<PAGE> 1
As filed with the Securities and Exchange Commission on September 27, 1996
REGISTRATION NO. 333-06489
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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THE MAJESTIC STAR CASINO, LLC
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
INDIANA 7999 43-1664986
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification No.)
incorporation or
organization)
</TABLE>
ONE BUFFINGTON HARBOR DRIVE
GARY, INDIANA 46406-3000
(219) 977-7777
(Address, including zip code, and telephone number, including area code, of
registrants' principal executive offices)
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KENNETH L. KRAMER
THE MAJESTIC STAR CASINO, LLC
ONE BUFFINGTON HARBOR DRIVE
GARY, INDIANA 46406-3000
(219) 977-7777
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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copies to:
FRANK K. ZINN, ESQ.
DYKEMA GOSSETT PLLC
400 RENAISSANCE CENTER
DETROIT, MICHIGAN 48243
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: / /
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
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.
PRELIMINARY PROSPECTUS
SUBJECT TO COMPLETION DATED SEPTEMBER 27, 1996
THE MAJESTIC STAR CASINO, LLC
OFFER TO EXCHANGE
12 3/4% SENIOR EXCHANGE SECURED NOTES DUE 2003, WITH CONTINGENT INTEREST
FOR ALL OUTSTANDING
12 3/4% SENIOR SECURED NOTES DUE 2003, WITH CONTINGENT INTEREST
THE EXCHANGE OFFER
WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME
IN , 1996, UNLESS EXTENDED
The Majestic Star Casino, LLC, an Indiana limited liability company (the
"Company"), hereby offers, upon the terms and subject to conditions set forth in
this Prospectus (the "Prospectus") and the accompanying Letter of Transmittal
(the "Letter of Transmittal", together with the Prospectus, the "Exchange
Offer"), to exchange up to an aggregate principal amount of $105,000,000 of its
12 3/4% Senior Exchange Secured Notes Due 2003, with Contingent Interest (the
"Senior Exchange Notes") for up to an aggregate principal amount of $105,000,000
of its outstanding 12 3/4% Senior Secured Notes Due 2003, with Contingent
Interest (the "Senior Notes"). The terms of the Senior Exchange Notes are
substantially identical in all material respects to those of the Senior Notes,
except for certain transfer restrictions and registration rights relating to the
Senior Notes. The Senior Exchange Notes will be issued pursuant to, and entitled
to the benefits of, the Indenture (as defined herein) governing the Senior
Notes. The Senior Exchange Notes and the Senior Notes are sometimes referred to
collectively as the "Notes".
The Company will accept for exchange of any and all Senior Notes which are
properly tendered in the Exchange Offer prior to 5:00 p.m., New York City time,
on , 1996, 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 , 1996. Tenders of Senior 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 Senior Notes with respect to the Exchange Offer, the Company will promptly
return the Senior Notes to the holders thereof. The Exchange Offer is not
conditioned upon any minimum principal amount of Senior Notes being tendered for
exchange, but is otherwise subject to certain customary conditions. The Senior
Notes may be tendered only in integral multiples of $1,000.
Fixed interest is payable on the Senior Exchange Notes at the rate of
12 3/4% per annum, semi-annually on May 15 and November 15 of each year
commencing November 15, 1996. Contingent Interest (as defined herein) is payable
on the Senior Exchange Notes, on each such interest payment date, in an
aggregate amount equal to 5.0% of the Company's Consolidated Cash Flow (as
defined herein) for the six month period ending on March 31 or September 30
(each, a "Semiannual Period") most recently completed prior to such interest
payment date, up to a limit of $60.0 million of the Company's Consolidated Cash
Flow during any two consecutive Semiannual Periods; provided that no Contingent
Interest shall be payable with respect to any period prior to the first day of
the operation of the Majestic Star Casino. 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 Senior Notes -- Principal, Maturity and Interest."
The Senior Exchange Notes will not be redeemable prior to May 15, 2000,
except as otherwise required by the Indiana Gaming Commission or any other
governmental authority or as otherwise permitted out of funds then remaining in
the Interest Reserve Account (as defined herein) after May 15, 1997 and prior to
May 15, 1998. On and after May 15, 2000, the Senior Exchange Notes will be
redeemable at the option of the Company, in whole or in part, at the redemption
prices set forth herein plus accrued and unpaid interest, if any, to the date of
redemption. See "Description of Senior Notes -- Optional Redemption." Upon a
Change in Control (as defined herein), subject to certain limitations, the
Company shall be required to offer to repurchase the Senior Exchange Notes owned
by each holder of Senior Notes at 101% of the principal amount thereof plus
accrued and unpaid interest, if any, to the date of repurchase. See "Description
of Senior Notes -- Repurchase at the Option of Holders -- Change of Control."
The Company may not have sufficient funds available to purchase all of the
outstanding Senior Exchange Notes were they to be tendered in response to an
offer made as a result of a Change of Control.
(Continued on following page)
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SEE "RISK FACTORS" ON PAGE 12 FOR A DESCRIPTION OF CERTAIN FACTORS THAT SHOULD
BE CONSIDERED BY PARTICIPANTS IN EXCHANGE OFFER.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------------
The date of this Prospectus is , 1996
<PAGE> 3
(Continued from front cover)
The Senior Exchange 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 and will rank senior to all existing and future
subordinated indebtedness of the Company. As of July 31, 1996, the Company had
$5.8 million of equipment financing which rank pari passu in right of payment
with the Senior Exchange Notes. In addition, to the extent that any Senior Notes
remaining outstanding after the Exchange Offer, such Senior Notes will rank pari
passu in right of payment with the Senior Exchange Notes. The Senior Exchange
Notes will be secured by, among other things, (i) a pledge of the Company's 50%
membership interest in the Buffington Harbor Riverboats, L.L.C., a Delaware
limited liability company, (ii) a pledge of the 85% direct membership interest
in the Company of Barden Development, Inc., the principal member of the Company,
(iii) a collateral assignment of the Company's interest in the Berthing
Agreement (as defined herein) and (iv) a pledge of all funds in the Cash
Collateral Accounts (as defined herein) into which the proceeds from the
offering of Senior Notes, for which the Senior Exchange Notes are to be
exchanged, were deposited pending their use. Upon delivery of the Permanent
Vessel to the Company, the Senior Exchange Notes will be secured by a duly
perfected first preferred ship mortgage on such Permanent Vessel. See
"Description of Senior Notes -- Security."
The Senior Exchange Notes are being offered hereunder in order to satisfy
certain obligations of the Company contained in the Registration Rights
Agreement dated May 22, 1996 (the "Registration Rights Agreement") by and
between the Company and Wasserstein Perella Securities, Inc., as the initial
purchaser (the "Initial Purchaser"), with respect to the initial sale of the
Senior Notes. Based on interpretations by the staff of the Securities and
Exchange Commission (the "Commission") contained in certain no-action requests
from third parties unrelated to the Company, the Senior Exchange Notes issued
pursuant to the Exchange Offer in exchange for Senior Notes may be offered for
resale, resold and otherwise transferred by respective holder thereof (other
than 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, of 1933, as amended
(the "Securities Act"), provided that the Senior Exchange 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 Senior Exchange Notes
and is not engaged in and does not intend to engage in a distribution of the
Senior Exchange Notes. Each broker-dealer that receives Senior Exchange Notes
for its own account pursuant to the Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such Senior Exchange
Notes. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of the Senior Exchange Notes received
in exchange for Senior Notes if such Senior Exchange 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 365 days 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 NOTES.
Prior to the Exchange Offer, there has been no public market for the Senior
Exchange Notes. The Senior Notes are not, and the Senior Exchange 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 Senior Exchange Notes, the ability of holders
to sell the Senior Exchange Notes, or the price at which holders would be able
to sell the Senior Exchange Notes. Future trading prices of the Senior Exchange
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 Senior
Exchange 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 Senior Exchange
Notes, if such market develops, will not be subject to similar disruptions. The
Initial Purchaser has advised the Company that it currently intends to make a
market in the Senior Exchange Notes offered hereby. However, the Initial
Purchaser is not obligated to do so and any market making may be discontinued at
any time without notice.
The Senior Notes were initially purchased by accredited investors and
"qualified institutional buyers" (as such term is defined in Rule 144A under the
Securities Act). The Senior 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 depositary. The Senior Exchange Notes exchanged for
Senior Notes represented by the Global Senior Note 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 Senior Exchange Notes in registered form, in
denominations of $1,000 and integral multiples thereof as described herein. The
Senior Exchange Notes in global form will trade in DTC's Same-Day Funds
Settlement System, and secondary market trading activity in such Senior Exchange
Notes will therefore settle in immediately available funds. See "Description of
Senior Exchange Notes -- Form, Denomination and Book-Entry Procedures."
The Company will not receive any proceeds from the Exchange Offer. See "Use
of Proceeds". The Company has agreed to pay the expenses incident to the
Exchange Offer.
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AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (the "Registration Statement," which term shall include all amendments,
exhibits, annexes and schedules thereto) pursuant to the Securities Act, and the
rules and regulations promulgated thereunder, covering the Senior Exchange Notes
being offered hereby. This Prospectus does not contain all the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. Statements made in
this Prospectus as to the contents of any contract, agreement or other document
referred to in the Registration Statement are not necessarily complete. With
respect to each such contract, agreement or other document filed as an exhibit
to the Registration Statement, reference is made to the exhibit for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference.
Upon consummation of the Exchange Offer, the Company will be subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). The Registration Statement, the exhibits forming a part
thereof and the reports and other information filed by the Company with the
Commission in accordance with the Exchange Act may be inspected and copies at
the public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
regional offices of the Commission located at 7 World Trade Center, 13th Floor,
New York, New York 10048 and at Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and are available electronically
through the Commission's web site located at http://www.sec.gov. Copies of such
material may also be obtained upon written request from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates.
The Indenture provides that, following the filing date of this Registration
Statement and for so long as any of the Senior Exchange Notes are outstanding,
the Company will file with the Commission the periodic reports required to be
filed with the Commission under the Exchange Act, whether or not the Company is
subject to Section 13(a) or 15(d) of the Exchange Act. The Company will also,
within 15 days of filing each such report with the Commission, provide the
Trustee and the Holders of the Senior Exchange Notes with annual reports
containing the information required to be contained in Form 10-K promulgated
under the Exchange Act, quarterly reports containing the information required to
be contained in Form 10-Q promulgated under the Exchange Act, and from time to
time such other information as is required to be contained in Form 8-K
promulgated under the Exchange Act. If filing such reports with the Commission
is prohibited by the Exchange Act, the Company will also provide copies of such
reports to holders of the Senior Exchange Notes upon written request.
3
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information contained elsewhere in this Prospectus. See "Risk Factors" on page
12 for a discussion of certain factors which should be considered by prospective
participants in the Exchange Offer. All references in this Prospectus to the
"Gaming Complex" shall mean the Majestic Star Casino together with the Pavilion
(as defined herein) and other support facilities for the Majestic Star Casino.
All references in this Prospectus to the "Buffington Harbor Facility" shall mean
the Gaming Complex together with the riverboat casino owned and operated by the
Joint Venture Partner. Other terms not defined in this Prospectus Summary shall
have the meanings set forth elsewhere in this Prospectus.
THE COMPANY
The Company owns and operates the Majestic Star casino (the "Majestic Star
Casino"), a riverboat gaming facility located at Buffington Harbor in Gary,
Indiana, approximately 23 miles southeast of downtown Chicago, pursuant to a
riverboat gaming license granted to the Company by the Indiana Gaming Commission
(the "IGC"). The Majestic Star Casino commenced operations in June 1996 and
contains approximately 26,000 square feet of gaming space with approximately 924
slot machines and 50 table games. In addition to its approximately 1,300 gaming
positions, the Majestic Star Casino offers customers on-board food, beverage and
bar facilities. The Company has chartered the vessel on which the Majestic Star
Casino currently operates (the "Chartered Vessel") and intends to construct a
permanent vessel (the "Permanent Vessel") containing approximately 40,000 square
feet of gaming space with 1,800 to 2,000 gaming positions to replace the
Chartered Vessel. The Company will construct the Permanent Vessel with a portion
of the proceeds from the offering of Senior Notes made in May 1996 (the "Senior
Note Offering"). The Company currently expects that it will take delivery of the
Permanent Vessel in the second half of 1997. The Majestic Star Casino is
conveniently located at the interchange of U.S. 12 and Indiana State Highway 912
and is easily accessible to gaming customers in the Chicago metropolitan area,
Indianapolis, South Bend and Fort Wayne, Indiana, and Kalamazoo and Grand
Rapids, Michigan by major state and federal highways.
The Company and Trump Indiana, Inc. (the "Joint Venture Partner"), an
indirect subsidiary of Trump Hotels and Casino Resorts, Inc., each own
fifty-percent of Buffington Harbor Riverboats, L.L.C. (the "BHR Joint Venture")
which was formed for the purpose of jointly developing and operating the common
areas of the Gaming Complex. The Gaming Complex includes a two-level, 90,000
square foot pavilion (the "Pavilion") containing a 360 seat buffet, a 100 seat
steakhouse restaurant, several bars and lounges and areas for staging and
ticketing. The Pavilion features granite floors, unique metallic finishes, two
large fountains and a variety of lighting effects. The Company believes the
Pavilion's amenities will help attract customers to the Majestic Star Casino.
The Buffington Harbor Facility is situated on an approximately one-hundred acre
site, contains 3,200 parking spaces and offers valet parking and convenient bus
loading and unloading facilities.
The Company and its Joint Venture Partner each operates its own riverboat
casino at the Gaming Complex. Currently, as a result of notice given by the IGC,
the Company and the Joint Venture Partner conduct gaming operations through
simulated cruises whereby the riverboat casinos remained docked. During
simulated cruises, the IGC has authorized the Company to permit entrance to the
casino during thirty-minute periods, commencing at scheduled times, and to
permit unlimited egress. The Company and the Joint Venture Partner operate these
simulated cruises on a staggered schedule. Management expects the staggered
schedule to appeal to customers because it will reduce waiting times to board a
casino. Management expects the Buffington Harbor Facility to be the only site in
northern Indiana which will offer a staggered schedule and that the staggered
schedule will be an advantage for the casinos at the Buffington Harbor Facility
over other northern Indiana casinos. The Majestic Star Casino and the Joint
Venture Partner's riverboat together offer customers a total of approximately
3,400 gaming positions, which management believes is significantly more gaming
positions than will exist at any other site in northern Indiana and is
approximately three times the number of gaming positions allowed at any
individual Illinois gaming site, each of which is currently limited by Illinois
gaming laws to 1,200 gaming positions.
4
<PAGE> 6
The Company expects its target market to consist primarily of drive-in,
middle market customers residing within a 150-mile radius of the Majestic Star
Casino, which includes the Chicago metropolitan area, the third most populated
metropolitan area in the United States. Approximately 12.4 and 7.4 million
adults reside within 150 and 100 miles, respectively, of the Majestic Star
Casino. There can be no assurance that the Company will be able to consistently
attract customers from its targeted 150-mile radius.
The market area within 150 miles of the Majestic Star Casino has one of the
highest ratios of adults to gaming positions of any drive-in gaming market in
the United States. Based on the 12,600 gaming positions projected for the
northern Indiana and Chicago area markets, including the five casinos expected
to be opened in northern Indiana, there will be one gaming position for every
984 adults. By comparison, the Atlantic City market has one gaming position for
every 703 adults. The Company believes that it is well positioned to capitalize
on the lower density of gaming positions in its market area relative to
population. The relative proximity of large population centers to Gary, Indiana,
compares favorably to the population centers around Atlantic City. For example,
downtown Chicago is only 23 miles from the Majestic Star Casino while
Philadelphia and New York City are approximately 60 and 120 miles, respectively,
from Atlantic City.
The Company believes that revenues reported by the riverboat casinos
currently operating in northern Illinois indicate that the Chicago area gaming
market is underserved. Revenues for 1995 indicate that the four gaming companies
operating seven riverboat casinos in the Chicago area generated an average win
per slot per day of $364 and an average win per table per day of $3,050, which
surpass the Atlantic City market's performance of average win per slot per day
by over 50% and average win per table per day by over 25% for the same period.
The Company was formed in December 1993 for the purpose of developing,
owning and operating the Majestic Star Casino. See "Business -- Don H. Barden --
Development and Business Experience" and "Business -- Background." The principal
executive offices of the Company are located at One Buffington Drive, Gary,
Indiana, 46406-3000, and its telephone number is 219-977-7777.
THE EXCHANGE OFFER
THE SENIOR EXCHANGE NOTES..... The forms and terms of the Senior Exchange
Notes are substantially identical in all
material respects to the terms of the Senior
Notes for which they may be exchanged pursuant
to the Exchange Offer, except for certain
transfer restrictions and registration rights
relating to the Senior Notes and except for
certain liquidated damages provisions relating
to the Senior Notes described below under "--
Terms of Senior Exchange Notes."
THE EXCHANGE OFFER............ The Company is offering to exchange up to
$105,000,000 aggregate principal amount of
12 3/4% Senior Exchange Secured Notes due 2003,
with Contingent Interest (the "Senior Exchange
Notes") for up to $105,000,000 aggregate
principal amount of its outstanding 12 3/4%
Senior Secured Notes due 2003, with Contingent
Interest (the "Senior Notes"). Senior Notes may
be exchanged only in integral multiples of
$1,000.
EXPIRATION DATE; WITHDRAWAL OF
TENDER........................ The Exchange Offer will expire at 5:00 p.m.,
New York City time, on ,
1996 or such later date and time to which it is
extended by the Company. The tender of Senior
Notes pursuant to the Exchange Offer may be
withdrawn at any time prior to the Expiration
Date. Any Senior 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.
5
<PAGE> 7
CERTAIN CONDITIONS TO THE
EXCHANGE OFFER................ The Exchange Offer is subject to certain
customary conditions, including, the
institution 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
SENIOR NOTES.................. Each holder of Senior 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 Senior
Notes and any other required documentation to
the Exchange Agent (as defined) 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
Senior Exchange 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 Senior Exchange Notes and (iii) it is not
an "affiliate," as defined in Rule 405 of the
Securities Act, of the Company.
INTEREST ON THE SENIOR
EXCHANGE NOTES................ 12 3/4% per annum, payable semi-annually in
arrears.
Contingent Interest is payable on the Senior
Exchange Notes, on each interest payment date,
in an aggregate amount equal to 5.0% of the
Company's Consolidated Cash Flow for the
six-month period (a "Semiannual Period") most
recently completed prior to such interest
payment date, up to a limit of $60.0 million of
the Company's Consolidated Cash Flow during any
two consecutive Semiannual Periods; provided
that no Contingent Interest shall be payable
with respect to any period prior to June 7,
1996, the first day the Majestic Star Casino
commenced operations. 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 four
consecutive fiscal quarters last completed
prior to such interest payment date to be less
than 2.0 to 1 on a pro forma basis after giving
effect to the assumed payment of such
Contingent Interest and (ii) the principal
amount of the Senior Exchange Notes
corresponding to such Contingent Interest has
not then matured and become due and payable (at
stated maturity, upon acceleration, 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 Senior Exchange
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 Senior Notes -- Principal, Maturity and
Interest."
6
<PAGE> 8
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS............. Any beneficial owner whose Senior Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and who wishes to tender such Senior Notes in
the Exchange Offer should contact such
registered holder promptly and instruct such
registered holder to tender on such beneficial
owner's behalf. If such beneficial owner wishes
to tender on such owner's own behalf, such
owner must, prior to completing and executing
the Letter of Transmittal and delivering his
Senior Notes, either make appropriate
arrangements to register ownership of the
Senior 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 Notes who wish to tender their
Senior Notes and whose Senior Notes are not
immediately available or who cannot deliver
their Senior 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 Senior
Notes according to the guaranteed delivery
procedures set forth in "The Exchange Offer --
Guaranteed Delivery Procedures."
REGISTRATION OBLIGATIONS...... The Company has agreed to use its best efforts
to consummate by , 1996 the
registered Exchange Offer pursuant to which
holders of the Senior Notes will be offered an
opportunity to exchange their Senior Notes for
the Senior Exchange Notes which will be issued
without legends restricting the transfer
thereof. In the event that applicable
interpretations of the staff of the Commission
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 Senior 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 after following the
date of original issuance of the Senior Notes
and such time as all the Senior Exchange 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
Senior Exchange Notes for the Senior Notes, see
"Material Federal Income Tax Considerations."
USE OF PROCEEDS............... There will no proceeds to the Company from the
exchange of Notes pursuant to the Exchange
Offer.
EXCHANGE AGENT................ IBJ Schroder Bank & Trust Company is the
Exchange Agent. The address and telephone
number of the Exchange Agent are set forth in
"The Exchange Offer -- Exchange Agent."
7
<PAGE> 9
TERMS OF SENIOR EXCHANGE NOTES
The Exchange Offer applies to up to $105.0 million aggregate principal
amount of the Company's Senior Notes. The Senior Exchange Notes will be
obligations of the Company evidencing the same debt as the Senior Notes and will
be entitled to the benefits of the same Indenture. To the extent that any Senior
Notes remain outstanding after the Exchange Offer, the Senior Notes will rank
pari passu in right of payment with the Senior Exchange Notes. See "Description
of Senior Notes." The form and terms of the Senior Exchange Notes are the same
as the form and terms of the Senior Notes in all material respects except that
the Senior Exchange Notes have been registered under the Securities Act and
hence do not include certain rights to registration thereunder and do not
contain transfer restrictions or terms with respect to liquidated damages
applicable to the Senior Notes. See "Description of Senior Notes."
SECURITIES OFFERED............ $105,000,000 in aggregate principal amount of
Senior Exchange Secured Notes (the "Senior
Exchange Notes").
MATURITY...................... May 15, 2003.
INTEREST PAYMENT DATES........ May 15 and November 15, commencing November 15,
1996.
FIXED INTEREST................ 12 3/4% per annum, payable semi-annually in
arrears.
CONTINGENT INTEREST........... Contingent Interest is payable on the Senior
Exchange Notes, on each interest payment date,
in an aggregate amount equal to 5.0% of the
Company's Consolidated Cash Flow for the
Semiannual Period most recently completed prior
to such interest payment date, up to a limit of
$60.0 million of the Company's Consolidated
Cash Flow during any two consecutive Semiannual
Periods; provided that no Contingent Interest
shall be payable with respect to any period
prior to June 7, 1996, the first day the
Majestic Star Casino commenced operations.
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
four consecutive fiscal quarters last completed
prior to such interest payment date to be less
than 2.0 to 1 on a pro forma basis after giving
effect to the assumed payment of such
Contingent Interest and (ii) the principal
amount of the Senior Exchange Notes
corresponding to such Contingent Interest has
not then matured and become due and payable (at
stated maturity, upon acceleration, 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 Senior Exchange
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 Senior Notes -- Principal, Maturity and
Interest."
MANDATORY REDEMPTION.......... None.
OPTIONAL REDEMPTION........... The Senior Exchange Notes will not be
redeemable at the option of the Company prior
to May 15, 2000, except (i) as otherwise
required by a Gaming Regulatory Authority or
(ii) as otherwise permitted out of funds then
remaining in the Interest Reserve Account after
May 15, 1997 and prior to May 15, 1998. See
"Description of Senior Notes -- Optional
Redemption." On and
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after May 15, 2000, the Senior Exchange Notes
will be redeemable, in whole or in part, at the
option of the Company, at the redemption prices
set forth herein, together with accrued and
unpaid interest, if any, through the redemption
date.
SECURITY...................... The Senior Exchange Notes will be secured by,
among other things, (i) a pledge of the
Company's 50% membership interest in the BHR
Joint Venture, (ii) a pledge of the 85% direct
membership interest in the Company of Barden
Development, Inc. ("BDI" or the "Manager"), the
principal member and the manager of the
Company, (iii) a collateral assignment of the
Company's interest in the Berthing Agreement,
(iv) a pledge of all funds in the Cash
Collateral Accounts into which the proceeds
from the Senior Note Offering were placed
pending their use, (v) a first lien on certain
other assets now owned or hereafter acquired by
the Company after the issuance of Senior
Exchange Notes contemplated hereby, including,
but not limited to, a first preferred ship
mortgage upon completion of construction of the
Permanent Vessel and (vi) a collateral
assignment of the Company's rights to the
service mark "Majestic Star Casino." See
"Description of Senior Notes -- Security."
Certain limitations on the enforcement of
remedies may make less effective the rights of
the holders of the Senior Notes in the event of
a default thereunder. See "Risk Factors --
Ability to Realize on Note Collateral."
RANKING....................... The Senior Exchange Notes will be senior
obligations of the Company and will rank pari
passu in right of payment with all other senior
indebtedness of the Company and senior in right
of payment to all subordinated indebtedness of
the Company. See "Description of Senior Notes
-- Ranking and Security."
CHANGE OF CONTROL............. Upon a Change of Control, subject to certain
limitations, the Company shall be required to
offer to repurchase the Senior Exchange Notes
owned by each holder at 101% of the principal
amount thereof plus accrued and unpaid
interest, if any, to the date of repurchase.
There can be no assurance that the Company will
have sufficient funds available at the time of
the occurrence of a Change of Control to make
any required repurchase. As of the date hereof,
the Company had no other indebtedness which
contain similar change of control provisions or
any cross-default provisions which would
trigger a Change of Control Offer. In the event
that any Senior Notes remain outstanding after
the Exchange Offer, such Senior Notes contain
identical Change of Control provisions. See
"Description of Senior Notes -- Repurchase at
the Option of Holders -- Change of Control."
OTHER OFFERS TO PURCHASE...... Under certain circumstances, the Company may be
required to make an offer to purchase
outstanding Senior Exchange Notes following
certain asset sales. In addition, the Company
may be required to purchase outstanding Senior
Exchange Notes following certain events of
loss, failure to complete construction of the
Gaming Complex by December 31, 1996 or upon the
failure of the Company to take delivery of the
Permanent Vessel by June 30, 1998. There can be
no assurance that the Company will have
sufficient funds available at the time of the
occurrence of any of these circumstances to
make any required repurchase. See
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"Description of Senior Notes -- Repurchase at
the Option of Holders."
COVENANTS..................... The Indenture contains restrictions on, among
other things, the making of certain
distributions and payments, the incurrence of
liens, incurrence of additional Indebtedness
and the issuance of Disqualified Capital Stock,
asset sales, the leasing and dedication of
property, the taking of certain actions in the
Company's capacity as a member of the BHR Joint
Venture, transactions with affiliates, mergers
and consolidation or the transfer of all or
substantially all of the Company's assets and
business activities. See "Description of Senior
Notes -- Certain Covenants."
CASH COLLATERAL AND
DISBURSEMENT AGREEMENT........ The net proceeds from the Senior Note Offering
were placed by the Company into the Cash
Collateral Accounts. Pending disbursement of
the funds, pursuant to the terms of the Cash
Collateral and Disbursement Agreement, the
funds in the Cash Collateral Accounts will be
invested in Cash Equivalents. NBD Bank will
serve as Disbursement Agent under the Cash
Collateral and Disbursement Agreement. See
"Description of Senior Notes -- Cash Collateral
and Disbursement Agreement."
