expenses other than interest income and expense.
Prior to Inception, Jefferson Corp. had no business activities and Crescent
City was a wholly owned subsidiary of Capital Gaming International, Inc. with
which Jefferson Corp. had no affiliation. Crescent City obtained a gaming
license from the State of Louisiana and on April 4, 1995, began operations on
a riverboat casino, the Crescent City Queen (the "Crescent City Riverboat"),
docked on the Mississippi River at New Orleans, Louisiana. On June 9, 1995
Crescent City ceased gaming operations and subsequently converted an
involuntary bankruptcy proceeding to a voluntary petition under Chapter 11 of
the U.S. Bankruptcy Code in the United States Bankruptcy Court. A plan of
reorganization was developed, and was confirmed by the U.S. Bankruptcy Court
on April 29, 1996 (the "Plan of Reorganization"). Pursuant to the Plan of
Reorganization, Crescent City was discharged from substantially all of its
liabilities prior to the acquisition. The purchase of the outstanding capital
stock of Crescent City by Jefferson Corp. was effected as part of the Plan of
Reorganization. Although the substance of the transaction was an acquisition
of certain assets, the acquisition was structured as a stock purchase to
satisfy Louisiana gaming license requirements. Crescent City had discontinued
all gaming activities after only 65 days of operations in the New Orleans
market and its only significant assets consisted of the Crescent City
Riverboat, a Louisiana gaming license, and the furniture, fixtures and gaming
equipment located on the Crescent City Riverboat. As a result of the
foregoing factors, management believes that the financial position and
operating results of Crescent City prior to the acquisition are not meaningful
and are therefore not presented because Jefferson operates in a different
market including different cruising requirements, with a different vessel and
facility, under different management and ownership and using a different name
and marketing theme.
F-8
<PAGE> JEFFERSON CASINO CORPORATION AND ITS SUBSIDIARY
CASINO MAGIC OF LOUISIANA, CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED):
The original agreement to acquire Crescent City was entered into by Jefferson
Corp. and C-M of Louisiana, Inc., the latter being another wholly owned
subsidiary of Casino Magic. C-M of Louisiana, Inc. was the fee owner of
approximately 20 acres of land with 900 feet of shoreline on the Red River in
Bossier City, Louisiana (the property that is being used as the gaming site
for Casino Magic-Bossier City). Another wholly owned subsidiary of Casino
Magic, Coastal Land of Florida, Inc., held a 99-year lease on the Casino
Magic-Bossier City property. Casino Magic had acquired C-M of Louisiana, Inc.
and Coastal Land of Florida, Inc. on October 26, 1995 in anticipation of
obtaining a gaming license and establishing gaming operations at the Bossier
City property. Immediately prior to or as part of the acquisition of Crescent
City, the lease was canceled and C-M of Louisiana, Inc. was merged into
Jefferson Corp. As a result, when the acquisition of Crescent City was
completed, Jefferson Corp. held all ownership interests in the Bossier City
property and all of the capital stock of Crescent City (which, renamed, is
Louisiana Corp.). In August 1996, Jefferson Corp. contributed all of its
Bossier City property, which constituted its only material assets other than
the capital stock of Louisiana Corp., to Louisiana Corp., its subsidiary, and
Louisiana Corp. assumed and paid the only significant liability of Jefferson
Corp.
CASINO REVENUES AND COMPLIMENTARIES:
In accordance with common industry practice, casino revenues are the net of
gaming wins less losses. Revenues exclude the retail value of complimentary
food and beverage furnished gratuitously to customers. The estimated
departmental costs of providing food and beverage services are included in
casino expense in the amount of $669,263 for the year ended December 31, 1996.
CASH AND CASH EQUIVALENTS:
For purposes of the consolidated balance sheets and statements of cash flows,
the Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
RESTRICTED CASH:
At the closing of the Series A Note Offering (See Note 5), approximately $45.2
million of the net proceeds thereof were deposited in collateral accounts (the
"Cash Collateral Accounts") to be disbursed only in accordance with the Cash
Collateral and Disbursement Agreement executed at the closing of the Series A
Note Offering. The balances that remain in these Cash Collateral Accounts at
December 31, 1996 are shown as restricted cash.
PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost. Depreciation, including
amortization of capital leases and leasehold improvements, is computed using
the straight-line method. Estimated useful lives for property and equipment
are 15 - 31 years for barges and buildings, life of the lease for leasehold
improvements and 5-7 years for furniture and equipment.
Normal repairs and maintenance are charged to expense when incurred.
Expenditures which materially extend the useful life of capital assets are
capitalized.
F-9 <PAGE>JEFFERSON CASINO CORPORATION AND ITS SUBSIDIARY
CASINO MAGIC OF LOUISIANA, CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
AMORTIZATION OF INTANGIBLES:
Deferred charges relating to debt issuance costs on long-term debt instruments
are amortized over the life of the related debt using the straight line method
which approximates the effective interest rate method. Included under other
assets is "Deferred gaming license cost". Deferred gaming license costs
represent the estimated fair value of the Louisiana gaming license, an asset
acquired in conjunction with the purchase of Crescent City. This cost is
being amortized on a straight-line basis over twenty five years, the estimated
period to be benefited by the license, commencing at the time gaming
operations began at Casino Magic-Bossier City.
PREOPENING COSTS:
Preopening costs are initially capitalized and then expensed when the related
business commences operations.
INCOME TAXES:
Income taxes are accounted for in accordance with the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes." Under the asset and liability method of SFAS No. 109, deferred tax
assets and liabilities are recognized for future tax consequences attributable
to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under SFAS No. 109, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
The Company is a party to a tax sharing agreement between Casino Magic Corp.
and each of its domestic subsidiaries (the "Consolidated Group") pursuant to
which Casino Magic Corp. will file a consolidated federal income tax return on
behalf of the Consolidated Group and timely pay the Consolidated Group federal
income tax liability and each Company will pay Casino Magic Corp. an amount
equal to its respective share of the Consolidated Group's federal income tax
liability. The Company is reimbursed for losses to the extent those losses
could have been used by the Company had it filed a separate return.
CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES:
Gaming regulation licensing. Jefferson's ability to conduct gaming operations
in the State of Louisiana depends on the continued licensability or
qualification of Casino Magic, Jefferson Corp. and Louisiana Corp. under
Louisiana Gaming Regulations. Such licensing and qualifications will be
reviewed periodically by the gaming authorities in Louisiana.
Competition. The gaming industry is extremely competitive and Jefferson will
face competition from developments in both the Bossier City/Shreveport area
and other jurisdictions.
Substantial leverage and ability to service debt. Jefferson is highly
leveraged, with substantial debt service in addition to construction and
operating expenses.
F-10
<PAGE> JEFFERSON CASINO CORPORATION AND ITS SUBSIDIARY
CASINO MAGIC OF LOUISIANA, CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES (CONTINUED):
Pervasiveness 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 disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Start-up of operations. Initial operations of the casino were adversely
affected by high water which forced the closure of the casino for 15 days
during 1996 as well as the beginning of operations before a substantial
portion of the casino's amenities were completed. It is anticipated that this
will negatively impact operating results during the early part of 1997.
2. OTHER ASSETS:
Included in other assets are the tangible and intangible assets that were
acquired in the purchase. Two significant purchased assets were the Louisiana
gaming license held by Crescent City and the Crescent City Riverboat. The
balances associated with these costs are comprised of the cost to acquire
Crescent City, additional costs incurred to operate and maintain the Crescent
City Riverboat and capitalized interest related to the gaming license.
Jefferson Corp. acquired Crescent City for $50.0 million, of which $15.0
million was paid in cash and the remainder was financed through the issuance
of $35.0 million in long-term notes (discussed in Note 4 below). The
acquisition of Crescent City by Jefferson Corp. was accounted for as a
purchase.
Subsequent to the original purchase price allocation significant changes were
made based on additional information. The Crescent City Riverboat, which
could not be used at Casino Magic-Bossier City's gaming site and is held for
sale, originally was valued at Crescent City's book value. Subsequently, an
appraisal of the estimated market value of the Crescent City Riverboat was
determined and the original value given to the Crescent City Riverboat of
approximately $31,000,000 was reduced to approximately $10,000,000. Since the
Company was required to purchase the Crescent City Riverboat in order to
obtain its Louisiana gaming license, this change in the valuation of the
Crescent City Riverboat increased the amount initially allocated to the
Louisiana gaming license from approximately $16,000,000 to approximately
$38,000,000.
The Crescent City Riverboat is located in a shipyard in Morgan City,
Louisiana. Louisiana Corp. anticipates selling the Crescent City Riverboat,
and management is pursuing that option.
The allocation of the fair value of the acquired assets are subject to
revisions within a one-year period from the date of acquisition based on
subsequent events in accordance with the principles of purchase accounting.
Interest is capitalized during construction at the Company's incremental
borrowing rate of 13% per annum. Interest was also capitalized on deferred
gaming license cost through October 4, 1996 at 13% per annum as the license is
an integral part of the riverboat casino and entertainment complex under
development. For the period from Inception through December 31, 1996,
approximately $101,181 and $865,210 of interest cost was capitalized related
to property and equipment and deferred gaming license cost, respectively.
F-11<PAGE> JEFFERSON CASINO CORPORATION AND ITS SUBSIDIARY
CASINO MAGIC OF LOUISIANA, CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
3. LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board (FASB) issued SFAS No.
121. "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of". SFAS No. 121 requires that long-lived assets and
certain identifiable intangibles to be held and used be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. Additionally, long-lived assets and
certain identifiable intangible assets to be disposed of are required to be
reported at the lower of carrying amount or fair value, less selling costs.
The Company has reviewed its long-lived assets for impairment and no
impairment reserve or writedown is considered necessary.
4. NOTES PAYABLE:
Short term notes consists of one note payable of $161,939, payable in monthly
installments of $27,585, including interest at 7.5%, through June 1997, and
$4,324,771 of various payables relating to fixed cost construction contracts.
5. LONG-TERM DEBT:
Long-term debt consists of the following:
DECEMBER 31,
1996
-------------
Note payable, bank(a) $ 6,275,740
Equipment note(b) 409,542
Louisiana Land Note(c) -
Louisiana Notes(d) -
Louisiana First Mortgage Notes(e) 115,000,000
Other (f) 43,515
------------
121,728,797
Less current maturities (1,878,605)
------------
$119,850,193
=============
(a)Consists of two notes at December 31, 1996. One note is collateralized by
gaming equipment. The first payment is due 120 days following the opening of
Jefferson's gaming facility. The note is payable in thirty-six monthly
payments of $53,463.49, including interest at prime plus 1/4% (8.5% at
December 31, 1996). The second note is collateralized by gaming equipment.
The first payment is due 120 days following the opening of Jefferson's gaming
facility. The note is payable in thirty-six monthly payments of $135,788.17,
including interest at prime plus 1% (9.25% at December 31, 1996) significant
portion of this balance at December 31, 1996 has been subsequently refinanced.
.
(b)Note collateralized by equipment. The note is payable in thirty-six
monthly payments of $13,923, including interest at 8.3%, fixed. A significant
portion of this balance at December 31, 1996 has been subsequently refinanced.
F-12
<PAGE> JEFFERSON CASINO CORPORATION AND ITS SUBSIDIARY
CASINO MAGIC OF LOUISIANA, CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
5. LONG-TERM DEBT (CONTINUED):
(c)Note collateralized by land (the "Louisiana Land Note"). The first payment
of $800,000 principal amount plus accrued interest was due within 60 days
following the opening of Jefferson's gaming facility. The remaining $6,000,000
was to be paid in fifty-eight monthly installments of $118,873.04, including
interest, beginning thirty days after the initial payment. The Louisiana Land
Note bore interest at 5.8%. The Louisiana Land Note was paid in full with
proceeds from the Series A Notes.
(d)In effecting the purchase of Crescent City, Jefferson Corp. caused
Louisiana Corp. to issue $35,000,000 in 111/2% senior secured notes (the
"Louisiana Notes"). The Louisiana Notes were issued under an indenture dated
May 13, 1996 (the "Louisiana Indenture"), between Louisiana Corp. as the
Company, Jefferson Corp. as Guarantor and First Trust National Association,
St. Paul, Minnesota, as the trustee (the "Louisiana Indenture Trustee").
The Louisiana Indenture Trustee also acted as the Paying Agent and registrar
for the Louisiana Notes. The Louisiana Notes accrued interest at the rate of
111/2% per annum, compounded semi-annually, and were due three years following
the "Commencement Date" which was defined as the earlier of November 9, 1996
or the date that Jefferson's casino in Bossier City opened for gaming
operations. The Louisiana Notes would also have come due as a result of an
adverse State of Louisiana action as defined in the Louisiana Indenture.
Interest was payable quarterly on the 15th day following each fiscal quarter
of Jefferson. The Louisiana Notes were paid in full with proceeds from the
Series A Notes.
(e)On August 22, 1996, the Company sold $115,000,000 million aggregate
principal amount of 13%, First Mortgage Notes due 2003 with Contingent
Interest ("Series A Notes"). The Company is required to offer to exchange up
to an aggregate of $115,000,000 principal amount of 13% Series B First
Mortgage Notes due 2003 with Contingent Interest (the "Series B Notes" and,
together with the Series A Notes, the "Notes") for such Series A Notes. The
Series B Notes will be identical to the Series A Notes but will be registered
with the Securities and Exchange Commission.
Contingent Interest is payable on the Notes, on each interest payment date, in
an aggregate amount equal to 5% of Adjusted Consolidated Cash Flow (as defined
in the Indenture) for the Accrual Period (as defined in the Indenture, but
generally a six month period) last completed prior to such interest payment
date; provided that no Contingent Interest is payable with respect to any
period prior to the Commencement Date (as defined in the Indenture). Payment
of all or a portion of any installment of Contingent Interest may be deferred,
at the option of the Company, if, and only to the extent that, (i) the payment
of such portion of Contingent Interest will cause the Company's Adjusted Fixed
Charge Coverage Ratio (as defined in the Indenture) for the Company's most
recently completed Reference Period prior to such interest payment
F-13
<PAGE>JEFFERSON CASINO CORPORATION AND ITS SUBSIDIARY
CASINO MAGIC OF LOUISIANA, CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
5. LONG-TERM DEBT (CONTINUED):
date to be less than 1.5 to 1.0 on a pro forma basis after giving effect to
the assumed payment of such Contingent Interest and (ii) the principal amount
of the Notes corresponding to such Contingent Interest has not then matured
and become due and payable (at stated maturity, upon acceleration, upon
redemption, upon maturity of a repurchase obligation or otherwise). The
aggregate amount of Contingent Interest payable in any Semiannual Period will
be reduced pro rata for reductions in the outstanding principal amount of
notes prior to the close of business on the record date immediately preceding
such payment of Contingent Interest.
The Series A Notes were issued to consolidate the funding necessary to develop
the Casino Magic-Bossier City project. This included the repayment of the
Louisiana Land Note and the Louisiana Notes.
The Notes are secured by a first priority security interest, subject to
permitted liens, in substantially all of the existing and future assets of the
Company, including the Bossier Riverboat and substantially all of the other
assets that comprise Casino Magic-Bossier City, the Crescent City Riverboat,
and an assignment of the construction contracts pursuant to which Casino
Magic-Bossier City was being constructed. The Jefferson Guarantee will be
secured by a pledge of all of the capital stock of the Company.
Louisiana Corp. has contractually committed to apply net proceeds from an
asset sale of the Crescent City Riverboat to the further development of Casino
Magic-Bossier City or, alternatively and if not so applied, to apply such net
proceeds to the making of a repurchase offer for the Notes. Provided, however,
that in the former case the net proceeds from an asset sale of the Crescent
City Riverboat may be applied only to the making of a capital expenditure or
the acquisition of long-term assets or the payment of the costs of
construction of real property improvements, in any case, to be used by
Louisiana Corp. at Casino Magic-Bossier City entertainment facility or hotel.
The Notes are governed by an Indenture (the " Indenture"). The Indenture
pursuant to which the Notes have been issued contains certain covenants that
will limit the ability of the Company and its subsidiaries to, among other
things, incur additional indebtedness and issue preferred stock, pay
dividends, make investments or make other restricted payments, incur liens,
enter into mergers or consolidations, enter into transactions with affiliates
or sell assets.
The Indenture requires the disclosure of the following information for the
period of Inception to December 31, 1996:
Contingent Interest paid $ --
Contingent Interest accrued $ --
Accrued Management Fees $ --
Adjusted Consolidated Cash Flow $ 807,031
All the above terms are as defined in the Indenture.
F-14
<PAGE>JEFFERSON CASINO CORPORATION AND ITS SUBSIDIARY
CASINO MAGIC OF LOUISIANA, CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
5. LONG-TERM DEBT (CONTINUED):
(f) Consists of various collateralized notes payable through the year 2000.
The interest rates on these notes vary from 12.95% to 13.25% fixed rates.
Maturities of long-term debt, as of December 31, 1996, are as follows:
PERIOD ENDING DECEMBER 31,
----------------------
1997 $ 1,878,605
1998 2,242,334
1999 2,384,409
2000 223,449
2001 -
Thereafter 115,000,000
-----------
$121,728,797
===========
The fair value of Jefferson's long-term debt approximates its carrying value
at December 31, 1996.
6. ADVERTISING:
The Company expenses all production and communication costs of advertising as
incurred. Advertising expense were approximately $707,052 for the period
ending December 31, 1996.
7. RELATED PARTY TRANSACTIONS:
The Company made payments to affiliated companies of approximately $3,360,000
during 1996. These payments related to development costs paid on behalf of
the Company which were incurred prior to the issuance of the Series A Notes in
August, 1996. At December 31, 1996 the Company had payables in the amount of
$1,130,000 to affiliated entities. The balances relate to third party
transactions that were paid by affiliated entities on behalf of the Company of
approximately $1,130,000 for services provided by affiliated entities. Such
services included, advertising expenses and the use of Casino Magic's
corporate jet.
8. CONTRACTUAL AGREEMENTS:
In August 1996, the Company entered into a management agreement (the
"Management Agreement") with Casino Magic and a wholly owned subsidiary of
Casino Magic (the "Manager") for a term of 10 years. In consideration for the
license of the "Casino Magic" name and the services provided under the
Management Agreement, the Company has agreed to pay a management fee equal to
10% of Adjusted Consolidated Cash Flow, as defined in the Indenture. Payment
of the management fee will be subject to certain restrictions contained in the
Indenture.
9. INCOME TAXES:
Pretax loss for the period ended December 31, 1996 was $10,044,398.
F-15
<PAGE>JEFFERSON CASINO CORPORATION AND ITS SUBSIDIARY
CASINO MAGIC OF LOUISIANA, CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
9. INCOME TAXES (CONTINUED):
Income tax provision (benefit) for the period ended December 31, 1996 is as
follows:
Federal current $ (1,137,024)
Federal deferred 1,137,024
State current (802,174)
State deferred 802,174
-------------
Total provision $ --
=============
Components of deferred tax liabilities (assets) at December 31, 1996 are as
follows:
Depreciation and amortization $ 193,024
Write-off of preopening costs (2,179,383)
Federal tax operating loss (1,137,024)
State tax operating loss (802,174)
Other (349,154)
------------
Gross tax asset (4,274,711)
-------------
Less: Tax valuation allowance 4,274,711
--------------
Net deferred tax assets $ --
=============
The provision for income taxes at December 31, 1996, differs from the amount
of income tax determined by applying the applicable U.S. statutory federal
income tax rate to pre-tax income from continuing operations as a result of
the following differences:
Statutory U.S. tax rate (35%) $ (3,515,539)
Increase (decrease) in rates resulting from:
Expenses which were non-deductible for
tax purposes 43,002
State tax benefit (802,174)
Tax valuation allowance 4,274,711
-------------
Effective tax rate (0%) $ --
=============
Based on the initial operations of the casino that were adversely affected by
high water which forced the closure of the casino for 15 days during 1996 as
well as the casino's beginning of operations before a substantial portion of
the casino's amenities were completed, management provided a valuation
allowance for the entire tax benefit created during 1996. The tax valuation
allowance will be reevaluated after the Company's operations have stabilized.