COMPLETION RESERVE ACCOUNT.... $10.8 million of the net proceeds from the
Senior Note Offering, placed by the Company in
the Cash Collateral Accounts, was placed in a
Completion Reserve Account. The Disbursement
Agent will authorize the disbursement of funds
from the Completion Reserve Account only upon
the satisfaction of the disbursement conditions
set forth in the Cash Collateral and
Disbursement Agreement. Such conditions include
that $5.0 million of the funds in such account
will be released to BDI as partial repayment of
the Note to Principal Member if (i) the
Majestic Star Casino has been Operating for 90
days, (ii) the Company's Fixed Charge Coverage
Ratio as calculated on the last day of such
90-day period or on the last day of any fiscal
quarter thereafter is greater than 2.5 to 1,
provided that Cash Equivalents (other than Cash
Equivalents then remaining in the Cash
Collateral Accounts) available to the Company
on any such date of calculation exceed $5.0
million, (iii) guaranteed maximum price
construction contracts to construct and deliver
the Permanent Vessel to the Company in Gary,
Indiana by September 30, 1997 have been entered
into, and (iv) no Event of Default exists or is
continuing under the Indenture at any such date
of calculation. Any funds in the Completion
Reserve Account shall be released to BDI upon
Delivery of the Permanent Vessel.
INTEREST RESERVE ACCOUNT...... Of the net proceeds from the Senior Note
Offering, placed by the Company in the Cash
Collateral Accounts, $12.9 million was placed
in the Interest Reserve Account. Funds from the
Interest Reserve Account will be disbursed by
the Disbursement Agent, if necessary, to fund
the first two scheduled payments of Fixed
Interest with respect to the Senior Exchange
Notes. See "Description of Senior Notes -- Cash
Collateral and Disbursement Agreement."
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<PAGE> 12
USE OF PROCEEDS............... The Company will not receive any proceeds from
the Exchange Offer. See "Use of Proceeds."
REGISTRATION RIGHTS AGREEMENT
AND EXCHANGE OFFER............ Holders of Senior Exchange Notes are not
entitled to any exchange rights with respect to
the Senior Exchange Notes. Holders of Senior
Notes are entitled to certain exchange rights
under the terms of the Registration Rights
Agreement. Pursuant to the Registration Rights
Agreement, the Company agreed to file with the
Commission (and use its reasonable best efforts
to cause to become effective) a registration
statement with respect to an issue of senior
secured notes of the Company registered under
the Securities Act that are substantially
identical in all material respects to the
Senior Notes and, upon becoming effective, to
offer the holders of the Senior Notes the
opportunity to exchange their Senior Notes for
a like principal amount of Senior Exchange
Notes. This Exchange Offer is intended to
satisfy such obligation. Once the Exchange
Offer is consummated, the Company will have no
further obligations to register any of the
Senior Notes, not tendered, except pursuant to
a shelf registration statement to be filed
under certain limited circumstances. Such a
shelf registration statement, if filed, will
cover resales of the Senior Notes and the
Company will 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 after following the date
of original issuance of the Senior Notes and
such time as all the Senior Exchange Notes have
been sold thereunder or are otherwise no longer
restricted securities. See "Senior Notes --
Registration Rights."
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<PAGE> 13
RISK FACTORS
An investment in the Senior Exchange Notes involves a high degree of risk.
Prior to making an investment in the securities, prospective investors should
carefully consider the following risk factors, in addition to the other
information set forth elsewhere in this Prospectus.
RISK OF NEW VENTURE
The Company is a start-up development company formed in December 1993. The
Company commenced operations in June 1996 and has a limited history of
operations. Prior to the Majestic Star Casino, the Company has never been
involved in developing, constructing or operating a riverboat casino project.
The Company's management has only limited experience developing and operating a
project of the anticipated size and complexity of the Gaming Complex.
The operation of the Majestic Star Casino by the Company is contingent upon
the hiring and training of sufficient personnel and the maintenance of all
regulatory licenses, permits, allocations and authorizations, including without
limitation, the necessary riverboat gaming license. The failure by the Company
or the BHR Joint Venture to maintain such approvals could result in the closing
of the Majestic Star Casino. In addition, if the Company is unable to generate
sufficient cash flow, it could be required to adopt one or more alternatives to
fund its operations, such as obtaining additional financing (to the extent
permitted by the Indenture), reducing or delaying planned capital expenditures,
restructuring debt or obtaining additional equity capital. There can be no
assurance that any of these alternatives could be effected on satisfactory terms
or on a timely basis. Further, any resort to alternative sources of funds could
impair the Company's financial position and reduce its future cash flow.
The Company's operations are subject to significant business, economic,
regulatory and competitive uncertainties and contingencies, many of which are
beyond the control of the Company. No assurances can be given that the Company
will be able to pay the principal of and interest on the Senior Exchange Notes.
RISKS OF NEW CONSTRUCTION
Construction projects, like the Gaming Complex, entail significant risks,
including shortages of materials or labor, unforeseen engineering, environmental
and/or geological problems and work stoppages. Inability to procure construction
equipment, staffing problems or difficulties in obtaining any of the requisite
licenses, permits, allocations and authorizations from regulatory authorities
could increase the total cost of the project or could delay or prevent the
construction or opening of the remaining part of the Gaming Complex or otherwise
affect the design and features of the Gaming Complex. Although most of the
construction contracts relating to the Gaming Complex are at fixed prices, such
contracts are subject to cost increases as a result of changes in the scope of
work. If the construction cost to the BHR Joint Venture exceeds current
projections, the Company and the Joint Venture Partner will be required to make
additional contributions to the BHR Joint Venture. There can be no assurance
that either the Company or the Joint Venture Partner will be able to satisfy any
requirements for additional contributions.
The anticipated costs for the Majestic Star Casino are based on budgets,
concept design documents and schedule estimates prepared by the Company with the
assistance of the contractors described herein. See "Business -- Design and
Construction." There is no assurance that construction costs for the Gaming
Complex will not exceed budgeted amounts. Failure to complete the Gaming Complex
on schedule or within the budget may have a material adverse effect on the
results of operations and financial condition of the Company.
The BHR Joint Venture is currently negotiating the terms of several
agreements with certain railroad companies which have rights-of-way on or
adjacent to the Buffington Harbor Facility. These agreements will provide for
the relocation of certain railroad spurs and the clarification of the BHR Joint
Venture's rights-of-way across certain property owned by one such railroad. In
the event that the BHR Joint Venture is unable to finalize such agreements, the
BHR Joint Venture's alternatives for configuration and construction of a new
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<PAGE> 14
harbor to replace the existing harbor may be limited, which could have a
material adverse effect on the Company.
HIGH LEVERAGE; ABILITY TO SERVICE DEBT
Upon completion of this Exchange Offer, the Company will continue to have
substantial indebtedness, consisting of $105.0 million of Senior Exchange Notes
offered hereby and approximately $6.0 million of equipment financing. In
addition, under the terms of the Indenture, the Company may, subject to certain
limitations, incur additional Indebtedness (as defined herein) for working
capital and other purposes. This high level of indebtedness poses a substantial
risk to the holders of the Senior Exchange Notes, including the risk that the
Company might not generate sufficient cash flow to service debt and the risk
that the Company would have limited financial capacity to respond to market
conditions, extraordinary or unanticipated capital needs, shortfalls in
projected cash flow from operations or other changes. The Company's ability to
meet its debt service requirements will be entirely dependent upon the future
performance of the Majestic Star Casino, which is subject to financial,
economic, political, competitive, regulatory and other factors, many of which
are beyond the Company's control. These uncertainties are compounded by the fact
that the Majestic Star Casino has only recently commenced operations and has
only limited operating results to report. While the Company expects that its
operating cash flow will be sufficient to cover its expenses, including interest
costs, the Company can make no assurances with respect thereto.
RISK IN REFINANCING AND REPAYMENT OF INDEBTEDNESS; NEED FOR ADDITIONAL FINANCING
The ability of the Company to repay the Senior Exchange Notes when due will
depend upon the ability of the Company to generate cash from operations
sufficient for such purpose or to refinance such indebtedness on or before the
date on which it becomes due. Management currently anticipates being able to
generate sufficient cash flow from operations to repay the Senior Exchange Notes
when due. However, there is no assurance that such cash flow will be generated
and, accordingly, the repayment of the Senior Exchange Notes could depend
primarily upon the ability to refinance the Senior Exchange Notes when due. The
future operating performance and the ability to refinance the Senior Exchange
Notes will be subject to the then prevailing economic conditions, industry
conditions and numerous other financial, business and other factors, many of
which are beyond the control of the Company. There can be no assurance that the
future operating performance of the Company will be sufficient to meet these
repayment obligations or that the general state of the economy, the state of the
capital markets generally or the receptiveness of the capital markets to the
gaming industry and to the Company will be conducive to refinancing the Senior
Exchange Notes. In the event that the Company is unable to refinance the Senior
Exchange Notes when due, the Company would be materially and adversely affected.
The Company has obtained an aggregate of approximately $6.3 million of
equipment financing in connection with the acquisition of slot machines and
related equipment for the Majestic Star Casino. Based on competitive pressures
and market conditions, the Company or the BHR Joint Venture may determine that
additional entertainment and other facilities are necessary, which may require
the incurrence of additional financing. The failure of the Company to obtain all
or a significant portion of such additional financing could have a material
adverse effect on the Company.
RISK ASSOCIATED WITH CONSTRUCTION OF THE PERMANENT VESSEL; PREFERRED MARITIME
LIENS
The anticipated cost of constructing a Permanent Vessel is based on
estimates prepared by the Company. The Company has not entered into any
agreement to construct the Permanent Vessel other than an agreement for
preliminary design work. There can be no assurance that the Company will be able
to construct a Permanent Vessel by the second half of 1997. The Indenture
requires the Company to take delivery of the Permanent Vessel by June 30, 1998.
If the anticipated cost of the Permanent Vessel exceeds funds available to the
Company, construction of the Permanent Vessel would not be feasible without
additional financing. In addition, the transition of the Company's operations
from the Chartered Vessel to the Permanent Vessel could disrupt or temporarily
shut-down the Company's operations and during such disruption or shut-down the
Company would lose revenue.
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<PAGE> 15
Under the provisions of Title 46 of the U.S. Code, the design and
construction of a Permanent Vessel are subject to regulation and approval by the
Coast Guard. As a condition to issuing such approval, the Coast Guard could
require, among other things, changes in the design and construction of the
Permanent Vessel which could materially increase the cost of construction and/or
materially delay the completion of construction. Furthermore, maritime
construction is susceptible to adverse weather and water conditions and water
traffic which could delay testing or delivery of the Permanent Vessel in
addition to ordinary construction risks, such as work stoppages, labor and
material shortages, and unanticipated cost increases, which could have a
material adverse effect on the Company to complete construction on schedule or
within the projected cost. Failure to construct a Permanent Vessel within budget
or on schedule could have a material adverse effect on the Company. See "Risk of
New Construction."
A first preferred ship mortgage will be filed upon completion of
construction of the Permanent Vessel on behalf of the Trustee for the ratable
benefit of the holders of the Senior Exchange Notes. Certain maritime liens are
defined by federal statute to constitute "preferred maritime liens." In the
event of foreclosure of the first preferred ship mortgage relating to the
Permanent Vessel, preferred maritime liens would have priority over the lien of
the first preferred ship mortgage. Under federal law, a tort claim against a
vessel or the furnishing of services or materials to a vessel generally gives
rise to a maritime lien against the vessel. Except for preferred ship mortgages,
there is no requirement that maritime liens be recorded. Maritime liens may be
enforced by the commencement of an action in a United States District Court
which could result in the seizure of the vessel and, if the lien is not bonded
or otherwise disposed of, sale of the vessel.
ABILITY TO REALIZE ON NOTE COLLATERAL
The Senior Exchange Notes will be secured by, among other things, (i) a
pledge of the Company's 50% membership interest in the Joint Venture, (ii) a
pledge of BDI's 85% direct membership interest in the Company; (iii) a
collateral assignment of the Company's interest in the Berthing Agreement and
(iv) a pledge of all funds in the Cash Collateral Accounts into which the
proceeds from the Senior Note Offering were deposited pending their use. The
Senior Exchange Notes will not be secured by the Company's riverboat gaming
license nor any assets of the BHR Joint Venture, including any real property or
leasehold interests in the Gaming Complex. In addition, the Senior Exchange
Notes will not be secured by a first preferred ship mortgage on the Chartered
Vessel. If an event of default occurs with respect to the Senior Exchange Notes,
whether prior to or after completion of construction, there can be no assurance
that the liquidation of the collateral securing the Senior Exchange Notes would
produce proceeds in an amount sufficient to pay the principal of or accrued and
unpaid interest, if any, on the Senior Exchange Notes.
In the event of an event of default by the Company under the Indenture,
before the Trustee or the holders of the Senior Exchange Notes can foreclose or
take possession of certain of the pledged assets, the Trustee or such holders
may have to file applications with the IGC and be investigated and licensed by
the IGC. This process could substantially delay or impair the ability of the
Trustee or any holder of the Senior Exchange Notes to foreclose on the note
collateral. Moreover, no assurance can be given that either the Trustee or any
holder of the Senior Exchange Notes will be found suitable by the IGC.
Additionally, the Trustee and the holders of the Senior Exchange Notes may be
prohibited from taking possession of that portion of the collateral that
constitutes gaming equipment and machinery by applicable state and federal law.
Upon an event of default by the Company under the Indenture, before the Trustee
or holders of the Senior Exchange Notes can take possession of or sell any
collateral constituting security for the Senior Exchange Notes, the Trustee or
such holders, in addition to complying with applicable state gaming laws, will
have to comply with all applicable state judicial or non-judicial foreclosure
and sale laws. Such laws may include cure provisions, mandatory sale notice
provisions, manner of sale provisions and redemption period provisions. Such
provisions may significantly increase the time associated with taking possession
or the sale of any collateral. Failure to comply with any applicable provision
could void the foreclosure on or sale of such collateral. In addition, licensing
requirements may limit the number of potential bidders in a foreclosure sale,
may delay the sale and may adversely affect the sale price of the Company's
assets.
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<PAGE> 16
JOINT VENTURE WITH TRUMP INDIANA, INC.
The Company formed the BHR Joint Venture with the Joint Venture Partner to
jointly develop and operate the common areas of the Gaming Complex. See
"Material Agreements -- Joint Venture Agreement." Completion of the Gaming
Complex is dependent on the ability of the BHR Joint Venture and its members to
obtain their requisite licenses and approvals and to fund their respective
financial obligations under the Joint Venture Agreement. If the Joint Venture
Partner is unable to satisfy its joint venture obligations, the Company may be
required to satisfy such obligations, alter its current plans for the Majestic
Star Casino or risk failure of the BHR Joint Venture, each of which could
adversely affect the Company.
The operations of the BHR Joint Venture and the Company is dependent upon
the financial condition of the Joint Venture Partner. The bankruptcy or
insolvency of the Joint Venture Partner or any default by the Joint Venture
Partner on its indebtedness could result in disruption of the operations of the
BHR Joint Venture or the Company or otherwise could have a material adverse
effect on the BHR Joint Venture or the Company.
The operations of the BHR Joint Venture also depend on the ability of the
Company and the Joint Venture Partner to reach agreement on and to fund the
day-to-day operations of the Gaming Complex on a continuing basis. Although the
Joint Venture Agreement provides for arbitration to resolve certain disputes
arising thereunder, there is no assurance that such mechanism will apply to all
material disputes, will be administered in a timely manner or in a manner that
is beneficial to the Company. Further, the interest of the Joint Venture Partner
could, in certain circumstances, conflict with the interest of the Company. See
"Material Agreements -- Joint Venture Agreement."
LOSS OF THE MAJESTIC STAR CASINO
The Company's revenues will be generated solely by gaming operations
conducted at the Majestic Star Casino. The Chartered Vessel (or, upon
construction, the Permanent Vessel) could be lost from service for a variety of
reasons, including casualty, forces of nature, mechanical failure or extended or
extraordinary maintenance or inspection. In addition, Coast Guard regulations
will require a hull inspection for the vessel at five-year intervals. To comply
with this inspection requirement, the vessel must be taken to a Coast Guard
approved dry docking facility. The loss of the vessel from service or the
inability to use a dockside facility could have a material adverse effect on the
Company's financial results.
RISK ASSOCIATED WITH HARBOR LEASE
The BHR Joint Venture is leasing the harbor and certain other property on
which the Buffington Harbor Facility is located from Lehigh Portland Cement
Company ("Lehigh Cement") pursuant to a Harbor Lease Agreement dated as of June
29, 1995 (the "Harbor Lease"). The initial term of the Harbor Lease expires on
December 29, 1997. During such initial term, the Harbor Lease requires the BHR
Joint Venture to attempt to obtain permits for construction of, and to
construct, a new harbor to replace the existing harbor. The lease term will be
extended if the BHR Joint Venture successfully obtains the permits to build the
new harbor or if the BHR Joint Venture, upon a requisite showing of due
diligence (as determined by Lehigh Cement), has failed to obtain the permits. If
the BHR Joint Venture does not procure the permits, as a result of failing to
use due diligence in seeking the same, Lehigh Cement is not obligated to extend
the term of the Harbor Lease and the Majestic Star Casino would not have a
harbor from which to conduct its business after December 29, 1997. There is no
assurance that the BHR Joint Venture will be able to satisfy the conditions to
its right to extend the Harbor Lease, and if the term of the Harbor Lease is
extended, Lehigh is not obligated to extend the lease beyond the year 2005.
Furthermore, even if the BHR Joint Venture is able to extend the Harbor Lease
and procure the required permits, the possibility exists that the costs
associated with the construction of the new harbor improvements would be more
than the Joint Venture Partner or the Company would be able to pay. See
"Material Agreements -- Harbor Lease Agreement."
At such time as the BHR Joint Venture must construct the new harbor, the
BHR Joint Venture and/or the Company may also have to construct new land-based
facilities to support the new harbor. Furthermore, in connection with
constructing new land-based facilities, or in the event of a termination of the
Harbor Lease,
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<PAGE> 17
the BHR Joint Venture will need to remove (or possibly relocate or reconfigure)
the part of the Pavilion located on the leased property. Such construction could
entail significant risks, including shortages of materials or labor, unforeseen
engineering, environmental and/or geological problems, work stoppages, weather
interference, unanticipated cost increases and nonavailability of construction
equipment, and could disrupt the Company's operations.
RELIANCE ON SINGLE MARKET AND OPERATION
The Company does not intend to have operations other than the Majestic Star
Casino and therefore will be entirely dependent upon the Majestic Star Casino
for its revenues. Because the Company will be entirely dependent on a single
gaming site for its revenues, it will consequently be subject to greater risks
than a more 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 Company's gaming market, a downturn in the overall
economy of the Company's gaming market, changes in regulation, an increase in
competition, or other factors affecting the Company's market could have a
material adverse effect on the Company. See "Business -- The Chicago Area and
Northern Indiana Riverboat Casino Markets."
TAXATION AND REGULATION BY GAMING AND OTHER GOVERNMENTAL AUTHORITIES
The Company is subject to various governmental rules and regulations with
respect to the operation of a passenger vessel and a gaming casino, including
regulations relating to the Company's maintenance of its riverboat gaming
license. In addition, the Company's agreements require the Company to invest
significant amounts in the Gaming Complex, and in certain economic development
projects, to pay certain revenue sharing fees based on percentages of gaming
revenues to the City of Gary, Indiana, and to post a $12.5 million bond, letter
of credit or other form of guaranty (the "IGC Bond") to guarantee the Company's
performance of certain of its obligations to the City of Gary and the State of
Indiana. In May 1996, the Company was named as a defendant in a class action
lawsuit in which the plaintiffs seek, among other remedies, an injunction
against the issuance of a riverboat gaming license to the Company. On July 11,
1996, the court granted a motion filed by the defendants and the lawsuit was
dismissed with prejudice. The Company believes that the plaintiffs may have
filed an appeal of the dismissal. See "Business -- Litigation." On June 3, 1996,
the Company received a riverboat gaming license. The riverboat gaming license is
for an initial term of five years and renewable annually thereafter. See
"Regulation -- Federal Law" and "Material Agreements -- Agreement with City of
Gary, Indiana."
An admission tax of $3.00 for each person admitted to the Majestic Star
Casino will be imposed upon the gaming operation. An additional twenty percent
tax will be imposed on the "adjusted gross receipts" received from the Company's
gaming operations, which are defined under the Indiana gambling laws as the
total of all cash and property (including checks received by the licensee
whether or not collected) received, less the total of all cash paid out as
winnings to patrons and uncollected gaming receivables (not to exceed two
percent). The Company is required to remit the admission and wagering taxes
before the close of business on the day following the day on which the taxes
were incurred. Riverboat casinos in the State of Indiana are also subject to
property taxes. A significant increase in the Company's property or other tax
rates could materially adversely affect the Company. See "Regulation -- State of
Indiana."
FAILURE TO CONDUCT ACTUAL CRUISES ON LAKE MICHIGAN
The Company is subject to regulation with respect to the cruising of
vessels on Lake Michigan, and, in June 1996, the U.S. Department of Justice
informed the State of Indiana that federal law prohibited all gaming vessels
from cruising on Lake Michigan. The Company is currently conducting operations
through simulated cruises which permit entrance to the casino during
thirty-minute periods, commencing at scheduled times, and unlimited egress. The
Company is unable to determine if the failure to conduct actual cruises on Lake
Michigan will have a material adverse effect on the Company.
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RISK OF ADVERSE TAX TREATMENT
The Senior Exchange Notes provide for payment of both fixed interest and
contingent interest, which is based on a percentage of the Company's
consolidated cash flow following commencement of operations. The Senior Exchange
Notes and the Indenture have legal and other economic terms typically contained
in instruments evidencing indebtedness and are intended to create a
debtor-creditor relationship between the Company and the holders of the Senior
Exchange Notes. The Company intends to treat the Senior Exchange Notes as
indebtedness for Federal income tax purposes. Such treatment, however, is not
binding on the Internal Revenue Service (or the courts), and there can be no
assurance that the Internal Revenue Service will not assert that the Senior
Exchange Notes should be recharacterized, in whole or in part, as equity of the
Company for Federal income tax purposes. If the Internal Revenue Service were
successful in such an assertion, (i) the Company would be unable to deduct all
or a portion of the interest on the Senior Exchange Notes and (ii) the Company
would likely not be treated as a "pass-through" entity for federal income tax
purposes, with the result that it would be subject to an entity level tax the
same as if it were a C-corporation. The combination of these factors could have
a material adverse effect on the Company's after-tax cash flow. Moreover, such a
recharacterization would cause all or a portion of the interest payments on the
Senior Exchange Notes to be taxable either as dividends received from an entity
taxable as a C-corporation or as a distributable share of a partnership's
profits. In either case, such treatment could adversely affect the timing,
character and amount of income includible in a Senior Exchange Note holder's
income.
COMPETITION
The Company's operations are subject to intense competition from other
gaming operations. The Company believes it competes primarily with riverboats
and other casinos in the northern Indiana and Chicago areas and, to a lesser
extent, throughout the Great Lakes region. In addition to competing with the
Joint Venture Partner's riverboat located at the Buffington Harbor Facility, the
Company competes directly with a riverboat casino operating in Hammond, Indiana,
riverboat casinos to be opened at each of East Chicago, and Michigan City,
Indiana, and the gaming companies operating riverboat casinos in Elgin and
Aurora, Illinois and the two gaming companies operating riverboat casinos in
Joliet, Illinois, as well as any future casinos in the Chicago and northern
Indiana areas. Although the Company believes that there is sufficient demand in
its market area to support the Company's operations, there can be no assurance
to that effect. There can also be no assurance that either Indiana or Illinois
will not authorize additional gaming licenses, including additional licenses for
the Chicago metropolitan area.
In recent years, legislation has been introduced on numerous occasions to
provide for land-based casinos in Chicago and to expand riverboat gaming in
Illinois, including to authorize additional operators or to authorize existing
operators to move to new sites in the Chicago area and by otherwise to modify
existing regulations to decrease or eliminate certain restrictions, such as
limitations on the number of gaming positions. To date, no such legislation has
been enacted. The Company is unable to predict whether any such legislation, in
Illinois or elsewhere, will be enacted or whether, if passed, it would have a
material adverse impact on the Company's operations.
The Company also expects future competition from a federally recognized
Indian tribe which is negotiating with various cities in southwestern Michigan
and/or Indiana to develop land-based casinos.
Many of the Company's competitors, including its Joint Venture Partner and
the casino to be owned and operated by Showboat Marina Casino Partnership in
East Chicago, Indiana, will have larger and, prior to the completion of
construction of the Permanent Vessel, more modern casino vessels. In addition,
many of the Company's competitors will have greater gaming industry experience
and financial resources. The Company believes that its ability to successfully
compete in the riverboat gaming industry will be primarily based on the quality
and location of its gaming facilities, the effectiveness of its marketing
efforts and its overall level of customer service and satisfaction. See
"Business -- Competition."
NEW GAMING JURISDICTION
Although the Company's market includes the existing Chicago metropolitan
area, the existence of riverboat casinos located and operating in northern
Indiana is new. Accordingly, the number of customers, the
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propensity of these customers to wager, and the amount of revenues realized
cannot be predicted with any degree of certainty. There can be no assurance that
the Company will be able to operate the Majestic Star Casino in a profitable
manner.
SEASONALITY
Because of the climate in the Chicago metropolitan and northern Indiana
areas, the Company anticipates that the operations of the Majestic Star Casino
will be seasonal with stronger results expected during the period from May
through September. Accordingly, the Company's results of operations are likely
to fluctuate from quarter to quarter and the results for any fiscal quarter may
not be indicative of results for future fiscal quarters.
RELIANCE ON KEY AND EXPERIENCED PERSONNEL
The Company's ability to proceed with the project is largely dependent upon
the efforts of officers of the Manager, including Don H. Barden, Chairman and
President of the Manager, Thomas C. Bonner, Executive Vice President of the
Manager, Paul W. Sykes, Vice President of the Manager and the Company's General
Manager, Michael E. Kelly, Vice President and Chief Financial Officer of the
Manager and Thomas P. Burke, Assistant General Manager of the Company. The
Company has entered into three-year employment agreements with each of Messrs.
Bonner and Sykes and into a two-year employment agreement with Mr. Kelly. The
unavailability or loss of any of these key employees would adversely affect the
Company's operations unless appropriate replacements could be promptly found.
The Company does not maintain, and has no current intention to obtain, key-man
life insurance on any of its key personnel.
The Company and the BHR Joint Venture will be required to engage additional
management and staff in connection with operating the Majestic Star Casino and
the Gaming Complex, respectively. While the Company believes that it and the BHR
Joint Venture will be able to attract qualified personnel, a shortage of
experienced labor exists in the gaming industry which could make it difficult
and expensive to attract and retain additional qualified employees. The Company
has developed and is implementing training programs for its employees. However,
hiring and training of such personnel will be done at a time when other major
new facilities may be approaching completion and also recruiting new employees.
No assurance can be given that the necessary employees will be available to the
Company or to the BHR Joint Venture.
MARITIME AND WEATHER CONSIDERATIONS
The Majestic Star Casino operates on the Chartered Vessel or the Permanent
Vessel. These vessels will operate on Lake Michigan and require, among other
things, Coast Guard hull inspections at five year intervals. The Majestic Star
Casino will be exposed to marine hazards such as unpredictable currents, winds,
storms or other weather conditions. Gaming activities and revenues could also be
adversely affected by severe weather conditions, including high water levels,
high wave action or rough water conditions, which could make the vessel more
difficult or impossible to operate, or could result in a prolonged or total loss
of the vessel, either of which could have a material adverse effect on the
Company. Although the Company expects to maintain insurance against casualty
losses resulting from severe weather, such coverage may not adequately
compensate the Company for losses, including loss of profits, resulting from
severe weather.