F-16 <PAGE>EXHIBIT I JEFFERSON CASINO CORPORATION AND ITS SUBSIDIARY
CASINO MAGIC OF LOUISIANA, CORP.
CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1996
ASSETS
Jefferson Louisiana
Corp. Corp. Eliminations Consolidated
---------- ----------- ------------ ------------
Current assets:
Cash and cash equivalents $ -- $ 3,959,126 $ -- $ 3,959,126
Restricted cash -- 16,899,654 -- 16,899,654
Other current assets -- 964,997 -- 964,997
---------- ----------- ------------ -----------
Total current assets -- 21,823,777 -- 21,823,777
---------- ----------- ------------ -----------
Property and equipment:
Land and improvements -- 14,716,035 -- 14,716,035
Barges and improvements -- 20,427,361 -- 20,427,361
Leasehold improvements -- 74,075 -- 74,075
Furniture and equipment -- 12,239,594 -- 12,239,594
Construction in progress -- 27,105,683 -- 27,105,683
---------- ----------- ------------ -----------
-- 74,562,748 -- 74,562,748
Less accumulated depreciation -- (740,922) -- (740,922)
---------- ----------- ------------ -----------
Total property and
equipment, net -- 73,821,826 -- 73,821,826
---------- ----------- ------------ -----------
Other long-term assets:
Investment in subsidiary 12,326,126 -- (12,326,126) --
Deferred gaming license cost -- 38,337,333 -- 38,337,333
Property held for sale -- 10,101,182 -- 10,101,182
Debt issuance costs -- 5,096,981 -- 5,096,981
Other long-term assets -- 148,846 -- 148,846
----------- ------------ ------------ ------------
Total other long-
term assets 12,326,126 53,684,342 (12,326,126) 53,684,342
----------- ------------ ------------ ------------
$12,326,126 $149,329,945 $(12,236,126) 149,329,945
=========== ============ ============= ===========
See notes to consolidated financial statements.
I-1
<PAGE>EXHIBIT I JEFFERSON CASINO CORPORATION AND ITS SUBSIDIARY
CASINO MAGIC OF LOUISIANA, CORP.
CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1996
LIABILITIES AND SHAREHOLDER'S EQUITY
Jefferson Louisiana
Corp. Corp. Eliminations Consolidated
---------- ----------- ------------ ------------
Current liabilities:
Notes and contracts payable $ -- $ 4,486,710 -- $ 4,486,710
Current maturities
long-term debt -- 1,878,605 -- 1,878,605
Accounts payable -- 2,837,908 -- 2,837,908
Accrued expenses -- 535,661 -- 535,661
Accrued interest -- 5,581,119 -- 5,581,119
Accrued payroll and
related benefits -- 1,720,191 -- 1,720,191
Accrued progressive gaming
liabilities -- 113,432 -- 113,432
Other current liabilities 92,123 -- -- 92,123
----------- ------------ ------------ ------------
Total current
liabilities 92,123 17,153,626 -- 17,245,749
----------- ------------ ------------ ------------
Long-term debt, net of
current maturities -- 119,850,193 -- 119,850,193
----------- ------------ ------------ ------------
Commitments and contingencies
Shareholder's equity:
Common stock $0.01 par,
10,000 shares
authorized, 1,000
shares issued and
outstanding -- 1 (1) --
Additional paid-in
capital 22,278,401 22,353,295 (22,353,295) 22,278,401
Retained earnings (deficit)
(10,044,398) (10,027,170) 10,027,170 (10,044,398)
---------- ------------ ------------ ------------
Total shareholder's
equity 12,234,003 12,326,126 (12,326,126) 12,234,003
----------- ----------- ------------ ------------
$ 12,326,126 $149,329,945 $(12,326,126) $149,329,945
=========== ============ ============= ===========
See notes to consolidated financial statements. I-2
<PAGE>EXHIBIT II JEFFERSON CASINO CORPORATION AND ITS SUBSIDIARY
CASINO MAGIC OF LOUISIANA, CORP.
CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE PERIOD MAY 13, 1996 (INCEPTION) TO DECEMBER 31, 1996
Jefferson Louisiana
Corp. Corp. Eliminations Consolidated
---------- ----------- ------------ ------------
Revenues:
Casino $ -- $ 12,664,451 $ -- $ 12,664,451
Other operating revenues -- 73,349 -- 73,349
---------- ----------- ------------ ------------
-- 12,737,800 -- 12,737,800
Costs and expenses:
Casino -- 7,123,353 -- 7,123,353
Other operating costs
and expenses -- 36,294 -- 36,294
Advertising and marketing -- 1,695,039 -- 1,695,039
General and administrative 17,228 2,241,551 -- 2,258,779
Property operation
maintenance and energy costs -- 1,060,727 -- 1,060,727
Rents, property taxes
and insurance -- 246,169 -- 246,169
Depreciation and amortization -- 1,136,883 -- 1,136,883
Preopening costs -- 6,520,158 -- 6,520,158
---------- ----------- ------------ ------------
17,228 20,060,174 -- 20,077,402
---------- ----------- ------------ ------------
Loss from operations (17,228) (7,322,374) -- (7,339,602)
Other (income) expense:
Loss on subsidiary (10,027,170) -- 10,027,170 --
Interest expense 121,021 7,220,979 -- 7,342,000
Capitalized interest (121,021) (4,026,591) -- (4,147,612)
Interest income -- (488,774) -- (488,774)
Other income and expense -- (818) -- (818)
---------- ----------- ------------ ------------
(10,027,170) 2,704,796 10,027,170 2,704,796
---------- ----------- ------------ ------------
Loss before income taxes: (10,044,398) (10,027,170) 10,027,170 (10,044,398)
Income tax expense (benefit) -- -- -- --
---------- ----------- ------------ ------------
Net (loss) (10,044,398) (10,027,170) 10,027,170 (10,044,398)
========== ============= ========= ===========
See notes to consolidated financial statements.
I-3
<PAGE>NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS, AND IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR THE INITIAL PURCHASERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY
SECURITY OTHER THAN THE NOTES OFFERED BY THIS PROSPECTUS, NOR DOES IT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO,
OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER WILL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT INFORMATION HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
____________________________
TABLE OF CONTENTS
PAGE
Summary ................................... 7
Risk Factors............................... 17
The Exchange Offer......................... 31
Use of Proceeds............................ 42
Capitalization............................. 44
Selected Financial Data.................... 44
Management's Discussion and Analysis
of Financial Condition and Results of
Operations.............................. 46
Business................................... 52
Regulatory Matters......................... 62
Management................................. 67
Principal Shareholders..................... 75
Certain Relationships and Related
Transactions............................ 77
Description of Notes....................... 78
Certain Federal Income Tax
Considerations.......................... 131
Plan of Distribution....................... 134
Legal Matters.............................. 135
Independent Public Accountants............. 135
Index to Financial Statements.............. F-1
___________________________
PROSPECTUS
___________________________
Offer to Exchange $1,000 principal amount of its 13% Series B First Mortgage
Notes due 2003 with Contingent Interest which have been registered under the
Securities Act for each $1,000 principal amount of its outstanding 13% Series
A First Mortgage Notes due 2003 with Contingent Interest
CASINO MAGIC OF LOUISIANA, CORP.
April , 1997
<PAGE>INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 83 of the Louisiana Business Corporation Law ("LBCL") provides in part
that a corporation may indemnify any director, officer, employee or agent of
the corporation against expenses (including attorney's fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him or her
in connection with any action, suit or proceeding to which he or she is or was
a party or is threatened to be made a party (including any action, suit or
proceeding to which he or she is or was party or is threatened to be made a
party (including any action by or in the right of the corporation), if such
action arises out of his or her acts in behalf of the corporation and he or
she acted in good faith and not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful.
The indemnification provisions of the LBCL are not exclusive; however, no
corporation may indemnify any person for willful or intentional misconduct. A
corporation has the power to obtain and maintain insurance, or to create a
form of self-insurance on behalf of any person who is or was acting for the
corporation, regardless of whether the corporation has the legal authority to
indemnify the insured person against such liability.
The Registrants' Articles of Incorporation and By-laws provide for
indemnification for directors, officers, employees and agents or former
directors, officers, employees and agents of the Registrants to the full
extent permitted by Louisiana law.
The Registrants' may obtain an insurance policy covering the liability of its
directors and officers for actions taken in their official capacity.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrants pursuant to the foregoing provision or otherwise, the Registrants
have been advised that in the opinion of the SEC such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
II-1
<PAGE> ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
EXHIBIT
NUMBER DESCRIPTION
- --------- ----------------------------------------------------------------
3.1* Amended and Restated Certificate of Incorporation of Casino Magic
of Louisiana, Corp.
3.2* By-laws of Casino Magic of Louisiana, Corp. (the "Company")
3.3* Certificate of Incorporation of Jefferson Casino Corporation.
3.4* By-laws of Jefferson Casino Corporation.
4.1* Form of the Company's 13% Notes due 2003 with Contingent Interest
in the aggregate principal amount of $115,000,000.
4.2* Form of Guarantee issued on August 22, 1996 by Jefferson Casino
Corporation.
4.3* Indenture dated as of August 22, 1996 by and among the Company,
First Union Bank of Connecticut, as Trustee, and the Guarantors named therein,
for the Company's $115,000,000 of 13% First Mortgage Notes due 2003 with
contingent interest.
4.4* Registration Rights Agreement dated as of August 22, 1996 by and
among the company, the Guarantors named therein and the Initial Purchasers
named therein.
4.5* Cash Collateral and Disbursement Agreement dated August 22, 1996 by
and among the Company, First Union Bank of Connecticut, as Trustee, and First
National Bank of Commerce, as disbursement agent.
4.6* Security Agreement dated as of August 22, 1996 by and between First
Union Bank of Connecticut, as Trustee, and the Company, as Guarantor.
4.7* Stock Pledge and Security Agreement dated as of August 22, 1996 by
and between First Union Bank of Connecticut, as Trustee, and Jefferson Casino
Corporation, as Pledgor.
4.8* Security Agreements dated as of August 22, 1996 by and between
First Union Bank of Connecticut, as Trustee, and Jefferson Casino Corporation.
4.9* First Preferred Ship Mortgage dated as of August 22, 1996 executed
in favor of First Union Bank of Connecticut, as Trustee, by the Company.
4.10* First Preferred Ship Mortgage dated as of August 22, 1996 executed
in favor of First Union Bank of Connecticut, as Trustee, by the Company.
4.11* Mortgage of the Company dated as of August 22, 1996 executed in
favor of First Union Bank of Connecticut, as Trustee.
4.12* Form of Accounts Pledge Agreement.
4.13* Note Purchase Agreement dated August 16, 1996.
4.14* Collateral Assignment dated August 22, 1996.
4.15** First Supplement to the Indenture
4.16** First Supplement to the Security Agreement
5.1* Legal Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
5.2* Legal Opinion of Hoffman Sutterfield Ensenant
10.1* Management Agreement
10.2* Tax-Sharing Agreement
10.3** Credit Agreement with First National Bank of Commerce dated
March 27, 1997.
21* List of Subsidiaries
23.1** Consent of Arthur Andersen, L.L.P
II-2
<PAGE> 23.2* Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
(included in Exhibit 5.1)
23.3* Consent of Hoffman Sutterfield Ensenant (included in Exhibit 5.2)
24* Powers of Attorney of certain directors
25.1* Statement of Eligibility and Qualification on Form T-1 under the
Trust Indenture Act of 1939 of First Union Bank of Connecticut, as Trustee
under the Indenture relating to the 13% First Mortgage Notes due 2003 with
contingent interest.
25.2* Report of Financial Condition of Trustee (Exhibit 7 to T-1)
27 Financial Data Schedule (filed electronically only)
99.1* Form of Letter of Transmittal
99.2* Form of Notice of Guaranteed Delivery
99.3* Form of Letter to Securities Dealers, Commercial Banks, Trust
Companies and Other Nominees
99.4* Form of Letter to Clients
99.5* Guidelines of Certification of Taxpayer Identification Number on
Form W-9
* Previously filed as an exhibit to this Registration No 333-14535
** Filed herewith
II-3
<PAGE>(b) Financial Statement Schedules
None.
All schedules are omitted because the required information is not present in
amounts sufficient to require submission of the schedule or because the
information required is included in the financial statements or notes thereto.
ITEM 22. UNDERTAKINGS
A. Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be permitted to directors, officers and
controlling persons of the Registrants pursuant to the foregoing provisions,
or otherwise, the Registrants have been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrants of expenses incurred or paid by a
director, officer or controlling person of the Registrants in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Registrants 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 and will be governed
by the final adjudication of such issue.
B. The undersigned Registrants hereby undertake:
(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 1993;
(ii)To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range may
be reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price represent no
more than a 20 percent change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the effective
registration statement.
(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.
II-4
<PAGE>(2)That for the purpose of determining any liability under the
Securities Act of 1933, as amended, each post-effective amendment that
contains a form of prospectus 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 which remain unsold at the termination of the
offering.
C.(1) The undersigned Registrants hereby undertake as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c),
the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(2) The Registrants undertake that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes 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."
II-5
<PAGE> SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the undersigned
Registrants certify that each of them has reasonable grounds to believe that
it meets all of the requirements for filing on Form S-4 and has duly caused
this Amendment No. 2 to the Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized , in the City of Bay St. Louis,
State of Mississippi on the Ninth day of April, 1997.
CASINO MAGIC OF LOUISIANA, CORP.
By : /s/ James E. Ernst
---------------------------------
James E. Ernst
President and Chief Executive Officer
JEFFERSON CASINO CORP.
By : /s/ James E. Ernst
---------------------------------
James E. Ernst
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 2 to the Registration Statement has been signed below by the
following persons in the capacities indicated.
II-6
<PAGE>
SIGNATURE TITLE DATE
Applicable in each case to both
Jefferson Casino Corp. and
Casino Magic of Louisiana Corp.
- ---------------------------- --------------------------- ----------------
/s/ Marlin F. Torguson Chairman of the Board April 9, 1997
- ----------------------------
/s/ James E. Ernst President and Chief April 9, 1997
- ---------------------------- Executive Office (principal
executive officer)
/s/ Jay S. Osman Chief Financial Officer, April 9, 1997
- ---------------------------- Executive Vice President
and Treasurer (principal
financial and accounting
officer)
Allen J. Kokesch Director April 9, 1997,
- ----------------------------
Roger H. Frommelt Director April 9, 1997
- ----------------------------
E. Thomas Welch Director April 9, 1997
- ----------------------------
* By:/s/ James E. Ernst
James E. Ernst, as Attorney in fact
II-7
<PAGE>
CREDIT AGREEMENT
among
CASINO MAGIC OF LOUISIANA, CORP.,
as Term Loan Borrower
and
CASINO MAGIC CORP.,
as Credit Line Borrower
and
FIRST NATIONAL BANK OF COMMERCE,
as Bank
Dated as of March 27, 1997
- -
CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of March 27, 1997, is made among
CASINO MAGIC OF LOUISIANA, CORP., a Louisiana corporation ("CMLA"), CASINO
MAGIC CORP., a Minnesota corporation ("CMC"), and FIRST NATIONAL BANK OF
COMMERCE, a national banking association ("Bank"), which agree as follows:
ARTICLE
GENERAL TERMS
Section Terms Defined Above. As used in this Agreement, the
terms "CMLA", "CMC" and "Bank" shall have the meanings indicated above.
Section Certain Definitions. As used in this Agreement, the
following terms shall have the following meanings, unless the context
otherwise requires:
"Advance" shall mean a disbursement of an amount under the Credit Line
and all or any portion of such disbursement so long as same remains
outstanding and unpaid.
"Agreement" shall mean this Credit Agreement, as the same may from time
to time be amended, modified, supplemented or restated.
"Borrowers" shall mean, collectively, CMLA and CMC, and "Borrower" shall
mean any one of them.
"Business Day" shall mean a day other than a Saturday, Sunday or legal
holiday for commercial banks in New Orleans, Louisiana.
"Casino Magic-Bossier City" shall have the meaning of such term set forth
in the Louisiana Indenture.
"CMLA Subsidiaries" shall have the meaning of the term "Subsidiaries" set
forth in the Louisiana Indenture. All capitalized terms used within such
definition therein and within the definitions of such terms, and their
attendant definitions, shall be deemed to be incorporated herein.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Collateral" shall mean the properties, property interests and rights
described in Section 3.1 hereof as security for the Term Loan Obligations or
which, under the terms of any Collateral Documents, is or is purported to be
encumbered thereby or subject thereto.
"Collateral Documents" shall mean, collectively, the documents required
by Bank to obtain the security interests in the Collateral or to guarantee or
otherwise secure any portion of the Term Loan Obligations, as described in
Section 3.1 hereof, and all other agreements, documents and instruments
required in Section 3.1, as any of the same may from time to time be amended,
modified, supplemented or restated.
"Consolidated Interest Coverage Ratio" shall have the meaning of such
term set forth in the Mississippi Indenture. All capitalized terms used
within such definition therein and within the definitions of such terms, and
their attendant definitions, shall be deemed to be incorporated herein.
"Control Board" shall mean the Louisiana Gaming Control Board.
"Credit Limit" shall mean Two Million Five Hundred Thousand and No/100
($2,500,000.00) Dollars.
"Credit Line" shall mean the credit facility afforded by Bank to CMC to
receive Advances under subsection 2.1(a) of this Agreement, up to the Credit
Limit.
"Credit Line Closing Date" shall mean the date of this Agreement.
"Credit Line Note" shall mean the Note described in subsection 2.1 (a)
hereof, relating to the Credit Line.
"Credit Line Obligations" shall mean the Obligations of CMC comprising or
otherwise relating to the Credit Line and the Advances made thereunder from
time to time.
"Credit Period" shall mean a period commencing on and including the
Credit Line Closing Date and extending for a period of up to the day preceding
the Credit Period Termination Date.
"Credit Period Termination Date" shall mean March 27, 1998. If such date
is not a Business Day, then the Credit Period Termination Date shall be the
nearest preceding Business Day.
"Debt" shall mean any and all amounts or liabilities owing from time to
time by any Person to any other Person, including Bank, direct or indirect,
liquidated or contingent, now existing or hereafter arising, including without
limitation (i) indebtedness for money borrowed; (ii) unfunded portions of
commitments for money to be borrowed; (iii) without double-counting if already
covered by clause (ii) hereof, the amounts of all standby and commercial
letters of credit and bankers acceptances, matured or unmatured, issued on
behalf of such Person; (iv) guaranties of the obligations of any other Person,
whether direct or indirect, whether by agreement to purchase the indebtedness
of any other Person or by agreement for the furnishing of funds to any other
Person through the purchase or lease of goods, supplies or services (or by way
of stock purchase, capital contribution, advance or loan) for the purpose of
paying or discharging the indebtedness of any other Person, or otherwise; (v)
the present value of all obligations for the payment of rent or hire of
property of any kind (real or personal) under leases or lease agreements
required to be capitalized under generally accepted accounting principles, and
(vi) trade payables and operating leases incurred in the ordinary course of
business or otherwise.
"Default" shall mean the occurrence of any of the events specified in
Article 8 hereof, whether or not any requirement for notice or lapse of time
or other condition precedent has been satisfied.
"Default Rate" shall mean (i) with respect to the Credit Line, the Prime
Rate plus four (4.00%) percent per annum, and (ii) with respect to the Term
Loan, twelve and one-quarter (12.25%) percent per annum.
"Division" shall have the meaning of such term set forth in the Riverboat
Gaming Act, together with any future successor or replacement Louisiana
Governmental Authority which acquires any gaming regulatory jurisdiction
pertinent to CMLA or CMC, including without limitation the Control Board.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
"Event of Default" shall mean the occurrence of any of the events
specified in Article 8 hereof, provided that any requirement for notice or
lapse of time or any other condition precedent has been satisfied.
"Fixed Charge Coverage Ratio" shall have the meaning of such term set
forth in the Louisiana Indenture. All capitalized terms used within such
definition therein and within the definitions of such terms, and their
attendant definitions, shall be deemed to be incorporated herein.
"Governmental Authority" shall mean any nation or government (domestic or
foreign), any state or other political subdivision thereof and any agency or
political subdivision thereof, and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government, including without limitation any arbitration panel or any court
and all federal, state, parish, county and municipal agencies, departments,
boards, commissions and authorities.
"Governmental Requirement" shall mean any law, statute, code, ordinance,
order, rule, regulation, judgment, decree, injunction, franchise, permit,
certificate, license, authorization or other direction or requirement
(including, without limitation, any of the foregoing which relate to gaming,
environmental standards or controls, occupational, safety and health standards
or controls and any environmental protection statute) of any Governmental
Authority.
"IGT" shall mean IGT, a Nevada corporation.
"Indentures" shall mean, collectively, the Louisiana Indenture and the
Mississippi Indenture, and "Indenture" shall mean either of them.
"JCC" shall mean Jefferson Casino Corporation, a Louisiana corporation.
"License" shall have the meaning of such term set forth in the Riverboat
Gaming Act.
"Lien" shall mean any interest in property securing an obligation owed
to, or a claim by, a Person other than the owner of the property, whether such
interest is based on jurisprudence, statute or contract, and including but not
limited to the lien or security interest or ship mortgage arising from a
mortgage, encumbrance, pledge, security agreement, preferred ship mortgage,
maritime tort, maritime supply contract, conditional sale or trust receipt or
a lease, consignment or bailment for security purposes. The term "Lien" shall
include reservations, exceptions, encroachments, easements, servitudes,
usufructs, rights-of-way, covenants, conditions, restrictions, leases and
other title exceptions and encumbrances affecting property. For the purposes
of this Agreement, a Borrower shall be deemed to be the owner of any property
which it has acquired or holds subject to a conditional sale agreement,
financing lease or other arrangement pursuant to which title to the property
has been retained by or vested in some other Person for security purposes.
"Loan Documents" shall mean collectively this Agreement, the Notes, the
Collateral Documents, and any other agreement, document or instrument executed
or delivered in connection herewith and therewith, together with any and all
renewals, modifications, amendments, supplements, extensions for any period,
or rearrangements hereof or of any thereof.
"Louisiana Indenture" shall mean the Indenture dated as of August 22,
1996 among CMLA, JCC and First Union Bank of Connecticut, as trustee (in such
capacity, together with its successors and assigns in such capacity, the
"Louisiana Trustee"), as amended by the First Supplement thereto and further
amended, modified or supplemented from time to time.
"Louisiana Indenture Change of Control" shall have the meaning of the
term "Change of Control" set forth in the Louisiana Indenture. All
capitalized terms used within such definition therein and within the
definitions of such terms, and their attendant definitions, shall be deemed to
be incorporated herein.
"Louisiana Trustee" shall have the meaning specified in the definition of
Louisiana Indenture above.
"MGC" shall mean the Mississippi Gaming Commission and its successors and
assigns.
"Mississippi Gaming Act" shall mean the Mississippi Gaming Control Act,
Mississippi Code Annotated 75-76-1 et seq. of the Mississippi Code of
1972, as amended from time to time, and the rules and regulations promulgated
thereunder from time to time.
"Mississippi Indenture" shall mean the Indenture dated as of October 14,
1993 among Casino Magic Finance Corp., CMC and IBJ Schroder Bank & Trust
Company, as Trustee, as amended, modified or supplemented from time to time.
"Mississippi Indenture Change of Control" shall have the meaning of the
term "Change of Control" set forth in the Mississippi Indenture. All
capitalized terms used within such definition therein and within the
definitions of such terms, and their attendant definitions, shall be deemed to
be incorporated herein.
"Notes" shall mean, collectively, the promissory notes referred to in
subsections 2.1(a) and (b) hereof, together with any and all renewals,
modifications, amendments, supplements, extensions or rearrangements thereto
or thereof, and "Note" shall mean either of them.
"Obligations" shall mean any and all amounts, liabilities and obligations
owing from time to time by CMLA or CMC to Bank (or any successor of Bank or
transferee of the Credit Line or the Term Loan) pursuant to the Loan Documents
to which each of CMLA and CMC, respectively, is a party, whether such amounts,
liabilities or obligations be liquidated or unliquidated, now existing or
hereafter arising, absolute or contingent.
"Permitted Liens" shall mean those Liens described in, and permitted
pursuant to, Section 6.1 hereof.
"Person" shall mean any individual, corporation, partnership, limited
liability company, joint venture, association, joint stock company, trust,
unincorporated organization, Governmental Authority, or any other form of
entity.
"Plan(s)" shall mean any employee pension benefit plan within the meaning
of Section (3)(2) of ERISA sponsored and maintained by any Borrower, including
any such plan to which any Borrower is required to contribute on behalf of its
employees.
"Prime Rate" shall mean the average prime or base rate on corporate loans
at large U.S. money center commercial banks as published from time to time in
The Wall Street Journal (or, if not published therein, such other
publication that Bank shall reasonably choose), which rate is a reference rate
and is not necessarily the lowest rate quoted or charged by such banks or Bank
to their respective customers.
"Proceeds" shall mean cash and non-cash proceeds of, and all other
profits, income, rentals or receipts, in whatever form, arising from the sale,
lease, exchange, assignment, licensing or other disposition of, or realization
upon, Collateral under the Security Agreement, and all additions to,
substitutions for and accessions of any Collateral under the Security
Agreement, including without limitation all claims of Borrower against third
parties for loss of, damage to or destruction of, or for proceeds payable
under, or unearned premiums with respect to, policies of insurance in respect
of, any Collateral under the Security Agreement, and any condemnation or
requisition payments with respect to any Collateral under the Security
Agreement, and including proceeds of all such proceeds, in each case whether
now existing or hereafter arising.
"Riverboat Gaming Act" shall mean The Louisiana Riverboat Economic
Development and Gaming Control Act, La. R.S. 4:501 et seq., and the rules
and regulations promulgated thereunder, as amended, supplemented or replaced
from time to time, including without limitation as affected by the Louisiana
Gaming Control Law (House Bill No. 8, First Extraordinary Session, 1996).
"SEC" shall mean the Securities and Exchange Commission.
"Security Agreement" shall have the meaning set forth in Section 3.1
hereof.
"Ship Mortgage" shall have the meaning set forth in Section 3.1 hereof.
"Slot Machines" shall mean the slot machines and related equipment
(including without limitation stands, cabinets, seats, kits, converters,
cables, workstations, accessories, processors, software and manuals) acquired
by Crescent City Capital Development Corporation, predecessor in interest to
CMLA, from IGT, including without limitation any of the foregoing listed more
particularly on Schedule I attached to the Security Agreement.
"Term Loan" shall mean the term loan described in subsection 2.1(b)
hereof.
"Term Loan Closing Date" shall mean the date of this Agreement.
"Term Loan Maturity Date" shall mean September 27, 1999.
"Term Loan Obligations" shall mean the Obligations of CMLA comprising or
otherwise relating to the Term Loan.
"Term Loan Payment Date" shall have the meaning specified in subsection
2.1(b) hereof.
"Term Loan Principal Commencement Date" shall mean June 27, 1997.
"Term Note" shall mean the Note described in subsection 2.1(b) hereof,
relating to the Term Loan.
"Vessel" shall mean the MARY'S PRIZE paddlewheel casino riverboat, U.S.
Coast Guard Official Number 1028011, together with any and all present and
future engines, boilers, machinery, components, gaming equipment, masts,
boats, capstans, outfit, tools, pumps, gear, furnishings, appliances,
fittings, spare and replacement parts and any and all other appurtenances
thereto, appertaining or belonging to the Vessel, whether now or hereafter
acquired, and whether on board or not on board, together with any and all
present and future additions, improvements and replacements therefor, made in
or to said Vessel, or any part of parts thereof.
Section Accounting Terms and Determinations. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial
statements required to be delivered hereunder shall be prepared in accordance
with generally accepted accounting principles as in effect from time to time.
<PAGE>
ARTICLE
AMOUNTS AND TERMS OF THE CREDIT LINE AND THE TERM LOAN
Section The Credit Line. (i) Subject to and upon the terms,
conditions and provisions set forth in this Agreement, and relying upon the
representations and warranties of each Borrower contained in this Agreement
and the other Loan Documents, Bank is willing to make multiple Advances to CMC
under the Credit Line, from time to time on any Business Day during the Credit
Period. The aggregate principal amount of the Advances outstanding at any one
time cannot exceed the Credit Limit. CMC may make borrowings, prepayments (as
permitted in subsection 2.4(a) hereof) and reborrowings on the Credit Line.
The Credit Line shall be represented by a promissory note by CMC payable to
the order of Bank in the principal amount of $2,500,000.00 and substantially
in the form of Exhibit A attached hereto, which note shall mature on the
Credit Period Termination Date, at which time the full principal amount of all
Advances then outstanding shall become due and payable. Interest on the
Credit Line Note shall accrue and be payable as specified in subsections
2.2(a) and (c) hereof. When each Advance is made by Bank to CMC, CMC shall be
deemed to have renewed and reissued the Credit Line Note for the amount of
such Advance plus the then current outstanding balances of all previous
Advances.
(ii) Each Advance shall be in an amount not less than $50,000
and in integral multiples thereof.
(iii) Requests for Advances shall be made on notice in writing
from CMC to Bank received by Bank at least two (2) Business Days prior to the
requested date for such Advance, specifying the requested date for such
Advance and the amount thereof. Each Request for Advance shall be accompanied
by a certificate in the form of Exhibit C attached hereto signed by the
principal financial officer of each Borrower. Reference is made to Article 7
hereof for general conditions to Advances.
The Term Loan. (i) Subject to and upon the terms, conditions
and provisions set forth in this Agreement, and relying upon the
representations and warranties of each Borrower contained in this Agreement
and the other Loan Documents, on the Term Loan Closing Date, Bank agrees to
make a term loan to CMLA in the principal amount of $3,850,000.00 (the "Term
Loan"). The Term Loan will be represented by a promissory note by CMLA
payable to the order of Bank in the principal amount of $3,850,000 and
substantially in the form of Exhibit B attached hereto, which note shall
mature and be payable in full on the Term Loan Maturity Date. Payments of
principal on the Term Note (x) shall commence on the Term Loan Principal
Commencement Date and shall continue quarterly thereafter on the following
nine (9) successive quarterly anniversary dates of the Term Loan Principal
Commencement Date through and including the Term Loan Maturity Date (each such
principal payment date being a "Term Loan Payment Date"), and (y) shall be
payable in ten (10) equal installments such that the principal balance of the
Term Loan will amortize equally to a zero balance at the Term Loan Maturity
Date after giving effect to the tenth and final payment of principal due on
such date.
(ii) Interest on the Term Loan shall be payable in arrears
and shall accrue as provided in subsections 2.2(b) and (c) below. CMLA shall
pay interest on the aggregate outstanding principal of the Term Loan on each
Term Loan Payment Date (including without limitation the Term Loan Maturity
Date) simultaneously with the principal payment then due and payable.
Section Interest. (a) Advances under the Credit Line shall bear
interest from the date of each Advance until paid at a varying rate per annum
which is equal to the Prime Rate plus one-quarter of one (0.25%) percent per
annum, such rate to change automatically effective as of the date of any
change in the Prime Rate. The determination by Bank of an interest rate
hereunder or interest amount due hereunder shall be conclusive and binding for
all purposes absent manifest arithmetical or mechanical error. Interest on
each Advance shall be payable in arrears. CMC shall make regular quarterly
interest payments on the aggregate Advances then outstanding on each quarterly
anniversary of the Credit Line Commencement Date commencing on the first such
quarterly anniversary date and continuing thereafter through and including the
Credit Period Termination Date.
(b) The Term Loan shall bear interest until paid at eight and
one-quarter (8.25%) percent per annum. The determination by Bank of an
interest amount due hereunder shall be conclusive and binding for all purposes
absent manifest arithmetical or mechanical error. Interest on the Term Loan
shall be payable by CMLA as provided in subsection 2.1(b) above.
(c) With respect to both the Advances and the Term Loan, all
payments of interest shall be computed on the per annum basis of a year of 360
days for the actual number of days (including the first day but excluding the
last day) elapsed.
Section Default Rate. If an Event of Default shall occur in the
payment on the due date of any payment of principal or interest due hereunder,
whether on the Credit Line or the Term Loan, or both, as the case may be, then
the applicable Borrower will pay interest on any such past due installment
(retroactively) from the date of the Default on such payment up to the date of
actual payment (as well after as before judgment) at the applicable Default
Rate. Upon the occurrence of any other Event of Default hereunder, Bank shall
have the right to increase prospectively the interest rates for the Term Loan
and the Advances outstanding under the Notes to the applicable Default Rates;
provided, that if such Event of Default arises solely due to an action or
inaction of one Borrower, then Bank's right to so prospectively increase the
interest rate shall apply only to such Borrower's Obligations. Upon
acceleration of the principal indebtedness represented by the Notes resulting
from an Event of Default, the accelerated principal balance of the Credit Line
and the Term Loan shall bear interest from the date of acceleration up to the
date of actual payment (as well after as before judgment) at the applicable
Default Rates; provided, that if such Event of Default arises solely due to
an action or inaction of one Borrower, then only the Obligations of such
Borrower shall so bear interest at the applicable Default Rate. All such
interest at the Default Rate shall be payable on demand.
Section Prepayments. (a) CMC may at its option prepay, on any
Business Day, the principal amount of the aggregate Advances outstanding
hereunder at any time in whole or from time to time in part, without premium
or penalty, but in any event together with accrued interest on the portion of
such Advances so prepaid; provided, that Bank shall have received notice of
any such prepayment at least two (2) Business Days before such prepayment date
and such notice shall specify the date of prepayment, the amount thereof and
the applicable Advance (or portion thereof) which is to be prepaid. Each such
prepayment shall be in any amount equal to at least one hundred thousand
($100,000.00) dollars or any lesser amount of aggregate Advances than
outstanding.
(b) CMLA may make voluntary prepayments, on any Business Day,
from time to time on the Term Loan outstanding hereunder, in whole or in part,
without premium or penalty, but in any event together with accrued interest on
the portion of the Term Loan so prepaid; provided, that Bank shall have
received notice of any such prepayment at least two (2) Business Days before
such prepayment date and such notice shall specify the date of prepayment and
the amount of the Term Loan which is to be prepaid. Each such prepayment
shall be in an amount equal to at least one hundred thousand ($100,000.00)
dollars or any lesser remaining principal balance of the Term Loan then
outstanding. Any partial prepayment when made shall be applied to unpaid
installments of principal in the inverse order of maturity (starting with the
last installment on the Term Loan Maturity Date). Early payments under the
Term Note will not relieve CMLA of CMLA's obligation to continue to make
regularly scheduled payments under the Term Note in accordance with the
payment schedule provided in subsection 2.1(b) above. Early payments will
instead reduce the principal balance due, and CMLA may be required to make
fewer payments under the Term Note.
(c) Neither CMC nor CMLA shall be required to make any mandatory
prepayments of, respectively, any Advances or the Term Loan.
Section Business Days. If the date for any payment or
prepayment hereunder falls on a day which is not a Business Day, then for all
purposes of this Agreement the same shall be deemed to have fallen on the next
following Business Day, and such extension of time shall in such case be
included in the computation of payments of interest.
Section Payments. Each Borrower shall make each payment
hereunder and under its Note in lawful money of the United States of America
in same day funds to Bank at Bank's main office in New Orleans, Louisiana not
later than 1:00 p.m. (Central Time) on the day when due, or such other place
in the United States as designated in writing by Bank. Each Borrower hereby
authorizes Bank, if and to the extent payment is not made when due hereunder
or under its Note and if such non-payment becomes an Event of Default
hereunder, to charge against such Borrower's accounts with Bank any amount so
due.
Section Application of Payments and Proceeds After Default.
Upon the occurrence of any Default or Event of Default, any and all payments
with respect to a Borrower's Obligations (including without limitation, with
respect to the Term Loan Obligations, the proceeds of any sale or liquidation
of any Collateral as security for the Term Loan Obligations), shall be applied
first, to all of such Borrower's Obligations other than the principal amount
and accrued interest then outstanding under its Note, in such order as Bank
shall determine in its sole discretion, second, to the accrued interest then
outstanding under its Note, and third, to the principal amount then
outstanding under its Note.
Section Use of Proceeds. (a) CMC shall use the proceeds of the
Advances solely for CMC's working capital needs permitted under the
Mississippi Indenture and (b) CMLA shall use the proceeds of the Term Loan
solely for purposes of refinancing the Slot Machines.
<PAGE>
ARTICLE
SECURITY FOR THE TERM LOAN OBLIGATIONS
Section Security. The Term Loan Obligations shall be secured
by the following:
(i) A Second Preferred Ship Mortgage by CMLA in favor of Bank
(as it may from time to time be amended, modified, supplemented or restated,
the "Ship Mortgage") covering the Vessel, for the sole purpose of ensuring the
grant and perfection of Bank's security interest in the corporeal (tangible)
Collateral described in clause (ii) below, and evidence that all actions
necessary or, in the opinion of Bank, desirable to perfect or protect the
Liens created by such Ship Mortgage have been taken.
(ii) A Security Agreement by CMLA in favor of Bank (as it may
from time to time be amended, modified, supplemented or restated, the
"Security Agreement") granting a first priority security interest in all of
CMLA's right, title and interest in and to (x) the Slot Machines, (y) all
contract rights and warranty rights of CMLA pertaining to the Slot Machines,
and (z) all Proceeds of the foregoing, together with proper UCC-1 Financing
Statements duly filed in Louisiana and Mississippi, and evidence that all
actions necessary or, in the opinion of Bank, desirable to perfect or protect
the Liens created by such Security Agreement have been taken.
<PAGE>
ARTICLE
REPRESENTATIONS AND WARRANTIES
In order to induce Bank to enter into this Agreement, the Borrowers
hereby represent and warrant to Bank (which representations and warranties
will survive the extensions of credit under this Agreement and shall be deemed
to be continually made for so long as any part of the Obligations is
outstanding) that:
Section Corporate Existence. (a) The Borrowers are corporations
duly organized, legally existing and in good standing under the laws of their
respective states of incorporation, and are duly qualified as foreign
corporations in all jurisdictions wherein the property they own or the
business they transact make such qualification necessary. As of the date of
this Agreement, the Borrowers have no subsidiaries (including, with respect to
CMLA, any CMLA Subsidiaries) except as set forth on Exhibit D attached
hereto.
(b) The chief executive office of CMLA is located at 1701 Old
Minden Road, Bossier City, Louisiana 71111. The federal taxpayer
identification number of CMLA is 64-0878110.
Section Corporate Power and Authorization. The Borrowers are
duly authorized and empowered to execute, deliver and perform the Loan
Documents to which each is a party and to own their respective properties and
to carry on their respective businesses as now being conducted. All corporate
action on the part of the Borrowers requisite for the due creation and
execution of the Loan Documents has been duly and effectively taken (including
without limitation any shareholder action).
Section Binding Obligations. The Loan Documents to which each
Borrower is a party constitute valid and binding obligations of such Borrower,
enforceable in accordance with their terms (except that enforcement may be
subject to any applicable bankruptcy, insolvency or similar laws generally
affecting the enforcement of creditors' rights).
Section No Legal Bar or Resultant Lien. The execution, delivery
and performance by each Borrower of the Loan Documents to which each is a
party (i) do not and will not violate any provisions of the Borrowers'
articles of incorporation or by-laws, (ii) will not violate, result in any
acceleration under or create in any party a right to terminate or modify any
contract or agreement to which any of the Borrowers is subject (including
without limitation the Indentures (including without limitation Sections 4.09
and 4.13 of the Louisiana Indenture and Sections 4.12 and 4.14 of the
Mississippi Indenture) and the agreements, documents and instruments executed
and delivered in connection therewith), (iii) will not violate any law
(including without limitation the Riverboat Gaming Act and the Mississippi
Gaming Act), regulation, order, injunction, judgment, decree or writ to which
any of the Borrowers is subject, and (iv) will not result in the creation or
imposition of any Lien upon any property of any Borrower, other than as
contemplated by this Agreement.