Under the provisions of Title 46 of the U.S. Code, the design, construction
and operation of the Majestic Star Casino are subject to regulation and approval
by the Coast Guard. The Majestic Star Casino must obtain and maintain the
required certification in order to continue gaming operations. The Company has
received a temporary certificate of inspection from the Coast Guard which
requires modification of certain equipment and fixtures before permanent
certification is granted for the Chartered Vessel. All shipboard personnel
employed on Coast Guard regulated vessels, including those not involved with the
actual operation of the vessel, such as dealers, service and security personnel,
may be subject to certain federal regulations relating to maritime activity
which, among other things, exempts those employees from state limits on workers'
compensation awards. The Company expects that it will have adequate insurance to
cover employee claims.
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ENVIRONMENTAL RISKS
The Buffington Harbor Facility is located in an area on Lake Michigan known
as Buffington Harbor. Buffington Harbor has previously been the site of
industrial operations and activities, which prior operations or activities may
have resulted in pollution or contamination of the environment. As an owner and
operator of the Majestic Star Casino and a member of the BHR Joint Venture, the
Company could be held liable under certain legal theories for the costs of
addressing any pollution or contamination, as well as certain damages resulting
from such pollution or contamination. The results set forth in Phase I and Phase
II environmental reports regarding the Buffington Harbor Facility identified
asbestos and occasional contaminated soils, which were remedied by the Company.
However, there can be no assurance that further development of the Buffington
Harbor Facility will not identify any pollution or contamination, the
remediation of which could have a material adverse impact on the Joint Venture
and the Company. Further, neither the Company nor the BHR Joint Venture is
entitled to indemnification from any prior owners or operators of the Buffington
Harbor Facility site with respect to environmental matters.
In addition, there can be no assurance that the operation of the Chartered
Vessel or the Permanent Vessel will not result in the discharge of oil, sewage
or other materials into the waters of Lake Michigan causing the Company to
violate environmental or other laws.
CONSEQUENCES OF FAILURE TO EXCHANGE; POSSIBLE ADVERSE EFFECT ON TRADING MARKET
FOR SENIOR NOTES
Holders of Senior Notes who do not exchange their Senior Notes for Senior
Exchange Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Senior Notes as set forth in the legend thereon
as a consequence of the issuance of the Senior Notes pursuant to exemptions
from, or in transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws. In general, the Senior
Notes may not be offered or sold unless registered under the Securities Act and
applicable state laws, or pursuant to an exemption therefrom. Subject to the
obligation by the Company to file a shelf registration statement covering
resales of Senior Notes in certain limited circumstances, the Company does not
intend to register the Senior Notes under the Securities Act and, after
consummation of the Exchange Offer, will not be obligated to do so. In addition,
any holder of Senior Notes who tenders in the Exchange Offer for the purpose of
participating in a distribution of the Senior Exchange Notes may be deemed to
have received restricted securities and, if so, will be required to comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Additionally, as a result of the
Exchange Offer, it is expected that a substantial decrease in the aggregate
principal amount of Senior Notes outstanding will occur. As a result, it is
unlikely that a liquid trading market will exist for the Senior Notes at any
time. This lack of liquidity will make transactions more difficult and may
reduce the trading price of the Senior Notes. See "The Exchange Offer" and
"Senior Notes -- Registration Rights."
LIMITED PUBLIC MARKET FOR THE NOTES
The Senior Exchange Notes constitute a new issue of securities, have no
established trading market and may not be widely distributed. The Initial
Purchaser has informed the Company that it currently intends to make a market in
the Senior Exchange Notes as permitted by applicable laws and regulations;
however, the Initial Purchaser is not obligated to do so and may discontinue
market making at any time without notice. Accordingly, there can be no assurance
that a trading market for the Senior Exchange Notes will develop. If a market
does develop, the price of such securities may fluctuate and liquidity may be
limited. If a market for such securities does not develop, purchasers may be
unable to resell such securities for an extended period of time. Future trading
prices of such securities will depend upon many factors, including, among other
things, prevailing interest rates, the Company's operating results, and the
market for similar securities which is subject to various pressures, including,
but not limited to, fluctuating interest rates. In addition, the market for
"high yield" securities (of which the Senior Exchange Notes may be deemed a
part) has been characterized by certain periods of relative instability and
illiquidity, and no assurance can be given as to the status of the market for
"high yield" securities in the future. The Company does not intend to list the
Senior Exchange Notes on a national securities exchange nor to apply for trading
of the Senior Exchange Notes on the Nasdaq Stock Market.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
Pursuant to the Registration Rights Agreement, the Company agreed (i) to
file a registration statement with respect to a registered offer to exchange the
Senior Notes for the Senior Exchange Notes, which will have with terms
substantially identical in all material respects to the Senior Notes (except
that the Senior Exchange Notes will not contain terms with respect to transfer
restrictions) within 45 days after the date of original issuance of the Senior
Notes and (ii) to use reasonable best efforts to cause such registration
statement to become effective under the Securities Act at the earliest possible
time but in any event no later than 120 days after the filing with the
Commission. In the event that applicable law or interpretations of the staff of
the Commission do not permit the Company to file the registration statement
containing this Prospectus or to effect the Exchange Offer, or if certain
holders of the Senior Notes notify the Company that they are prohibited by law
or Commission policy from participating in the Exchange Offer, or subject to
certain other restrictions the Company will use its reasonable best efforts to
cause to become effective the shelf registration statement with respect to the
resale of the Senior Notes and to keep the shelf registration statement
effective until the earlier of three years following the date of original issue
and such time as all the Senior Notes have been sold thereunder or are otherwise
not restricted securities. See "Senior Notes -- Registration Rights."
Each holder of the Senior Notes who wishes to exchange such Senior Notes
for Senior Exchange Notes in the Exchange Offer will be required to make certain
representations, including representations that (i) any Exchange 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
Senior Exchange Notes, and (iii) it is not an "affiliate," as defined in Rule
405 of the Securities Act, of the Company. See "Senior Notes -- Registration
Rights."
RESALE OF SENIOR EXCHANGE NOTES
Based on interpretations by the staff of the Commission set forth in
no-action letters issued to third-parties, the Company believes that, except as
described below, Senior Exchange Notes issued pursuant to the Exchange Offer in
exchange for Senior Notes may be offered for resale, resold and otherwise
transferred by any holder thereof (other than a 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 Senior Exchange Notes are acquired in the
ordinary course of such holder's business and such holder does not intend to
participate and has no arrangement or understanding with any person to
participate in the distribution of such Senior Exchange Notes. Any holder who
tenders in the Exchange Offer with the intention or for the purpose of
participating in a distribution of the Senior Exchange Notes cannot rely on such
interpretation by the staff of the Commission and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction. Unless an exemption from
registration is otherwise available, any such resale transaction should be
covered by an effective registration statement containing the information
required by the Securities Act. This Prospectus may be used for an offer to
resell, resale or other retransfer of Senior Exchange Notes only as specifically
set forth herein. Each broker-dealer that receives Senior Exchange Notes for its
own account in exchange for Senior Notes, where such Senior 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 Senior Exchange Notes. See "Plan of Distribution."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept for exchange any and
all Senior Notes properly tendered and not withdrawn prior to 5:00 p.m., New
York City time, on the Expiration Date. The Company will issue $1,000 principal
amount of Senior Exchange Notes in exchange for each $1,000 principal amount of
outstanding Senior Notes
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surrendered pursuant to the Exchange Offer. Senior Notes may be tendered only in
integral multiples of $1,000.
The form and terms of the Senior Exchange Notes will be the substantially
identical in all material respects to as the form and terms of the Senior Notes
except the Senior Exchange Notes will be registered under the Securities Act and
hence will not bear legends restricting the transfer thereof. The Senior
Exchange Notes will evidence the same debt as the Senior Notes. The Senior
Exchange Notes will be issued under and entitled to the benefits of the
Indenture, which also authorized the issuance of the Senior Notes, such that
both series will be treated as a single class of debt securities under the
Indenture.
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Senior Notes being tendered for exchange.
As of the date of this Prospectus, $105,000,000 aggregate principal amount
of the Senior Notes are outstanding. This Prospectus, together with the Letter
of Transmittal, is being sent to all registered holders of Senior Notes. There
will be no fixed record date for determining registered holders of Senior Notes
entitled to participate in the Exchange Offer.
The Company intends to conduct the Exchange Offer in accordance with the
provisions of the Registration Rights Agreement and the applicable requirements
of the Exchange Act, and the rules and regulations of the Commission thereunder.
Senior Notes which are not tendered for exchange in the Exchange Offer will
remain outstanding and continue to accrue interest and will be entitled to the
rights and benefits such holders have under the Indenture and the Registration
Rights Agreement.
The Company shall be deemed to have accepted for exchange properly tendered
Senior Notes when, as and if, the Company shall have given written notice
thereof to the Exchange Agent and complied with the provisions of Section 6 of
the Registration Rights Agreement. The Exchange Agent will act as agent for the
tendering holders for the purpose of receiving the Senior Exchange Notes from
the Company. The Company expressly reserves the right to amend or terminate the
Exchange Offer, and not to accept for exchange any Senior Notes not theretofore
accepted for exchange, upon the occurrence of any of the conditions specified
below under "-- Certain Conditions to the Exchange Offer."
Holders who tender Senior Notes in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Senior
Notes pursuant to the Exchange Offer. The Company will pay all charges and
expense, other than certain applicable taxes described below, in connection with
the Exchange Offer. See "The Exchange Offer -- Fees and Expenses."
EXPIRATION DATE, EXTENSIONS; AMENDMENTS
The term "Expiration Date," shall mean 5:00 p.m., New York City time on
, 1996, unless the Company, in its sole discretion, extends
the Exchange Offer, in which case the term "Expiration Date" shall mean the
latest date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by written notice, prior to 9:00 a.m., New York City
time, on the next business day after the previously scheduled Expiration Date,
and will mail to the registered holders of Senior Notes an announcement thereof.
The Company reserves the right, in its sole discretion, (i) to delay
accepting for exchange any Senior Notes, to extend the Exchange Offer or to
terminate the Exchange Offer if any of the conditions set forth below under "The
Exchange Offer -- Conditions" 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 Senior 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 Senior Notes of
such amendment and the Company will extend the Exchange Offer as necessary to
provide the
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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
period.
INTEREST ON THE SENIOR EXCHANGE NOTES
Each Senior Exchange Note bears interest at the rate of 12 3/4% per annum
of the principal amount then outstanding (the "Fixed Interest") from the
Issuance Date to the date of payment of such principal amount of such Senior
Exchange Note. Installments of Fixed Interest become due and payable
semi-annually in arrears on each May 15 and November 15 of each year to the
holders of record at the close of business on the preceding May 1 or November 1.
Additionally, installments of accrued and unpaid Fixed Interest become due and
payable with respect to any principal amount of the Senior Exchange Notes that
matures (whether at stated maturity, upon acceleration, upon maturity of
repurchase obligation or otherwise) upon such maturity of such principal amount
of the Senior Exchange Notes. Fixed Interest on the Senior Exchange Notes will
be computed on the basis of a 360-day year, consisting of twelve 30-day months.
Each installment of Fixed Interest is or will be calculated to accrue from and
including the most recent date to which Fixed Interest has been paid or provided
for (or from and including the Issuance Date if no installment of Fixed Interest
has been paid) to, but not including, the date of payment.
In addition, the Senior Exchange Notes will bear Contingent Interest, from
the Commencement Date to the date of payment of the Senior Exchange Notes. See
"Description of Senior Notes -- Principal, Maturity and Interest." Installments
of accrued or deferred Contingent Interest will become due and payable semi-
annually on each May 15 and November 15 after the Commencement Date to the
holders of record at the close of business on the preceding May 1 or November 1;
provided that no Contingent Interest is payable with respect to any period prior
to the Commencement Date and that such installment of Contingent Interest is not
permitted to be deferred on such 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 Senior Exchange
Notes that matures (whether at stated maturity, upon acceleration, maturity of
repurchase obligation or otherwise) upon such maturity of such principal amount
of the Senior Exchange Notes.
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 four consecutive fiscal
quarters last completed prior to such interest payment date to be less than 2.0
to 1 on a pro forma basis after giving effect to the assumed payment of such
Contingent Interest and (b) the principal amount of the Senior Exchange Notes
corresponding to such Contingent Interest has not then matured and become due
and payable (at stated maturity, upon acceleration, upon maturity of repurchase
obligation or otherwise). See "Description of Senior Notes -- Principal,
Maturity and Interest." 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 Senior Exchange Notes (whether at stated maturity, upon
acceleration, 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 paid or provided for or through 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) the last day of the next
Semiannual Period if the corresponding principal amount of the Senior Exchange
Notes has not become due and payable or (b) the date of payment if the
corresponding principal amount of the Senior Exchange Notes has become due and
payable (whether at stated maturity, upon acceleration, upon maturity of
repurchase obligation or otherwise). With respect to each Accrual Period,
interest will accrue daily on the principal amount of each Senior Exchange 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
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Accrual Period, 1/180 of the Base 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 Base Contingent Interest with
respect to such principal amount for the Semiannual Period that began and last
ended after the Commencement Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange, or exchange any Senior Exchange Notes for,
any Senior Notes, and may terminate the Exchange Offer as provided herein before
the acceptance of any Senior Notes for exchange, if:
(a) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency with respect to the Exchange Offer
which, in the Company's reasonable judgment, might materially impair the
ability of the Company to proceed with the Exchange Offer, or
(b) any law, statute, rule or regulation is proposed, adopted or
enacted, or any existing law, statute, rule or regulation is interpreted by
the staff of the Commission, which, in the Company's reasonable judgment,
might materially impair the ability of the Company to proceed with the
Exchange Offer, or
(c) any governmental approval has not been obtained, which approval
the Company shall, in its reasonable discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
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 Senior Notes, by giving written
notice of such extension to the holders thereof. During any such extensions, all
Senior Notes previously tendered will remain subject to the Exchange Offer and
may be accepted for exchange by the Company. Any Senior 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 expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Senior Notes not theretofore accepted
for exchange, upon the occurrence of any of the conditions of the Exchange Offer
specified above under "-- Certain Conditions to the Exchange Offer." The Company
will give written notice of any extension, amendment, non-acceptance or
termination to the holders of the Senior Notes as promptly as practicable, such
notice in the case of any extension to be issued no later than 9:00 a.m., New
York City time, on the next business day after the previously scheduled
Expiration Date.
The foregoing conditions are 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 in its sole discretion. The failure by 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 Senior Notes
tendered, and no Senior Exchange Notes will be issued in exchange for any such
Senior 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 the qualification of the Indenture under the Trust Indenture Act of
1939 (the "TIA").
PROCEDURES FOR TENDERING
Only a holder of Senior Notes may tender such Senior Notes in the Exchange
Offer. To tender in the Exchange Offer, a holder must complete, sign and date
the Letter of Transmittal, or facsimile thereof, have the signature thereon
guaranteed if required by the Letter of Transmittal, and mail or otherwise
deliver such Letter of Transmittal or such facsimile to the Exchange Agent prior
to 5:00 p.m., New York City time, on the Expiration Date. In addition, either
(i) Senior Notes must be received by the Exchange Agent along with the Letter of
Transmittal, or (ii) a timely confirmation of book-entry transfer (a "Book-Entry
Confirmation") of such Senior Notes, if such procedure is available, into the
Exchange Agent's account at the Depository Trust
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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. To be tendered effectively, the Letter of
Transmittal and other required documents must be received by the Exchange Agent
at the address set forth below under "The Exchange Offer -- Exchange Agent"
prior to 5:00 p.m., New York City time, on the Expiration Date.
The tender by a holder which is not withdrawn prior to the Expiration Date
will constitute an agreement between such holder and the Company in accordance
with the terms and subject to the conditions set forth herein and in the Letter
of Transmittal.
THE METHOD OF DELIVERY OF SENIOR NOTES, THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL OR SENIOR NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY
REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR
OTHER NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Senior Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct such
registered holder of Senior Notes 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
such owner's Senior Notes, either make appropriate arrangements to register
ownership of the Senior Notes in such owner's name or obtain a properly
completed bond power from the registered holder of Senior Notes. The transfer of
registered ownership may take considerable time and may not be able to be
completed prior to the Expiration Date.
Signatures on a Letter of Transmittal or a notice of withdrawal described
below, as the case be, must be guaranteed by an Eligible Institution (as defined
below) unless the Senior Notes tendered pursuant thereto are tendered (i) by a
registered holder 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. In the event that signatures on
a Letter Transmittal or a notice of withdrawal, as the case may be, are required
to be guaranteed, such guarantor must be a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act which is a member of one of the recognized
signature guarantee programs identified in the Letter of Transmittal (an
"Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Senior Notes listed therein, such Senior Notes must be
endorsed or accompanied by a properly completed bond power, signed by such
registered holder as such registered holder's name appears on such Senior Notes
with the signature thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Senior Notes or bond powers are signed
by trustees, executors, administrators, guardians, attorney-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,
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Senior Notes and withdrawal of tendered Senior
Notes will be determined by the Company in its sole discretion, which
determination will be final and binding. The Company reserves the absolute right
to reject any and all Senior Notes not properly tendered or any Senior Notes the
Company's acceptance of which would, in the opinion of counsel for the Company,
be unlawful. The Company also reserves the right to waive any defects,
irregularities or conditions of tender as to particular Senior Notes. The
Company's interpretation
24
<PAGE> 26
of the terms and conditions of the Exchange Offer (including the instructions in
the Letter of Transmittal) will be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of Senior Notes
must be cured within such time as the Company shall determine. Although the
Company intends to notify holders of defects or irregularities with respect to
tenders of Senior Notes, neither the Company, the Exchange Agent nor any other
person shall incur any liability for failure to give such notification. Tenders
of Senior Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Senior Notes received by the
Exchange Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering holders, unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date.
In all cases, issuance of Senior Exchange Notes for Senior Notes that are
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of Notes or a timely Book-Entry
Confirmation of such Senior Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility, properly completed and duly executed Letter of
Transmittal and all other required documents. If any tendered Senior Notes are
not accepted for exchange for any reason set forth in the terms and conditions
of the Exchange Offer or if Senior Notes are submitted for a greater principal
amount than the holder desires to exchange, such unaccepted or non-exchanged
Senior Notes will be returned without expense to the tendering holder thereof
(or, in the case of Senior 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 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.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Senior 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 system may make book-entry delivery of Senior Notes by causing the
Book-Entry Transfer Facility in accordance with such Book-Entry Transfer
Facility's procedures for transfer. However, although delivery of Notes may be
effected through book-entry 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 the address set forth below under "The Exchange
Offer -- Exchange Agent" on or prior to the Expiration Date or, if the
guaranteed delivery procedures described below are to be complied with, within
the time period provided under such procedures. Delivery of documents to the
Book-Entry Transfer Facility does not constitute delivery to the Exchange Agent.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Senior Notes and (i) whose Senior Notes
are not immediately available or (ii) who cannot deliver their Senior Notes, the
Letter of Transmittal or any other required documents to the Exchange Agent
prior to the Expiration Date, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent received from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder, the registered number(s)
of such Senior Notes and the principal amount of Senior Notes tendered,
stating that the tender is being made thereby and guaranteeing that, within
three (3) New York Stock Exchange trading days after the Expiration Date,
the Letter of Transmittal (or facsimile thereof) together with the Senior
Notes 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
(c) Such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as all tendered Notes in proper form for
transfer or a Book-Entry Confirmation, as the case may be, and all
25
<PAGE> 27
other documents required by the Letter of Transmittal, are received by the
Exchange Agent within three (3) New York Stock Exchange trading days after
the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Senior Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Senior Notes may be drawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at one of the addresses set forth below under
"Exchange Agent." Any such notice of withdrawal must specify the name of the
person having tendered the Senior Notes to be withdrawn, identify the Senior
Notes to be withdrawn (including the principal amount of such Senior Notes), and
(where certificates for Senior Notes have been transmitted) specify the name in
which such Senior Notes were registered, if different from that of the
withdrawing holder. If certificates for Senior 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 Senior 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 Senior 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
Senior Notes so withdrawn will be deemed not to have been validly tendered for
exchange for purposes of the Exchange Offer. Any Senior 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
Senior 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 above, such Senior Notes will be credited to an account
maintained with such Book-Entry Transfer Facility for the Senior Notes) as soon
as practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Senior Notes may be retendered by following
one of the procedures described under "-- Procedures for Tendering Senior Notes"
above at any time on or prior to the Expiration Date.
EXCHANGE AGENT
IBJ Schroder Bank & Trust Company has been appointed as Exchange Agent of
the Exchange Offer. Questions and requests for assistance, request for
additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notice of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
<TABLE>
<CAPTION>
By Overnight Courier or Hand Delivery: By Mail:
- ---------------------------------------------------- -------------------------------------------
<S> <C>
IBJ Schroder Bank & Trust Company IBJ Schroder Bank & Trust Company
One State Street P.O. Box 84
New York, New York 10004 Bowling Green Station
Attention: Securities Processing Window Subcellar New York, New York 10274-0084
One Attention: Reorganization Operations Dept.
By Facsimile:
IBJ Schroder Bank & Trust Company
Attention: Reorganization Operations Dept.
(212) 858-2611
(For Eligible Institutions Only)
</TABLE>
26
<PAGE> 28
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 telephone, 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 broker-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 approximately
$99,000. Such expenses include registration fees, fees and expenses of the
Exchange Agent and Trustee, accounting and legal fees and printing costs, and
related fees and expenses.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Notes pursuant to the Exchange Offer. If, however, certificates representing
Senior Notes for principal amounts not tendered or accepted for exchange are to
be delivered to, or are to be issued in the name of, any person other than the
registered holder of Notes tendered, or if tendered Notes are registered in the
name of any person other than the person signing the Letter of Transmittal, or
if a transfer tax is imposed for any reason other than the exchange of Notes
pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered holder or any other persons) will be payable
by the tendering holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted with the Letter of Transmittal, the amount
of such transfer taxes will be billed directly to such tendering holder.
TRANSFER TAXES
Holders who tender their Senior Notes for exchange will not be obligated to
pay any transfer taxes in connection therewith, except that holders who instruct
the Company to register Senior Exchange Notes in the name of, or request that
Senior Notes not tendered or not accepted in the Exchange Offer be returned to,
a person other than the registered tendering holder will be responsible for the
payment of any applicable transfer tax thereon.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Senior Notes who do not exchange their Senior Notes for Senior
Exchange Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Senior Notes, as set forth in the legend
thereon as a consequence of the issuance of the Senior Notes pursuant to the
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the Senior Notes may not be offered or sold, unless registered under
the Securities Act, except pursuant to an exemption from, or in a transaction
not subject to, the Securities Act and applicable state securities laws. The
Company does not currently anticipate that it will register the Senior Notes
under the Securities Act. Based on interpretations by the staff of the
Commission, Senior Exchange Notes issued pursuant to the Exchange Offer may be
offered for resale, resold or otherwise transferred by holders thereof (other
than 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
Senior Exchange Notes are acquired in the ordinary course of such holders'
business and such holders have no arrangement or understanding with respect to
the distribution of the Senior Exchange Notes to be acquired pursuant to the
Exchange Offer. Any holder who tenders in the Exchange Offer for the purpose of
participating in a distribution of the Senior Exchange Notes (i) could not rely
on the applicable interpretations of the staff of the Commission and (ii) must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction. In addition,
to comply with the securities laws of certain jurisdictions, if applicable, the
Senior Exchange Notes may not be offered or sold unless they have been
registered or complied with. The Company has agreed, pursuant to the
Registration Rights Agreement and subject to certain specified limitations
therein, to register or qualify the Senior Exchange Notes for offer or sale
under the securities or blue sky laws of such jurisdictions as are necessary to
consummate the Exchange Offer.
27
<PAGE> 29
USE OF PROCEEDS
USE OF PROCEEDS OF SENIOR EXCHANGE NOTES
This 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 Senior Exchange Notes offered hereby. In
consideration for issuing the Senior Exchange Notes as contemplated in this
Prospectus, the Company will receive, in exchange, Senior Notes in like
principal amount. The form and terms of the Senior Exchange Notes are
substantially identical in all material respects to the form and terms of the
Senior Notes, except as otherwise described herein under "The Exchange Offer --
Terms of the Exchange Offer." The Senior Notes surrendered in exchange for the
Senior Exchange Notes will be retired and cancelled and cannot be reissued.
Accordingly, issuance of the Senior Exchange Notes will not result in any
increase in the outstanding debt of the Company.
USE OF PROCEEDS OF SENIOR NOTES
The net proceeds from the Senior Note Offering will be, or have been, used,
among other things, to finance the development, construction, equipping and
opening of the Majestic Star Casino and the Gaming Complex and to finance the
construction of the Permanent Vessel. The net proceeds from the Senior Note
Offering were placed in the Cash Collateral Accounts and were invested in Cash
Equivalents, or disbursed of such funds in accordance with the Cash Collateral
and Disbursement Agreement. The portion of the net proceeds designated for the
repayment of the Note to Principal Member was placed in the Completion Reserve
Account and invested in Cash Equivalents. Upon satisfaction of certain
conditions, $5.0 million in the Completion Reserve Account will be disbursed to
repay a portion of the Note to Principal Member. Any funds remaining in the
Completion Reserve Account will be disbursed to repay the Note to Principal
Member upon delivery of the Permanent Vessel to the Company, in accordance with
the Cash Collateral and Disbursement Agreement. Subject to certain limitations,
qualifications and exceptions, such funds will be made available to the Company
for the payment of costs owing prior to completion of the Majestic Star Casino
project and the delivery of the Permanent Vessel if funds in the other Cash
Collateral Accounts are insufficient to cover such costs. See "Description of
Senior Notes -- Cash Collateral and Disbursement Agreement."
28
<PAGE> 30
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1996 and as adjusted for the Company as of such date to give effect to the
Exchange Offer. This table should be read in conjunction with the more detailed
information and Financial Statements, including the notes thereto, appearing
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1996
---------------------
ACTUAL AS ADJUSTED
------ -----------
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C>
Cash and cash equivalents................................................ $ 8.1 $8.1
Restricted cash.......................................................... 70.8 70.8
------ ------
Total unrestricted and restricted cash and cash equivalents......... 78.9 78.9
====== ======
Long-term debt (includes current maturities)
Senior Notes........................................................... 105.0 --
Senior Exchange Notes.................................................. -- 105.0
Equipment financing.................................................... 5.9 5.9
Note to Principal Member............................................... 10.8 10.8
------ ------
Total long-term debt................................................ 121.7 121.7
------ ------
Members' equity.......................................................... 19.3 19.3
------ ------
Total capitalization................................................ $141.0 $ 141.0
====== ======
</TABLE>
29
<PAGE> 31
SELECTED FINANCIAL DATA
The Company was organized on December 8, 1993 for the purpose of developing
and operating the Majestic Star Casino and holds a riverboat gaming license
granted by the IGC. The selected audited financial data presented below for the
period from December 8, 1993 to December 31, 1995 and the selected unaudited
financial data for the period from January 1, 1996 to June 30, 1996 have been
derived from financial statements of the Company. This information is qualified
in its entirety by, and should be read in conjunction with, Management's
Discussion and Analysis of Financial Condition and Results of Operations, the
Financial Statements and notes thereto, and other financial information included
elsewhere in this Prospectus. Until commencement of operations in June 1996, the
Company was in the development stage and had capitalized all pre-opening,
licensing and organizational costs. The Company commenced operations in June
1996 and, accordingly, the Company has a limited history of operating results.