Section No Consents. The execution, delivery and performance by
each Borrower of the Loan Documents to which each is a party do not now and
will not in the future require the consent or approval of, notice to, filing
with, or exemption or other action from, any other Person (including without
limitation the trustees or noteholders under the Indentures or any
Governmental Authority), except for approval by the MGC, after their
execution, of the Loan Documents executed by CMC.
Section Financial Condition. All financial statements
(consolidated or otherwise) of each Borrower delivered to Bank fairly and
accurately present the financial condition of the party or parties for whom
such statements are submitted and such financial statements have been prepared
in accordance with generally accepted accounting principles consistently
applied throughout the periods involved, and there are no contingent
liabilities not disclosed thereby which would or could adversely affect the
financial condition of such party or parties. Since the close of the period
covered by the latest financial statement delivered to Bank with respect to
either Borrower, there has been no material adverse change in the assets,
liabilities, or financial condition of such parties. Except as specifically
disclosed to Bank in writing, no event has occurred (including, without
limitation, any litigation or administrative proceedings) and no condition
exists or, to the knowledge of either Borrower, is threatened, which (i) might
render either Borrower unable to perform its obligations under this Agreement,
its Note or the other Loan Documents to which it is a party, or (ii) would
constitute a Default hereunder, or (iii) might materially adversely affect the
financial condition of either Borrower or the validity of or priority of the
Liens under the Collateral Documents.
Section Investments and Guaranties. Neither Borrower has made
investments in, advances to or guaranties of the obligations of any Person,
except as reflected in the financial statements described in Section 4.6
hereof, or as specifically disclosed to Bank in writing, or as expressly
permitted by this Agreement. The foregoing so disclosed to Bank in writing
and reflected in the financial statements described in Section 4.6 hereof
includes, without limitation, the guaranty by CMC of the Debt of Casino Magic
Finance Corp. under the Mississippi Indenture.
Section Liabilities and Litigation. Neither Borrower has any
material (individually or in the aggregate) liabilities, direct or contingent,
except as disclosed or referred to in the financial statements described in
Section 4.6 hereof, or as specifically disclosed to Bank in writing. Except
as referred to in the financial statements described in Section 4.6 hereof or
except as specifically disclosed to Bank in writing, there is no litigation,
legal or administrative proceeding, investigation or other action of any
nature pending or, to the knowledge of the Borrowers, threatened against or
affecting either Borrower which involves the possibility of any judgment or
liability not fully covered by insurance, and which may materially and
adversely affect, whether individually or in the aggregate, the business or
the property of either Borrower or its ability to carry on business as now
conducted.
Section Taxes and Governmental Charges. The Borrowers have
filed all tax returns and reports required to be filed and have paid all
taxes, assessments, fees and other governmental charges levied upon them or
upon their properties or income which are due and payable, including interest
and penalties, or have provided adequate reserves for the payment thereof
adequate under generally accepted accounting principles (provided that such
reserves may be set up under generally accepted accounting principles) and
such are currently being contested in good faith by appropriate proceedings
diligently being conducted.
Section Defaults. The Borrowers are not in default (in any
respect which materially and adversely affects a Borrower's businesses,
properties, operations or condition, financial or otherwise), under any
indenture (including either Indenture), loan agreement, mortgage, deed of
trust, agreement or other instrument to which each is a party or by which such
Borrower is bound, except as otherwise disclosed to Bank in writing.
Section Casualties and Condemnation. Since the date of the most
recent financial statements furnished to Bank prior to the date of this
Agreement, neither the business nor the property of either Borrower has been
materially and adversely affected as a result of any fire, explosion,
earthquake, flood, drought, windstorm, accident, strike or other labor
disturbance, embargo, requisition or taking of property or cancellation of
contracts, permits or concessions by any Governmental Authority, riot,
activities of armed forces or acts of God or of any public enemy, except (i)
that prior to the Term Loan Closing Date, the temporary casino operations of
CMLA closed for an aggregate of 15 days due to flooding, and (ii) as otherwise
disclosed in writing to Bank.
Section Use of Proceeds; Margin Stock. The proceeds of the
extensions of credit hereunder will be used by Borrowers for the purposes
listed in Section 2.8 hereof. None of such proceeds will be used for the
purpose of, and neither Borrower is engaged in the business of extending
credit for the purpose of, purchasing or carrying any "margin stock" as
defined in Regulation U of the Board of Governors of the Federal Reserve
System (12 C.F.R. Part 221), or for the purpose of reducing or retiring any
indebtedness which was originally incurred to purchase or carry a margin stock
or for any other purpose which might constitute this transaction a "purpose
credit" within the meaning of said Regulation U. Neither Borrower is engaged
principally, or as one of its important activities, in the business of
extending credit for the purpose of purchasing or carrying margin stocks.
Neither either Borrower nor any other Person acting on behalf of either
Borrower has taken or will take any action which might cause this Agreement to
violate Regulation U or any other regulation of the Board of Governors of the
Federal Reserve System or to violate the Securities Exchange Act of 1934 or
any rule or regulation thereunder, in each case as now in effect or as the
same may hereinafter be in effect.
Section Compliance with the Law. The Borrowers (a) are not in
violation of any law, judgment, decree, order, ordinance, or governmental rule
or regulation to which the Borrowers or any of their property are subject, and
(b) have not failed to obtain any license, permit, franchise or other
governmental authorization necessary to the ownership of any of their property
or the conduct of their business; in each case, which violation or failure
could reasonably be anticipated to materially and adversely affect the
business, prospects, profits, property or condition (financial or otherwise)
of either Borrower.
Section ERISA. The Borrowers and the Plan(s) are in compliance
in all material respects with the applicable provisions of ERISA, and no
Reportable Event, as such term is defined in Title IV of ERISA, has occurred
with respect to any Plan of the Borrowers.
Section No Material Misstatements. No information, exhibit or
report furnished by the Borrowers to Bank in connection with this Agreement or
the other Loan Documents or in the negotiation of this Agreement or the other
Loan Documents executed in favor of or with Bank contained any material
misstatement of fact or omitted to state a material fact necessary to make the
statements contained herein and therein not misleading.
Section Utility or Investment Company. Neither Borrower is
engaged in the generation, transmission, or distribution and sale of electric
power; transportation, distribution and sale through a local distribution
system of natural or other gas for domestic, commercial, industrial, or other
use; ownership or operation of a pipeline for the transmission or sale of
natural or other gas, crude oil or petroleum products to other pipeline
companies, refineries, local distribution systems, municipalities, or
industrial consumers; provision of telephone or telegraph service to others;
production, transmission, or distribution and sale of steam or water;
operation of a railroad; or provision of sewer service to others. Neither
Borrower is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
Section Title to Collateral. CMLA has good and merchantable
title to its Collateral, free of all Liens other than Permitted Liens.
Section Fiscal Year. The fiscal year of each of the Borrowers
ends on December 31 of each year.
Section Continuing Accuracy. All of the representations and
warranties contained in this Article or elsewhere in this Agreement shall be
true through and until the date on which all Obligations of Borrowers under
this Agreement and the other Loan Documents are fully satisfied, and each
Borrower shall promptly notify Bank of any event which would render any of
said representations and warranties untrue or misleading.
<PAGE>
ARTICLE
AFFIRMATIVE COVENANTS
Unless Bank's prior written consent to the contrary is obtained,
each Borrower will at all times comply with each covenant contained in this
Article 5 (unless a covenant by its specific terms applies only to the other
Borrower), from the date hereof and for so long as any part of its Obligations
is outstanding.
Section Financial Statements and Reports. Each Borrower will
promptly furnish to Bank such information regarding the business and affairs
and financial condition of such Borrower as Bank may reasonably request.
Without limiting the generality of the foregoing, the Borrowers will furnish
or cause to be furnished to Bank:
Annual and Quarterly Reports - Whether or not either Borrower is
required by the rules and regulations of the SEC to make such filings (and
within 15 days of the date that is or would be prescribed thereby), (i) all
quarterly and annual financial information of each Borrower that is or would
be required to be contained in a filing with the SEC on Forms 10-Q and 10-K
(without exhibits), including a "Management's Discussion and Analysis of
Financial Condition and Results of Operations" that describes the financial
condition and results of operations of each Borrower and its subsidiaries and,
with respect to the annual information only, a report thereon by each
Borrower's certified independent accounts acceptable to Bank and (ii) all
current reports of each Borrower that are or would be required to be filed
with the SEC on Form 8-K.
Monthly Reports - as soon as available and in any event within
fifteen (15) days after the end of each month, the balance sheet of CMLA as of
the end of such period, the statement of income of CMLA for such month and for
the period from the beginning of the fiscal year to the close of such month,
the statement of reconciliation of capital accounts of CMLA for such month and
for the period from the beginning of the fiscal year to the close of such
month, and the statement of cash flow of CMLA for such month and for the
period from the beginning of the fiscal year to the close of such month
setting forth in each case in comparative form the corresponding figures (if
any) for the corresponding period of the preceding fiscal year (certified as
provided in subsection 5.2(b) below); and
Audit Reports - promptly upon receipt thereof, copies of each other
report submitted to the Borrowers by independent accountants in connection
with any annual, interim or special audit made by them of the books of the
Borrowers, and copies of any management letters or any reports as to material
inadequacies in accounting controls submitted to any of the Borrowers; and
Control Board; Division; MGC - Promptly after the same are
available and in any event within five (5) Business Days thereof, copies of
each report (whether monthly, quarterly, annual or otherwise) which either
Borrower files with the Control Board or the Division or the MGC pertaining to
its gaming revenues, its cash reserves (in compliance with the Division's
administrative rule Section 2713), or other material financial information;
and
Other information - promptly upon the written request of Bank, all
regular budgets and such other financial or other information regarding the
business and affairs and financial condition of the Borrowers as Bank may
reasonably request.
All such balance sheets and other financial reports referred to above shall be
in such detail as Bank may reasonably request and shall conform to generally
accepted accounting principles applied on a basis consistent with those of the
financial statements described in Section 4.6 hereof, except only for such
changes in accounting principles or practice with which the independent
certified public accountants concur or, as to subsection (a) above, that would
be required by the SEC.
Section Certificates of Compliance. Concurrently with the
furnishing of the annual financial statements pursuant to subsection 5.1(a)
hereof, each Borrower will furnish or cause to be furnished to Bank a
certificate from the independent certified public accountants for the
Borrowers stating that in the ordinary course of their audit of the Borrowers,
insofar as it relates to accounting matters, their audit has not disclosed the
existence of any condition which constitutes a Default (including without
limitation under Sections 5.18 and 5.19 hereof), or if their audit has
disclosed the existence of any such condition, specifying the nature, period
of existence and status thereof; provided, however, that the independent
certified public accountants shall not be liable to Bank for their failure to
discover a Default.
Concurrently with the furnishing of the monthly and quarterly
financial statements pursuant to subsections 5.1(a) and (b) hereof, the
Borrowers will furnish to Bank a certificate in the form of Exhibit C
attached hereto, signed by the principal financial officer of each of the
Borrowers.
Section Taxes and Other Liens. The Borrowers will pay and
discharge promptly when due all taxes, assessments and governmental charges or
levies imposed upon them or upon their income or upon any of their properties
as well as all claims of any kind (including claims for labor, materials,
supplies and rent) which, if unpaid, might become a Lien upon any or all of a
Borrower's property; provided, however, the Borrowers shall not be
required to pay any such tax, assessment, charge, levy or claim if the amount,
applicability or validity thereof shall currently be contested in good faith
by appropriate proceedings diligently conducted and if the contesting party
shall have set up reserves therefor adequate under generally accepted
accounting principles (provided that such reserves may be set up under
generally accepted accounting principles).
Section Corporate Existence; Compliance. Each Borrower will
maintain its corporate existence and rights. Each Borrower will observe and
comply (to the extent necessary so that any failure will not materially and
adversely affect the business, prospects, profits, property or condition,
financial or otherwise, of such Person), with all laws (including without
limitation the Riverboat Gaming Act and the Mississippi Gaming Act), statutes,
codes, acts, ordinances, orders, judgments, decrees, injunctions, rules,
regulations, certificates, franchises, permits, licenses, authorizations,
directions and requirements (including without limitation any Governmental
Requirement) of all Governmental Authorities, and keep and maintain all such
franchises, permits and licenses necessary for the conduct of its business in
full force and effect.
Section Further Assurance. The Borrowers will promptly (and in
no event later than thirty (30) days after written notice from Bank is
received) cure or caused to be cured, at their expense, as reasonably
requested by Bank, any defects in the creation, execution and delivery of any
of the Loan Documents. The Borrowers will, at their expense, promptly execute
and deliver to Bank upon written request all such other and further documents,
agreements and instruments (including without limitation further security
agreements, financing statements, continuation statements, and assignments of
contract rights) in compliance with or accomplishment of the covenants and
agreements of the Borrowers in the Loan Documents or to further evidence and
more fully describe the Collateral, including any renewals, additions,
substitutions, replacements or accessions to the Collateral, or to correct any
omissions in the Collateral Documents, or more fully state the Obligations set
out herein or in any of the Collateral Documents, or to perfect, protect or
preserve any Liens created pursuant to any of the Collateral Documents, or to
make any recordings, to file any notices, or obtain any consents as may be
necessary or appropriate in connection with the transactions contemplated by
this Agreement.
Section Performance of Obligations. Each Borrower will repay
the Advances and the Term Loan in accordance with its Note and this Agreement.
Each Borrower will do and perform or cause to be done and performed every act
required of it by the Loan Documents at the time or times and in the manner
specified.
Section Reimbursement of Expenses. Each Borrower will pay all
reasonable fees, costs and expenses (including without limitation reasonable
legal fees and expenses) incurred by Bank in connection with the preparation,
execution, delivery, filing, recording, enforcement and administration of the
Loan Documents to which it is a party executed in favor of or with Bank and
all related documents (including any amendments); provided, that solely in
connection with the preparation, execution and delivery of the Loan Documents
being delivered on the date of this Agreement (each as originally executed),
Borrowers collectively shall be responsible (pro rata according to each
Borrower's percentage of the sum of the Credit Limit and the amount of the
Term Loan) for only up to $27,000 of Bank's legal fees, plus the out-of-pocket
expenses of Bank's counsel. Each Borrower will upon request promptly
reimburse Bank for all reasonable amounts expended, advanced or incurred by
Bank to satisfy any obligation of such Borrower under this Agreement, or to
protect such Borrower's Collateral or to collect such Borrower's Obligations,
or to enforce the rights of Bank under this Agreement or the other Loan
Documents to which such Borrower is a party, which amounts will include all
court costs, reasonable attorneys' fees (including without limitation, any
reasonable attorneys' fees incurred in connection with any future bankruptcy,
probate, receivership or other judicial proceeding affecting the Bank's rights
hereunder and any reasonable attorneys' fees incurred in connection with
preparation for trial or appeal), fees of auditors and accountants, and
investigation expenses reasonably incurred by Bank in connection with any such
matters, together with interest at the applicable Default Rate (provided, that
if the amount to be reimbursed to Bank is on account of both the Credit Line
and the Term Loan, then the Default Rate shall be the higher of the two
Default Rates applicable thereto) on each such amount from the date that the
same is expended, advanced or incurred by Bank until the date of reimbursement
to Bank.
Section Insurance. CMLA will carry and maintain in full force
and effect at all times with financially sound and reputable insurers (or, (i)
as to workers' compensation, in an insurance fund or by self-insurance
authorized by the jurisdiction in which its operations are carried on or (ii)
as to umbrella or excess coverages, with financially sound and reputable
surplus line carriers), property insurance, workers' compensation insurance,
public liability insurance and such other insurance with respect to its
properties and businesses against such liabilities, casualties, risks and
contingencies and in such types and amounts as are reasonably satisfactory to
Bank and as are usually insured against by companies of established reputation
engaged in the same or similar businesses and similarly situated, or as more
specifically provided in the Collateral Documents. Such insurance shall be
maintained in such amounts (and with co-insurance, deductibles and
self-insured retention, if any) as such insurance is usually carried by
companies of established reputation engaged in the same or similar businesses
and similarly situated. All such insurance carriers (including brokers) shall
be licensed (or, with respect to surplus line carriers, otherwise authorized
and approved) in the states where the Collateral is located and shall have a
rating reasonably acceptable to Bank.
Without limiting the generality of the foregoing, CMLA shall procure
and maintain in full force and effect the following types of insurance:
(i) Multi-Peril Hazard Insurance. With respect to the
Collateral, multi-peril hazard insurance affording insurance against loss or
damage by fire, lightning, explosion, collapse, theft, sprinkler leakage,
vandalism and malicious mischief and such other perils as are included in
so-called "all-risks" or "extended coverage" and against such other insurable
perils as, under good insurance practices, from time to time are insured
against for properties of similar character, location and movement; such
insurance to be not less than 100% of the full replacement cost of the
Collateral, including the cost of debris removal, without deduction for
depreciation.
(ii) Flood Insurance. Flood insurance with respect to the
Collateral in an amount not less than 100% of the full replacement cost of the
Collateral, or the maximum amount available, whichever is lesser.
(iii) Comprehensive General Liability Insurance. Comprehensive
public liability insurance with respect to the Collateral and the operations
related thereto, against liability for personal injury (including bodily
injury and death) and property damage, of not less than $1,000,000.00 combined
single limit bodily injury and property damage (together with umbrella or
excess liability insurance providing excess disability coverage, over and
above such foregoing insurance, in the minimum amount of $25,000,000.00); such
comprehensive public liability insurance to be on a per occurrence basis and
to specifically include, but not be limited to, (x) coverage for elevators and
escalators, water damage liability, products liability, motor vehicle
liability for all owned and non-owned vehicles, including rented and leased
vehicles, and contractual indemnification, and (y) the specific deletion of
any water craft exclusion.
(iv) Worker's Compensation and General Liability. Workers
compensation/Employer's liability and general liability insurance, to the
extent required to comply with any applicable law or regulation, in an amount
not less than $1,000,000.00 against loss, damage or injury to all employees
(including without limitation, masters, officers and members of the crew of
the Vessel), agents or representatives of CMLA or any contractor or
subcontractor, or insurance against loss, damage or injury caused by any
employees, agents or representatives of CMLA or any contractor or
subcontractor (together with, whether or not such insurance is required under
any applicable law or regulation, umbrella or excess liability insurance
providing excess liability coverage, over and above such foregoing insurance
(if any), in a minimum amount of $25,000,000.00).
(v) Business Interruption Insurance. Business interruption
insurance covering all reasonable continuing expenses of CMLA, including
without limitation the debt service of CMLA for payment of its Term Loan
Obligations, in a minimum coverage amount reasonably satisfactory to Bank (and
Bank acknowledges and agrees that, as of the date of this Agreement,
$8,000,000 is a satisfactory minimum coverage amount).
(vi) Boiler and Machinery Insurance. Insurance in an amount
satisfactory to Bank covering (x) pressure vessels, air tanks, boilers,
machinery, pressure piping, heating, air conditioning and elevator and
escalator equipment on the Vessel, and (y) any loss of occupancy or use
arising from the breakdown of any of the items referred in the immediately
preceding clause (x) hereof.
(vii) Other Insurance. Such other insurance on the Collateral
or any replacements or substitutions for the foregoing and in such amounts as
may from time to time be reasonably required by Bank against other insurable
casualties which at the time are commonly insured against in the case of
premises or other property similarly situated.
CMLA recognizes and agrees that Collateral, pursuant to the Ship Mortgage,
includes the Vessel, notwithstanding the stated limited purpose of the Ship
Mortgage described in subsection 3.1(i) above.