Balance sheet and operating data for the dates and periods prior to January 1,
1995 were immaterial and therefore are not separately included in the
presentation.
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD
BEGINNING BEGINNING
DECEMBER 8, 1993 JANUARY 1, 1996
AND ENDING AND ENDING
DECEMBER 31, 1995 JUNE 30, 1996
----------------- ---------------
(IN MILLIONS) (IN MILLIONS)
<S> <C> <C>
INCOME STATEMENT DATA:
Revenues..................................................... --(1) $ 5.6
Pre-opening costs............................................ -- 4.6
Operating income (loss)...................................... -- (3.7)
Interest income.............................................. 0.4 0.2
Interest expense............................................. 0.2 0.9
Net income (loss)............................................ 0.2 (5.0)
Ratio of earnings to fixed charges........................... -- --(2)
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1995 AT JUNE 30, 1996
-------------------- ----------------
(IN MILLIONS) (IN MILLIONS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................................. $ 8.4 $ 8.1
Investment in Buffington Harbor Riverboats, L.L.C.......... 21.8 40.2
Property and equipment -- net.............................. 0.1 16.1
Deferred expenses.......................................... 4.4 5.3
Restricted cash............................................ -- 70.8
Other assets............................................... -- 4.2
Deferred financing costs................................... -- 3.7
Total assets............................................... 35.1 148.6
Current liabilities........................................ 0.1 9.7
Long-term debt, net of current maturities.................. -- 119.6
Total liabilities.......................................... 0.1 129.3
Members' equity............................................ 35.0 19.3
</TABLE>
- -------------------------
(1) The Company was in the development stage and, accordingly, had no operating
revenues during this period.
(2) This ratio is less than one-to-one coverage. The Company's earnings are
inadequate to cover fixed charges and the amount of the coverage deficiency
is $4,060,376.
30
<PAGE> 32
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.
OVERVIEW
The Company was formed in December 1993, as an Indiana limited liability
company. On December 9, 1994, the IGC granted the Company a Certificate of
Suitability for the Company's riverboat gaming facility at Buffington Harbor,
Gary, Indiana. On June 3, 1996, the IGC granted the Company a five year gaming
license.
The Company had its first revenue operating day at Buffington Harbor on
June 7, 1996. In accordance with the standard procedures of the Commission, the
Company did not operate for approximately three days beginning June 8, 1996,
during which time the Commission performed standard compliance testing of the
Company's internal accounting and administrative controls. Upon successful
completion of the compliance testing, the Company commenced regular operations
on June 11, 1996.
The Company's operations are conducted on the Chartered Vessel which is
chartered pursuant to a 5 year lease and contains approximately 26,000 square
feet of gaming space and approximately 924 slot machines and 50 table games. The
Company is in the process of finalizing the design of, and selecting a shipyard
to build, the Permanent Vessel to replace the Chartered Vessel. The Company
expects to take delivery of the Permanent Vessel in the second half of 1997.
The Company and its Joint Venture Partner formed the BHR Joint Venture to
own and operate certain common facilities such as the guest pavilion, vessel
berths, parking lots and other infrastructure. The Company and the Joint Venture
Partner each have a fifty-percent ownership interest in BHR Joint Venture. Major
portions of BHR Joint Venture's facilities have been completed, with certain
portions, including additional lighting, landscaping, and a railroad transfer
building scheduled for completion in the near future. In addition, the BHR Joint
Venture plans to increase parking and to add another restaurant.
RESULTS OF OPERATIONS
Prior to the commencement of operations in June 1996, the Company was in
the development stage and capitalized costs associated with obtaining the
license to operate a riverboat casino. The capitalized costs consist primarily
of development obligation payments, vessel design costs, financing and
commitment fees, gaming application fees and other pre-opening costs.
Pre-opening costs of approximately $4,587,000 were charged to operations in June
1996. Operations for the six months ended June 30, 1996 reflect operations
conducted during June 1996 by the Company at the Buffington Harbor Facility.
Because of the Company's limited operating history and the lack of any
comparable period, the following discussion will only focus on certain events
and trends that affected the Company's revenues, costs and expenses during the
six months ended June 30, 1996.
SIX MONTHS ENDED JUNE 30, 1996
During the six month period ended June 30, 1996, the Company operated the
casino for twenty-one days and generated revenues of approximately $5,587,000.
Casino revenues during this period totaled approximately $5,479,000 of which
slot machines accounted for approximately $4,048,000 (74%) and table games
accounted for approximately $1,431,000 (26%). The average win per slot machine
per day was $209 and the average win per table game per day was $1,363.
Food and beverage revenue for the twenty-one days of casino operations
during the six month period ended June 30, 1996 totaled approximately $91,000
and other revenue, consisting primarily of commission income, totaled
approximately $17,000.
31
<PAGE> 33
For the six months ended June 30, 1996, casino expenses totaled
approximately $985,000. Gaming and admission taxes based upon adjusted gross
receipts, as defined by Indiana gaming laws and a passenger count, as determined
by the Commission's regulations, of 180,994 totaled approximately $1,639,000 for
the six month period ended June 30, 1996. The gaming tax is calculated at 20% of
adjusted gross receipts and the admissions tax is $3 per state passenger count.
The average daily win per state passenger count was approximately $30 and the
average daily win per patron was approximately $51.
The Company charged to operations approximately $4,587,000 of pre-opening
expenses in June. These costs had previously been deferred.
Depreciation and amortization, interest expense (net of capitalized
interest) and other non-gaming expenses, for the reported period, were
approximately $340,000, $929,000 and $1,745,000 respectively. Interest expense
includes accrued but unpaid contingent interest of approximately $72,000.
The Company's loss in its investment in the BHR Joint Venture was $582,860
for the period.
As a result of the foregoing, loss from operations for the reported period
was approximately $3,709,000. The net loss was approximately $4,989,000.
EBITDA or "earnings before interest, income taxes, depreciation and
amortization," is a supplemental financial measurement used by the Company in
the evaluation of its gaming business. EBITDA during the 21 days of casino
operations for the six month period ended June 30, 1996 was approximately
$1,218,000 (excluding pre-opening costs and before loss on the investment in the
BHR Joint Venture) and represented 22% of net revenues. EBITDA should only be
viewed in conjunction with all of the Company's financial data and its financial
statements appearing elsewhere herein, and should not be construed as an
alternative either to income from operations as an indicator of the Company's
operating performance or to cash flows from operating activities as a measure of
liquidity.
Because the Company has operated its casino only for 21 days, management
believes that it is too early to determine whether the operating results for the
period ended June 30, 1996 provide any discernible trends.
Future operating results will be subject to significant business, economic,
regulatory and competitive uncertainties and contingencies, including new and
existing casino operations, many of which are beyond the control of the Company.
While the Company believes that the Majestic Star Casino will be able to attract
a sufficient number of customers and generate a sufficient amount of revenue to
meet its debt obligations, as they become due, there can be no assurance with
respect thereto.
LIQUIDITY AND CAPITAL RESOURCES
Through June 30, 1996, the principal expenditures were as follows: $41
million invested in BHR Joint Venture, $16 million expended on property,
equipment and leasehold interests, $5 million paid to the City of Gary, and $5
million incurred on pre-opening, licensing and organizational costs. BHR Joint
Venture owns and operates the berthing facility for the Company's casino vessel,
the guest pavilion and associated infrastructure. Property, equipment and
leasehold interests primarily consist of slot machines and associated equipment
and leasehold improvements to the Chartered Vessel.
The Company has committed under the terms of the Senior Notes to purchase
the Permanent Vessel to replace the Chartered Vessel no later than June 30,
1998. The Company expects the delivery of the Permanent Vessel by the second
half of 1997. No firm contracts have been entered into for the construction of
the Permanent Vessel; however, management believes that the cost, excluding
additional gaming related equipment, will be approximately $40 million.
As discussed below, the Company, to date, has met its capital requirements
through capital contributions and loans.
Capital contributions through June 30, 1996 were approximately $24 million,
compared to approximately $35 million through December 31, 1995. This reduction
is due to the Company's reassessment of its capital
32
<PAGE> 34
structure, which resulted, on March 31, 1996, in approximately $11 million of
capital contributions to the Company being converted into the Note from
Principal Member.
At June 30, 1996, loans included $105 million of Senior Notes, $11 million
borrowed from BDI and $6 million of secured equipment financing. The Company
borrowed an additional $18 million from BDI in April and May of 1996 which was
repaid in May of 1996 from the proceeds of the Senior Notes. At June 30, 1996,
approximately $70 million of the proceeds from the Senior Notes were held in
escrow for future cash requirements of the Company and were allocated as
follows: $40 million for the Permanent Vessel, $13 million as an interest
reserve, $11 million designated to repay the loan due to BDI and the remainder
as a contingency reserve. The portion designated for the repayment of the loan
due to BDI cannot be paid to BDI until certain conditions, primarily the
completion of the BHR Joint Venture's facilities and the Permanent Vessel, are
met. Until repaid, these funds are available, subject to certain limitations and
qualifications, to the Company for completion of the BHR Joint Venture's
facilities and the Permanent Vessel.
If the Company is determined to be in default under its agreements with the
holders of the Senior Notes, any portion of the proceeds from the Senior Notes
held in escrow may no longer be available to the Company and the Senior Notes
may be accelerated, either of which could materially adversely affect the
Company.
Since June 30, 1996, enhancements to BHR Joint Venture's facilities and
cost overruns required the Company to commit to invest an additional $4.3
million in BHR Joint Venture. This commitment was met from the contingency
reserve escrow associated with the Senior Notes. The Company anticipates that
further investment in BHR Joint Venture, currently estimated not to exceed $2
million, may be required in 1996 for BHR Joint Venture's facilities. The Company
expects to fund such further investment from working capital, from operations
and/or from the funds designated for the repayment of the note due to BDI.
Under the terms of the lease relating to the harbor on which the Chartered
Vessel is docked, BHR Joint Venture may be required within two years to
construct new harbor, berthing and guest facilities for the Company's casino
vessel. The level of expenditures required for such new facilities cannot be
accurately estimated at this time.
Under the terms of its development agreement with the City, the Company
committed to make development expenditures of $116 million for its casino and
associated infrastructure in the City over the next five years. Through June 30,
1996, the Company has met or accrued a significant portion of these commitments
including as follows: $41 million investment in BHR Joint Venture, $20 million
agreed to value of the Chartered Vessel, $5 million of economic development
obligation payments to the City, $16 million of gaming equipment and other
property and other expenditures of $5 million prior to opening. The two
principal components of the remaining commitment are as follows: (1) $10 million
for off-site development in the City by 1998/1999 with the particular project(s)
to be agreed to by the City and (2) $12 million to be expended over the five
years following the June 1996 opening of the casino for enhancements to the
Company's operations at Buffington Harbor and/or to BHR Joint Venture's
facilities.
Based upon the Company's anticipated future operations, management believes
that available cash flow from the casino's future operations and certain
equipment financing, together with the proceeds from the Senior Notes, will be
adequate to meet the Company's anticipated future requirements for working
capital, the remaining development obligations to the City, capital expenditures
and scheduled payments of interest and principal on the Senior Notes and other
permitted indebtedness for fiscal 1996. No assurance can be given, however, that
operating cash flow will be sufficient for such purposes. The Company intends to
establish working capital reserves to provide for anticipated short-term
liquidity needs. The Company will seek, if necessary and to the extent permitted
under the Indenture, additional financing through borrowings and debt or equity
financing. There can be no assurance that additional financing, if needed, will
be available to the Company, or that, if available, the financing will be on
terms favorable to the Company. There is no assurance that the Company's
estimate of its reasonable anticipated liquidity needs is accurate or that
unforeseen events will not occur, resulting in the need to raise additional
funds.
33
<PAGE> 35
SEASONALITY
Because operations commenced in June 1996, the Company has a limited
history of operating results. The Company anticipates that activity at the
Majestic Star Casino will be affected by weather conditions, with stronger
results expected from May through September. Accordingly, the Company's results
of operations may fluctuate from quarter to quarter and the results for any
fiscal quarter may not be indicative of results for future fiscal quarters. See
"Risk Factors -- Seasonality."
34
<PAGE> 36
BUSINESS
OVERVIEW AND PROPERTY
The Company operates the Majestic Star Casino, a riverboat gaming facility
located at Buffington Harbor in Gary, Indiana, approximately 23 miles southeast
of downtown Chicago pursuant to a riverboat gaming license granted to it by the
IGC. Buffington Harbor is located at the interchange of U.S. 12 and Indiana
State Highway 912, a divided freeway which connects Interstate Highways 90 and
80/94. The Majestic Star Casino's convenient location at Buffington Harbor
provides customers easy and direct access to and from major state and federal
highways.
The Majestic Star Casino commenced operations in June 1996 and will operate
on the Chartered Vessel until the Permanent Vessel is delivered. The Majestic
Star Casino is part of the Gaming Complex which is being developed at Buffington
Harbor. The Company and its Joint Venture Partner formed the BHR Joint Venture
to jointly develop and operate the common areas of the Gaming Complex. The
Gaming Complex includes the land-based Pavilion which will contain, in its
common areas, restaurants, cocktail lounges, a gift shop, a ticketing area for
each casino and offices. The Company believes that the Pavilion's amenities will
help attract customers to the Majestic Star Casino. The Company and its Joint
Venture Partner each operates its own riverboat casino at the Gaming Complex on
a staggered schedule which will reduce waiting times to board a casino.
The Majestic Star Casino on the Chartered Vessel contains approximately
26,000 square feet of gaming space on four levels, with 924 slot machines and 50
table games. The Majestic Star Casino is certified to accommodate 1,700
passengers and 200 employees and crew members and also contains food, beverage
and bar facilities. The casino area of the Chartered Vessel contains a large
two-story atrium which has been added to enhance the casino's atmosphere and
which, with the casino's conveniently placed elevators and stairwells, is
expected to encourage traffic flow to other levels of the casino. The Company
will emphasize a high level of customer service to enhance its customers' gaming
experience and to complement the Majestic Star Casino's amenities. The Chartered
Vessel was originally designed as an ocean-going vessel and is, therefore,
expected to provide a smooth and comfortable ride to customers during cruises on
Lake Michigan, if permitted in the future, and while dockside. Management
believes that providing superior customer service, on-board food, beverage and
bar facilities, state-of-the-art gaming equipment and the comfortable design of
the Majestic Star Casino should attract patrons to the Majestic Star Casino and
create customer loyalty.
In October 1995, the Company engaged a naval architect to begin design work
on the Permanent Vessel. The Company anticipates that the Permanent Vessel will
be designed to be a state-of-the-art gaming vessel containing approximately
40,000 square feet of gaming space on three levels with 1,800 to 2,000 gaming
positions. The Company expects that the Permanent Vessel will be designed to
allow maximum visibility and mobility throughout the casino and will contain
escalators and elevators to move customers between gaming levels. The Company
estimates that the Permanent Vessel will cost approximately $40.0 million and
can be designed, engineered and constructed so that it can be delivered to
Buffington Harbor during the second half of 1997.
The Buffington Harbor Facility is situated on an approximately one-hundred
acre site containing approximately 3,200 surface parking spaces. The Buffington
Harbor Facility also offers valet parking and convenient bus loading and
unloading adjacent to the porte cochere of the Pavilion. The 90,000 square foot
Pavilion, which includes the entry barge to the casinos, consists of two levels
containing a 360 seat buffet, a 100 seat steakhouse restaurant, several bars and
lounges, a gift shop and areas for staging, ticketing and other customer
services. The Pavilion features granite floors, unique metallic finishes, and a
variety of special lighting effects.
The Majestic Star Casino is be permitted, by law, to operate 24-hours per
day, 365 days per year. However, on June 3, 1996, the IGC stipulated that the
Company and the Joint Venture Partner would operate a maximum of 22 hours per
day, with no gaming being conducted during the hours of 5:00 a.m. and 6:30 a.m.
The Company believes that the IGC will re-consider expanding the Company's hours
of operations at some time in the near future. The Majestic Star Casino will be
able to extend credit to its customers and customers
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will not be subject to any legally imposed loss or wagering limits. Indiana law
requires the Majestic Star Casino to cruise on the open waters of Lake Michigan;
however gaming is permitted if weather or other conditions, as determined by the
captain of vessel, require the vessel to remain dockside. In June 1996, the
Company was informed by the IGC, that due to the interpretation by the United
States Department of Justice of applicable federal law, all gaming vessels,
including the Chartered Vessel, will not cruise on Lake Michigan. Accordingly,
the Company and its Joint Venture Partner are conducting simulated cruises
dockside on a staggered entry schedule. These simulated cruises permit entrance
to the casinos only during certain thirty-minute periods which commence at such
times as stated on the schedule and which allow for unlimited egress. The
Company has successfully completed high wave testing to confirm that the
Majestic Star Casino will provide a safe and comfortable environment to the
Company's customers in the event that as the Chartered Vessel is permitted to
cruise on Lake Michigan. See "Regulation -- Federal Law."
The Company and the Joint Venture Partner will operate their riverboat
casinos on a staggered schedule. Management expects the staggered entry schedule
to appeal to customers because it will reduce waiting times to board a casino.
Management expects the Buffington Harbor Facility to be the only site in
northern Indiana which will offer a staggered schedule and that such schedule
will be an advantage for casinos at the Buffington Harbor Facility over other
northern Indiana casinos. The Majestic Star Casino and the Joint Venture
Partner's riverboat together will offer customers at the Buffington Harbor
Facility a total of approximately 3,400 gaming positions initially and
approximately 4,000 gaming positions upon the opening of the Permanent Vessel,
which management believes is significantly more gaming positions than will exist
at any other site in northern Indiana and is approximately three times the
number of gaming positions allowed at any individual Illinois gaming site, each
of which is currently limited by Illinois gaming laws to 1,200 gaming positions.
The Company also expects that a riverboat casino owned and operated by the
Showboat Marina Casino Partnership ("Showboat") will be opened in close
proximity to the Majestic Star Casino in East Chicago, Indiana, in 1997. The
Company believes that the opening of this third gaming facility will create a
"gaming corridor" which will contain a greater concentration of gaming positions
than currently exists in the Illinois market or is expected to exist in the
northern Indiana market. Management believes that within the "gaming corridor",
customers will be attracted to the Buffington Harbor Facility because of the
availability of 3,400 gaming positions.
THE CHICAGO AREA AND NORTHERN INDIANA RIVERBOAT CASINO MARKETS
The Chicago metropolitan area is the third most populated metropolitan
region in the United States. Approximately 12.4 million adults reside within a
150-mile radius of the Buffington Harbor Facility, of which approximately 7.4
million adults reside within a 100-mile radius of the Buffington Harbor
Facility. The Chicago downtown area is 23 miles from the Buffington Harbor
Facility, as compared to approximately 40 miles from each of the existing
riverboat gaming companies in Aurora and Elgin and the two riverboat gaming
companies in Joliet, Illinois. Other major cities within a 150-mile radius of
the Buffington Harbor Facility include Indianapolis, South Bend and Fort Wayne,
Indiana, and Kalamazoo and Grand Rapids, Michigan.
The market area within 150 miles of the Majestic Star Casino has one of the
highest ratios of adults to gaming positions of any drive-in gaming market in
the United States. Based on the 12,600 gaming positions projected for the
northern Indiana and Chicago area market, including the five casinos planned for
northern Indiana, there will be one gaming position for every 984 adults. By
contrast, the Atlantic City market has one gaming position for every 703 adults.
In addition, the Company believes that it is well positioned to capitalize on
the lower density of gaming positions in its market area relative to population.
The relative proximity of large population centers to Gary, Indiana, compares
favorably to the population centers around Atlantic City. For example, downtown
Chicago is only 23 miles from the Majestic Star Casino while Philadelphia and
New York City are approximately 60 and 120 miles, respectively, from Atlantic
City.
The Company believes that revenues reported by the riverboat casinos
currently operating in northern Illinois indicate that the Chicago gaming area
market is underserved. Revenues for 1995 indicate that the four gaming companies
operating seven riverboat casinos in the Chicago area generated an average win
per slot per day of $364 and an average win per table per day of $3,050, which
surpass the Atlantic City market's
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performance of average win per slot per day by over 50% and average win per
table per day by over 25% for the same period.
The following table compares the demographic and certain key operating
statistics of the Chicago area gaming market to other major day-trip gaming
markets for the twelve months ended December 31, 1995.
<TABLE>
<CAPTION>
NUMBER NUMBER ADULT POP. WIN/ WIN/
OF OF TO SLOT/ TABLE/
METROPOLITAN AREA SLOTS TABLES POSITIONS(1)(2) DAY(1) DAY(1)
- --------------------------------------------- ------ ------ --------------- ------- ------
<S> <C> <C> <C> <C> <C>
Chicago, Illinois............................ 3,875 230 2,468 $ 364 $3,050
Foxwoods, Connecticut........................ 3,920 -- (3) --(3) 408 --(3)
Lake Charles, Louisiana...................... 4,487 216 876 212 1,324
Atlantic City, New Jersey.................... 28,916 1,336 703 247 2,436
Bossier/Shreveport, Louisiana................ 2,933 168 477 292 2,190
Biloxi, Mississippi.......................... 8,672 419 321 107 912
New Orleans, Louisiana....................... 4,255 218 575 124 1,151
</TABLE>
- -------------------------
(1) Data represent the Company's estimates based on publicly available tax and
gaming information and published industry reports.
(2) Based on the adult population within the 150 mile radius of the stated
metropolitan area.
(3) Data are not publicly available.
MARKETING STRATEGY
The Company expects to compete effectively with existing Chicago area and
proposed northern Indiana casinos due to (i) the staggered entry schedule at the
Buffington Harbor Facility which will reduce waiting times between cruises; (ii)
the existence of significantly more gaming positions at the Buffington Harbor
Facility than at any one location proposed for northern Indiana or existing in
the Chicago area, which are currently limited by Illinois gaming law to 1,200
gaming positions; (iii) direct access to the Buffington Harbor Facility from
major state and federal highways; and (iv) abundant surface parking. The unique
attributes of the Buffington Harbor Facility will be featured in the Company's
marketing and promotional materials, which will be primarily directed toward the
drive-in, middle market customers who the Company believes constitute a majority
of casino patrons in the Company's market area.
Through the use of a systematic marketing program, the Company will
encourage initial and repeat visits to the Majestic Star Casino. The Company's
marketing programs will consist of a variety of advertising, direct mail and
promotional programs which are expected to promote awareness of the Majestic
Star Casino at Buffington Harbor. In addition to the Company's marketing plans,
the Company and its Joint Venture Partner may develop joint programs to promote
the Buffington Harbor Facility and its attributes, such as the presence of two
casinos at one site containing over 3,400 combined gaming positions and its
easily accessible location.
The Company's marketing program includes:
Slot Club: The Company has established the Club M-Star slot club
through which participating customers can earn points, based on their level
of slot play, that may be redeemed for prizes, which may include cash,
complimentary food and beverages, merchandise and transportation to and
from the Majestic Star Casino. Through the use of a computerized tracking
system, Club M-Star will enable the Company to maintain a comprehensive
database of the gaming levels, duration of play, preferences of, and other
information about its patrons and tailor marketing programs to encourage
repeat visits by these customers.
Direct Mail: In order to develop and maintain high levels of
patronage, the Company will utilize a direct mail, quick response program
whereby qualified customers receive promotional literature within several
days of a visit. Such mailings will be devised to generate and build
customer loyalty and to encourage frequent visits. Other periodic mailings
will be designed to generate and maintain high customer awareness of the
name "Majestic Star."
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Food and Beverage: The Buffington Buffet, will be located in the
Pavilion, features a 360-seat buffet offering a diversified selection of
hot and cold entrees at competitive prices. The Harbor Steakhouse, also
located in the Pavilion, and seats for 100 persons. The Harbor Steakhouse
is intended to offer patrons a full-service, up-scale alternative to the
buffet. The Star Gate Express, located onboard the Majestic Star Casino,
seats 30 persons and offers a light fare menu. Management believes that by
providing variety, excellent quality and well-valued food services it will
attract patrons to the Buffington Harbor Facility and the Majestic Star
Casino and will promote repeat visits.
Motor Coach/Group Sales: The Company has established a motor
coach/group sales department to implement a regional program to take
advantage of the large population within 150 miles of Buffington Harbor.
This department intends to focus on maintaining a high volume of customers
primarily during non-peak periods.
Cooperative Programs: The Company intends to build relationships with
Chicago area hotels, restaurants, convention centers and entertainment and
sports venues to develop tie-in and other cooperative programs.
Although the Company's marketing efforts will focus on middle market
customers, the Company also intends to develop personal relationships with
premium players through staff trained to provide customer satisfaction.
COMPETITION
The Majestic Star Casino is dependent primarily on adults residing within
150 miles of the Buffington Harbor Facility, which includes the Chicago
metropolitan area. Currently, four riverboat casinos operate in northern
Illinois within 50 miles of the Buffington Harbor Facility. In addition to the
riverboat to be operated by the Joint Venture Partner, the Company expects
competition in northern Indiana from a riverboat casino in Hammond, Indiana, and
the riverboat casinos which have been authorized in each of East Chicago and
Michigan City, Indiana. The Company also expects to compete in Indiana, to a
lesser extent, with six additional riverboats in southern Indiana. Although the
Company believes that there is sufficient demand in the market to sustain the
operations of the Majestic Star Casino, there can be no assurance to that
effect. See "Risk Factors -- Competition."
The Company believes that competition in the gaming industry is based on
the quality and location of the gaming facilities, the effectiveness of
marketing efforts and overall levels of customer service and satisfaction.
Although management believes that the location and amenities of the Majestic
Star Casino will enable the Company to compete effectively with other casinos in
the immediate area, the Company expects intense competition to develop in its
market area.
There can be no assurance that Indiana or Illinois will not authorize
additional gaming licenses in the future. Legislation has been introduced on
numerous occasions in recent years to provide for land-based casinos in Chicago
and to expand riverboat gaming in Illinois, including to authorize additional
operators or to authorize existing operators to move to new sites or otherwise
to modify existing regulations to decrease or eliminate certain restrictions,
such as limitations on the number of gaming positions. To date, no such
legislation has been enacted. The Company is unable to predict whether any such
legislation, in Illinois, Indiana or elsewhere, will be enacted or whether, if
passed, it would have a material adverse impact on the results of operations or
financial condition of the Company.
The Company also expects future competition from a federally recognized
Indian tribe which is negotiating with various cities in southwestern Michigan
and/or Indiana to develop land-based casinos.
Many of the Company's competitors, including its Joint Venture Partner and
Showboat, the owner of the casino to be opened in East Chicago, Indiana, will
have larger and, prior to the delivery of the Permanent Vessel, more modern
casino vessels. In addition, many of such competitors will have greater gaming
industry management experience and financial resources. The Company believes
that its ability to compete successfully in the riverboat gaming industry will
be primarily based on the quality and location of its gaming facilities, the
effectiveness of its marketing efforts, and overall levels of customer service
and satisfaction. These factors will
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become more important as competition in the casino gaming industry becomes more
intense with the opening of additional casino operations.