All such insurance policies, including renewals and replacements,
must also be in form and substance acceptable to Bank, and must additionally
contain a waiver of subrogation clause or endorsement satisfactory to Bank,
and a non-contributory loss payable endorsement in favor of Bank, providing in
part that (i) all proceeds attributable to Collateral (as Bank's interests may
appear as to the extent of the fair market value (or, if higher, the
replacement cost) of the Collateral covered by the Security Agreement) and
returned premiums under such policies of insurance regarding Collateral will
be paid directly to Bank, and (ii) no act or omission on the part of CMLA, or
any of its officers, agents, employees or representatives, nor (with respect
to insurance required under clauses (i), (ii), (v), (vi) and, if applicable,
(vii) above) breach of any warranty contained in such policies, shall affect
the obligations of the insurer to pay the full amount of any loss attributable
to Collateral to Bank (as Bank's interests may appear as to the extent of the
fair market value (or, if higher, the replacement cost) of the Collateral
covered by the Security Agreement). Such policies of insurance must also
contain a provision prohibiting cancellation or the alteration of such
insurance without at least thirty (30) days' prior written notice to Bank of
such intended cancellation or alteration.
CMLA agrees to provide Bank with originals or certified copies of
such policies of insurance. CMLA further agrees to promptly furnish Bank with
copies of all renewal notices and, if requested by Bank, with copies of
receipts for paid premiums. CMLA shall provide Bank with binders or such
other proof acceptable to Bank that renewal or replacement policies of
insurance will be in effect before any such existing policy or policies should
expire. If CMLA's insurance policies and renewals are held by another Person,
CMLA agrees to supply original or certified copies of the same to Bank,
together with binders or such other proof acceptable to Bank that renewal or
replacement policies of insurance will be in effect before any such existing
policy or policies should expire.
In the event CMLA should, for any reason whatsoever, fail to cause
any insurance required hereunder to be maintained as herein provided, or to
cause such policies to be and remain so assigned or payable as provided
herein, or to cause to be delivered to Bank satisfactory evidence thereof,
then Bank, if it so elects, may itself have any such insurance effected in
such amounts and in such companies as it may deem proper and may pay the
premiums therefor and CMLA shall reimburse Bank upon demand for the amount of
the premiums paid, together with interest thereon at the Default Rate
applicable to the Term Loan from date until paid. Bank shall not be
responsible for the solvency of any company issuing any insurance policy,
whether or not selected or approved by it, or for the collection of any
amounts due under any such policy, and shall be responsible and accountable
only for such money as may be actually received by Bank.
CMLA agrees to promptly notify its insurance company and to submit
an appropriate claim and proof of claim to the insurance company in the event
that any Collateral is lost, damaged, or destroyed as a result of an insured
hazard. Bank may submit such a claim and proof of claim to the insurance
company on CMLA's behalf, should CMLA fail to do so promptly for any reason.
CMLA hereby irrevocably appoints Bank as its agent and attorney-in-fact, such
agency being coupled with an interest, to make, settle and adjust claims under
such policy or policies of insurance and to endorse the name of CMLA on any
check or other item of payment for the proceeds thereof; it being understood,
however, that unless one or more Events of Default exist under this Agreement,
Bank will not settle or adjust any such claim without the prior approval of
CMLA (which approval shall not be unreasonably withheld).
Bank shall have the right to directly receive the proceeds of all
insurance protecting the Collateral (as Bank's interests may appear as to the
extent of the fair market value (or, if higher, the replacement cost) of the
Collateral covered by the Security Agreement). In the event that CMLA should
receive any such insurance proceeds, CMLA agrees to immediately turn over and
to pay such proceeds directly to Bank. It is agreed that as long as no
Default has then occurred and is then continuing, Bank shall make available to
CMLA, by endorsement of the check or other item of payment on account of the
loss or by an appropriate payment order directed to the interested
under-writer, the proceeds of all such insurance proceeds, other than
hereinafter set forth, to pay any outstanding bills for repairing the
Collateral or to reimburse CMLA in whole or in part for any expenditures CMLA
may have incurred in repairing the Collateral; provided, that Bank, as a
condition precedent to any such reimbursement of CMLA, may require CMLA to
furnish Bank with receipted bills and/or waivers of liens against the
Collateral. If a Default shall then have occurred, and is then continuing, or
(regardless of whether or not a Default exists) if the Collateral is subject
to a total loss or constructive total loss, then all such insurance proceeds
may be applied, at Bank's sole option and discretion, and in such manner as
Bank may determine (after payment of all reasonable costs, expenses and
attorneys' fees paid or incurred by Bank in this connection), for the purpose
of: (a) permitting CMLA (subject to the terms and conditions of this Agreement
and the other Loan Documents) to repair, restore or replace the lost, damaged
or destroyed Collateral or (b) reducing the then outstanding balance of the
Term Loan Obligations, if any (with the surplus of such proceeds, if any,
being paid to CMLA, subject to Bank being reasonably satisfied that the Term
Loan Obligations have been paid in full).
Bank's receipt of such insurance proceeds and the application of
such proceeds as provided herein shall not, however, affect Bank's Lien
against the Collateral. Nothing under this Section shall be deemed to excuse
CMLA from its obligations promptly to repair, replace or restore any lost or
damaged Collateral, whether or not the same are covered by insurance, whether
or not such proceeds of insurance are available, and whether or not such
proceeds are sufficient in amount to complete such repair, replacement or
restoration, to the satisfaction of Bank. Furthermore, unless otherwise
confirmed by Bank in writing, the application or release of any insurance
proceeds by Bank shall not be deemed to cure or waive any Event of Default
under this Agreement. Any proceeds which have not been disbursed within six
(6) months after their receipt and which CMLA has not committed to the repair
or restoration of the Collateral shall be used to prepay the then outstanding
balance of the Term Loan Obligations, if any.
CMLA, upon request of Bank, shall furnish, or cause to be furnished,
to Bank reports on each existing policy of insurance showing such information
as Bank may request, including without limitation the following: (i) the name
of the insurer, (ii) the risks insured, (iii) the amount of the policy, (iv)
the property insured, (v) the then current value on the basis of which
insurance has been obtained and the manner of determining that value, and (vi)
the expiration date of the policy.
Section Accounts and Records. The Borrowers will keep books of
record and accounts in which true and correct entries will be made as to all
material matters of all dealings or transactions in relation to their business
and activities, in accordance with generally accepted accounting principles,
consistently applied.
Section Right of Inspection. The Borrowers will permit any
officer, employee or agent of Bank to visit and inspect the Collateral and to
examine the books of record and accounts of the Borrowers, take copies and
extracts therefrom, and discuss the affairs, finances and accounts of the
Borrowers with the Borrowers' officers, accountants, counsel and auditors, all
of the foregoing at such reasonable times and on reasonable notice and without
hindrance or delay and as often as Bank may reasonably desire; provided,
that inspections shall not unduly interrupt the operations of Borrowers.
Section Maintenance of Properties. The Borrowers shall maintain
and preserve all of their properties (and any property leased by or consigned
to them or held under title retention or conditional sales contracts) that are
used or useful in the conduct of their business in the ordinary course in good
working order and condition at all times, ordinary wear and tear excepted, and
make all repairs, replacements, additions, betterments and improvements to
their properties to the extent necessary so that any failure will not
materially and adversely affect the business of either Borrower. Without
limiting the foregoing, CMLA shall from time to time make all needful and
proper repairs to the Vessel to maintain the Vessel in, or restore the Vessel
after a casualty to, good condition and working order, and as required by the
Ship Mortgage.
Section Notice of Certain Events. Each Borrower shall promptly
notify Bank in writing if such Borrower learns of the occurrence of any event
which constitutes a Default, together with a detailed statement by such
Borrower as to the nature of the Default and the steps being taken (or
proposed to be taken) to cure the effect of such Default.
CMLA shall promptly notify Bank in writing of any change in
location of any Collateral, of any change in location of CMLA's principal
place of business or the office where records concerning accounts and contract
rights are kept, or any change in the federal taxpayer identification number
of CMLA.
CMLA shall promptly notify Bank in writing of any casualty to
or accident involving the Collateral, whether or not such casualty or loss is
covered by insurance. CMLA shall further promptly notify Bank in writing upon
receipt of any written notice or other communication from an insurer seeking
to reduce the scope or the limits of coverage or to cancel, non-renew or
otherwise terminate or amend any insurance coverage.
CMLA shall promptly notify Bank in writing of any and all Liens
asserted, and attachments made, against the Collateral, together with copies
of all related instruments and any other materials that Bank shall require.
Each Borrower shall promptly notify Bank in writing of any
amendment or supplement to or modification of either Indenture not otherwise
prohibited by this Agreement (and provide Bank with a copy of any such
amendment, supplement or modification).
Each Borrower shall promptly notify Bank in writing of the
arising of any litigation, governmental investigation or arbitration or
dispute threatened against or affecting any Borrower which, if adversely
determined, would have a materially adverse effect upon the financial
condition or business of such Borrower, and thereafter of any material
development in any such litigation, governmental investigation or arbitration.
CMLA shall promptly notify Bank in writing of the occurrence or
alleged occurrence of any "Default" or "Event of Default" under (and as
defined in) the Louisiana Indenture, together with copies of all notices
pertaining thereto.
CMC shall promptly notify Bank in writing of the occurrence or
alleged occurrence of any "Default" or "Event of Default" under (and as
defined in) the Mississippi Indenture, together with copies of all notices
pertaining thereto.
Each Borrower shall promptly notify Bank in writing upon
becoming aware of any change or effect (for which notice is not otherwise
required to be given pursuant to this Section 5.12) that individually or in
the aggregate is or could reasonably be anticipated to materially and
adversely affect the business, prospects, profits, property or condition
(financial or otherwise) of a Borrower.
Section Collateral. CMLA shall at all times take title to or
otherwise acquire in its own name all items of Collateral. CMLA shall
maintain and use all Collateral solely in the conduct of its own business in a
careful and proper manner.
Section Ownership. CMC shall at all times own directly or
indirectly all voting and ownership interests (legal and beneficial) in all
issued and outstanding shares of all equity securities of JCC and CMLA. CMC
shall cause JCC to directly own at all times all voting and ownership
interests (legal and beneficial) in all issued and outstanding shares of all
equity securities of CMLA. CMC shall at all times designate (and retain the
power to designate), or cause JCC to designate at all times, all of the
members of the Board of Directors of CMLA.
Section ERISA Information and Compliance. Each Borrower will
furnish to Bank (i) promptly after the filing thereof with the United States
Secretary of Labor or the Pension Benefit Guaranty Corporation, copies of each
annual and other reports with respect to each Plan or any trust created by
each Borrower; and (ii) immediately upon becoming aware of the occurrence of
any "reportable event," as such term is defined in Section 4043 of ERISA, or
of any "prohibited transaction," as such term is defined in Section 4975 of
the Code, in connection with any Plan or any trust created by each Borrower, a
written notice signed by the president or the principal financial officer of
each Borrower specifying the nature thereof, what action such Borrower is
taking or proposes to take with respect thereto, and, when known, any action
taken by the Internal Revenue Service with respect thereto. Each Borrower
will comply with all of the applicable funding and other requirements of ERISA
as such requirements relate to the Plans of such Borrower.
- -
Section Environmental Matters. CMLA will not use, produce,
manufacture, process, generate, store, dispose of, manage at, or ship or
transport to or from the Vessel or other properties of CMLA any hazardous
substances or solid wastes except for hazardous substances and solid wastes
used, produced, manufactured, processed, generated, stored, disposed of,
released or managed in the ordinary course of business in compliance with all
applicable environmental laws and except for hazardous substances or solid
wastes released in amounts which do not require remediation pursuant to
applicable law or regulation, and which do not present any danger to health,
safety or the environment, or unless any liability resulting from such
remediation is not likely to materially adversely affect the business,
operations or financial condition of CMLA.
Section Indemnification. CMLA hereby agrees (with respect to
the following clauses (i), (ii) and (iii)) and CMC hereby agrees (with respect
to the following clause (iii)) to defend, indemnify and hold Bank and its
directors, officers, agents and employees harmless from and against all
claims, demands, causes of action, liabilities, losses, costs and expenses
(including without limitation, costs of suit, reasonable legal fees and
reasonable fees of expert witnesses) arising from or in connection with (i)
the presence in, on or under the Vessel or any other properties of CMLA of any
hazardous substances or solid wastes, or any releases or discharges of any
hazardous substances or solid wastes on, under or from the Vessel or such
other properties, (ii) any activity carried on or undertaken on or off the
Vessel or such other properties, whether prior to or during the term of this
Agreement, and whether by CMLA or any predecessor in title or any officers,
employees, agents, contractors or subcontractors of CMLA or any of its
subsidiaries or any predecessor in title, or any other Persons at any time
occupying or present on the Vessel or such other properties, in connection
with the handling, use, generation, manufacture, treatment, removal, storage,
decontamination, clean-up, transport or disposal of any hazardous substances
or solid wastes at any time located or present on or under the Vessel or such
other properties, or (iii) any breach of any representation, warranty or
covenant by such Borrower under the terms of this Agreement. The foregoing
indemnity shall survive the termination of this Agreement and shall further
apply to any residual contamination on or under or about the Vessel or such
other properties, or affecting any natural resources, and to any contamination
of any property or natural resources arising in connection with the
generation, use, handling, storage, transport or disposal of any such
hazardous substances or solid wastes, and irrespective of whether any of such
activities were or will be undertaken in accordance with applicable laws,
regulations, codes and ordinances.
Section Fixed Charge Coverage Ratio. Through December 31,
1997, at the end of each calendar quarter, CMLA and its CMLA Subsidiaries
shall as of the last day of June, September and December have a Fixed Charge
Coverage Ratio of not less than 1.5:1.0 for the calendar year 1997 (not
including the first quarter of 1997) through each date of calculation. From
and after March 31, 1998, CMLA and its CMLA Subsidiaries shall as of the last
day of each March, June, September and December have a Fixed Charge Coverage
Ratio of not less than 1.5:1.0 for the most recently completed four fiscal
quarters.
Section Consolidated Interest Coverage Ratio. Through
September 30, 1997, at the end of each calendar quarter, CMC shall as of the
last day of June and September have a Consolidated Interest Coverage Ratio of
not less than 1.6:1.0 for the calendar year 1997 through each date of
calculation (and in connection therewith, the definition of Consolidated
Interest Coverage Ratio from the Mississippi Indenture as incorporated herein
shall be deemed modified to take into account the shorter periods of
calculation than provided for in that definition in the Mississippi
Indenture). From and after December 31, 1997, CMC shall as of the last day of
December, March, June and September have a Consolidated Interest Coverage
Ratio of not less than 1.6:1.0 for the most recently completed four fiscal
quarters.
<PAGE>
ARTICLE
NEGATIVE COVENANTS
Unless Bank's prior written consent to the contrary is obtained,
each Borrower will at all times comply with each covenant contained in this
Article 6 (unless a covenant by its specific terms applies only to the other
Borrower), from the date hereof and for so long as any part of its Obligations
is outstanding.
Section Liens. CMLA will not create, incur, assume, or permit
to exist any Lien on any of its properties except for:
(a) The security interests in the Collateral and any other Liens
in favor of Bank to secure the Term Loan Obligations;
(b) any other liens or security interests in favor of Bank;
(c) Liens for taxes, assessments, or other governmental charges
not yet due or which are being contested in good faith by appropriate action
promptly initiated and diligently conducted, if such reserve as shall be
required by generally accepted accounting principles shall have been made
therefor (provided that such reserves may be set up under generally accepted
accounting principles);
(d) Liens of lessors (which are subordinated), carriers,
warehousemen, mechanics, laborers, seamen, materialmen, suppliers and maritime
tort claimants arising by law (and not granted as contractual Liens) in the
ordinary course of business (excluding obligations for borrowed money) for
sums either not yet past due or being contested in good faith by appropriate
action promptly initiated and diligently conducted, if such reserve as shall
be required by generally accepted accounting principles shall have been made
therefor (provided that such reserves may be set up under generally accepted
accounting principles); and
(e) Liens otherwise permitted by the Louisiana Indenture;
provided, that there shall not be permitted hereunder or otherwise, any Lien
on the Collateral under the Security Agreement (whether now owned or hereafter
acquired by CMLA, whether now existing or hereafter arising, whether or not on
the Vessel, and if on the Vessel, whether or not attached to or comprising a
part of the Vessel) in favor of the Louisiana Trustee or otherwise to secure
any Debt under the Louisiana Indenture, it being understood, acknowledged and
agreed by CMLA that all such Collateral constitutes "Excluded Assets" as that
term is defined in the Louisiana Indenture and the agreements executed and
delivered in connection therewith.
Section CMLA Debt. CMLA will not incur, create, assume or in
any manner become or be liable in respect of any Debt direct or contingent,
except for:
The Term Loan Obligations to Bank under this Agreement and
the other Loan Documents;
Trade payables or operating leases existing as of the date
of this Agreement or from time to time incurred by CMLA after the date of this
Agreement, all in the ordinary course of business;
Taxes, assessments or other government charges which are
not due or are being contested in good faith by appropriate action promptly
initiated and diligently conducted, if such reserve as shall be required by
generally accepted accounting principles shall have been made therefor
(provided that such reserves may be set up under generally accepted accounting
principles); and
Debt of CMLA otherwise permitted by the Louisiana
Indenture.
Section CMC Debt. CMC will not incur, create, assume or in any
manner become or be liable in respect of any Debt, direct or contingent,
except for:
the Credit Line Obligations to Bank under this Agreement
and the other Loan Documents;
Trade payables or operating leases existing as of the date
of the this Agreement or from time to time incurred by CMC after the date of
this Agreement, all in the ordinary course of business;
Taxes, assessments or other government charges which are
not due or are being contested in good faith by appropriate action promptly
initiated and diligently conducted, if such reserve as shall be required by
generally accepted accounting principles shall have been made therefor
(provided that such reserves may be set up under generally accepted accounting
principles); and
Debt of CMC otherwise permitted by the Mississippi
Indenture.
Section Nature of Business. Neither Borrower shall, and neither
Borrower shall permit any of its subsidiaries to, engage in any business or
investment activities other than the gaming business and such business
activities as are incidental or related thereto including, without limitation,
related hotel, sports and entertainment activities and food services. The
foregoing shall not be deemed to permit any such activity if any other
covenant of this Agreement were to be violated.
Section Mergers and Consolidations. Neither Borrower will
acquire, merge with or into or consolidate with any Person, nor will it sell,
assign, lease or otherwise dispose of (whether in one transaction or in a
series of transactions) all or substantially all of its property (whether now
owned or hereafter acquired) to any Person, except, with respect to CMLA, as
shall be permitted by and performed in accordance with the Louisiana
Indenture, and, with respect to CMC, as shall be permitted by and performed in
accordance with the Mississippi Indenture; provided, that regardless of
whether any such transaction is permitted under the Louisiana Indenture or the
Mississippi Indenture, as the case may be, (i) there shall not exist any
Default or Event of Default immediately before or after such transaction, and
(ii) the Person formed by or surviving any such merger or consolidation (if
other than CMLA or CMC, as the case may be) or the Person to which such sale,
assignment, lease or other disposition shall have been made assumes all of the
Obligations of CMLA or CMC, as the case may be, pursuant to documentation in
form and substance satisfactory to Bank.
Section Amendment of Charters. Neither Borrower shall amend or
in any manner modify its respective articles of incorporation or by-laws in
any material respect in such a manner that could adversely affect Bank's
interests regarding the payment and performance of the Obligations and the
Collateral, if any, therefor; provided, however, that the Borrowers may
amend their respective articles of incorporation as required by Governmental
Authority regulating the business of the Borrowers. Borrowers shall promptly
provide Bank a copy of any amendments or modifications of their respective
articles of incorporation and by-laws.
Section ERISA Compliance. No Borrower shall at any time permit
any Plan maintained by it to engage in any "prohibited transaction" as such
term is defined in Section 4975 of the Code; incur any "accumulated funding
deficiency" as such term is defined in Section 302 of ERISA; or terminate any
such Plan in a manner which could result in the imposition of a Lien on the
property of such Borrower pursuant to Section 4068 of ERISA.
Section Vessel Location. CMLA shall not change the Vessel's
berth or allow the Vessel to be absent from its designated regular berth
(approved by the Control Board) except for a reasonable period necessary for
the purpose of maintenance and repairs and in emergency situations.
Section Operations. CMLA shall not discontinue gaming
operations on the Vessel for more than fifteen (15) consecutive days except
when the Vessel is out of service for a reasonable period for the purpose of
maintenance or repairs and except in continuous emergency situations.
Section Advances. Except to the extent otherwise permitted
under either Indenture, as the case may be, neither Borrower shall purchase or
acquire any interest, shares, participations or other rights in any Person
(nor any rights, warrants or options pertaining thereto), or purchase or
acquire any notes, bonds, debentures or other evidence of indebtedness issued
by any Person, or make any direct or indirect loan, advance, guaranty or
capital contribution to any Person.
Section Contracts. Neither Borrower shall enter into any
agreement (including without limitation any future indenture) containing any
provision which would be violated or breached by the Borrowers' performance of
their obligations under the Loan Documents.
Section Amendment of Indentures. (a) CMLA shall not amend,
modify or supplement (i) any provision of Article 4 or Article 11 of the
Louisiana Indenture, (ii) any provision of the Louisiana Indenture containing
provisions relating to the interest rate of, the terms of repayment of, or the
ability to prepay, redeem or defease, the Debt of CMLA under or in connection
with the Louisiana Indenture and the agreements, documents and instruments
executed and delivered in connection therewith, or (iii) any term used or
defined in the Louisiana Indenture that is defined in this Agreement by
cross-reference to the Louisiana Indenture or that otherwise is deemed to be
incorporated into this Agreement.
(b) CMC shall not amend, modify or supplement (i) any provision
of Article 4 or Article 12 of the Mississippi Indenture, (ii) any provision of
the Mississippi Indenture containing provisions relating to the interest rate
of, the terms of repayment of, or the ability to prepay, redeem or defease,
the Debt of any Person under or in connection with Mississippi Indenture and
the agreements, documents and instruments executed and delivered in connection
therewith, or (iii) any term used or defined in the Mississippi Indenture that
is defined in this Agreement by cross-reference to the Mississippi Indenture
or that otherwise is deemed to be incorporated into this Agreement.
<PAGE>
ARTICLE
CONDITIONS
Section General Conditions to Initial Advance. The obligation
of Bank to make the initial Advance under this Agreement to CMC is subject to
(a) the accuracy as of the date of the initial Advance of each and every
representation and warranty of each Borrower made or referred to in this
Agreement or any other Loan Document executed in favor of or with Bank, or in
any certificate delivered to Bank pursuant to or in connection with this
Agreement, (b) the absence as of the date of the initial Advance of a Default
or Event of Default hereunder, (c) the performance by each Borrower of its
obligations to be performed hereunder on or before the date of such Advance,
including without limitation those set forth in subsection 2.1(a) above, and
(d) the satisfaction of the following conditions as of or prior to the date of
such Advance: (i) subject to Section 5.7 hereof, Borrowers shall have paid or
caused to be paid all fees and out-of-pocket expenses of Bank's counsel in
connection with the preparation, execution and delivery of all of the Loan
Documents and the consummation of the transactions contemplated thereby, and
(ii) Bank shall have received the following, each in form and substance
satisfactory to Bank and (except for the Credit Line Note) in sufficient
counterparts:
(A) Duly executed counterparts of this Agreement signed by all the
parties hereto.
(B) The duly executed Credit Line Note dated the Credit Line
Closing Date.
(C) All consents to and waivers, if any, respecting the transactions
contemplated by the Credit Line.
(D) Certificate of good standing as to CMC issued by the Secretary of
State of its state of incorporation.
(E) The certificate of the Secretary of CMC setting forth (i)
resolutions of its board of directors in form and substance satisfactory to
Bank with respect to the authorization of this Agreement and the other Loan
Documents executed in favor of or with Bank by CMC and the transactions
contemplated hereby and thereby; (ii) the names of the officers authorized to
sign such instruments; and (iii) copies of the articles of incorporation and
by-laws of CMC.
(F) Satisfactory evidence of compliance with all gaming laws and
requirements of gaming authorities pertinent to this Agreement.
(G) Favorable legal opinions of counsel for CMC and Bank as to such
matters concerning the Credit Line and the related Loan Documents as Bank may
request.
(H) A copy of the Mississippi Indenture, certified by CMC.
(I) A certificate substantially in the form of Exhibit C
hereto signed by the principal financial officer of CMC.
(J) Any other document which Bank may reasonably request.
Section Conditions to Each Additional Advance. The obligation of
Bank to make additional Advances to CMC is subject to (a) the accuracy as of
the date of such subsequent Advance of each and every representation and
warranty of each Borrower made or referred to in this Agreement or any other
Loan Agreement executed in favor of or with Bank, or in any certificate
delivered to Bank pursuant to or in connection with this Agreement, (b) the
absence of a Default or Event of Default hereunder as of the date of such
subsequent Advance, (c) the performance by each Borrower of the respective
obligations to be performed hereunder on or before such date, including
without limitation those set forth in subsection 2.1(a) above, and (d) the
satisfaction of the following conditions as of or prior to the date of such
subsequent Advance: (i) Borrowers shall have paid or caused to be paid all
reasonable fees then outstanding under or in connection with this Agreement
(other than such fees excluded by virtue of the proviso in the first sentence
of Section 5.7 above), and (ii) Bank shall have received on or before such
date the following:
(A) A certificate in the form of Exhibit C hereto signed by the
principal financial officer of each Borrower.
(B) Satisfactory evidence of compliance with all gaming laws and
requirements of gaming authorities pertinent to this Agreement, if required by
Bank.
(C) Any other document which Bank may reasonably request.
Section General Conditions to Term Loan. The obligation of Bank
to make the Term Loan to CMLA under this Agreement is subject to the accuracy
as of the date of the Term Loan of each and every representation and warranty
of each Borrower made in this Agreement or any other Loan Document executed in
favor of or with Bank, or in any certificate delivered to Bank pursuant to or
in connection with this Agreement, the absence as of the Closing Date of a
Default or Event of Default hereunder, and the satisfaction of the following
conditions as of or prior to the date of the Term Loan: subject to Section
5.7 hereof, Borrowers shall have paid or caused to be paid all fees and
out-of-pocket expenses of Bank's counsel in connection with the preparation,
execution and delivery of all of the Loan Documents and the consummation of
the transactions contemplated thereby, and Bank shall have received the
following, each in form and substance satisfactory to Bank and (except for the
Term Note) in sufficient counterparts:
Duly executed counterparts of this Agreement signed by all the
parties hereto.
The duly executed Term Note dated the Term Loan Closing Date.
Duly executed counterparts of the Collateral Documents (with
evidence of recordation).
Evidence that the Louisiana Trustee has received copies of all
Loan Documents pursuant to a letter from CMLA enclosing such documents,
together with such releases from the Louisiana Trustee concerning the
Collateral that Bank may require (with evidence of recordation).
All consents to and waivers, if any, respecting the transactions
contemplated by the Term Loan.
Favorable legal opinions of counsel for CMLA and Bank as to such
matters concerning the Term Loan and the related Loan Documents as Bank may
request.
Certificate of good standing as to CMLA issued by the Secretary
of State of its state of incorporation.
The certificate of the Secretary of CMLA setting forth (i)
resolutions of its board of directors in form and substance satisfactory to
Bank with respect to the authorization of this Agreement and the other Loan
Documents executed in favor of or with Bank by CMLA and the transactions
contemplated hereby and thereby; (ii) the names of the officers authorized to
sign such instruments; and (iii) copies of the articles of incorporation and
by-laws of CMLA.
Evidence satisfactory to Bank of CMLA's insurance, including without
limitation as to the Vessel, which names Bank as additional insured, mortgagee
and loss payee, with a waiver of rights of subrogation.
Satisfactory evidence of compliance with all gaming laws and
requirements of gaming authorities pertinent to this Agreement.
A copy of the Louisiana Indenture, certified by CMLA.
A certificate substantially in the form of Exhibit C hereto signed
by the principal financial officer of CMLA.
A copy of the Certificate of Documentation of the Vessel.
Any other document which Bank may reasonably request.
Section Other Conditions. The Borrowers further agree as
follows:
The Borrowers agree to submit to the Control Board and the
Division and the MGC complete and executed copies of the Loan Documents within
thirty days after their execution, and to provide Bank with copies of the
letter(s) of submission and all written responses by the Control Board or the
Division or the MGC.
The Borrowers agree to deliver to Bank within sixty (60) days
after each of the initial Advance and the making of the Term Loan, if not
delivered on the date of this Agreement, a legal opinion of gaming regulatory
counsel of the Borrowers stating (i) that the execution, delivery and
performance of the Loan Documents by the Borrowers and the consummation of the
transactions contemplated thereby did not and will not violate the Riverboat
Gaming Act or the Mississippi Gaming Act or any order, regulation, rule,
license condition or other requirement issued or promulgated by the Control
Board or the Division or the MGC, and (ii) that all necessary consents and
approvals of the Control Board or the Division or the MGC pertaining to the
transactions contemplated by the Loan Documents have been obtained and are in
full force and effect. Such opinions shall be in form and substance
reasonably satisfactory to Bank and Bank's counsel.
<PAGE>
ARTICLE
DEFAULT
Section Events of Default. Any of the following events shall be
considered an "Event of Default" as that term is used herein:
Principal and Interest Payments. (i) CMC fails to make payment
when due of any installment of principal or interest on any of the Advances
made under the Credit Line, or of any fee or any other Obligation owed by CMC
to Bank hereunder, and (other than with respect to the payment due on the
Credit Period Termination Date) such failure continues for five (5) days
thereafter; or (ii) CMLA fails to make payment when due of any installment of
principal or interest on the Term Loan, or of any fee or any other Obligation
owed by CMLA to Bank hereunder, and (other than with respect to the payment
due on the Term Loan Maturity Date) such failure continues for five (5) days
thereafter; or
Representations and Warranties. Any representation or warranty
made by a Borrower under the Loan Documents or in any certificate or financial
or other statement furnished or made by a Borrower (or any officer, accountant
or attorney of a Borrower) under or in connection with the Loan Documents is
untrue in any material adverse respect as of the date as of which the facts
therein set forth were stated or certified; or
Specific Covenants. A Borrower defaults in the observance or
performance of its covenants and agreements under Sections 2.8, 5.5, 5.8,
5.14, 5.18, 5.19, 7.4 or Article 6 hereof; or CMLA defaults in the observance
or performance of its covenants and agreements under Sections 3.08, 3.11, 3.12
and 3.13 of the Ship Mortgage; or
Covenants. A Borrower defaults in the observance or performance
of any of the covenants or agreements contained in this Agreement, either Note
or any of the other Loan Documents, or any other present or future agreements
relating to any Debt of either Borrower to Bank, whether or not related to the
Advances made under the Credit Line or to the Term Loan, to be kept or
performed by either Borrower (other than a default under any other paragraph
of this Section 8.1), and such default continues unremedied for a period of
thirty (30) days after the earlier of (i) written notice thereof being given
by Bank to the Borrowers, or (ii) such default otherwise becoming actually
known to the president or principal financial officer of either Borrower; or
Involuntary Bankruptcy or Receivership Proceedings. A
receiver, conservator, liquidator or trustee of either Borrower or of JCC, or
of any of their respective properties, is appointed by order or decree of any
court or agency or supervisory authority having jurisdiction; or an order for
relief is entered against either Borrower or against JCC under the Federal
Bankruptcy Code; or either Borrower or JCC is adjudicated bankrupt or
insolvent; or any material portion of the properties of either Borrower or of
JCC is sequestered by court order and such order remains in effect for more
than thirty (30) days after such party obtains knowledge thereof; or a
petition is filed against either Borrower or against JCC under any
reorganization, arrangement, insolvency, readjustment of debt, dissolution,
liquidation or receivership law of any jurisdiction, whether now or hereafter
in effect, and such petition is not dismissed within sixty (60) days; or
Voluntary Petitions. Either Borrower or JCC files a case
under the Federal Bankruptcy Code or seeks relief under any provision of any
bankruptcy, reorganization, arrangement, insolvency, readjustment of debt,
dissolution or liquidation law of any jurisdiction, whether now or hereafter
in effect, or consents to the filing of any case or petition against it under
any such law; or
Receivers. Either Borrower or JCC makes an assignment for
the benefit of its creditors, or admits in writing its inability to pay its
debts generally as they become due, or consents to the appointment of a
receiver, trustee or liquidator of either Borrower or of JCC or of all or any
part of their respective properties; or
Invalidity of Loan Documents. Any material provision of the
Loan Documents shall for any reason cease to be valid and binding on a
Borrower or any other third party after the date of this Agreement, or a
Borrower shall so state or assert in writing or a third party shall so state
or assert in any legal proceeding; or any of the Collateral Documents shall
not give, or shall cease to give, Bank the Liens or the rights, powers and
privileges purported to be created thereby, including without limitation a
valid, enforceable and perfected first priority Lien on the Collateral in
favor of Bank, or a Borrower or the Louisiana Trustee (other than with respect
to the Vessel to the extent that the Vessel does not include the Collateral
covered by the Security Agreement) shall so state or assert in writing or any
other third party shall so state or assert in any legal proceeding; or
Other Debt to Other Lenders. A Borrower or JCC defaults in the
payment of any amounts due to any Person in respect of Debt (including without
limitation under either Indenture), the outstanding aggregate principal amount
of which Debt is in excess of $1,000,000.00, and any grace period applicable
to such default has elapsed; or any such Debt shall be declared to be due and
payable or required to be prepaid (other than by a regularly scheduled
prepayment), redeemed, purchased or defeased, or an offer to prepay, redeem,
purchase or defease such Debt shall be required to be made, in each case prior
to the stated maturity thereof; or any creditor under such Debt shall seize or
otherwise execute upon any property or assets; or
Undischarged Judgments. Judgment for the payment of money in
excess of $500,000.00 (excluding all or any portion of such judgment covered
by insurance maintained with one or more financially sound insurers that are
obligated to pay such portion, so long as such insurer(s) shall not have
denied coverage therefor in writing and such insured shall have certified to
Bank that a claim with such insurer(s) has been or will promptly be filed and
such insured has no reason to believe that such insurer(s) will not pay the
claims in respect thereof in full) is rendered by any court or other
Governmental Authority against either Borrower, and such Person does not
discharge the same or provide for its discharge in accordance with its terms,
or procure a stay of execution thereof within thirty (30) days from the date
of entry thereof, and within said period of thirty (30) days from the date of
entry thereof or such longer period during which execution of such judgment
shall have been stayed, appeal therefrom and cause the execution thereof to be
stayed during such appeal while providing such reserves therefor as may be
required under generally accepted accounting principles (provided such
reserves may be set up under generally accepted accounting principles); or
Discontinuance or Change of Business. Either Borrower violates
Section 6.4 hereof or JCC conducts any business or investment activities other
than as permitted under Section 4.30 of the Louisiana Indenture; or
Material Adverse Change. There shall occur, in the judgment of
Bank, any event which causes any material adverse change in the condition
(financial or otherwise), operations, profits, properties or prospects of
either Borrower or of JCC, or which makes it impossible for either Borrower to
pay its Obligations in accordance with the terms thereof or for either
Borrower to otherwise perform in accordance with the terms of this Agreement
and the other Loan Documents; or
Collateral. CMLA sells (including without limitation in a sale
and leaseback transaction), disposes of, conveys, or (other than as permitted
under Section 6.1 hereof) grants a Lien on or permits the placement of a Lien
on, any of the Collateral; or the Vessel is arrested, seized, attached,
sequestered or otherwise subject to any similar process and not released as
required by the Ship Mortgage; or
Control Board or MGC Action. Notice from the Control Board, the
Division or the MGC that it intends to disapprove or revoke its approval of
any of the transactions affected by this Agreement and the other Loan
Documents; or
CMLA's License. CMLA's License shall be suspended or revoked or
any action shall be taken to suspend or revoke CMLA's License; or
Other Authorizations. CMLA fails to retain any other license,
permit, authorization, or right, including without limitation any permits,
licenses or approvals from the U.S. Coast Guard or the U.S. Army Corps of
Engineers, material to the operation of the Vessel in its location designated
as of the date of this Agreement; or
Vessel Status. So long as there is no federal legislative act or
final, non-appealable decision by the United States Supreme Court stating that
riverboat gaming vessels (such as the Vessel, as opposed to barges with gaming
operations thereon) located within U.S. waters in the Bossier City, Louisiana
area are not subject to documentation as United States Flag Vessels (and
therefore not capable of being subject to a federal maritime preferred ship
mortgage under 46 U.S.C. 31301 et seq.), the Vessel shall for any reason
be in jeopardy of not maintaining its documentation as a United States Flag
Vessel; or CMLA ceases to be a citizen of the United States of America within
the meaning of Title 46, Section 802 of the United States Code; or
Change of Control. A Louisiana Indenture Change of Control or a
Mississippi Indenture Change of Control shall occur; or
Indentures. Either Indenture and the obligations of either
Borrower thereunder or in connection therewith shall cease to be effective.
Section Remedies. Upon the occurrence and continuance of any
Event of Default specified in Section 8.1 (other than Sections 8.1(e) or
8.1(f) thereof), (i) all obligations, if any, of Bank to make Advances under
the Credit Line, or to make the Term Loan if not already made, shall
immediately cease and terminate, and (ii) Bank may by written notice to either
or both of the Borrowers declare the entire principal amount of all of their
respective Obligations then outstanding, together with all of their Debt then
outstanding to Bank, including interest accrued thereon, to be immediately due
and payable without presentment, demand, protest, notice of protest or
dishonor or other notice of default of any kind, all of which are hereby
expressly waived by the Borrowers.
Upon the happening of any Event of Default specified in Sections
8.1(e) or 8.1(f) thereof), (i) all obligations, if any, of Bank to make
Advances under the Credit Line, or to make the Term Loan if not already made,
shall immediately cease and terminate, and (ii) the entire principal amount of
all Obligations then outstanding, together with all Debt of each Borrower then
outstanding to Bank, including interest accrued thereon shall, without notice
or action by Bank, be automatically and immediately due and payable without
presentment, demand, protest, notice of protest or dishonor or other notice of
default of any kind, all of which are hereby expressly waived by the
Borrowers.
In addition to the foregoing, Bank may exercise any of the
rights or remedies provided in the Loan Documents or avail itself of any
rights or remedies provided by applicable law.
Section 8.3 Set-Off. Upon the occurrence of any Event of
Default, Bank shall have the right to set-off or exercise any and all rights
of counter-claim, banker's lien or other liens with respect to any funds of a
Borrower in the possession of Bank or any other subsidiary or affiliate of
First Commerce Corporation against any Debt then due by such Borrower to Bank.
The Borrowers agree that any holder of a participation in either Note may,
subject to the limitations imposed on Bank, exercise any and all rights of
counter-claim, set-off, banker's lien and other liens with respect to any and
all monies owing by a Borrower to such holder as fully as if such holder of a
participation were a holder of a note in the amount of such participation.
<PAGE>
ARTICLE
MISCELLANEOUS
Section Notices. Any notice or demand which, by provision of
this Agreement, is required or permitted to be given or served by one party to
or on another party shall be given in writing and shall be deemed to have been
sufficiently given and served for all purposes (if mailed) three calendar days
after being deposited, postage prepaid, in the United States mail, registered
or certified mail, or (if delivered by express courier) one calendar day after
being delivered to such courier, or (if delivered in person) the same day as
delivery, in each case addressed (until another address or addresses are given
in writing by such party to the other party) as follows:
If to CMLA:
Casino Magic of Louisiana, Corp.
1701 Old Minden Road
Bossier City, Louisiana 71111
Attn: General Manager
with a copy to:
Casino Magic Corp.