DESIGN AND CONSTRUCTION
Planning for the Majestic Star Casino began in 1993 with the study of
potential harbors, design concepts, construction costs and schedules, permit
requirements, and environmental issues. Landside construction work began in
August 1995 after the acquisition of real property interests by the Joint
Venture Partner at Buffington Harbor. The Army Corps of Engineers and the
Indiana Department of Natural Resources issued the necessary permits for the
required harbor modifications in October 1995 and harbor construction commenced
shortly thereafter.
A physical wave study was performed to assist in the design of the harbor
specifications, mooring systems and structures and a weather monitoring system.
This study, undertaken at the Canadian National Research Center, involved the
construction of a scale model of the harbor, including the proposed
modifications to test wave and wind conditions on Lake Michigan and the
effectiveness of the harbor and proposed modifications in protecting the vessel
and providing the Majestic Star Casino's customers with a comfortable ride. The
study concluded that the harbor, as modified, would provide a safe and
comfortable cruising environment. After conclusion of the study, the Company
received Coast Guard approval of the harbor specifications.
In October 1995, the Company engaged Guido Perla & Associates, naval
architects in Seattle, Washington to begin design work on the Permanent Vessel.
Guido Perla & Associates has designed several riverboat casinos, including
casinos owned by Showboat and Harrah's and the Grand Victoria casino in Elgin,
Illinois developed by Hyatt Corporation. Other independent specialists and
professional firms have been, or will be, engaged to assist in the design and
construction of the Permanent Vessel.
DON H. BARDEN -- DEVELOPMENT AND BUSINESS EXPERIENCE
The Majestic Star Casino is being developed by Don H. Barden. Mr. Barden's
business career spans 25 years and involves the successful establishment,
development and operation of several enterprises in the cable, real estate, and
media industries. Highlights of Mr. Barden's career include:
Cable Television: Beginning in the early 1980's, Mr. Barden's
companies built and operated cable television systems in Detroit and three
of its suburbs: Inkster, Romulus, and Van Buren Township. The Detroit
system, of which Mr. Barden owned 51%, was developed through a partnership
with MacLean Hunter Cable TV, Inc. and encompassed over 2,000 miles of
plant passing 400,000 homes. The construction cost of the Detroit system,
which is one of the largest single city urban cable systems in the country,
exceeded $100 million. In 1988, Mr. Barden sold the Romulus and Van Buren
Township cable systems. In 1995, Mr. Barden sold Barden Communications,
Inc., which owned partnership interests in the Detroit and Inkster systems,
to Comcast Corporation.
Real Estate: Mr. Barden's real estate organization, Waycor Development
Company, served as the developer for a $61 million, 840 bed detention
facility in Wayne County, Michigan. Other completed projects include a
Veteran's Administration clinic in Canton, Ohio and a 144-unit apartment
complex in Detroit, Michigan. Mr. Barden is currently involved in the
development of a 42-unit single family housing subdivision in the City of
Detroit.
Broadcasting: Mr. Barden, through Barden Broadcasting, Inc., owns and
operates four FM radio stations and one AM radio station in the State of
Illinois. Three of the stations are located in Joliet, Illinois.
Computer-based Education System and Communications Network: Mr.
Barden, through Barden Companies, Inc., is the majority owner of University
Communications, Inc. which provides computer-based educational and
communications services to approximately five hundred school districts,
adult educational programs and corporate users.
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BACKGROUND
The Company was formed, under the name Barden PRC-Gary, LLC, in December
1993 by companies controlled by Don H. Barden and a subsidiary of President
Casinos, Inc. ("President Casinos") for the purpose of developing a riverboat
casino project in Gary, Indiana. The Company received a Certificate of
Suitability from the IGC in December 1994. Pursuant to an agreement between BDI
and President Casinos, President Casinos committed to contribute $20.0 million
and a vessel to the Company. After President Casinos elected not to fund its
$20.0 million commitment, BDI and President Casinos entered into an agreement on
June 30, 1995, providing for the Company to redeem President Casinos' membership
interest in the Company for a nominal amount and to receive the right to charter
the vessel from President Casinos on which the Majestic Star Casino will operate
pursuant to the Charter Agreement (as defined herein). See "Material Agreements
- -- Charter Agreement."
In July 1995, the Company entered into an agreement with Davis Gaming Co.
("Davis Gaming"), an affiliate of Marvin Davis, whereby Davis Gaming agreed to
contribute $25.0 million to the Company and BDI agreed to contribute $10.0
million to the Company. The Company's Certificate of Suitability was extended in
June 1995, with the IGC indicating that it would grant a further extension
beyond September 30, 1995 provided that (i) the Company and the Joint Venture
Partner form the BHR Joint Venture to develop the Buffington Harbor Facility and
(ii) the BHR Joint Venture entered into a ground lease with the City of Gary. In
September 1995, Davis Gaming elected not to enter into the BHR Joint Venture and
to commit capital to the BHR Joint Venture prior to completing negotiations with
the City of Gary and consequently withdrew from the Company. The BHR Joint
Venture was then formed between the Company and the Joint Venture Partner and
the IGC granted an extension to the Company after agreement was reached with the
City of Gary. See "Material Agreements -- Agreement with City of Gary, Indiana."
REGULATION
The Company is subject to various governmental rules and regulations with
respect to the operation of a passenger vessel and gaming casino, including
regulation by the IGC, and has recently received a riverboat gaming license from
the IGC. See "Risk Factors -- Taxation and Regulation by Gaming and Other
Governmental Authorities" and "Regulation."
Either the Company, the Joint Venture Partner or the BHR Joint Venture has
obtained, applied for or will apply for, all requisite permits and approvals for
the construction of the Gaming Complex. The Company believes that the BHR Joint
Venture will be able to acquire such further permits and approvals in a timely
manner and that the Company will be able to obtain all other necessary licenses,
permits and approvals in order to construct and operate the Majestic Star Casino
and the Gaming Complex. However, no assurances can be given that all of the
requisite licenses, permits or approvals will be issued or that all of such
licenses, permits or approvals will be issued without certain conditions or
restrictions that could adversely affect the construction and operation of the
Majestic Star Casino and the Gaming Complex. The failure to maintain any of
these licenses, permits or approvals in a timely manner may delay, restrict or
prevent the Buffington Harbor Facility from operating as contemplated herein.
LITIGATION
On May 1, 1996, a class action complaint was filed in the Lake Superior
Court in Gary, Indiana against the Joint Venture Partner and certain of its
affiliates, the Company and certain of its affiliates, the IGC, the City of Gary
and the Mayor of the City of Gary and certain other parties affiliated with the
City of Gary. The plaintiffs were comprised of two local contractors, a former
city employee, and five persons who claim that they were to be investors in the
riverboat casinos to be operated in Gary, Indiana. The complaint alleged, among
other things, that the Joint Venture Partner and the Company each have failed to
meet certain obligations with respect to minority hiring goals, utilization of
minority and/or women contractors, investment in city projects and providing
certain residents of the City of Gary with the right to acquire a 15% equity
interest in their respective projects. Plaintiffs sought various remedies
including damages and injunctive relief in the form of an order to enjoin the
IGC from issuing gaming licenses to the Company and the Joint Venture
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Partner until they have complied with these conditions. In July 1996, the court
granted a motion filed by the defendants and the lawsuit was dismissed with
prejudice. The Company believes that the plaintiffs may have filed an appeal of
the dismissal. See "Risk Factors -- Taxation and Regulation by Gaming and Other
Governmental Authorities."
EMPLOYEES
The Company employs approximately 1,000 full-time equivalent persons and
that the BHR Joint Venture employs approximately 550 full-time equivalent
persons. The Company believes that it and the BHR Joint Venture can continue to
attract and retain a sufficient number of qualified individuals to operate and
maintain the Majestic Star Casino and the Gaming Complex. Recently, the Company
has executed a collective bargaining agreement with Local 1 of the Hotel
Employees and Restaurant Employees International Union effective as of July 1,
1996. This agreement covers approximately 96 individuals employed in food and
beverage service positions and is for a term of five years. The Seafarers
International Union has filed a petition with the National Labor Relations Board
to represent approximately 170 individuals employed in slot, cage and credit
operations positions at the Company. The National Labor Relations Board has
scheduled an election for October 25, 1996 among these employees. The Company is
also currently engaged in discussions with the Seafarers with respect to
approximately 25 employees in the marine operations department.
In recruiting personnel, the Company is obligated, under the terms of its
agreement with the City of Gary, to use its best efforts to have an employee
base which is comprised of fifty-two percent women, seventy percent from
racial/ethnic minority groups, sixty-seven percent residents of the City of Gary
and ninety percent residents of Lake County, Indiana. The Company is working
closely with representatives of the City of Gary to comply with these
objectives.
The Company conducts training programs to teach its employees necessary
technical skills as well as to instill a commitment to a high level of customer
service.
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MATERIAL AGREEMENTS
Set forth below are summaries of the material terms of certain material
agreements to which the Company is or will be a party. The following summaries
do not purport to be complete and are qualified in their entirety by reference
to the relevant agreements. Copies of such agreements (whether in preliminary or
executed form) are available upon request to the Company. Capitalized terms used
but not otherwise defined herein shall have the meanings ascribed to such terms
in the agreement being described (unless otherwise indicated).
THE COMPANY'S OPERATING AGREEMENT
The Company is a limited liability company organized under Indiana law. The
members of the Company, BDI and Gary Riverboat Gaming, LLC, an Indiana limited
liability company ("GRG"), have entered into an Amended and Restated Operating
Agreement dated March 29, 1996 (the "Operating Agreement"). BDI and GRG hold 85%
and 15%, respectively, of the membership interests in the Company.
The Company is currently managed by BDI which is controlled by Don H.
Barden. In the event that BDI ceases to be the Manager of the Company, as a
result of its removal or resignation, the Operating Agreement specifies that the
Company's successor manager shall be Barden Management, Inc., an Indiana
corporation ("BMI"), which is wholly owned and controlled by Don H. Barden, and
is the current manager of GRG.
The Company is controlled, and the Company's assets and operations will be
directed, by the Manager. Subject to certain exceptions, the Operating Agreement
affords the members no right to participate in the management of the Company.
The members are unable to remove the Manager, except upon supermajority approval
in limited circumstances involving serious misfeasance. BDI may resign from its
status as the Company's manager upon 60 days' notice.
The Manager is not liable to the Company or to any member for any loss or
damage arising out of the management of the Company, or any other activities in
its capacity as a Manager, unless caused by the Manager's (i) receipt of a
financial benefit to which it is not entitled, (ii) assenting to a distribution
in violation of the Operating Agreement or the Indiana Limited Liability Act,
(iii) commission of a crime, or (iv) material willful violations of the
Operating Agreement. Further, the Operating Agreement generally provides that
the Company will indemnify the Manager (and its agents and employees) from all
loss or damage incurred by the Manager in connection with management of the
Company, unless such loss or damage is caused by such person's gross negligence
or bad faith.
The death, insolvency or dissolution of any member, or any other event
resulting in the withdrawal by a member from the Company (whether pursuant to
the transfer of his interest or otherwise), will result in the dissolution of
the Company, unless the Manager and a majority of the remaining members (based
on percentage interests in profits and capital) agree in their discretion to
continue the business of the Company. Dissolution of the Company will also occur
on the earlier of (i) December 31, 2043, (ii) the disposition of all or
substantially all of the Company's assets, (iii) the written consent of the
Manager and all members, (iv) the death, retirement, resignation, withdrawal,
expulsion, bankruptcy, mental incapacity or dissolution of the incumbent Manager
(provided, however, that the Company shall not terminate if within 30 days after
such event a new person assumes the role of Manager in accordance with the
Operating Agreement), or (v) entry of a decree of judicial dissolution.
JOINT VENTURE AGREEMENT
The Company and its Joint Venture Partner are each fifty percent members in
the BHR Joint Venture. The terms of the Joint Venture Agreement require each
member to make capital contributions to the BHR Joint Venture equal to one-half
of the amounts required for the BHR Joint Venture to fund the acquisition of
property and construct the contemplated common amenities in accordance with an
agreed upon budget. As of August 20, 1996, each member has made the required
capital contributions in an aggregate amount of $45,146,433. The estimated costs
to the BHR Joint Venture to construct the Gaming Complex are as follows: $14
million to acquire the land; $12 million for harbor construction, $68 million
for landside development. The
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Joint Venture Agreement allows the BHR Joint Venture to borrow funds with the
approval of both members, although no significant borrowings are contemplated at
the current time.
The general affairs of the BHR Joint Venture are governed by an Operating
Committee. The Operating Committee consists of four representatives, two
appointed by each member, and all four representatives must concur in any
action. If the Operating Committee is not able to agree upon a matter, the
matter is to be referred to a vote of the members. In addition, the members also
must decide on certain fundamental matters as specified in the Joint Venture
Agreement.
The Joint Venture Agreement establishes a Construction Committee consisting
of two representatives, one appointed by each member. The Construction Committee
is authorized to make decisions relating to routine construction matters. The
Construction Committee can only act upon the approval of both representatives.
If the representatives are not able to agree on a matter, the matter is to be
referred to a vote of the Operating Committee.
The Joint Venture Agreement also establishes a subcommittee to the
Operating Committee, consisting of the general managers of each of Majestic Star
Casino and the Joint Venture Partner's gaming operation. This subcommittee is
authorized to make decisions involving the day-to-day operations of BHR Joint
Venture. The subcommittee can act only upon the approval of both general
managers. If the general managers are not able to agree on a matter, the matter
is to be referred to the Operating Committee.
A member loses its right to approve (or have its representatives on any of
the aforementioned committees or subcommittees approve) actions of the BHR Joint
Venture, during any period in which the member suffers an event of default under
the Joint Venture Agreement. Furthermore, decisions of the BHR Joint Venture
directly involving one member (such as the enforcement of the BHR Joint
Venture's rights against the member under the corresponding Berthing Agreement
(as defined below)) do not require the approval of both members, but rather may
be made solely by the other member.
Events of default under the Joint Venture Agreement include a failure by a
member to make the capital contributions referred to above, bankruptcy, an event
of default under the Berthing Agreement, and any other failure of a member to
perform its obligations under the Joint Venture Agreement within 30 days after
written notice of default from the other member. The remedies for any such event
of default include (i) the loss by the member of its voting rights as described
above, (ii) if the event of default continues for 270 days, the non-defaulting
member may acquire the interest of the defaulting member in the BHR Joint
Venture (and its Berthing Agreement) for $1.0 million, and (iii) other remedies
available at law or in equity. Furthermore, if the event of default involves a
failure to make required capital contributions, the other member may withdraw
its capital contribution, or be entitled to receive interest on its incremental
capital contribution, or require the defaulting member to pay interest in
respect of the capital contributions on which it defaulted.
Most disputes arising out of the Joint Venture Agreement that are not
resolved by the members are subject to resolution by arbitration. Excluded from
the arbitration process are decisions relative to changing the common amenities
currently under construction, changes in (or decisions involving the enforcement
of rights under) the Berthing Agreements, and increases in capital contribution
obligations.
BERTHING AGREEMENT
The Company and the Joint Venture Partner, each an operator, each entered
into a berthing agreement on April 23, 1996 (each a "Berthing Agreement") with
the BHR Joint Venture. Each Berthing Agreement obligates the BHR Joint Venture
to construct the common area improvements (including parking lots, access roads,
harbor improvements, other infrastructure improvements and the Pavilion) which
are required for each operator's gaming operations. The BHR Joint Venture has
made substantial progress in the construction of these common area improvements,
with the Gaming Complex commencing operations on June 7, 1996. Each Berthing
Agreement also requires the BHR Joint Venture to carry insurance on the common
area improvements, at replacement value, and to reconstruct or repair the common
area improvements in the event of an insured casualty (subject to certain dollar
limitations as to reconstruction or repairs costing more than available
insurance proceeds).
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Under its Berthing Agreement, each operator has the right to dock its
vessel at the mooring barge and the right to use substantially all of the other
common area improvements being constructed by the BHR Joint Venture. Each
Berthing Agreement also obligates the BHR Joint Venture to provide specified
services to each of the operators in connection with the common area
improvements, including valet parking, shuttle buses, security, maintenance and
food and beverage services. Each operator is obligated to pay certain of these
expenses that are specific to its gaming operations. Furthermore, each operator
is obligated to pay a license fee equal to one-half of the amount by which the
expenses of the BHR Joint Venture exceed the revenues of the BHR Joint Venture.
The expenses of the BHR Joint Venture are expected to significantly exceed its
revenues.
Each Berthing Agreement imposes certain restrictions on the operations of
the operator, including a limitation on cruising rights so as to avoid
scheduling conflicts between the operators (so long as cruising is required by
the IGC). Each Berthing Agreement also provides certain remedies if the operator
defaults in its obligations thereunder, including, among other things, a 100%
increase in the license fee during any period in which an operator has defaulted
in the payment of its license fee for more than 30 days, a suspension of gaming
operations and other rights if an event of default continues for more than 120
days, and a buyout of the operator's rights in the BHR Joint Venture and the
Berthing Agreement if an event of default continues for more than 270 days.
CHARTER AGREEMENT
The Company has entered into a Charter Agreement, dated August 17, 1995
(the "Charter Agreement") with New Yorker Acquisition Corporation ("NYAC"), a
subsidiary of President Casinos, to charter the Chartered Vessel. The Charter
Agreement will terminate on May 3, 2001 unless terminated by the Company upon
180 days' notice of termination. The Charter Agreement provides for a payment of
$125,000 per month for the first 24 months of the term, which amount is to be
adjusted annually for each year of the term thereafter to a fair market rental,
as determined by a nationally recognized appraiser or by agreement of the
Company and NYAC. Pursuant to the Charter Agreement, before delivery, certain
alterations are to be made by NYAC, at its expense, to the Chartered Vessel, and
certain other alterations are to be completed at the Company's expense. These
alterations are substantially complete and the Company's cost will be
approximately $5 million. The Charter Agreement also requires the Company, any
subcharterer or any assignee of the charterer to maintain a net worth of not
less than $10.0 million during the term of the Charter Agreement.
HARBOR LEASE AGREEMENT
On June 29, 1995, the Joint Venture Partner entered into the Harbor Lease
with Lehigh Cement. The Harbor Lease was subsequently assigned by the Joint
Venture Partner to the BHR Joint Venture. Pursuant to the Harbor Lease, the BHR
Joint Venture is leasing certain property which is integral to the Company's
gaming operations. The property subject to the Harbor Lease includes certain
property abutting Buffington Harbor and on which the docking and other support
facilities for the Buffington Harbor Facility are to be located.
The Harbor Lease authorizes the BHR Joint Venture to construct the harbor
improvements, including docking facilities, that are required to open and
conduct the contemplated gaming operations. The Harbor Lease also imposes
certain limitations on the use of Buffington Harbor and certain of its docks by
the Company and the Joint Venture Partner, including limitations on riverboat
cruises that would interfere with Lehigh Cement's use of the harbor or with
certain rights Lehigh Cement has granted to Marblehead Lime Company to use the
harbor. The Harbor Lease also requires the BHR Joint Venture to reimburse Lehigh
Cement for certain increases in its operational costs caused by the BHR Joint
Venture's use of Buffington Harbor. The Company does not believe that any of
these limitations or requirements would have a material adverse effect on its
operations in light of the current and anticipated uses of the docks and
Buffington Harbor by Lehigh Cement and Marblehead Lime Company, although no
assurance can be given with respect thereto because neither the Company nor the
BHR Joint Venture has control over these factors.
The initial term of the Harbor Lease expires on December 29, 1997. The
Harbor Lease requires the BHR Joint Venture or its members to apply for the
governmental permits necessary for construction of, and to
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<PAGE> 46
construct, a permanent harbor on the shoreline of Lake Michigan lying
immediately to the west of the existing harbor. Construction of a new harbor
will require the BHR Joint Venture to acquire permits from the U.S. Army Corps
of Engineers, the Coast Guard and the Indiana Department of Natural Resources,
among others. The term of the Harbor Lease may be extended, if prior to the
expiration of the initial term, the BHR Joint Venture procures, or employs due
diligence in seeking to procure, certain governmental permits necessary to
construct a new harbor on a part of the shoreline of Lake Michigan lying to the
west of Buffington Harbor. If the permits are procured prior to the expiration
of the initial term, Lehigh Cement is obligated to extend the term for the
period of time reasonably necessary, as determined by Lehigh Cement, to permit
the BHR Joint Venture to complete construction of the new harbor improvements.
If the permits are not procured, prior to the expiration of the initial term,
and the BHR Joint Venture has exercised due diligence (as determined in the
opinion of Lehigh Cement) in attempting to obtain the permits, Lehigh Cement is
obligated to extend the term until the earlier of (i) December 31, 2005, and
(ii) the date the BHR Joint Venture acquires the permits and completes the new
harbor improvements. See "Risk Factors -- Risk Associated with Harbor Lease."
The Harbor Lease is rent free through December 31, 1997. If the term of the
Harbor Lease is extended beyond its initial thirty month period in accordance
with the terms thereof, rent becomes payable commencing January 1, 1998 at the
rate of $125,000 per month.
AGREEMENT WITH CITY OF GARY, INDIANA
Prior to receiving the riverboat gaming license, the Company was authorized
to develop the Majestic Star Casino pursuant to a certificate of suitability
granted to the Company by the IGC (the "Certificate of Suitability"). In
accordance with the Certificate of Suitability, the City of Gary and the Company
entered into a Development Agreement dated as of March 26, 1996 (the
"Development Agreement"). The Development Agreement requires the Company, among
other things, to (i) invest $116.0 million in various on-site and off-site
improvements, of which at least $87 million are expected to be satisfied at or
prior to commencement of operations, (ii) pay the City of Gary an amount equal
to 3% of the Majestic Star Casino's adjusted gross receipts, as defined in the
Indiana Riverboat Gambling Act (the "Riverboat Gambling Act"), (iii) obtain the
insurance, bonds and/or letters of credit required by the Riverboat Gambling
Act, (iv) endeavor to meet certain minority and local employment, union and
vendor goals and (v) pay a default payment in the amount of damages for failure
to complete certain on-site developments, the maximum amount of which is $12.0
million. The balance of the $116.0 million commitment is required to be expended
over a five year period.
On September 29, 1995, the Company entered into an agreement with the City
of Gary, whereby certain obligations of the Company and the BHR Joint Venture
were terminated in consideration for the payment of $5.0 million. One half of
this amount was paid by the Company to the City of Gary in October 1995 and the
balance of such amount is due by September 5, 1996. The aggregate of these
payments satisfies $5.0 million of the Company's $116.0 million investment
commitment under the Development Agreement.
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REGULATION
STATE OF INDIANA
The following is a summary of the applicable provisions of the Riverboat
Gambling Act of the State of Indiana and certain other laws and regulations. It
does not purport to be a full description thereof and is qualified in its
entirety by reference to the Riverboat Gambling Act and such other laws and
regulations.
In 1993, the State of Indiana passed the Riverboat Gambling Act which
created the IGC. The IGC is given extensive powers and duties for the purposes
of administering, regulating and enforcing riverboat gaming in Indiana and has
been authorized to award up to eleven gaming licenses to operate riverboat
casinos in the State of Indiana, including five to counties contiguous to Lake
Michigan in northern Indiana, five to counties contiguous to the Ohio River and
one to a county contiguous to Patola Lake in southern Indiana.
The Riverboat Gambling Act requires that referenda be approved by municipal
and county residents to authorize gaming for cities on Lake Michigan. Since the
City of Gary conducted a successful referendum in 1989, the Act exempts the City
of Gary from the referendum requirement. At the present time, the required
referenda have been conducted and gaming has been authorized for the cities of
Hammond and East Chicago (in addition to Gary) in Lake County, Indiana, and for
Michigan City in LaPorte County, to the east of Lake County.
The IGC has jurisdiction and supervision over all riverboat gaming
operations in Indiana and all persons on riverboats where gaming operations are
conducted. These powers and duties include authority to (i) investigate all
applicants for riverboat gaming licenses, (ii) select among competing applicants
those that promote the most economic development in a home dock area and that
best serve the interests of the citizens of Indiana, (iii) establish fees for
licenses and (iv) prescribe all forms used by applicants. The IGC is authorized
to adopt rules for administering the gaming statute and the conditions under
which riverboat gaming in Indiana may be conducted. The IGC has promulgated
certain formal rules and has proposed additional rules governing the application
procedure. The IGC may suspend or revoke the license of a licensee or impose
civil penalties, in some cases without notice or hearing, for any act in
violation of the Riverboat Gambling Act or for any other fraudulent act. In
addition, the IGC may revoke an owner's license if the licensee has not begun
regular excursions prior to the end of the twelve month period following receipt
of a license or if it is determined by the IGC that revocation is in the best
interests of the State of Indiana. The IGC will (i) authorize the route of the
riverboat and the stops that the riverboat may make, (ii) establish minimum
amounts of insurance and (iii) after consulting with the United States Army
Corps of Engineers, determine which waterways are navigable waterways for
purposes of the Riverboat Gambling Act and determine which navigable waterways
are suitable for the operation of riverboats. Additionally, the IGC may adopt
emergency orders concerning navigability of waters for extreme weather
conditions or other extreme circumstances.
The Riverboat Gambling Act requires an extensive disclosure of records and
other information concerning an applicant, including disclosure of all
directors, officers and persons holding a five percent or more direct or
indirect beneficial interest in an applicant.
In determining whether to grant an owner's license to an applicant, the IGC
shall consider (i) the character, reputation, experience and financial integrity
of the applicant and any person who (a) directly or indirectly controls the
applicant, or (b) is directly or indirectly controlled by either the applicant
or a person who directly or indirectly controls the applicant, (ii) the
facilities or proposed facilities for the conduct of riverboat gaming, (iii) the
highest total prospective revenue to be collected by the state from the conduct
of riverboat gaming, (iv) the good faith affirmative action plan to recruit,
train and upgrade minorities in all employment classifications, (v) the
financial ability of the applicant to purchase and maintain adequate liability
and casualty insurance, (vi) whether the applicant has adequate capitalization
to provide and maintain the riverboat for the duration of the license and (vii)
the extent to which the applicant meets or exceeds other standards adopted by
the IGC. The IGC may also give favorable consideration to applicants for
economically depressed areas and applicants who provide for significant
development of a large geographic area. A person holding an owner's gaming
license issued by the IGC may not own more than a ten percent interest in
another such license. An owner's license expires five years after the effective
date of the license.
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Unless the license has expired or has been terminated or revoked, the gaming
license may be renewed, for one year periods if the IGC determines that the
licensee has satisfied all statutory and regulatory requirements. A gaming
license is a revocable privilege and is not a property right pursuant to the
Riverboat Gambling Act. On June 3, 1996 the Majestic Star Casino obtained a
gaming license from the IGC.
Minimum and maximum wagers on games are left to the discretion of the
licensee and are not established by regulation. Wagering is required to be
conducted with tokens, chips or electronic cards instead of cash or coins. Each
riverboat gaming excursion is limited to a duration of four hours unless a
longer excursion is expressly approved by the IGC. No gaming may be conducted
while the boat is docked except (i) for 30-minute time periods at the beginning
and end of a cruise while the passengers are embarking and disembarking, (ii) if
the master of the riverboat reasonably determines that specific weather or water
conditions present a danger to the riverboat, its passengers or crew, (iii) if
either the vessel or the docking facility is undergoing mechanical or structural
repair, (iv) if water traffic conditions present a danger to (a) the riverboat,
its passengers or crew or (b) other vessels on the water, or (v) if the master
has been notified that a condition exists that would cause a violation of
federal law if the riverboat were to cruise. In June 1996, the IGC received such
notification from the Department of Justice. See "Regulation -- Federal Law."
An admission tax of $3.00 for each person admitted to the gaming excursion
is imposed upon each license owner. An additional twenty percent tax is imposed
on the "adjusted gross receipts" received from gaming operations, which is
defined under the Riverboat Gambling Act as the total of all cash and property
(including checks received by the licensee whether or not collected) received,
less the total of all cash paid out as winnings to patrons and uncollected
gaming receivables (not to exceed two percent). The gaming license owner shall
remit the admission and wagering taxes before the close of business on the day
following the day on which the taxes were incurred. Legislation was recently
enacted in Indiana permitting the imposition of property taxes on Indiana
riverboats at rates to be determined by local taxing authorities of the
jurisdiction in which a riverboat operates.
The IGC is authorized to license suppliers and certain occupations related
to riverboat gaming. Gaming equipment and supplies customarily used in
conducting riverboat gaming may be purchased or leased only from licensed
suppliers.
The Riverboat Gambling Act places special emphasis upon minority and
women's business enterprise participation in the riverboat industry. Any person
issued a gaming owners' license must establish goals of expending at least ten
percent of the total dollar value of the licensee's contracts for goods and
services with minority business enterprises and five percent of the total dollar
value of the licensee's contracts for goods and services with women's business
enterprises. The IGC may suspend, limit or revoke a gaming owner's license or
impose a fine for failure to comply with these statutory requirements.
FEDERAL LAW
In October 1994, the U.S. Attorney for the Northern District of Indiana
notified the IGC that federal law, U.S.C. 15 sec. 1171 to 1178, commonly known
as the Johnson Act, prohibits gaming vessels from cruising on waters within
federal maritime jurisdiction and prohibits gaming on such vessels. A member of
the U.S. House of Representatives has notified the Department of Justice that
the Johnson Act may prohibit gaming on vessels on the Great Lakes because the
Great Lakes are within federal maritime jurisdiction. The U.S. Attorney for the
Northern District of Indiana asked the Justice Department for an opinion with
respect to the applicability of the Johnson Act to casino boats on Lake
Michigan. In June 1996, the Department of Justice informed the State of Indiana
that federal law prohibits all gaming vessels from cruising on Lake Michigan.
Currently, Congress has legislation pending that contains an amendment to the
Johnson Act which would specifically allow gaming on vessels in the Indiana
waters of Lake Michigan. The Johnson Act contains an exception to such
prohibitions if a state adopts a law that provides an exemption for the state
from the provisions of the Johnson Act or if the state adopts a law providing
for the transportation of specifically enumerated gambling devices in such
state. The Riverboat Gambling Act specifically provides that Indiana is exempt
from the provisions of the Johnson Act and that all shipments of gambling
devices which have been registered, recorded and labelled in accordance with the
Johnson Act would be legal shipments into the State of Indiana under the Johnson
Act. Notwithstanding such statutes, there can be no assurance that gaming
operations by the Company would not be challenged as a violation of Indiana law
or federal law.
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MANAGEMENT
MANAGEMENT
The Company is managed by the Manager. The management team assembled by the
Manager to oversee the development and operation of the Company and the Majestic
Star Casino include:
Don H. Barden, age 52. Mr. Barden is Chairman and President of the Manager
and the Company and is employed by the Company, with responsibility for key
policy making functions. Since 1981, Mr. Barden has also been the President and
Chief Executive Officer of a group of companies which are wholly-owned by Mr.
Barden and which operate in the real estate development, broadcast, and
entertainment industries. Over the past 25 years, Mr. Barden has successfully
established and developed a number of enterprises in the real estate, cable
television and media industries. See "Business -- Don H. Barden Development and
Business Experience".
Thomas C. Bonner, age 43. Mr. Bonner has been the Executive Vice President
of the Manager and the Company and has been employed by the Company since
December 1995, with primary responsibility for the overall operations of the
Company. From March 1995 to December 1995, he was President and Chief Executive
Officer of Showboat Indiana, Inc. with overall responsibility for the
development, licensing, construction and operation of Showboat's riverboat
project in East Chicago, Indiana. From November 1993 to March 1995, he was Vice
President of Project Development for Showboat Development Company and, from
October 1984 to November 1993, he was Vice President and General Counsel to
Atlantic City Showboat, Inc.
Paul W. Sykes, age 44. Mr. Sykes has been Vice President of the Manager,
General Manager and Chief Operating Officer of the Company since December 1995
and is employed by the Company. He has responsibility for management of gaming
operations and related activities of the Company. From February 1995 to December
1995, Mr. Sykes was Vice President-Operations of Showboat Indiana, Inc. with
primary responsibility for pre-opening activities relating to casino gambling,
credit, food and beverage, property and security operations. From December 1993
to January 1995, Mr. Sykes was Vice President - Project Development where he was
responsible for identification and evaluation of new markets and related
legislative matters. From November 1991 to November 1993, Mr. Sykes was Vice
President of Showboat Atlantic City, where he was responsible for the direct
mail, player development, special events and complimentary services. Prior to
1991, Mr. Sykes served as Vice President of Customer Development for Trump's Taj
Mahal.
Michael E. Kelly, age 34. Mr. Kelly joined the management team in April
1996 as Vice President and Chief Financial Officer of the Manager, with overall
responsibility for the Company's investor relations and financial reporting. Mr.
Kelly is also employed by the Company. From June 1994 to April 1996, Mr. Kelly
held various positions with Fitzgeralds Gaming Corporation including Vice
President of Finance. Mr. Kelly also was the Senior Director of Operations and
Chief Financial Officer of Fitzgeralds Tunica where he was responsible for
operations, finance, regulatory affairs, legal and strategic planning and
involved in the design and development of a new dockside gaming facility in
Robinsonville, Mississippi. From September 1991 to June 1994, Mr. Kelly was Vice
President and Chief Financial Officer of Empress River Casino Corporation and
its affiliates, with responsibility for finance, regulatory affairs and
administration. Mr. Kelly also participated in the design and development of
riverboat casino operations at Joliet, Illinois and Hammond, Indiana while
employed by the Empress River Casino Corporation. From 1982 to 1991, Mr. Kelly
was employed in various senior finance and administrative functions by Harrah's
Hotels & Casino in New Jersey and Nevada, and the Fitzgeralds Group in Reno and
Las Vegas, Nevada.
Thomas P. Burke, age 40. Mr. Burke is the Assistant General Manager in
charge of the Company's casino finance (cage cashiers and casino credit),
security, surveillance and naval operations. Prior to joining the Company in
April 1996, Mr. Burke was Director of Casino Administration at American Gaming &
Entertainment since June 1993, where he coordinated and supervised casino
development efforts in new jurisdictions, evaluated potential gaming sites and
coordinated licensing, permitting and pre-opening activities. During that time,
he headed a group which developed and opened the Crown Casino in Melbourne,
Australia. From April 1990 to June 1993, Mr. Burke was Vice President, Casino
Finance for Trump's Taj Mahal and was responsible for the redesign of the casino
floor and development of internal controls. Prior to 1990,
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Mr. Burke held various casino controller and operating finance functions for
more than 10 years at Trump Castle Casino, Tropicana Hotel Casino, Marriott
Hotel Corporation and Resorts International Casino Hotel.
Barry J. Elmore, age 41. Mr. Elmore was appointed Controller of the Company
in March 1996 with responsibilities for the financial, planning, accounting and
budgeting functions. From 1994 to March 1996, Mr. Elmore was an accounting
systems specialist with Remington Hotel Corporation, a 72 hotel chain based in
Dallas, Texas. Prior to 1994, Mr. Elmore's experience included controller and
accounting services at Rank Hotels North America and Registry Hotel Corporation.
EMPLOYMENT AGREEMENTS
Mr. Barden serves as Chairman and President of the Manager and will receive
annual compensation of $275,000 as an employee of the Company, pursuant to a
letter agreement dated as of April 25, 1996.
Mr. Bonner serves as Executive Vice President of Gaming Operations pursuant
to an employment agreement with the Company, effective as of December 4, 1995.
Under the terms of his employment agreement, Mr. Bonner will receive base
compensation of $348,700 per year and housing, car and meal allowances
aggregating $19,300 per year. Mr. Bonner can also earn incentive compensation
based on his performance and the performance of the Company. The employment
agreement is for a term of three years unless earlier terminated because of Mr.
Bonner's death, permanent disability, inability to obtain or maintain the
licenses required for the performance of his duties, or "for cause" (as defined
therein). The employment agreement also includes a non-competition provision
which generally provides that during the term of the employment agreement and
for 18 months thereafter, Mr. Bonner cannot directly or indirectly recruit or
solicit the Company's employees to work for another company or to compete with
the Company in specified portions of Illinois and Indiana (the "Non-Competition
Provision").
Mr. Sykes has entered into an employment agreement with the Company,
effective as of December 4, 1995, pursuant to which he has agreed to serve as
Vice President and General Manager of Operations for a three year term. Mr.
Sykes will receive base compensation of $247,000 per year and can also earn
incentive compensation based upon his performance and the performance of the
Company. Mr. Sykes' employment agreement contains terms substantially similar to
that of Mr. Bonner's, including the Non-Competition Provision.
Mr. Kelly serves as Vice President and Chief Financial Officer pursuant to
a two-year employment agreement with the Company, effective as of April 22,
1996. Mr. Kelly will receive base compensation of $225,000 per year and can also
earn annual incentive compensation based on his performance and the performance
of the Company. Mr. Kelly's employment agreement contains other terms
substantially similar to that of Mr. Bonner's, including a Non-Competition
Provision with a duration of 12 months.
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CERTAIN TRANSACTIONS
NOTE TO AND ADVANCES FROM PRINCIPAL MEMBER
By December 31, 1995, the Company had been capitalized by its members with
$35.0 million, including interest earned thereon, of capital contributions.
Effective March 31, 1996, $10.8 million of the contributions of BDI was
reclassified as indebtedness payable to BDI, evidenced by the Note to Principal
Member. The Note to Principal Member is a non-transferable and subordinated note
which bears interest at a rate equal to the applicable short-term federal rate,
as set forth in Section 1274(d) of the Internal Revenue Code, adjusted on the
first day of each month that the Note to Principal Member is outstanding.
The net proceeds from the Senior Note Offering to be designated to repay
the Note to Principal Member will be deposited in the Completion Reserve Account
and $5.0 million will be released upon satisfaction of certain conditions. Any
funds remaining in the Completion Reserve Account will be disbursed to repay the
Note to Principal Member upon delivery of the Permanent Vessel to the Company.
See "Use of Proceeds" and "Description of Senior Notes -- Cash Collateral and
Disbursement Agreement."
BDI loaned the Company additional amounts required to fund the ongoing
costs of completing the Majestic Star Casino and the Gaming Complex pursuant to
an additional promissory note. Such note aggregating $18,097,299 in principal
amount, was repaid with interest at 5% per annum at the Closing from the
proceeds of the offering of the Senior Notes on May 22, 1996.
IGC BOND
On April 8, 1996, NBD Bank, N.A. (Indiana) (the "Bank") issued a $12.5
million letter of credit for the Company to benefit the IGC (the "L/C"). The L/C
was furnished as the IGC Bond, required under the Certificate of Suitability
primarily to secure the Company's off-site development obligations under the
Development Agreement. Don H. Barden guaranteed the Company's obligations to the
Bank to support the L/C and pledged approximately $12.9 million of cash
equivalents to secure the guaranty. If Don H. Barden is required to make
payments to the Bank as a result of the guaranty, the Company will be obligated
to reimburse Don H. Barden for any such payments. Mr. Barden is a director of
one of the Bank's affiliates.
On May 20, 1996, the IGC agreed to accept a $12.5 million surety bond (the
"Bond") issued by United States Fidelity and Guaranty Company ("USF&G") in place
of the L/C, which was canceled on May 21, 1996 by the Bank, thereby releasing
Don H. Barden's pledge of $12.9 million of cash equivalents. However, to support
the Company's obligations to USF&G should there be a draft against the Bond, the
Company obtained on May 15, 1996 a $3.5 million letter of credit from the Bank
to benefit USF&G. Don H. Barden guaranteed the Company's obligations to USF&G
under the Bond and to the Bank under the $3.5 million letter of credit. To
secure the guaranty to the Bank, Mr. Barden pledged $3.6 million of cash
equivalents.
The Company is attempting to reduce or eliminate the need for the guaranty
and pledge made by Mr. Barden.
REIMBURSEMENT OF EXPENSES TO MANAGER
Pursuant to the terms of the Operating Agreement, the Manager receives no
compensation for its management of the Company, but is reimbursed for all
reasonable out-of-pocket expenses related therewith.
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PRINCIPAL SECURITY HOLDERS
The following table sets forth the beneficial ownership of the membership
interests in the Company as of May 31, 1996 by (i) each person known by the
Company to beneficially own 5% or more of the outstanding membership interests
of the Company and (ii) each executive officer and director of the Company or
the Manager.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF
BENEFICIAL OWNER % OWNERSHIP
- -------------------------------------------------------------------------------- -----------
<S> <C>
Don H. Barden, 400 Renaissance Center, Suite 2400, Detroit, Michigan 48243...... 100.0%(1)
All other executive officers as a group (3 persons)............................. 0.0%
</TABLE>
- -------------------------
(1) Includes the membership interests in the Company beneficially owned directly
by BDI and indirectly by BDI and BMI through GRG. See ownership structure
set forth below.
LOGO
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DESCRIPTION OF SENIOR NOTES
GENERAL
The Senior Notes (as defined on page 84 of this Prospectus) are issued
pursuant to the Indenture between the Company and IBJ Schroder Bank & Trust
Company, as trustee (the "Trustee"), dated as of May 22, 1996. The terms of the
Senior Notes include those stated in the Indenture and the Collateral Documents
and those made part of the Indenture by reference to the Trust Indenture Act of
1939, as amended (the "Trust Indenture Act"), as in effect on the date of the
Indenture. The Senior Notes are subject to all such terms, and Holders of the
Senior 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 does not purport to be
complete and is qualified in its entirety by reference to the Indenture and the
Collateral Documents, including the definitions therein of certain terms used
below. A copy of the form of Indenture and of each of the Collateral Documents
is available from the Company as described under "-- Additional Information."
The definitions of certain terms used in the following summary are set forth
below under "-- Certain Definitions." Capitalized terms that are used but not
otherwise defined in this Prospectus have the meanings assigned them in the
Indenture.
RANKING AND SECURITY
The Senior Notes rank senior in right of payment to all Subordinated
Indebtedness of the Company and rank pari passu in right of payment to all other
Senior Indebtedness.
The Senior Notes are secured by (i) a pledge of the Company's 50%
membership interest in the BHR Joint Venture pursuant to the BHR Pledge
Agreement, (ii) a pledge of BDI's 85% direct membership interest in the Company
pursuant to the BDI Pledge Agreement, (iii) a collateral assignment of the
Company's interest in the Berthing Agreement pursuant to the Security Agreement,
(iv) a pledge of all funds in the Cash Collateral Accounts into which the
proceeds from the Offering will be placed pending their use pursuant to the Cash
Collateral and Disbursement Agreement, (v) a first lien on certain other assets
now owned or hereafter acquired by the Company after the Issuance Date pursuant
to the Security Agreement (other than any assets which if pledged, hypothecated
or given as collateral security would require the Trustee or a holder or
beneficial holder of the Senior Notes to be licensed, qualified or found
suitable and other than certain assets to the extent such assets are permitted
to be financed by Indebtedness permitted to be incurred pursuant to the covenant
entitled "Limitations on Incurrence of Indebtedness and Issuance of Disqualified
Capital Stock" and such Indebtedness is permitted to be secured pursuant to the
covenant entitled "Liens" pursuant to the definition of "Permitted Liens") and
(vi) a collateral assignment of the Company's rights to the service mark
"Majestic Star Casino" pursuant to the Trademark Security Agreement
(collectively, the "Note Collateral").
At such time that the Company elects to construct a new vessel to serve as
the Permanent Vessel, (i) pending construction of such Permanent Vessel, the
Senior Notes will be secured by a collateral assignment of the Company's entire
interest in and to any material construction contracts relating to such
construction and a duly perfected security interest in all property comprising
such Permanent Vessel while under construction and (ii) upon Delivery of such
Permanent Vessel, the Senior Notes will be secured by a duly perfected First
Preferred Ship Mortgage in such Permanent Vessel.
The Trustee may appoint one or more collateral agents, who may be delegated
any one or more of the duties or rights of the Trustee under the Collateral
Documents or which are specified in any Collateral Documents.
PRINCIPAL, MATURITY AND INTEREST
The Senior Notes are senior secured obligations of the Company, limited in
aggregate principal amount to $105.0 million and will mature on May 15, 2003.
Each Senior Note bears interest at the rate of 12 3/4% per annum of the
principal amount then outstanding (the "Fixed Interest") from the Issuance Date
to the date of payment of such principal amount of such Senior Note.
Installments of Fixed Interest become due and payable semi-annually in arrears
on each May 15 and
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<PAGE> 54
November 15 of each year to the Holders of record at the close of business on
the preceding May 1 or November 1. Additionally, installments of accrued and
unpaid Fixed Interest become due and payable with respect to any principal
amount of the Senior Notes that matures (whether at stated maturity, upon
acceleration, upon maturity of repurchase obligation or otherwise) upon such
maturity of such principal amount of the Senior Notes. Fixed Interest on the
Senior Notes will be computed on the basis of a 360-day year, consisting of
twelve 30-day months. Each installment of Fixed Interest is or will be
calculated to accrue from and including the most recent date to which Fixed
Interest has been paid or provided for (or from and including the Issuance Date
if no installment of Fixed Interest has been paid) to, but not including, the
date of payment.
In addition, the Senior Notes will bear Contingent Interest, calculated as
described below, from the Commencement Date to the date of payment of the Senior
Notes. Installments of accrued or deferred Contingent Interest will become due
and payable semi-annually on each May 15 and November 15 after the Commencement
Date to the Holders of record at the close of business on the preceding May 1 or
November 1; provided that no Contingent Interest is payable with respect to any
period prior to the Commencement Date and that such installment of Contingent
Interest is not permitted to be deferred on such 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 Senior Notes that matures (whether at stated maturity, upon acceleration,
maturity of repurchase obligation or otherwise) upon such maturity of such
principal amount of the Senior Notes.
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 four consecutive fiscal
quarters last completed prior to such interest payment date to be less than 2.0
to 1 on a pro forma basis after giving effect to the assumed payment of such
Contingent Interest and (b) the principal amount of the Senior Notes
corresponding to such Contingent Interest has not then matured and become due
and payable (at stated maturity, upon acceleration, 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 Senior Notes (whether at stated maturity, upon
acceleration, 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 paid or provided for or through 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) the last day of the next
Semiannual Period if the corresponding principal amount of the Senior Notes has
not become due and payable or (b) the date of payment if the corresponding
principal amount of the Senior Notes has become due and payable (whether at
stated maturity, upon acceleration, upon maturity of repurchase obligation or
otherwise). With respect to each Accrual Period, interest will accrue daily on
the principal amount of each Senior 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 Base
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 Base Contingent Interest with respect to such principal amount for
the Semiannual Period that began and last ended after the Commencement Date.
Any reference in this Prospectus to "accrued and unpaid interest" on the
Senior Notes includes the amount of Fixed Interest, unpaid Contingent Interest
and Liquidated Damages, if any, due and payable thereon.
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<PAGE> 55
"Adjusted Fixed Charge Coverage Ratio" means with respect to any Person at
any time the Fixed Charge Coverage Ratio of such Person on such date adjusted as
follows: (a) for purposes of the calculation of the Fixed Charge Coverage Ratio,
Fixed Charges shall be adjusted to include (rather than exclude) Contingent
Interest, whether paid or accrued, and (b) 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 previous Semiannual Period multiplied
by 2.0.
"Base Contingent Interest" means with respect to any principal amount of
Senior Notes as of any date after the Commencement Date, an amount equal to the
product of (i) 5.0% of the Company's Consolidated Cash Flow for the Semiannual
Period last completed times (ii) a fraction, the numerator of which is the
amount of such principal and the denominator of which is $105.0 million;
provided however that additional Contingent Interest will cease accruing on any
outstanding principal amount of the Senior Notes if the aggregate amount of such
Base Contingent Interest in respect of any two consecutive Semiannual Periods
(and excluding any deferred Contingent Interest from prior periods) exceeds the
Maximum Contingent Interest.
"Commencement Date" means the first day that the Majestic Star Casino
becomes Operating.
"Contingent Interest" means Base Contingent Interest on the Senior Notes
then accrued and any Base Contingent Interest previously accrued and the payment
of which has been permitted to be deferred.
"Maximum Contingent Interest" means with respect to any amount of principal
of Senior Notes, an amount equal to the product of (i) 5.0% of $60.0 million and
(ii) a fraction, the numerator of which is the amount of such principal and the
denominator of which is $105.0 million.
"Semiannual Period" means each period that begins on October 1 and ends on
the next succeeding March 31 or each period that begins on April 1 and ends on
the next succeeding September 30.
The Senior Notes are payable as to principal, premium, if any, and interest
(including Contingent Interest and Liquidated Damages, if any) 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 (including
Contingent Interest and Liquidated Damages, if any) may be made by check mailed
to the Holders of the Senior Notes at their respective addresses set forth in
the register of Holders of Senior Notes. Until otherwise designated by the
Company, its office or agency in New York is the office of the Trustee
maintained for such purpose. The Senior Notes will be issued in registered form,
without coupons, and in denominations of $1,000 and integral multiples thereof.
MANDATORY REDEMPTION
The Company is not required to make mandatory redemptions or sinking fund
payments prior to maturity with respect to the Senior Notes.
OPTIONAL REDEMPTION
Except as described below, the Senior Notes are not redeemable at the
Company's option prior to May 15, 2000. From and after May 15, 2000, the Company
has the option to redeem the Senior Notes, 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 (including Contingent
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<PAGE> 56
Interest and Liquidated Damages, if any) thereon, to the applicable redemption
date, if redeemed during the twelve-month period beginning on May 15 of the
years indicated below:
<TABLE>
<CAPTION>
YEAR %
----------------------------------------------------------- -------
<S> <C>
2000....................................................... 106.375
2001....................................................... 104.250
2002....................................................... 102.125
2003....................................................... 100.000
</TABLE>
The Company also has the option on and after May 15, 1997 and prior to May
15, 1998, to redeem up to $12.0 million principal amount of the Senior Notes
solely out of any amounts remaining in the Interest Reserve Account, upon not
less than 30 nor more than 60 days' notice, at the redemption price of 112.75%
of the principal amount thereof plus accrued and unpaid interest (including
Contingent Interest and Liquidated Damages, if any) thereon to the applicable
redemption date.
Notwithstanding any other provision of the Indenture, if any Gaming
Regulatory Authority requires that a Holder or beneficial owner of the Senior
Notes must be licensed, qualified or found suitable under any applicable gaming
laws in order to maintain any gaming license or franchise of the Company under
any applicable gaming laws, and the 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 Regulatory Authority or if such Holder
or beneficial owner is not so licensed, qualified or found suitable, the Company
shall have the right, at its option:
(1) to require such Holder or beneficial owner to dispose of such
Holder's or beneficial owner's Senior Notes within 30 days of receipt by
such Holder of such finding of unsuitability by the applicable Gaming
Regulatory Authority (or such earlier date as may be required by the
applicable Gaming Regulatory Authority); or
(2) to call for redemption of the Senior Notes of such Holder or
beneficial owner at a redemption price equal to the lesser of the principal
amount thereof or the price at which such Holder or beneficial owner
acquired the Senior Notes, together with, in either case, accrued and
unpaid interest (including Contingent Interest and Liquidated Damages, if
any), to the earlier of the date of redemption or the date of the finding
of unsuitability by such Gaming Regulatory Authority, which may be less
than 30 days following the notice of redemption if so ordered by such
Gaming Regulatory Authority.
In connection with any such redemption, and except as may be required by a
Gaming Regulatory Authority, the Company shall comply with the procedures
contained in the Indenture for redemption of the Senior Notes. Under the
Indenture, the Company is not required to pay or reimburse any Holder or
beneficial owner of Senior Notes who is required to apply for any such license,
qualification or finding of suitability for the costs of the licensure or
investigation for such qualification or finding of suitability. Such expenses
will, therefore, be the obligation of such Holder or beneficial owner.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Company will promptly make
an offer to purchase all or any part (equal to $1,000 or an integral multiple
thereof) of the Senior Notes pursuant to the offer described below (the "Change
of Control Offer") at a price in cash (the "Change of Control Payment") equal to
101% of the aggregate principal amount thereof, plus accrued and unpaid interest
(including Contingent Interest and Liquidated Damages, if any), to the date of
purchase. The Company shall not be required to make such an offer to purchase if
the Change of Control event ceases prior to the Change of Control Payment Date
(as defined below). To effect any Change of Control Offer, the Company will mail
a notice to each Holder which states:
(1) a Change of Control Offer is being made pursuant to the covenant
entitled "Offer to Repurchase Upon Change of Control" in the Indenture, the
length of time the offer will remain open and
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<PAGE> 57
that all Senior Notes properly tendered pursuant to such Change of Control
Offer will be accepted for payment unless the Change of Control event
ceases prior to the Change of Control Payment Date;
(2) the purchase price and the purchase date, which will be no earlier
than 30 days nor later than 60 days from the date such notice is mailed,
except as may be otherwise required by applicable law (the "Change of
Control Payment Date");
(3) any Senior Note not properly tendered or accepted for payment will
remain outstanding and continue to accrue interest (including Contingent
Interest, if any);
(4) unless the Company defaults in the payment of the Change of
Control Payment, all Senior Notes accepted for payment pursuant to the
Change of Control Offer will cease to accrue interest after the Change of
Control Payment Date;
(5) Holders electing to have any Senior Notes purchased pursuant to a
Change of Control Offer will be required to surrender the Senior Notes,
with the form entitled "Option of Holder to Elect Purchase" on the reverse
of the Senior Notes completed, to the Company, a depositary, if appointed
by the Company, or a Paying Agent at the address specified in the notice
prior to the close of business on the third Business Day preceding the
Change of Control Payment Date;
(6) Holders will be entitled to withdraw their tendered Senior Notes
and their election to require the Company to purchase the Senior Notes,
provided, however, that the Company, the depositary or the Paying Agent
receives, not later than the close of business on the last day of the offer
period, a telegram, telex, facsimile transmission or letter setting forth
the name of the Holder, the principal amount of Senior Notes tendered for
purchase, and a statement that such Holder is withdrawing his tendered
Senior Notes and his election to have such Senior Notes purchased; and
(7) Holders whose Senior Notes are being purchased only in part will
be issued new Senior Notes equal in principal amount to the unpurchased
portion of the Senior Notes surrendered, which unpurchased portion must be
equal to $1,000 in principal amount or an integral multiple thereof.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws or regulations are applicable in connection with the repurchase
of the Senior Notes pursuant to a Repurchase Offer.
On the Change of Control Payment Date, the Company will, to the extent
permitted by law:
(1) accept for payment all Senior Notes or portions thereof properly
tendered pursuant to the Change of Control Offer;
(2) deposit with the paying agent an amount equal to the aggregate Change
of Control Payment in respect of all Senior Notes or portions thereof so
tendered; and
(3) deliver, or cause to be delivered, to the Trustee for cancellation the
Senior Notes so accepted together with an Officers' Certificate stating that
such Senior Notes or portions thereof have been tendered to and purchased by the
Company.