711 Casino Magic Drive
Bay St. Louis, Mississippi 39520
Attn: Mr. Robert Callaway, General Counsel
If to CMC:
Casino Magic Corp.
711 Casino Magic Drive
Bay St. Louis, Mississippi 39520
Attn: Mr. Robert Callaway, General Counsel
If to Bank:
First National Bank of Commerce
210 Baronne Street
New Orleans, Louisiana 70112
Attn: Hospitality Lending Division
with a copy to:
Phelps Dunbar, L.L.P.
400 Poydras Street
New Orleans, Louisiana 70130
Attn: Mr. Harvey D. Wagar III
Section Invalidity. In the event that any one or more of the
provisions contained in this Agreement, either Note or the other Loan
Documents shall, for any reason, be held invalid, illegal or unenforceable in
any respect, such invalidity, illegality or unenforceability shall not affect
any other provision of this Agreement, the Notes or the other Loan Documents.
Section Survival of Agreements. All representations and
warranties of the Borrowers herein, and all covenants and agreements herein
not fully performed before the effective date of this Agreement, shall survive
such date.
Section Successors and Assigns. All covenants and agreements
by or on behalf of the Borrowers contained in the Loan Documents shall bind
their respective successors and assigns and shall inure to the benefit of Bank
and its successors and assigns.
This Agreement is for the benefit of Bank and for such other
Person or Persons as may from time to time become or be the holders of any of
the Obligations, and this Agreement shall be transferable and negotiable, with
the same force and effect and to the same extent as the Obligations may be
transferable, it being understood that, upon the transfer or assignment by
Bank of any of the Obligations (whether such obligations be Credit Line
Obligations or Term Loan Obligations), the legal holder of such Obligations
shall have all of the rights granted to Bank under this Agreement.
Each Borrower hereby recognizes and agrees that Bank may, from
time to time, one or more times, transfer all or any portion of the
Obligations (whether such Obligations be Credit Line Obligations or Term Loan
Obligations) to one or more third parties. Such transfers may include, but
are not limited to, sales of participation interests in such Obligations in
favor of one or more third party lenders. Each Borrower specifically agrees
and consents to all such transfers and assignments and each Borrower further
waives any subsequent notice of and right to consent to any such transfers and
assignments as may be provided under Louisiana or other applicable law. Each
Borrower additionally agrees that the purchaser of a participation interest in
any Obligations will be considered as the absolute owner of a percentage
interest of such Obligations and that such a purchaser will have all of the
rights granted to the purchaser under any participation agreement governing
the sale of such a participation interest, but consents required under this
Agreement from Bank shall be required only from Bank (and its successors and
assigns) as holder of the applicable Note. Each Borrower further waives any
right of offset that each Borrower may have against Bank and/or any purchaser
of such a participation interest in any Obligations and each Borrower
unconditionally agrees that either Bank or such a purchaser may enforce the
applicable Obligations under this Agreement, irrespective of the failure or
insolvency of Bank or any such purchaser. Each Borrower further agrees that,
upon any transfer of all or any portion of the Obligations, Bank may transfer
and deliver any and all Collateral securing repayment of such Obligations to
the transferee of such Obligations and such Collateral shall secure any and
all of the Obligations in favor of such a transferee. Each Borrower
additionally agrees that, after any such transfer or assignment has taken
place, Bank shall be fully discharged from any and all future liability and
responsibility to each Borrower with respect to such Collateral, and the
transferee thereafter shall be vested with all the powers, rights and duties
with respect to such Collateral.
Section Renewal, Extension or Rearrangement. All provisions of
this Agreement relating to the Notes shall apply with equal force and effect
to each and all promissory notes or security instruments hereinafter executed
which in whole or in part represent a renewal, extension for any period,
increase or rearrangement of any part of such Notes.
Section Waivers. No course of dealing on the part of Bank, its
officers, employees, consultants or agents, nor any failure or delay by Bank
with respect to exercising any of its rights, powers or privileges under this
Agreement, either Note or the other Loan Documents shall operate as a waiver
thereof.
Section Cumulative Rights. The rights and remedies of Bank
under this Agreement, the Notes and the other Loan Documents shall be
cumulative, and the exercise or partial exercise of any such right or remedy
shall not preclude the exercise of any other right or remedy.
Section Singular or Plural. Words used herein in the singular,
where the context so permits, shall be deemed to include the plural or vice
versa. The definitions of words in the singular herein shall apply to such
words when used in the plural where the context so permits and vice versa.
SECTION GOVERNING LAW. THIS AGREEMENT IS, AND THE NOTES WILL
BE, CONTRACTS MADE UNDER AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE UNITED STATES OF AMERICA AND THE STATE OF
LOUISIANA.
Section Titles of Articles, Sections and Subsections. All
titles or headings to articles, sections, subsections or other divisions of
this Agreement or the exhibits hereto are only for the convenience of the
parties and shall not be construed to have any effect or meaning with respect
to the other content of such articles, sections, subsections or other
divisions, such other content being controlling as to the agreement between
the parties hereto.
Section Limitation of Liability. The Loan Documents to which
Bank is a party are executed by officers of Bank, and by acceptance of the
Credit Line and the Term Loan, the Borrowers agree that for the payment of any
claim or the performance of any obligations hereunder or under any other Loan
Document resulting from any default by Bank, resort shall be had solely to the
assets and property of Bank, and no shareholder, officer, employee or agent of
Bank shall be personally liable therefor. The Loan Documents to which each
Borrower is a party are executed by officers of such Borrower, and Bank agrees
that for the payment of any claim or the performance of any Obligations
hereunder or under any other Loan Document from a Borrower, resort shall be
had solely to the assets and property of such Borrower, and absent any fraud,
gross negligence or willful misconduct of any shareholder, officer, employee
or agent of such Borrower, no such shareholder, officer, employee or agent
shall be personally liable therefor.
Section Relationship Between the Parties. The relationship
between Bank and the Borrowers shall be solely that of lender and borrower,
and such relationship shall not, under any circumstances whatsoever, be
construed to be a joint venture, joint adventure or partnership. Bank has no
fiduciary obligation to the Borrowers with respect to this Agreement or the
transactions contemplated hereby.
Section Third Party Beneficiaries. All conditions to the
obligation of Bank to make any Advance or the Term Loan hereunder are imposed
solely and exclusively for the benefit of Bank and its assigns. No other
Person shall have standing to require satisfaction of such condition or be
entitled to assume that Bank will refuse to make any Advance or the Term Loan
in the absence of strict compliance with any or all thereof, and no other
Person shall, under any circumstances, be deemed to be a beneficiary of such
conditions, any or all of which may be freely waived, in whole or in part, by
Bank at any time in its sole discretion.
Section Amendment. Neither this Agreement nor any provisions
hereof may be changed, waived, discharged or terminated orally or in any
manner other than by an instrument in writing signed by all the parties to
this Agreement (or their respective successors and assigns).
Section Entire Agreement. This Agreement and the other Loan
Documents set forth the entire agreement of Bank and the Borrowers with
respect to the Credit Line and the Term Loan, and supersede all prior written
or oral understandings with respect thereto; provided, however, that all
written representations, warranties and certifications made by the Borrowers
to Bank with respect to the Credit Line and the Term Loan and the security
therefor shall survive the execution of this Agreement. The Borrowers are not
relying upon any representation by Bank or any representative thereof, and no
representation has been made, that Bank will, at the time of an Event of
Default or Default, or at any other time, waive, negotiate, discuss or take or
refrain from taking any action with respect to any such Event of Default or
Default.
Section Time of the Essence. Time shall be deemed of the
essence with respect to the performance of all of the terms, provisions and
conditions on the part of the Borrowers and Bank to be performed hereunder.
Section Counterparts. This Agreement may be executed in
multiple counterparts, and it shall not be necessary that the signatures of
all parties hereto be contained on any one counterpart hereof; each
counterpart shall be deemed an original, but all of which together shall
constitute one and the same instrument.
Section LITIGATION - JURY TRIAL AND JURISDICTION. EACH BORROWER
ACKNOWLEDGES THAT ANY DISPUTE OR CONTROVERSY BETWEEN A BORROWER AND BANK WOULD
BE BASED ON DIFFICULT AND COMPLEX ISSUES OF LAW AND FACT. ACCORDINGLY, EACH
BORROWER HEREBY WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING OF ANY KIND
OR NATURE IN ANY COURT OR TRIBUNAL IN WHICH AN ACTION MAY BE COMMENCED BY OR
AGAINST A BORROWER ARISING OUT OF THIS AGREEMENT, THE CREDIT LINE OR THE TERM
LOAN, OR ANY OTHER LOAN DOCUMENT EXECUTED AND DELIVERED IN CONNECTION HEREWITH
OR THEREWITH. EACH BORROWER AGREES THAT THE COURTS OF THE STATE OF LOUISIANA
SHALL HAVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES
PERTAINING DIRECTLY OR INDIRECTLY TO THIS AGREEMENT, THE CREDIT LINE OR THE
TERM LOAN, OR ANY MATTER ARISING IN CONNECTION HEREWITH OR THEREWITH. EACH
BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY
ACTION OR PROCEEDING IN SUCH COURT.
Section Interest. It is the intention of the parties hereto to
conform strictly to applicable usury laws as presently in effect.
Accordingly, notwithstanding the designation of Louisiana law pursuant to
Section 9.9 hereof, if the transactions contemplated hereby are held by a
final judgment of a court of competent jurisdiction to be usurious under
applicable law (including the laws of the United States of America or any
state other than Louisiana), then, in that event, notwithstanding anything to
the contrary in this Agreement, the Notes or the other Loan Documents, the
parties hereto agree as follows: (i) the aggregate of all consideration which
constitutes interest under applicable law that is contracted for, charged or
received under the Loan Documents shall under no circumstances exceed the
maximum amount of interest allowed by applicable law, and any excess shall be
credited on the applicable Obligations (or, if such Obligations shall have
been paid in full, refunded to the applicable Borrower), and (ii) in the event
that the maturity of the Obligations is accelerated by reason of an election
of the holder thereof resulting from any Event of Default under this Agreement
or otherwise, or in the event of any prepayment, then such consideration that
constitutes interest may never include more than the maximum amount allowed by
applicable law, and excess interest, if any, provided for in this Agreement or
otherwise shall be cancelled automatically as of the date of such acceleration
or prepayment and, if theretofore paid, shall be credited on the applicable
Obligations (or, if such Obligations shall have been paid in full, refunded to
the applicable Borrower).
IN WITNESS WHEREOF, the parties hereto have caused this instrument
to be duly executed on the date first above written.
CASINO MAGIC OF LOUISIANA, CORP.
By: /s/ Robert A. Callaway
Name: Robert A. Callaway
Title: Secretary
CASINO MAGIC CORP.
By: /s/ Robert A. Callaway
Name: Robert A. Callaway
Title: Secretary
FIRST NATIONAL BANK OF COMMERCE
By: /s/ Stephen M. Valdes
Name: Stephen M. Valdes
Title: Vice President
LIST OF EXHIBITS
Form of Credit Line Note ( 2.1(a))
Form of Term Note ( 2.1(b))
Form of Compliance Certificate ( 2.1(a), 5.2(b), 7.1, 7.2, 7.3)
D. Subsidiaries ( 4.1(a))
EXHIBIT A
PAGE
EXHIBIT A
FORM OF CREDIT LINE NOTE
* * * * * * * * * * * * * * *
PROMISSORY NOTE
$2,500,000.00 March 27, 1997
Due: March 27, 1998 New Orleans, Louisiana
FOR VALUE RECEIVED, CASINO MAGIC CORP., a Minnesota corporation
("Borrower"), promises to pay to the order of First National Bank of Commerce
("Bank") at its office at New Orleans, Louisiana, the principal sum of Two
Million Five Hundred Thousand and No/100 ($2,500,000.00) Dollars, or so much
thereof as may be advanced pursuant to subsection 2.1(a) and related
provisions of that certain Credit Agreement among Borrower, Casino Magic of
Louisiana, Corp., a Louisiana corporation, and Bank dated of even date
herewith (as the same may hereafter be amended, modified, supplemented or
restated from time to time, the "Credit Agreement"), whichever is less.
The credit advice resulting from the deposit of the proceeds of any
Advance (as defined in the Credit Agreement) in Borrower's account with Bank,
or Bank's copy of any cashier's check representing all or any part of the
proceeds or a disbursement shall be deemed prima facie evidence of Borrower's
indebtedness to Bank on such Advance.
Borrower shall pay to Bank on maturity of this Promissory Note on
the Credit Period Termination Date (as defined in the Credit Agreement) an
amount sufficient to repay in full the principal amount of all Advances then
outstanding. Other rights and obligations of Borrower in connection with
prepayment of this Promissory Note are set forth in Section 2.4 of the Credit
Agreement.
The aggregate outstanding principal amount hereof shall bear
interest from the date hereof until paid in full at a varying rate per annum
determined in accordance with Section 2.2 of the Credit Agreement, which
interest shall be payable in accordance with such Section 2.2. All payments
of interest shall be computed on the per annum basis of a year of 360 days for
the actual number of days (including the first day, but excluding the last
day) elapsed.
This Promissory Note is issued pursuant to and is entitled to the
benefits of the Credit Agreement. Reference is made to the Credit Agreement
for provisions for the acceleration of the maturity hereof on the occurrence
of certain events specified therein, the definitions of capitalized terms not
otherwise defined herein, and for all other pertinent purposes.
All payments and prepayments made by Borrower hereunder and under
the Credit Agreement shall be made in lawful money of the United States to
Bank in immediately available funds before 1:00 P.M. (Central Time) on the
date that such payment is required or designated to be made. Any payment
received and accepted by Bank after such time shall be considered for all
purposes (including the calculation of interest, to the extent permitted by
law) as having been made on Bank's next following Business Day.
Borrower hereby authorizes Bank, subject to the terms of the Credit
Agreement, if and to the extent payment is not made when due hereunder or
under the Credit Agreement, to charge from time to time against any of
Borrower's accounts with Bank any amount so due.
Borrower and any guarantor, accommodation party, endorser or other
person or entity liable for the demand or collection of this Promissory Note
expressly waive demand and presentment for payment, notice of nonpayment,
protest, notice of protest, notice of dishonor, bringing of suit, diligence in
taking any action to collect amounts called for hereunder and in the handling
of property at any time existing as security in connection herewith, and shall
be directly and primarily liable for the payment of all sums owing and to be
owing hereon, regardless of and without notice, diligence, act or omission as
or with respect to the collection of any amount called for hereunder or in
connection with any right, lien, interest or property at any and all times had
or existing as security for any amount called for hereunder.
If an Event of Default occurs and this Promissory Note is placed in
the hands of an attorney for collection, or suit is filed hereon, or
proceedings are had in bankruptcy, probate, receivership or other judicial
proceedings for the establishment or collection of any amount called for
hereunder, or any amount payable or to be payable hereunder is collected
through any such proceedings, Borrower agrees it is also to pay or reimburse
to the owner and holder of this Promissory Note reasonable legal fees and
other expenses in accordance with the Credit Agreement, including without
limitation Section 5.7 thereof.
The Default Rate payable by Borrower in connection with late
payments of principal or interest is set forth in Section 2.3 of the Credit
Agreement.
THIS PROMISSORY NOTE SHALL BE GOVERNED BY AND CONSTRUED UNDER THE
INTERNAL LAWS OF THE STATE OF LOUISIANA.
IN WITNESS WHEREOF, Borrower has executed and delivered this
Promissory Note on the day first written above.
CASINO MAGIC CORP.
By:
Name:
Title:
EXHIBIT B
PAGE
EXHIBIT B
FORM OF TERM NOTE
* * * * * * * * * * * * * * *
PROMISSORY NOTE
$3,850,000.00 March 27, 1997
Due: September 27, 1999 New Orleans, Louisiana
FOR VALUE RECEIVED, CASINO MAGIC OF LOUISIANA, CORP., a Louisiana
corporation ("Borrower"), promises to pay to the order of First National Bank
of Commerce ("Bank") at its office at New Orleans, Louisiana, the principal
sum of Three Million Eight Hundred Fifty Thousand and No/100 ($3,850,000.00)
Dollars.
The credit advice resulting from the deposit of the proceeds of the
Term Loan (as defined in the Credit Agreement among Borrower, Casino Magic
Corp., a Minnesota corporation, and Bank dated of even date herewith (as the
same may hereafter be amended, modified, supplemented or restated from time to
time, the "Credit Agreement")) in Borrower's account with Bank, or Bank's copy
of any cashier's check representing all or any part of the Term Loan, shall be
deemed prima facie evidence of Borrower's indebtedness to Bank on the Term
Loan.
The aggregate outstanding principal amount hereof shall bear
interest from the date hereof until paid in full at eight and one-quarter
(8.25%) percent per annum. All payments of interest shall be computed on the
per annum basis of a year of 360 days for the actual number of days (including
the first day but excluding the last day) elapsed.
Borrower shall pay interest on the aggregate outstanding principal
of the Term Loan on each Term Loan Payment Date (hereinafter defined)
(including without limitation the Term Loan Maturity Date (as defined in the
Credit Agreement)) simultaneously with the principal payment then due and
payable.
Commencing on the Term Loan Principal Commencement Date (as defined
in the Credit Agreement) and continuing quarterly thereafter on the following
nine (9) successive quarterly anniversary dates of the Term Loan Principal
Commencement Date through and including the Term Loan Maturity Date (each such
principal payment date being a "Term Loan Payment Date"), Borrower shall pay
the principal amount of this Promissory Note in ten (10) equal installments of
$385,000.00 each, together with interest on the aggregate outstanding
principal balance in arrears.
This Promissory Note is issued pursuant to and is entitled to the
benefits of the Credit Agreement. Reference is made to the Credit Agreement
for provisions for the determination of the Principal Commencement Date and
the Maturity Date, the acceleration of the maturity hereof on the occurrence
of certain events specified therein, the definitions of capitalized terms not
otherwise defined herein, and for all other pertinent purposes.
All payments and prepayments made by Borrower hereunder and under
the Credit Agreement shall be made in lawful money of the United States to
Bank in immediately available funds before 1:00 P.M. (Central Time) on the
date that such payment is required or designated to be made. Any payment
received and accepted by Bank after such time shall be considered for all
purposes (including the calculation of interest, to the extent permitted by
law) as having been made on Bank's next following Business Day. If the day
for any payment or prepayment hereunder falls on a day which is not a Business
Day, then for all purposes of this Promissory Note, the same shall be deemed
to have fallen on the next following Business Day, and such extension of time
shall in such case be included in the computation of payments of interest.
Borrower hereby authorizes Bank, subject to the terms of the Credit
Agreement, if and to the extent payment is not made when due hereunder or
under the Credit Agreement, to charge from time to time against any of
Borrower's accounts with Bank any amount so due.
Borrower and any guarantor, accommodation party, endorser or other
person or entity liable for the demand or collection of this Promissory Note
expressly waive demand and presentment for payment, notice of nonpayment,
protest, notice of protest, notice of dishonor, bringing of suit, diligence in
taking any action to collect amounts called for hereunder and in the handling
of property at any time existing as security in connection herewith, and shall
be directly and primarily liable for the payment of all sums owing and to be
owing hereon, regardless of and without notice, diligence, act or omission as
or with respect to the collection of any amount called for hereunder or in
connection with any right, lien, interest or property at any time had or
existing as security for any amount called for hereunder.
If an Event of Default occurs and this Promissory Note is placed in
the hands of an attorney for collection, or suit is filed hereon, or
proceedings are had in bankruptcy, probate, receivership or other judicial
proceedings for the establishment or collection of any amount called for
hereunder, or any amount payable or to be payable hereunder is collected
through any such proceedings, Borrower agrees it is also to pay or reimburse
to the owner and holder of this Promissory Note reasonable legal fees and
other expenses in accordance with the Credit Agreement, including without
limitation Section 5.7 thereof.