The paying agent will promptly mail to each Holder of Senior Notes the
Change of Control Payment for such Senior Notes, and the Trustee will promptly
authenticate and mail to each Holder a new Senior Note equal in principal amount
to any unpurchased portion of the Senior Notes surrendered, if any, provided,
however, that each such new Senior 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.
Any failure by the Company to repurchase Senior Notes tendered pursuant to
a Change of Control Offer will be deemed an Event of Default unless the Change
of Control event ceases prior to the Change of Control Payment Date.
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<PAGE> 58
ASSET SALES
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, cause, make or suffer to exist an Asset Sale, unless:
(a) No Default or Event of Default exists or is continuing immediately
prior to or after giving effect to such Asset Sale;
(b) the Company, or its Subsidiaries, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the fair market
value (as determined by the Board of Managers and set forth in the Officers'
Certificate delivered to the Trustee) of the assets sold or otherwise disposed
of; and
(c) at least 80% of such consideration is in the form of cash or Cash
Equivalents; provided, however, that the amount of any liabilities (as shown on
the Company's, or such Subsidiary's, as the case may be, most recent balance
sheet or in the notes thereto) of the Company, or any Subsidiary, as the case
may be (other than any liabilities that are by their terms expressly
subordinated to the Senior Notes), that are assumed by the transferee of any
such assets and any notes or other obligations received by the Company, or any
Subsidiary, as the case may be, from such transferee that are converted by the
Company, or such Subsidiary, as the case may be, into cash (to the extent of the
cash received) within 10 Business Days following the closing of such Asset Sale,
shall be deemed to be cash only for purposes of satisfying this clause (c).
Within 180 days after the Company's receipt of the Net Proceeds of any
Asset Sale, the Company may apply the Net Proceeds from such Asset Sale to
either:
(1) an investment in the Principal Business or in tangible long-term assets
used or useful in the Principal Business; or
(2) to permanently reduce Indebtedness that is not Subordinated
Indebtedness.
Pending the final application of any such Net Proceeds, such Net Proceeds shall
be pledged to the Trustee as security for the Senior Notes until applied or
redeemed as set forth below. Any Net Proceeds from the Asset Sale that are not
invested as provided in the first sentence of this paragraph will be deemed to
constitute "Excess Proceeds". When the aggregate amount of Excess Proceeds
exceeds $3.0 million, the Company shall make an offer to all Holders of Senior
Notes (an "Asset Sale Offer") to purchase the maximum principal amount of Notes,
that is an integral multiple of $1,000, that may be purchased out of the Excess
Proceeds at an offer price in cash in an amount equal to 101% of the principal
amount thereof, plus accrued and unpaid interest (including Contingent Interest
and Liquidated Damages, if any), to the date fixed for the closing of such
offer, in accordance with the procedures set forth in the Indenture. The Company
will commence an Asset Sale Offer with respect to Excess Proceeds within 10
Business Days after the date that the aggregate amount of Excess Proceeds
exceeds $3.0 million by mailing the notice required pursuant to the terms of the
Indenture. To the extent that the aggregate amount of Senior Notes properly
tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, such
remaining Excess Proceeds shall be released to the Company and the Company may
use any such remaining Excess Proceeds for any lawful purpose permitted under
the Indenture. If the aggregate principal amount of Senior Notes surrendered by
Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select
the Senior Notes to be purchased in the manner described under the caption
"Selection and Notice" below. Upon completion of any such Asset Sale Offer, the
amount of Excess Proceeds shall be reset at zero. The Net Proceeds of all Asset
Sales of assets constituting Note Collateral (other than Permitted Investments),
as well as Excess Proceeds, shall be promptly and without commingling deposited
with the Trustee subject to a Lien in favor of the Trustee for the benefit of
the Holders unless and until applied as permitted pursuant to this paragraph.
The Indenture will also require the Company to grant to the Trustee, on behalf
of the Holders of the Senior Notes, a first priority lien on any properties or
assets acquired with the Net Proceeds of any such Asset Sale on the terms set
forth in the Indenture and the Collateral Documents.
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<PAGE> 59
EVENT OF LOSS
The Indenture provides that within 360 days after any Event of Loss with
respect to Note Collateral with a fair market value (or replacement cost, if
greater) in excess of $1.0 million, the Company may apply the Net Loss Proceeds
from such Event of Loss to the rebuilding, repair, replacement or construction
of improvements to any property now owned or hereafter acquired by the Company
relating to the Majestic Star Casino, with no concurrent obligation to make any
purchase of any Senior Notes, provided that:
(1) the Company delivers to the Trustee within 60 days of such Event
of Loss a written opinion from a reputable architect that the Majestic Star
Casino with at least the Minimum Facilities can be rebuilt, repaired,
replaced, or constructed and Operating within 360 days of such Event of
Loss;
(2) an Officer's Certificate certifying that the Company has available
from Net Loss Proceeds or cash, sufficient funds on hand to complete such
rebuilding, repair, replacement or construction; and
(3) the Net Loss Proceeds are less than $15.0 million.
Any BHR Loss Proceeds and any Net Loss Proceeds from an Event of Loss that
are not reinvested or are not permitted to be reinvested as provided above will
be deemed "Excess Loss Proceeds." When the aggregate amount of "Excess Loss
Proceeds" exceeds $3.0 million, the Company shall promptly make an offer to all
Holders of Senior Notes (an "Event of Loss Offer") to purchase the maximum
principal amount of Senior Notes that is an integral multiple of $1,000, that
may be purchased out of the Excess Loss Proceeds at an offer price in cash in an
amount equal to 101% of the principal amount thereof, plus accrued and unpaid
interest (including Contingent Interest and Liquidated Damages, if any), to the
date fixed for the closing of such offer, in accordance with the procedures set
forth in the Indenture. To the extent that the aggregate amount of Senior Notes
tendered pursuant to an Event of Loss Offer is less than the Excess Loss
Proceeds, such remaining Excess Loss Proceeds shall be released to the Company
and the Company may use any such remaining Excess Loss Proceeds so released for
any lawful purpose permitted under the Indenture. If the aggregate principal
amount of Senior Notes surrendered by Holders thereof exceeds the amount of
Excess Loss Proceeds, the Trustee shall select the Senior Notes to be purchased
in the manner described under the caption "Selection and Notice" below. 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 or construction
or the completion of any Excess Loss Offer, the Company shall pledge to the
Trustee as additional Note Collateral any Net Loss Proceeds or other cash on
hand required for such permitted rebuilding, repair or construction pursuant to
the terms of the Cash Collateral and Disbursement Agreement. Such pledged funds
will be released to the Company to pay for such permitted rebuilding, repair or
construction or such Event of Loss Offer pursuant to the terms of the Cash
Collateral and Disbursement Agreement. The BHR Loss Proceeds and the Net Loss
Proceeds of all Events of Loss with respect to assets constituting Note
Collateral (other than Permitted Investments), as well as Excess Loss Proceeds,
shall be promptly and without commingling deposited with the Trustee in an Event
of Loss Account pursuant to the terms of the Cash Collateral and Disbursement
Agreement until applied as permitted pursuant to this paragraph. The Indenture
also requires the Company to grant to the Trustee, on behalf of the Holders of
the Senior Notes, a first priority lien on any properties or assets rebuilt,
repaired 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 (iv) of the definition of "Event of Loss" that has a fair market value
(or replacement cost, if greater) in excess of $2.0 million, the Company will be
required to receive consideration at least:
(1) equal to the fair market value (as determined by an Independent
Financial Advisor) of the assets subject to an Event of Loss; and
(2) 90% of which is in the form of cash or Cash Equivalents; provided,
however, that the amount of:
(a) any liabilities (as shown on the Company's most recent balance
sheet or in the notes thereto) of the Company (other than liabilities
that are by their terms expressly subordinated to the Senior Notes),
that are assumed by the transferee of any such assets; and
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<PAGE> 60
(b) any notes or other obligations received by the Company from
such transferee that are converted by the Company into cash (to the
extent of the cash received) within 10 Business Days following the
closing of such sale of the assets subject to such Event of Loss;
shall be deemed to be cash only for purposes of satisfying this item 2 and for
no other purpose.
The Indenture also provides that with respect to any Event of Loss with
respect to Note Collateral with a fair market value (or replacement cost, if
greater) of $1.0 million or less, the Net Loss Proceeds therefrom shall be
released to the Company.
UNCOMPLETED PROJECT OFFER
If the Majestic Star Casino is not Operating by December 31, 1996 (the
"Uncompleted Project"), then the Company will be required (a) within 30 days of
such date to offer to purchase Senior Notes up to an amount equal to funds
remaining in the Cash Collateral Accounts, provided that such funds exceed $5.0
million (the "Initial Uncompleted Project Offer") and (b) within one year after
such date (but no later than 30 days after receipt of the proceeds from the
Project Liquidation), to offer to purchase Senior Notes up to an amount equal to
the net proceeds from the liquidation of the remaining assets of the Uncompleted
Project ("Project Liquidation"), plus any funds remaining in the Cash Collateral
Accounts (a "Final Uncompleted Project Offer"; and, together with the Initial
Uncompleted Project Offer, an "Uncompleted Project Offer"), in each case at a
price equal to 101% of the principal amount thereof plus accrued and unpaid
interest, if any, to the purchase date.
The Company will also be required to proceed promptly after December 31,
1996 with an orderly liquidation of the remaining assets related to the
Uncompleted Project. Failure to complete such liquidation and commence the Final
Uncompleted Project Offer within one year shall be an Event of Default.
Within 30 days after December 31, 1996, the Company will mail to all
Holders of Senior Notes a notice apprising such Holders of the Initial
Uncompleted Project Offer and of the Holders' rights arising as a result
thereof. Within 30 days after the completion of the Project Liquidation, the
Company will mail to all Holders of Senior Notes a notice apprising such Holders
of the Final Uncompleted Project Offer and of the Holders' rights arising as a
result thereof. The procedures governing all Uncompleted Project Offers will be
set forth in full in the Indenture.
There can be no assurance that the balance of funds in the Cash Collateral
Accounts and the proceeds from any Project Liquidation will equal the proceeds
of the Senior Notes originally deposited in the Cash Collateral Accounts for
such Uncompleted Project. If the aggregate principal amount of Senior Notes
surrendered pursuant to any such Uncompleted Project Offer exceeds the amount of
funds available to repurchase such Senior Notes, the Trustee shall select the
Senior Notes to be purchased in the manner described under the caption
"Selection and Notice" below.
It shall constitute an Event of Default under the Senior Notes if the
Majestic Star Casino is not Operating by December 31, 1996 and continues to be
not Operating.
UNCOMPLETED VESSEL OFFER
If Delivery of the Permanent Vessel has not occurred by June 30, 1998, then
the Company will be required within 30 days of such date to offer to purchase
Senior Notes up to an amount equal to funds remaining in the Cash Collateral
Accounts (the "Uncompleted Vessel Offer") at a price equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any.
Within 30 days after June 30, 1998, the Company will mail to all Holders of
Senior Notes a notice apprising such Holders of the Uncompleted Vessel Offer and
of the Holders' rights arising as a result thereof. The procedures governing an
Uncompleted Vessel Offer will be set forth in full in the Indenture.
There can be no assurance that the balance of funds in the Cash Collateral
Accounts will equal the proceeds of the Senior Notes originally deposited in the
Cash Collateral Accounts for such Permanent Vessel. If the aggregate principal
amount of Senior Notes surrendered pursuant to any such Uncompleted Vessel
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<PAGE> 61
Offer exceeds the amount of funds available to repurchase such Senior Notes, the
Trustee shall select the Senior Notes to be purchased in the manner described
under the caption "Selection and Notice" below.
It shall constitute an Event of Default under the Senior Notes if the
Permanent Vessel is not Delivered by June 30, 1998.
The source of funds for any repurchase of Senior Notes in the event of an
occurrence of one of the items described under this subcaption "Repurchase at
the Option of Holder" will be the Company's cash or cash generated from
operations or other sources, including borrowings, sales of assets or
contributions. However, there can be no assurance that the Company will have
sufficient funds available at the time of the occurrence of any such events to
make any required repurchases. Further, the Company's obligation to make a
repurchase offer could have the effect of deterring potential mergers and other
acquisitions of the Company, hindering the Company's ability to obtain
additional financing, as well as adversely affecting the market price of the
Senior Notes.
The Company may not amend, alter or waive the provisions described under
the capition "Repurchase at the Option of Holder -- Change of Control" without
the consent of Holders of at least 66 2/3% of the outstanding principal amount
of Senior Notes.
SELECTION AND NOTICE
If less than all of the Senior Notes are to be purchased in an Asset Sale
Offer, Event of Loss Offer, Uncompleted Project Offer or Uncompleted Vessel
Offer or redeemed at any time, selection of Senior 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 Senior Notes
are listed, or, if the Senior Notes are not so listed, on a pro rata basis, by
lot or by such other method as the Trustee considers fair and appropriate (and
in such manner as complies with applicable legal requirements), provided, that
no Senior Notes of $1,000 or less shall be purchased or redeemed in part unless
all of the Notes of a Holder are to be purchased or redeemed, then the entire
outstanding amount of Senior Notes held by such Holder, even if not a multiple
of $1,000, shall be purchased or redeemed.
The Company shall mail, by first class mail, postage prepaid, at least 30
but not more than 60 days before the purchase or redemption date, a notice of
purchase or redemption to each Holder of Senior Notes to be purchased or
redeemed at such Holder's registered address. If any Senior Note is to be
purchased or redeemed in part only, any notice of purchase or redemption that
relates to such Senior Note shall state the portion of the principal amount
thereof that has been or is to be purchased or redeemed.
A new Senior Note in principal amount equal to the unpurchased or
unredeemed portion of any Senior Note purchased or redeemed in part will be
issued in the name of the Holder thereof upon cancellation of the original
Senior Note. On and after the purchase or redemption date, unless the Company
defaults in payment of the purchase or redemption price, interest shall cease to
accrue on Senior Notes or portions thereof purchased or called for redemption.
CERTAIN COVENANTS
USE OF PROCEEDS
The Indenture provides that the Company use the net proceeds from the sale
of the Senior Notes (to the extent provided in the Indenture) only for Permitted
Proceed Uses. The Company deposited the net proceeds from the sale of the Senior
Notes on May 22, 1996 into the Cash Collateral Accounts and such net proceeds
will be disbursed only in accordance with the Cash Collateral and Disbursement
Agreement.
CONSTRUCTION
The Indenture provides that the Company will cause the equipping and
refitting of the Chartered Vessel for gaming, and will use its best efforts to
cause the construction by the BHR Joint Venture of the Gaming Complex, 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 Specifications and within the Construction Budget. The Indenture
also provides that at such time as the Company elects to construct the Permanent
Vessel, such construction will be prosecuted with diligence and continuity in a
good
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and workmanlike manner substantially in accordance with the Plans and
Specifications for such construction and within the construction budget therefor
and that the Company shall use its best efforts to cause the Permanent Vessel to
be Delivered no later than June 30, 1998.
GAMING LICENSES
The Indenture provides that the Company will use its best efforts to obtain
and retain in full force and effect at all times all Gaming Licenses necessary
for the operation of the Majestic Star Casino.
CORPORATE EXISTENCE
The Indenture provides that the Company will, and will cause each of its
Subsidiaries to, preserve and maintain its existence as a limited liability
company, corporation, partnership or other entity, and its rights (charter and
statutory) and authority.
RESTRICTED PAYMENTS
(a) Except as set forth in paragraph (b) below, 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 distribution in
either case on account of the Company's or any of its Subsidiaries' Equity
Interests (other than (A) dividends or distributions payable in Equity Interests
(other than Disqualified Capital Stock) or (B) dividends or distributions by a
Subsidiary of the Company, provided that to the extent that a portion of such
dividend or distribution is paid to a holder other than the Company or a
Subsidiary, such portion of such dividend or distribution is not greater than
such holder's pro rata aggregate equity interest in such Subsidiary); (ii)
purchase, redeem or otherwise acquire or retire for value any Equity Interests
of the Company or any of its Subsidiaries or any other Affiliate of the Company
(other than any such Equity Interests owned by the Company or any Wholly Owned
Subsidiary); (iii) purchase, redeem or otherwise acquire or retire any
Subordinated Indebtedness of the Company or any of its Subsidiaries; or (iv)
make any Restricted Investment (all such dividends, distributions, purchases,
redemptions or Investments being collectively referred to as "Restricted
Payments"); if, at the time of such actions, or after giving effect thereto: (1)
an Event of Default or Default shall have occurred and be continuing or would
occur as a consequence thereof; (2) at the time of such Restricted Payment and
upon giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the applicable four-quarter period, the Company could not
incur at least $1.00 of additional Indebtedness under the first paragraph of the
covenant described under the caption entitled "Limitations on Incurrence of
Indebtedness and Issuance of Disqualified Capital Stock"; and (3) the aggregate
amount of Restricted Payments made by the Company and its Subsidiaries,
including Restricted Payments permitted by the following paragraph, will be no
greater than the sum of (x) 50% of cumulative Consolidated Net Income of the
Company for the period (taken as one accounting period) from the first day that
the Majestic Star Casino is Operating to the end of the Company's most recently
ended fiscal quarter for which internal financial statements are available, less
all distributions in respect of any such period under clause (i) of paragraph
(b) below, (or, in the event that such Consolidated Net Income for such period
is a deficit, minus 100% of such deficit), plus (y) 100% of the aggregate net
cash proceeds received by the Company from the issue or sale of Equity Interests
or debt securities of the Company that have been converted into such Equity
Interests of the Company (other than Equity Interests or convertible debt
securities of the Company sold to a Subsidiary of the Company and other than
Disqualified Capital Stock or debt securities that have been converted into
Disqualified Capital Stock) or capital contributions to the Company subsequent
to the issuance of the Senior Notes.
The foregoing provisions do not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at the date of
declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement or other acquisition of
any Equity Interests of the Company or any Subsidiary in exchange for, or out of
the proceeds of, the substantially concurrent sale (other than to a Subsidiary
of the Company) of Equity Interests of the Company (other than any Disqualified
Capital Stock); (iii) the redemption, repurchase, retirement or other
acquisition of any Subordinated Indebtedness of the Company or any Subsidiary in
exchange for, or out of the proceeds of, the substantially concurrent sale
(other than to a Subsidiary of the Company) of Subordinated Indebtedness of the
Company
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or Equity Interests of the Company (other than Disqualified Capital Stock),
provided, however, that (x) the principal amount of such Subordinated
Indebtedness shall not exceed the principal amount of the Subordinated
Indebtedness so redeemed, repurchased, retired or otherwise acquired (plus the
amount of reasonable expenses incurred and any premium paid in connection
therewith), (y) the Subordinated Indebtedness shall have a Weighted Average Life
to Maturity equal to or greater than the Weighted Average Life to Maturity of
the Subordinated Indebtedness being redeemed, repurchased, retired or otherwise
acquired, and (z) such Subordinated Indebtedness is subordinate in right of
payment to the Senior Notes and on terms at least as favorable to the holders of
the Senior Notes as the terms set forth in the documentation governing the
Subordinated Indebtedness being redeemed, repurchased, retired or otherwise
acquired; and (iv) any redemption or purchase by the Company or any Subsidiary
of Equity Interests of the Company required by a Gaming Regulatory Authority in
order to preserve a material Gaming License, provided, that so long as such
efforts do not jeopardize any material Gaming License, the Company or such
Subsidiary shall have diligently tried to find a third-party purchaser for such
Equity Interests and no third-party purchaser acceptable to the applicable
Gaming Regulatory Authority was willing to purchase such Equity Interests within
a time period acceptable to such Gaming Regulatory Authority; provided, further,
that at the time of, and after giving effect to, any Restricted Payment
permitted under clauses (ii) and (iii), no Default or Event of Default shall
have occurred and be continuing or would occur as a consequence thereof.
(b) Notwithstanding anything in paragraph (a) to the contrary, from and
after the Issue Date (and for so long as no Event of Default described in the
Indenture shall have occurred and be continuing), the Company will be permitted
to (i) make quarterly distributions to the members of the Company in an amount
not to exceed, with respect to any fiscal year, an amount equal to the good
faith estimate of maximum federal and state income tax liability of the Company
in such period if it were a taxable Person at the highest effective federal and
state income tax rate of any member of the Company; provided, that each such
quarterly distribution shall not exceed the estimated federal and state tax
liability calculated on such basis; provided further that the Company may make
one annual tax distribution in respect of any difference between the annual tax
liability so calculated and the estimated quarterly distributions made and that
any distribution of estimated tax payments that exceeds the annual tax liability
so calculated will be applied to reduce the distributions in the following year,
(ii) make capital contributions to the BHR Joint Venture to the extent required
by the BHR Operating Agreement in an aggregate amount not to exceed $56.1
million; (iii) make capital contributions to the BHR Joint Venture to pay for
harbor improvements required by the Harbor Lease and other improvements
ancillary to such harbor improvements; (iv) make capital contributions, loans or
advances to the BHR Joint Venture for additional development or expansion costs
in an aggregate amount not exceeding $5.0 million; (v) from and after the
Commencement Date and so long as clause (a)(2) of this covenant shall be
satisfied, make capital contributions, loans or advances to the BHR Joint
Venture for additional development or expansion costs in an aggregate amount not
exceeding $50.0 million less any capital contributions, loans or advances made
by the Company pursuant to clause (b)(iii) or clause (b)(iv) hereof; (vi) repay
the Note to Principal Member and (vii) make payments to the City of Gary or any
other person in accordance with the Development Agreement.
LIMITATIONS ON INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF DISQUALIFIED CAPITAL
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 with respect to any
Indebtedness (including Acquired Indebtedness) or any shares of Disqualified
Capital Stock; provided, however, that the Company and its Subsidiaries may
incur Indebtedness or issue shares of Disqualified Capital Stock if (i) the
Majestic Star Casino is Operating, (ii) the Fixed Charge Coverage Ratio for the
Company's most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date of such
incurrence would have been at least 2.5 to 1 determined on a pro forma basis
(including a pro forma application of the net proceeds therefrom), as if the
additional Indebtedness had been incurred or the Disqualified Capital Stock had
been issued, as the case may be, and application of proceeds had occurred at the
beginning of such four-quarter period and (iii) such Indebtedness or
Disqualified Capital Stock, as the case may be, does not have a Weighted Average
Life to Maturity less than the Weighted Average Life to Maturity of the Senior
Notes.
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The foregoing limitations do not apply to:
(a) the incurrence by the Company or any of its Subsidiaries of
Indebtedness in an aggregate principal amount not to exceed at any one time
$6.0 million for working capital purposes;
(b) the incurrence by the Company or any of its Subsidiaries of any
Existing Indebtedness;
(c) the incurrence by the Company or any of its Subsidiaries of
Indebtedness represented by the Senior Notes;
(d) the incurrence by the Company or any of its Subsidiaries of
Indebtedness (the "Refinancing Indebtedness") issued in exchange for, or
the proceeds of which are used to extend, refinance, renew, replace, or
refund Indebtedness referred to in the first paragraph of this covenant or
in clauses (a), (b), (c) or this clause (d), provided, however, that (1)
the principal amount of such Refinancing Indebtedness shall not exceed the
principal amount of Indebtedness so extended, refinanced, renewed,
replaced, substituted or refunded (plus the amount of reasonable expenses
incurred and any premium paid in connection therewith), (2) the Refinancing
Indebtedness shall, if applicable, be subordinate in right and priority of
payment to the Senior Notes to the same extent such Indebtedness being
refinanced is, and (3) the Refinancing Indebtedness shall have a Weighted
Average Life to Maturity equal to or greater than the Weighted Average Life
to Maturity of the Indebtedness being extended, refinanced, renewed,
replaced, substituted or refunded;
(e) intercompany Indebtedness between or among the Company and any
Wholly Owned Subsidiary; provided, however, the obligations to pay
principal, interest or other amounts under such intercompany Indebtedness
is subordinated to the payment in full of the Senior Notes;
(f) the incurrence by the Company or any of its Subsidiaries of
Indebtedness represented by Capital Lease Obligations or purchase money
obligations, in each case incurred for the purpose of financing or
refinancing all or any part of the purchase or lease of personal property
or equipment used in the business of the Company or such Subsidiary, in an
aggregate principal amount pursuant to this clause (f) not to exceed (i)
$8.0 million outstanding at any time prior to Delivery of the Permanent
Vessel and (ii) $12.0 million outstanding at any time in connection with
the equipping of the Permanent Vessel; and
(g) to the extent that such incurrence does not result in the
incurrence by the Company or any Subsidiary of any obligation for the
payment of borrowed money of others, Indebtedness incurred solely in
respect of performance bonds, completion guarantees, standby letters of
credit or bankers' acceptance, provided, that such Indebtedness was
incurred (i) to comply with a requirement of a Gaming Regulatory Authority
or (ii) in the ordinary course of business, in amounts and for purposes
customary for gaming operations similar to the Company's or such
Subsidiary's, and in an aggregate principal amount outstanding under this
clause (g) (ii) at any one time of less than $2.0 million.
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, except Permitted Liens, on any asset owned as of the Issuance
Date or thereafter acquired by the Company or such Subsidiary or any income or
profits therefrom, or assign or convey any right to receive income therefrom.
RESTRICTIONS ON BHR JOINT VENTURE
The Indenture provides that the Company will not consent to the issuance of
Indebtedness by the BHR Joint Venture except (a) Indebtedness incurred pursuant
to Section 4.3(c) of the BHR Operating Agreement; (b) Indebtedness incurred for
the purpose of acquiring, constructing or improving property owned by the BHR
Joint Venture in an aggregate principal amount not to exceed $4.0 million; and
(c) the refinancing of any such Indebtedness. The Indenture will provide that
the Company will not consent to the creation, incurrence, assumption or
existence of any Lien by the BHR Joint Venture, except Permitted Liens.
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TRANSACTIONS WITH AFFILIATES
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, sell, lease, transfer or otherwise dispose of any of its
assets, properties or securities to, or purchase any asset, property or security
from, or enter into or make any contract, agreement, understanding, loan,
advance or guarantee with, or for the benefit of, any Affiliate of the Company
(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) (A) the Company delivers to the Trustee with respect to any
Affiliate Transaction involving aggregate payments in any twelve month
period in excess of $350,000, a resolution adopted by the Board of Managers
of the Company approving such Affiliate Transaction and set forth in an
Officers' Certificate certifying that such Affiliate Transaction complies
with clause (i) above and (B) the Company delivers to the Trustee with
respect to any Affiliate Transaction involving aggregate payments in any
twelve month period in excess of $4.0 million, an opinion as to the
fairness to the Company or such Subsidiary from a financial point of view
issued by an Independent Financial Advisor.
The foregoing provisions do not apply to the following: (1) Restricted
Payments permitted by the covenant of the Indenture entitled "Restricted
Payments", (2) capital contributions required to be made by the Company pursuant
to the BHR Operating Agreement, (3) the Berthing Agreement, (4) the provision of
certain services to the City of Gary or to any other Person in the State of
Indiana on behalf of the City of Gary by an Affiliate or Affiliates of the
Company to satisfy certain obligations of the Company under the Development
Agreement, (5) the licensing of any service mark of the Company to an Affiliate
or Affiliates of the Company and (6) the extension or renewal of any terms of
any Affiliate Transaction in effect on the Issuance Date so long as such
extension or renewal is accompanied by an Officers' Certificate stating that
such extension or renewal complies with clause (i) above.