The rights and obligations of Borrower in connection with prepayment
of this Promissory Note are set forth in Section 2.4 of the Credit Agreement.
The Default Rate payable by Borrower in connection with late
payments of principal or interest is set forth in Section 2.3 of the Credit
Agreement.
THIS PROMISSORY NOTE SHALL BE GOVERNED BY AND CONSTRUED UNDER THE
INTERNAL LAWS OF THE STATE OF LOUISIANA.
IN WITNESS WHEREOF, Borrower has executed and delivered this
Promissory Note on the day first written above.
CASINO MAGIC OF LOUISIANA, CORP.
By:
Name:
Title:
EXHIBIT C
PAGE
EXHIBIT C
Form of Compliance Certificate
* * * * * * * * * * * * * * *
COMPLIANCE CERTIFICATE
1. Each of the undersigned hereby certifies to First National
Bank of Commerce (the "Bank") as follows:
(a) The signatories are the principal financial officers (each,
the "Financial Officer") of, as the case may be, Casino Magic of Louisiana,
Corp., a Louisiana corporation ("CMLA"), and Casino Magic Corp., a Minnesota
corporation ("CMC"; CMLA and CMC being sometimes referred to herein
individually as a "Company" and collectively as the "Companies");
(b) As to each Financial Officer, in such capacity he is
authorized to execute this Certificate on behalf of the respective Company;
(c) As to each Company, a review of the activities of such
Company has been made under the supervision of the undersigned Financial
Officers with a view of determining whether each has fulfilled its obligations
under the Credit Agreement dated as of March 27, 1997 (as amended, modified or
supplemented from time to time, the "Credit Agreement") among CMLA, CMC and
Bank.
2. Each of the undersigned further certifies, represents and
warrants to Bank as follows (and each capitalized term used herein without
definition shall have the respective meaning ascribed thereto in the Credit
Agreement):
(A) The financial statements delivered to Bank concurrently with
this Certificate fairly and accurately present the financial condition of the
Companies.
(B) The representations and warranties of the Companies
contained in the Credit Agreement and otherwise made in writing by or on
behalf of the Companies pursuant to the Credit Agreement and the other Loan
Documents were true and correct when made, and are repeated at and as of the
time of delivery hereof and are true and correct at and as of the time of
delivery hereof, except for changes in the ordinary course of business which
changes do not change the substance of such representations and warranties
when originally made;
(C) Each Company has performed and complied with all agreements
and conditions contained in the Credit Agreement and all other Loan Documents
required to be performed or complied with by such Company prior to or at the
time of delivery hereof;
(D) Each Company has not incurred any material liabilities,
direct or contingent, since the last day of the fiscal quarter of such Company
for which financial statements are concurrently herewith being furnished to
Bank pursuant to the Credit Agreement, except those permitted by the Credit
Agreement or otherwise consented to in writing by the Bank;
(E) No material adverse changes have occurred, either in any
case or in the aggregate, in the assets, liabilities, financial condition,
business, operations, affairs or circumstances of a Company from those
reflected in the financial statements referred to in 2(D) above; and
(F) There exist no Defaults or Events of Default under the
Credit Agreement or any condition, event or act which constitutes, or with
notice or lapse of time (or both) would constitute, a default or event of
default under any Indenture, loan agreement, note agreement or other agreement
pertaining to any Debt to which either Company is a party under which the
obligations of such Company are greater than $1,000,000.00.
3. [INAPPLICABLE WHEN THIS COMPLIANCE CERTIFICATE IS SUBMITTED
UNDER ARTICLE 7 OF CREDIT AGREEMENT.] The Financial Officers hereby certify,
represent and warrant to the Bank that the calculations for the fiscal quarter
most recently ended pertaining to Sections 5.18 and 5.19 of the Credit
Agreement are as follows (additional sheets being attached if necessary):
<PAGE>
4. This Certificate may be executed in one or more counterparts
with the same effect as if the signatures hereto and thereto were on the same
instrument.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Certificate on the ____ day of ____________, 199__.
_______________________________
Name:__________________________
Title:_________________________
of Casino Magic of
Louisiana, Corp.
________________________________
Name:___________________________
Title:__________________________
of Casino Magic Corp.
<PAGE>
EXHIBIT D
PAGE
EXHIBIT D
SUBSIDIARIES
* * * * * * * * * * * * * * *
CMLA
None
CMC
Casino Magic of Louisiana, Corp. Louisiana
Jefferson Casino Corporation Louisiana
Casino Magic of Louisiana, Corp.
and
Jefferson Casino Corp.
to
First Union Bank of Connecticut
Trustee
First Supplement to Indenture
Dated as of March 25, 1997
to
Indenture
Dated as of August 22, 1996
Relating to
$115,000,000
13% First Mortgage Notes due 2003 with
Contingent Interest
FIRST SUPPLEMENT TO INDENTURE, dated as of March 25, 1997 ("First
Supplemental Indenture"), to Indenture, dated as of August 22, 1996, between
Casino Magic of Louisiana, Corp., a corporation duly organized and existing
under the laws of the State of Louisiana (herein called the "Company"),
Jefferson Casino Corporation (herein called the "Guarantor") and First Union
Bank of Connecticut as Trustee (herein called the "Trustee").
RECITALS OF THE COMPANY
WHEREAS, the Company and Guarantor have heretofore executed and delivered
to the Trustee an Indenture, dated as of August 22, 1996 (the "Indenture"),
providing for the issuance of the Company's 13% First Mortgage Notes due 2003
with Contingent Interest, guaranteed by the Guarantor; CAPITALIZED TERMS USED
BUT NOT DEFINED IN THIS FIRST SUPPLEMENTAL INDENTURE, SHALL HAVE THE MEANINGS
ASCRIBED TO THEM IN THE INDENTURE;
WHEREAS, pursuant to the Indenture the Company has executed and delivered
a Security Agreement;
WHEREAS, prior to the Issue Date and the execution and delivery of the
Indenture, Crescent City Capital Development Corporation ("Crescent City")
(the former name of the Company) had incurred Indebtedness to IGT pursuant to
a Sales Agreement dated March 10, 1995 (the "IGT Debt") and to Bally Gaming,
Inc. pursuant to a Purchase Agreement dated February 15, 1995 between Crescent
City and Gulf Gaming Equipment, Inc., predecessor in interest to Bally Gaming,
Inc. (the "Bally Debt"), the proceeds of which IGT Debt and Bally Debt were
respectively utilized solely to purchase FF&E (consisting of gaming equipment
then used in the ordinary course of Crescent City's business and currently
used in the ordinary course of the Company's business (the "IGT Equipment" and
the "Bally Equipment" respectively and collectively the "Gaming Equipment")),
and the principal amount of which IGT Debt and Bally Debt, did not exceed the
cost of the IGT Equipment and Bally Equipment, respectively;
WHEREAS, prior to the Issure Date and the execution and delivery of the
Indenture, Company assumed such IGT Debt and Bally Debt pursuant to Crescent
City's March 1996 Second Amended Plan of Reorganization (the "Plan of
Reorganization") in the United States Bankruptcy Court in New Orleans,
Louisiana;
WHEREAS, prior to the Issue Date and the execution and delivery of the
Indenture, Company refinanced the Bally Debt with Hibernia National Bank in
the principal amount of $1,700,000 (the "Hibernia Debt") and as soon as
practical after the date hereof desires to refinance the IGT Debt with First
National Bank of Commerce;
WHEREAS, the Security Agreement contemplated a definition of FF&E
Financing Agreement which was inadvertently not included therein but which
should have been included therein and, if included, should have included the
IGT Debt, the Hibernia Debt and the refinancing thereof;
WHEREAS, the failure to have included such definition of FF&E Financing
Agreement had the effect of not clearly causing such IGT Equipment and Bally
Equipment to have been Excluded Assets (within the meaning of the Security
Agreement) and if such IGT Equipment and Bally Equipment were not so included
as Excluded Assets would have caused a breach of certain provisions of the IGT
Debt and the Bally Debt (as refinanced with Hibernia National Bank) which
prohibited the grant of liens or encumbrances on such IGT Equipment and Bally
Equipment;
WHEREAS, the Company has requested the Trustee concurrently herewith to
executed a First Supplement to the Security Agreement (the "First Supplemental
Security Agreement") to cure such defect in such Security Agreement;
WHEREAS, there exists a related defect or an ambiguity in clause (vi) of
the second paragraph of Section 4.09 of the Indenture in that it is unclear
whether the Company's $5,673,023.99 aggregate principal amount of IGT Debt and
Hibernia Debt, that would otherwise have satisfied all of the conditions to a
financing described in such clause (vi) except that it was in existence prior
to the Issue Date, is covered by such clause (vi) in particular because the
Company's Preliminary Offering Memorandum dated August 2, 1996 and Offering
Memorandum dated August 16, 1996, reflected the Company's existing
approximately $5.7 million aggregate principal amount of FF&E financing of
such nature and its intention to incur an additional $1.8 million of such FF&E
financing, for a total equal to the $7.5 million referenced in such clause
(vi), thereby indicating that such $5,673,023.99 aggregate principal amount of
FF&E financing should be covered by clause (vi);
WHEREAS, Section 9.01 of the Indenture provides that the Company and any
Guarantor and the Trustee, at any time and from time to time, may amend the
Indenture and enter into an indenture supplemental to the Indenture without
the consent of any Holders (as defined in the Indenture) to cure any
ambiguity, defect or inconsistency;
WHEREAS, all things necessary to make this First Supplemental Indenture a
valid agreement of the Company and Guarantor, in accordance with their and
its terms, have been done;
NOW, THEREFORE, THIS FIRST SUPPLEMENTAL INDENTURE WITNESSETH:
For and in consideration of the premises, it is mutually covenanted and
agreed, for the equal and proportionate benefit of all Holders of the Notes
that the Indenture is hereby amended effective as of the date hereof in the
following respects:
1. Clause (vi) of the second paragraph of Section 4.09 of the
Indenture is amended and restated in its entity as follows:
(vi) the incurrence by the Company of Indebtedness (including without
limitation pursuant to any FF&E Financing Agreement (as defined in the
Security Agreement) which was incurred prior to the Issue Date and which will
be deemed to be Indebtedness which is permitted by this Indenture to be
incurred), the proceeds of which are, or were, utilized solely to purchase
FF&E; provided, however, that (A) the principal amount of such Indebtedness
does not and did not exceed the cost (including sales and excise taxes,
installation and delivery charges and other direct costs of, and other direct
expenses paid or charged in connection with, such purchase) of the FF&E
purchased with the proceeds thereof and (B) the aggregate principal amount of
such Indebtedness does not exceed $7.5 million outstanding at any time prior
to the opening of the Casino Magic-Bossier City Hotel and $10.0 million
thereafter;
2. Nothing in the Indenture, this First Supplemental Indenture or the
Notes, express or implied, shall give to any Person other than the parties
hereto and their successors hereunder and the Holders of the Notes, any
benefit or any legal or equitable right, remedy or claim under the Indenture,
this First Supplemental Indenture or the Notes. This First Supplemental
Indenture may not be used to interpret another indenture, loan agreement or
debt agreement of the Company or any of its Subsidiaries (other than the
Indenture). Any such indenture (other than the Indenture), loan or debt
agreement may not be utilized to interpret this First Supplemental Indenture.
3. The recitals contained herein shall be regarded as statements of
the Company and Guarantor and the Trustee assumes no responsibility for their
correctness.
4. The Trustee makes no representations as to the validity or
sufficiency of this First Supplemental Indenture.
5. THE INTERNAL LAWS OF THE STATE OF NEW YORK SHALL GOVERN AND BE
USED TO CONSTRUE THIS FIRST SUPPLEMENTAL INDENTURE, WITHOUT REGARD TO THE
CONFLICTS OF LAW PROVISIONS THEREOF.
IN WITNESS WHEREOF, parties hereto have caused this First Supplemental
Indenture to be duly executed, and their respective corporate seals to be
hereunto affixed and attested, all as of the day and year first above written.
CASINO MAGIC OF LOUISIANA, CORP.
BY: /s/ Robert A. Callaway
TITLE: Secretary
JEFFERSON CASINO CORPORATION
BY: /s/ Jay Osman
TITLE: Treasurer
FIRST UNION BANK OF CONNECTICUT
as Trustee
BY: /s/ W. Jeffrey Kramer
TITLE: Vice President
Casino Magic of Louisiana, Corp.
to
First Union Bank of Connecticut
Trustee
First Supplement to Security Agreement
Dated as of March 25, 1997
to
Security Agreement
Dated as of August 22, 1996
Relating to
$115,000,000
13% First Mortgage Notes due 2003 with
Contingent Interest
FIRST SUPPLEMENT TO SECURITY AGREEMENT, dated as of March 25, 1997
("First Supplemental Security Agreement"), to Security Agreement, dated as of
August 22, 1996, between Casino Magic of Louisiana, Corp., a corporation duly
organized and existing under the laws of the State of Louisiana (herein called
the "Debtor") and First Union Bank of Connecticut (herein called the "Secured
Party").
RECITALS OF THE COMPANY
WHEREAS, the Company has hereto executed and delivered to the Trustee an
Indenture, dated as of August 22, 1996 (the "Indenture"), providing for the
issuance of the Company's 13% First Mortgage Notes due 2003 with Contingent
Interest, guaranteed by the Guarantor and has heretofore executed and
delivered to the Trustee the Security Agreement in connection therewith;
CAPITALIZED TERMS USED BUT NOT DEFINED IN THIS SUPPLEMENTAL SECURITY
AGREEMENT, SHALL HAVE THE MEANINGS ASCRIBED TO THEM IN THE SECURITY AGREEMENT;
WHEREAS, prior to the Issue Date and the execution and delivery of the
Indenture, Crescent City Capital Development Corporation ("Crescent City")
(the former name of the Debtor) had incurred Indebtedness to IGT pursuant to a
Sales Agreement dated March 10, 1995 (the "IGT Debt") and to Bally Gaming,
Inc. pursuant to a Purchase Agreement dated February 15, 1995 between Crescent
City and Gulf Gaming Equipment, Inc., predecessor in interest to Bally Gaming,
Inc. (the "Bally Debt"), the proceeds of which IGT Debt and Bally Debt were
respectively utilized solely to purchase FF&E (consisting of gaming equipment
then used in the ordinary course of Crescent City's business and currently
used in the ordinary course of the Debtor's business (the "IGT Equipment" and
the "Bally Equipment" respectively and collectively the "Gaming Equipment")),
and the principal amount of which IGT Debt and Bally Debt, did not exceed the
cost of the IGT Equipment and Bally Equipment, respectively;
WHEREAS, prior to the Issue Date and the execution and the delivery of
the Indenture, the Debtor assumed such IGT Debt and Bally Debt pursuant to
Crescent City's March 1996 Second Amended Plan of Reorganization (the "Plan of
Reorganization") in the United States Bankruptcy Court in New Orleans,
Louisiana;
WHEREAS, prior to the Issue Date and the execution and delivery of the
Indenture, the Debtor refinanced the Bally Debt with Hibernia National Bank in
the principal amount of $1,700,000 (the "Hibernia Debt") and as soon as
practical after the date hereof desires to refinance the IGT Debt with First
National Bank of Commerce;
WHEREAS, the Security Agreement contemplated a definition of FF&E
Financing Agreement which was inadvertently not included therein but which
should have been included therein and, if included, should have included IGT
Debt, the Hibernia Debt and the refinancing thereof;
WHEREAS, the failure to have included such definition of FF&E Financing
Agreement had the effect of not clearly causing such IGT Equipment and Bally
Equipment to have been Excluded Assets (within the meaning of the Security
Agreement) and, if such IGT Equipment and Bally Equipment were not so included
as Excluded Assets would have caused a breach of certain provisions of the IGT
Debt and the Hibernia Debt which prohibited the grant of liens or encumbrances
on such IGT Equipment and Bally Equipment;
WHEREAS, there accordingly exists a defect in clause (ii) of the
definition of "Excluded Assets" in the Security Agreement in that the term
FF&E Financing Agreement is not defined therein;
WHEREAS, Section 9.01 of the Indenture provides that the Debtor and any
Guarantor and the Trustee, at any time and from time to time, may amend the
Indenture or the Collateral Documents (as defined therein, including the
Security Agreement) without the consent of any Holders (as defined in the
Indenture) to cure any ambiguity, defect or inconsistency.
WHEREAS, all things necessary to make this Supplemental Security
Agreement a valid agreement of the Debtor, in accordance with its terms, have
been done;
NOW, THEREFORE, THIS FIRST SUPPLEMENTAL SECURITY AGREEMENT WITNESSETH:
For and in consideration of the premises, it is mutually covenanted and
agreed, for the equal and proportionate benefit of all Holders of the Notes
that the Security Agreement is hereby amended effective as of the date hereof
in the following respects:
1. Section 2(i) of the Security Agreement is amended to add the
following definition of FF&E Financing Agreement to the end of such Section
2(i), to read as follows:
For the purposes hereof, FF&E Financing Agreement shall mean any of the
following: (i) that certain Sales Agreement (the "IGT Sales Agreement") dated
May 10, 1995 between IGT and Crescent City and assumed by the Debtor in
connection with the Plan of Reorganization; (ii) that certain Purchase
Agreement dated February 15, 1995 between Gulf Gaming Equipment, Inc.,
predecessor in interest to Bally Gaming, Inc. and Crescent City, assumed by
the Debtor in connection with the Plan of Reorganization, and refinanced with
Hibernia National Bank on June 21, 1996; (iii) any other financing agreement
related to the purchase or acquisition of Equipment that satisfies the
conditions of clause (ii) in the definition of "Excluded Assets") above; and
(iv) any agreement with respect to a refinancing or renewal of any of the
foregoing.
2. The existence, validity, construction, operation and effect of any
and all terms and provisions of this Supplemental Security Agreement shall be
determined in accordance with and governed by the substantive laws of the
State of Louisiana, without giving effect to its conflicts of law principles.
3. The recitals contained herein shall be regarded as statements of
the Debtor and Secured Party assumes no responsibility for their correctness.
4. Secured Party makes no representations as to the validity or
sufficiency of this Supplemental Security Agreement.
IN WITNESS WHEREOF, parties hereto have caused this First Supplemental
Security Agreement to be duly executed, and their respective corporate seals
to be hereunto affixed and attested, all as of the day and year first above
written.
DEBTOR:
CASINO MAGIC OF LOUISIANA, CORP.
BY: /s/ Robert A. Callaway
TITLE: Secretary
SECURED PARTY:
FIRST UNION BANK OF CONNECTICUT
a Connecticut banking corporation, as trustee for the
benefit of the holders of the Notes
BY: /s/ W. Jeffrey Kramer
TITLE: Vice President
CONSENT OF INDEPENDENT PUBLIC ACCOUNTS
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in or made a part of this
registration statement.
/s/ Arthur Anderson, LLP
New Orleans, Louisiana
April 9, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DECEMBER 31,
1996, CONSOLIDATED FINANCIAL STATEMENTS OF JEFFERSON CASINO CORPORATION AND ITS
SUBSIDIARY CASINO MAGIC OF LOUISIANA, CORP. AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 20,858,780
<SECURITIES> 0
<RECEIVABLES> 345,116
<ALLOWANCES> 0
<INVENTORY> 131,147
<CURRENT-ASSETS> 21,823,777
<PP&E> 74,562,748
<DEPRECIATION> 740,922
<TOTAL-ASSETS> 149,329,945
<CURRENT-LIABILITIES> 17,245,749
<BONDS> 119,850,193
0
0
<COMMON> 0
<OTHER-SE> 12,234,003
<TOTAL-LIABILITY-AND-EQUITY> 149,329,945
<SALES> 12,737,800
<TOTAL-REVENUES> 12,737,800
<CGS> 0
<TOTAL-COSTS> 20,077,402
<OTHER-EXPENSES> (818)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,705,614
<INCOME-PRETAX> (10,044,398)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,339,602)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,044,398)
<EPS-PRIMARY> (10,004.40)
<EPS-DILUTED> (10,004.40)
</TABLE>