Notwithstanding the foregoing, the Company shall not enter into an
employment or consulting agreement with any individual who directly or
indirectly controls the Company, which agreement provides for annual
compensation to such individual in excess of $350,000.
LINE OF BUSINESS
The Indenture provides that for so long as any Senior Notes are
outstanding, the Company (i) shall not, and shall not permit any of its
Subsidiaries to, engage in any business or activity other than the Principal
Business and (ii) shall not permit the BHR Joint Venture to engage in any
business or activity other than businesses or activities that relate to the
Principal Business.
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 such Subsidiary to (a)(i) pay dividends or make any other
distributions to the Company or any of its Subsidiaries (A) on its Capital Stock
or (B) with respect to any other interest or participation in, or measured by,
its profits, or (ii) pay any Indebtedness owed to the Company or any of its
Subsidiaries, (b) make loans or advances to the Company or any of its
Subsidiaries or (c) sell, lease, or transfer any of its properties or assets to
the Company or any of its Subsidiaries, except (in each case) for such
encumbrances or restrictions existing under or by reason of (1) contractual
encumbrances or restrictions in effect on the Issuance Date, (2) the Indenture,
the Senior Notes and the Collateral Documents, (3) any instrument governing
Indebtedness or Capital Stock of a Person acquired by the Company or any
Subsidiary as in effect at the time of such acquisition (except to the extent
such Indebtedness was incurred in connection with or in contemplation of such
acquisition), which encumbrance or restriction is not applicable to any Person,
or the properties or assets of any Person, other than the Person, or the
property or assets of the Person, so acquired, provided that the Consolidated
Cash Flow of such Person is not taken into account in determining whether
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such acquisition was permitted by the terms of the Indenture, (4) by reason of
customary non-assignment provisions in leases entered into in the ordinary
course of business and consistent with past practices, (5) purchase money
obligations for property acquired in the ordinary course of business that impose
restrictions of the nature discussed in clause (c) above on the property so
acquired, (6) applicable law or any applicable rule or order of any Gaming
Regulatory Authority, or (7) any encumbrances or restrictions imposed by any
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings of the contracts, instruments or
obligations referred to in clauses (1) through (6) above, provided, that such
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings are, in the good faith judgment of the
Company's Board of Managers, no more restrictive with respect to such dividend
and other payment restrictions than those contained in the dividend or other
payment restrictions prior to such amendment, modification, restatement,
renewal, increase, supplement, refunding, replacement or refinancing.
RESTRICTIONS ON LEASING AND DEDICATION OF PROPERTY
The Indenture provides that the Company shall not, and shall not permit any
Subsidiary to, lease, sublease, or grant a license, concession or other
agreement to occupy, manage or use any Note Collateral owned or leased by the
Company (each, a "Lease Transaction"), other than the following Lease
Transactions; provided that (1) no Default or Event of Default has occurred or
is continuing immediately after entering into such Lease Transaction (or
immediately after any extension or renewal of such Lease Transaction made at the
option of the Company or any Subsidiary) and (2) no gaming or casino operations
may be conducted on any Note Collateral that is the subject of such Lease
Transaction other than by the Company or any Subsidiary:
(a) the Company may enter into a Lease Transaction with respect to any
space on or within the Majestic Star Casino with any Person, provided that:
(i) such Lease Transaction will not interfere with, impair or
detract from the operations of the Majestic Star Casino and will, in the
opinion of the Company, enhance the value and operations of the Majestic
Star Casino;
(ii) such Lease Transaction is at a fair market rent (in light of
other similar or comparable prevailing commercial transactions) and
contains such other terms such that the Lease Transaction, taken as a
whole, is commercially reasonable and fair to the Company in light of
prevailing or comparable transactions in other casinos, hotels,
attractions or shopping venues; and
(iii) such Lease Transaction complies with all applicable laws,
including obtaining any consent or license of the IGC, if required; and
(b) the Company may enter into a management or operating agreement
with respect to any Note Collateral (other than any Note Collateral or
space used for any casino or gaming operations) with any Person; provided
that;
(i) the manager or operator has experience in managing or operating
similar operations;
(ii) such management or operating agreement is on commercially
reasonable and fair terms to the Company; and
(iii) such management or operating agreement is terminable without
penalty to the Company upon no more than 90 days written notice.
The Trustee shall enter into a leasehold non-disturbance agreement with
respect to any Lease Transaction permitted under clause (a) above, in the event
that the Trustee, on behalf of the Holders of Senior Notes, forecloses or take
possession of any Note Collateral. Such an agreement shall provide, among other
things, that any action taken with respect to any Note Collateral, including any
sale of Note Collateral, will be subject to the terms of the Lease Transaction
and will permit the lessee to cure certain defaults under such Lease
Transaction. No Lease Transaction may provide that the Company may subordinate
its leasehold or fee interest to any lessee or any financing party of any
lessee.
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LIMITATIONS ON MERGERS AND CERTAIN OTHER TRANSACTIONS
The Indenture provides that the Company, in a single transaction or through
a series of related transactions, shall not consolidate with or merge with or
into any other Person, or transfer (by lease, assignment, sale or otherwise) all
or substantially all of its properties and assets unless (1) either the Company
shall be the continuing Person, or the Person (if other than the Company) formed
by such consolidation or into which the Company is merged or to which all or
substantially all of the properties and assets of the Company are transferred
(the Company or such other Person hereinafter referred to as the "Surviving
Person") shall be a corporation or limited liability company organized and
validly existing under the laws of the United States, any state thereof or the
District of Columbia, and shall expressly assume, by a supplemental indenture,
all the obligations of the Company under the Senior Notes, the Indenture and the
Collateral Documents; (2) immediately after and giving effect to such
transaction and the assumption contemplated by clause (1) above and the
incurrence or anticipated incurrence of any Indebtedness to be incurred in
connection therewith, (A) the Surviving Person shall have a Consolidated Net
Worth equal to or greater than the Consolidated Net Worth of the Company
immediately preceding the transaction, and (B) the Surviving Person could incur
$1.00 of additional Indebtedness under the Fixed Charge Coverage Ratio; (3)
immediately before and immediately after and giving effect to such transaction
and the assumption of the obligations as set forth in clause (1) above and the
incurrence or anticipated incurrence of any Indebtedness to be incurred in
connection therewith, no Default or Event of Default shall have occurred and be
continuing; and (4) such transactions would not require any Holder of Senior
Notes to obtain a Gaming License or be qualified under the laws of any gaming
jurisdiction, provided that such Holder would not have been required to obtain a
Gaming License or be qualified under the laws of any applicable gaming
jurisdiction in the absence of such transactions.
MAINTENANCE OF INSURANCE
The Indenture provides that, until the Senior Notes have been paid in full,
the Company shall, and shall cause its Subsidiaries to, maintain insurance with
responsible carriers against such risks and in such amounts as are 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 shall have provided insurance certificates evidencing such
insurance to the Trustee prior to the Issuance Date and shall hereafter provide
such certificates prior to the anniversary or renewal date of each such policy,
which certificate shall expressly state the expiration date for each policy
listed. The Company shall furnish or cause to be furnished certified copies of
the policies to the Trustee.
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; and
(iv) 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 Senior 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 and with a deductible no greater than 2% of the
insured value of the Majestic Star Casino 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).
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All insurance required under the Indenture (except workers' compensation)
shall name the Company as insured and the Trustee as an additional insured, with
losses in excess of $1.0 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 losses in
excess of $1.0 million shall be deposited in the Event of Loss Account to be
established pursuant to Section 10.12 of the Indenture and the Cash Collateral
and Disbursement Agreement and shall be pledged to the Trustee until released in
accordance with the terms of the applicable Collateral Document. All such
insurance policies shall 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 XII,
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 Company shall 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 comply with this covenant and the
related applicable provisions of the Collateral Documents.
LIMITATION ON STATUS AS INVESTMENT COMPANY
The Indenture prohibits the Company and its Subsidiaries 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.
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 in any material respect on the rights of the
Trustee or the Holders; provided, that:
(i) the Note Collateral may be released or modified as expressly
provided in the Indenture and in the Collateral Documents;
(ii) the Construction Budget may be amended as expressly provided in
the Cash Collateral and Disbursement Agreement; 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" in 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, 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 interest
required to be encumbered thereby, (iii) to perfect and maintain the
enforceability, validity, effectiveness and priority of any of the Collateral
Documents and the Liens intended to be created thereby, (iv) to enter into the
First Preferred Ship Mortgage upon Delivery of the Permanent Vessel, and (v) to
better assure, convey, grant, assign, transfer, preserve, protect and confirm to
the Trustee any of the rights granted or now or hereafter intended by the
parties thereto to be granted to the Trustee, the Holders of the Senior Notes 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.
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REPORTS
Under the terms of the Indenture, notwithstanding that the Company may not
be subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, the Company will file with the SEC all information, documents and reports
specified in Section 13 or 15(d) of the Exchange Act.
Under the terms of the Indenture, the Company has agreed to file with the
Trustee and provide Holders of Senior Notes, within 15 days after the Company
files the same with the SEC, copies of its annual reports and of the
information, documents and other reports (or copies of such portions of any of
the foregoing as the SEC may by rule or regulation prescribe) which the Company
would be required to file with the SEC pursuant to Section 13 or 15(d) of the
Exchange Act. Notwithstanding that the Company may not be required to remain
subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act
or otherwise report on an annual and quarterly basis on forms provided for such
annual and quarterly reporting pursuant to rules and regulations promulgated by
the SEC, the Indenture requires the Company to continue to file with the SEC
(unless the SEC will not accept such reports) and, at the Company's expense,
provide the Trustee, Holders of Senior Notes, securities analysts and
prospective investors (upon request) with copies of such reports:
(i) within 90 days after the end of each fiscal year, annual reports
on Form 10-K (or any successor or comparable form) containing the
information required to be contained therein (or required in such successor
or comparable form);
(ii) within 45 days after the end of each of the first three fiscal
quarters of each fiscal year, reports on Form 10-Q (or any successor or
comparable form); and
(iii) promptly from time to time after the occurrence of an event
required to be therein reported, such other reports on Form 8-K (or any
successor or comparable form) containing the information required to be
contained therein (or required in any successor or comparable form);
provided, however, that the Company shall not be so obligated to file such
reports with the SEC if the SEC does not permit such filings.
The Company has also agreed to include in such reports the anticipated
initial completion date of the Majestic Star Casino and the anticipated date of
Delivery of the Permanent Vessel and, in the case of quarterly reports, the
Contingent Interest paid, the Contingent Interest Accrual amount and
Consolidated Cash Flow with respect to the most recently ended fiscal quarter of
the Company, and in the case of annual reports, the audited Contingent Interest
paid, the Contingent Interest Accrual amount and audited Consolidated Cash Flow
for the most recently ended fiscal year and for each of the Semiannual Periods
ending in such fiscal year.
Within 15 days after receiving notice that the IGC has commenced any
proceeding seeking the suspension or revocation of the Company's owner's license
or seeking the imposition of a civil penalty against the Company exceeding
$100,000, the Company has agreed to file with the Trustee and provide to Holders
of Senior Notes copies of any such notice unless such proceeding against the
Company is terminated by the IGC without imposition of any material sanction
within such 15-day period.
Not later than the date of filing any quarterly or annual report, the
Company has agreed to deliver to the Trustee an Officers' Certificate stating
that each Restricted Payment made in the prior fiscal quarter was permitted and
setting forth the basis upon which the calculations required by the covenant in
the Indenture relating to "Restricted Payments" were computed, which
calculations may be based upon the Company's latest available financial
statements.
RATING
The Indenture requires the Company to make presentations to Moody's
Investors Service and Standard & Poor's Ratings Group, within 90 days of the
date of the Indenture, for the purpose of obtaining a rating for the Senior
Notes.
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SECURITY
The Senior Notes are secured by (i) a pledge of the Company's 50%
membership interest in the BHR Joint Venture pursuant to the BHR Pledge
Agreement, (ii) a pledge of BDI's 85% direct membership interest in the Company
pursuant to the BDI Pledge Agreement, (iii) a collateral assignment of the
Company's interest in the Berthing Agreement pursuant to the Security Agreement,
(iv) a pledge of all funds in the Cash Collateral Accounts into which the
proceeds from the Offering will be placed pending their use pursuant to the Cash
Collateral and Disbursement Agreement, (v) certain other assets now owned or
hereafter acquired by the Company after the Issuance Date pursuant to the
Security Agreement (other than any assets which if pledged, hypothecated or
given as collateral security would require the Trustee or a holder or beneficial
holder of the Senior Notes to be licensed, qualified or found suitable and other
than certain assets to the extent such assets are permitted to be financed by
Indebtedness permitted to be incurred pursuant to the covenant in the Indenture
entitled "Limitation on Incurrence of Indebtedness and Issuance of Disqualified
Capital Stock" and such Indebtedness is permitted to be secured pursuant to the
covenant entitled "Liens" pursuant to the definition of "Permitted Liens") and
(vi) a collateral assignment of the Company's rights to the service mark
"Majestic Star Casino" pursuant to the Trademark Security Agreement.
At such time as the Company elects to construct a new vessel to serve as
the Permanent Vessel, (i) pending construction of such Permanent Vessel, the
Senior Notes will be secured by a collateral assignment of the Company's
interest in any material construction contracts relating to such construction
and a duly perfected security interest in all property comprising such Permanent
Vessel while under construction and (ii) upon Delivery of such Permanent Vessel,
the Senior Notes will be secured by a duly perfected First Preferred Ship
Mortgage in such Permanent Vessel.
So long as no Event of Default shall have occurred and be continuing, and
subject to certain terms and conditions in the Indenture and the Collateral
Documents, the Company is entitled to use the Note Collateral in a manner
consistent with normal business practices. Upon the occurrence and during the
continuance of an Event of Default, the Trustee may sell the Note Collateral or
any part thereof in accordance with the terms of the Collateral Documents. All
funds distributed under the Collateral Documents and received by the Trustee for
the benefit of the Holders of the Senior Notes shall be distributed by the
Trustee in accordance with the provisions of the Indenture.
Under the terms of the Collateral Documents, the Trustee may determine the
circumstances and manner in which the Note Collateral shall be disposed of,
including, but not limited to, the determination of whether to release all or
any portion of the Note Collateral from the Liens created by the Collateral
Documents and whether to foreclose on the Note Collateral following an Event of
Default. Subject to certain additional provisions set forth in the Indenture,
the Note Collateral may be released from the Lien and security interest created
by the Indenture and the Collateral Documents at any time or from time to time
upon the request of the Company pursuant to an Officers' Certificate certifying
that all terms for release and conditions precedent under the Indenture and
under any applicable Collateral Document have been met and specifying
(i) the identity of the Note Collateral to be released and
(ii) the provision of the Indenture or Collateral Document which
authorizes such release.
The Trustee shall release (at the sole cost and expense of the Company):
(i) Note Collateral that is the subject of an Asset Sale or that is
sold, transferred or otherwise disposed of; provided, such transaction is
or will be in accordance with provisions of the Indenture or the applicable
Collateral Document, including, without limitation, the requirement that
the net proceeds from such transaction or Asset Sale are or will be applied
in accordance with the Indenture;
(ii) Note Collateral that is condemned, seized or taken by the power
of eminent domain or otherwise confiscated pursuant to an Event of Loss;
provided that the Net Loss Proceeds, if any, from such Event of Loss are or
will be applied in accordance with the covenant described above under
"Event of Loss";
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(iii) Note Collateral which may be released with the consent of
Holders of Senior Notes pursuant to the amendment provisions of the
Indenture;
(iv) all Note Collateral (except as provided in the discharge and
defeasance provisions of the Indenture and, in particular, the funds in the
trust fund described in such provisions) upon discharge or defeasance of
the Indenture in accordance with the discharge and defeasance provisions
thereof; and
(v) all Note Collateral upon the payment in full of all obligations of
the Company with respect to the Senior Notes.
The Indenture provides that the Net Proceeds of all Asset Sales and the Net
Loss Proceeds of all Events of Loss of assets constituting Note Collateral
(other than Permitted Investments), as well as Excess Proceeds, be promptly and
without any commingling deposited with the Trustee in a Collateral Account
subject to a lien in favor of the Trustee for the benefit of the Holders of the
Senior Notes unless and until applied as permitted under the covenant described
under "Asset Sales" or "Events 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 Senior Notes in
compliance with the covenant described under "Asset Sales" or "Events 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 and the Cash Collateral and
Disbursement Agreement.
CASH COLLATERAL AND DISBURSEMENT AGREEMENT
Pursuant to the Cash Collateral and Disbursement Agreement, the Company
placed all of the net proceeds from the Offering into the Cash Collateral
Accounts, to be held in escrow and invested in Cash Equivalents by the
Disbursement Agent (at the direction of the Company) until needed from time to
time to fund (i) the equipping of the Chartered Vessel, (ii) the Company's
obligations with respect to the construction of the Gaming Complex, (iii) the
construction of the Permanent Vessel, (iv) the repayment of the Note to
Principal Member, (v) the first two scheduled payments of Fixed Interest with
respect to the Senior Notes, and (vi) certain other disbursements as permitted
by the Cash Collateral and Disbursement Agreement, each pursuant to the terms of
the Cash Collateral and Disbursement Agreement. Subject to certain exceptions
set forth in the Cash Collateral and Disbursement Agreement, the Disbursement
Agent will authorize the disbursement of funds from the Cash Collateral Accounts
only upon the satisfaction of the disbursement conditions set forth in the Cash
Collateral and Disbursement Agreement. Such conditions include, with respect to
the Completion Reserve Account, that $5.0 million of the funds in such account
shall be released to BDI as partial repayment of the Note to Principal Member if
(i) the Majestic Star Casino has been Operating for 90 days, (ii) the Company's
Fixed Charge Coverage Ratio as calculated on the last day of such 90-day period
or on the last day of any fiscal quarter thereafter is greater than 2.5 to 1,
provided that Cash Equivalents (other than any Cash Equivalents then remaining
in the Cash Collateral Accounts) available to the Company on any such date of
calculation exceed $5.0 million, (iii) guaranteed maximum price construction
contracts to construct and deliver the Permanent Vessel to the Company in Gary,
Indiana by September 30, 1997 have been entered into, and (iv) no Event of
Default exists or is continuing under the Indenture at any such date of
calculation. Any funds remaining in the Completion Reserve Account shall be
released upon Delivery of the Permanent Vessel.
All funds in the Cash Collateral Accounts are pledged as security for the
repayment of the Senior Notes and, under certain circumstances, the funds in the
Cash Collateral Accounts will be used to offer to redeem a portion of the Senior
Notes.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default:
(i) the Company defaults in payment when due and payable, upon
maturity, redemption or otherwise, of principal or premium, if any, on the
Senior Notes;
(ii) the Company defaults for 30 days or more in the payment when due
of interest (including Contingent Interest and Liquidated Damages, if any),
on the Senior Notes; provided, that payments of
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Contingent Interest that are permitted to be deferred as provided in the
Senior Notes shall not become due for this purpose until such payment is
required to be made pursuant to the terms of the Senior Notes;
(iii) failure by the Company to comply, within the applicable cure
periods, with the covenants and provisions described under the captions
"Restricted Payments," "Limitations on Incurrence of Indebtedness and
Issuance of Disqualified Capital Stock," "Asset Sales," "Events of Loss,"
"Corporate Existence," "Offer to Repurchase Upon Change of Control," "Use
of Proceeds," "Uncompleted Project Offer" or "Uncompleted Vessel Offer";
(iv) the Company fails to observe or perform any other covenant,
representation, warranty or other agreement in the Indenture, the Senior
Notes or the Collateral Documents for 30 days after written notice to the
Company by the Trustee or to the Company and the Trustee from Holders of at
least 25% in principal amount of the Senior Notes then outstanding;
(v) for any reason, other than due to the act of the Trustee, the
Disbursement Agent or the Holders and other than the satisfaction in full
and discharge of all obligations secured thereby, to the extent permitted
by the Indenture or any Collateral Document, any Collateral Document ceases
to be in full force and effect or any Lien intended to be operated thereby
ceases to be or is not a valid and perfected Lien having the ranking or
priority contemplated thereby, except for Permitted Liens, and such
condition continues for 30 days after the Company receives notice of such
condition;
(vi) prior to the Delivery of the Permanent Vessel, the Charter ceases
to be in full force and effect or the Company defaults in the performance
of any covenant set forth in the Charter or any of the Collateral Documents
(which default is not waived or cured);
(vii) a default occurs under any mortgage, indenture or instrument
under which there is issued or by which there is secured or evidenced any
Indebtedness for money borrowed by the Company or any of its 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 Issuance Date, which default:
(a) is caused by a failure to pay when due principal of or premium,
if any, or interest on such Indebtedness prior to the expiration of the
grace period provided in such Indebtedness (a "Payment Cross-Default");
or
(b) results in the acceleration of such Indebtedness prior to its
express maturity or would constitute a default in the payment of such
issue of Indebtedness at final maturity of such issue and, in each case,
the principal amount of such Indebtedness, together with the principal
amount of any other such Indebtedness under which a Payment
Cross-Default then exists or with respect to which the maturity thereof
has been so accelerated or which has not been paid at maturity,
aggregates $1.0 million or more;
(viii) the entry of final judgments against the Company aggregating in
excess of $1.0 million, which final judgments remain unpaid, undischarged,
unbonded or unstayed for a period of more than 60 days;
(ix) any material breach by the Company of any representation or
warranty set forth in the Charter, the Berthing Agreement or any of the
Collateral Documents, or the repudiation by the Company of its obligations
under, or any judgment or decree by a court or governmental agency of
competent jurisdiction declaring the unenforceability of, the Charter, the
Berthing Agreement or any of the Collateral Documents for any reason that
would materially impair the benefits to the Trustee or the Holders of the
Senior Notes thereunder;
(x) certain events of bankruptcy or insolvency with respect to the
Company;
(xi) 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 the Majestic Star Casino;
(xii) cessation of gaming operations for a period of more than 90
consecutive days at the Majestic Star Casino (other than as a result of a
casualty loss) after the Majestic Star Casino becomes Operating;
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(xiii) cessation of gaming operations for a period of more than 180
consecutive days as a result of a casualty loss after the Majestic Star
Casino becomes Operating except if the Company is diligently pursuing
reconstruction and opening of the Majestic Star Casino;
(xiv) the Majestic Star Casino is not Operating by December 31, 1996
and continues to be not Operating; or
(xv) the Permanent Vessel has not been Delivered by June 30, 1998.
If any Event of Default (other than by reason of bankruptcy or insolvency)
occurs and is continuing, the Trustee or the Holders of at least 25% in
principal amount of the then outstanding Senior Notes may declare the principal,
premium, if any, interest (including Contingent Interest and Liquidated Damages,
if any) and any other monetary obligations on all the Senior 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, all the principal, premium, if any, interest (including Contingent
Interest and Liquidated Damages, if any) and other monetary obligations on all
outstanding Senior Notes will become due and payable without further action or
notice. Holders of the Senior Notes may not enforce the Indenture or the Senior
Notes except as provided in the Indenture. Subject to certain limitations,
Holders of a majority in principal amount of the then outstanding Senior Notes
may direct the Trustee in its exercise of any trust or power, including the
exercise of any remedy under the Collateral Documents. The Trustee may withhold
from Holders of Senior Notes notice of any continuing Default or Event of
Default (except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice is in their
interest. In addition, the Trustee shall have no obligation to accelerate the
Senior Notes if in the best judgment of the Trustee acceleration is not in the
best interest of the Holders of the Senior Notes.
In the case of any Event of Default occurring on or after May 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 payment of the premium that the
Company would have had to pay if the Company then had elected to redeem the
Senior Notes pursuant to the optional redemption provisions of the Indenture,
then, upon acceleration of the Senior Notes, an equivalent premium shall also
become and be immediately due and payable to the extent permitted by law. If an
Event of Default occurs prior to May 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 Senior Notes prior to
such date, then upon acceleration of the Senior Notes, an additional premium
shall also become and be immediately due and payable in an amount, for each of
the years beginning on May 15 of the years set forth below, as set forth below
(expressed as a percentage of the principal amount that would otherwise be due
but for the provisions of this sentence):
<TABLE>
<CAPTION>
YEAR %
-------------------------------------------------------------- ---
<S> <C>
1996.......................................................... 112.750
1997.......................................................... 112.750
1998.......................................................... 110.625
1999.......................................................... 108.500
2000.......................................................... 106.375
</TABLE>
The Holders of a majority in aggregate principal amount of the Senior Notes
then outstanding by notice to the Trustee may on behalf of the Holders of all of
the Senior 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 (including Contingent Interest and Liquidated
Damages, if any) on, premium, if any, or the principal of the Senior Notes.
Specific rights and remedies of the Trustee under the Collateral Documents
include the right of the Trustee or the appropriate Person under federal or
state law to sell the Note Collateral and to apply the net proceeds to the
Indebtedness evidenced by the Senior 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 of Indiana, while
the Indenture and the Senior Notes provide, with certain exceptions, for the
application of the internal laws of the State of New York. There is no certainty
regarding whether New York
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or Indiana law would be applied by any court with respect to the enforcement of
remedies under the Senior Notes, the Indenture or the Collateral Documents.
The right of the Trustee to realize upon and sell the Note Collateral is
likely to be significantly impaired by applicable bankruptcy and insolvency laws
if a proceeding under such laws were commenced in respect of the Company. Such
laws may impose limitations or prohibitions on the exercise of rights and
remedies under the Collateral Documents for a substantial or indefinite period
of time.
The Indenture provides that, following an Event of Default that permits the
taking of possession of the Majestic Star Casino by the Trustee, the Trustee
shall be authorized to recommend that the Company retain one or more experienced
operators of casinos to manage the casino located at the Majestic Star Casino on
behalf of the Holders of the Senior Notes; provided, however, that any such
operator shall have all necessary legal qualifications (including without
limitation all material Gaming Licenses and approvals of the IGC to manage the
casino located at the Majestic Star Casino).
Due to restrictions upon gaming activities in Indiana, however, the Trustee
may incur delays or possibly frustration in its effort to operate or to sell all
or a portion of the Note Collateral. Operators of gaming facilities in Indiana
are required to be licensed and are required by applicable Gaming Regulatory
Authorities to file applications, be investigated and be found suitable. Such
requirements for governmental approval 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.
Moreover, the gaming industry could become subject to different or additional
regulations during the term of the Senior Notes, which could further adversely
affect the practical rights and remedies that the Trustee would have upon the
occurrence of an Event of Default.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required, within
five Business Days, upon becoming aware of any Default or Event of Default or
any default under any document, instrument or agreement representing
Indebtedness of the Company, to deliver to the Trustee a statement specifying
such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND MEMBERS
No director, officer or office holder, employee, agent, representative, or
member of the Company, as such, shall have any liability for any obligations of
the Company under the Senior Notes, the Indenture 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 by accepting a Senior Note waives and
releases all such liability. The waiver and release are part of the
consideration for issuance of the Senior 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 obligations of the Company under the Indenture (other than certain
obligations) will terminate and the Note Collateral will be released upon
payment in full of all of the Senior Notes. The Company may, at its option and
at any time, elect to have all of its obligations discharged with respect to the
outstanding Senior Notes ("Legal Defeasance") and cure all then existing Events
of Default except for:
(i) the rights of Holders of outstanding Senior Notes to receive
payments in respect of the principal of, premium, if any, and interest
(including Contingent Interest, if any) on such Senior Notes when such
payments are due;
(ii) the Company's obligations with respect to the Senior Notes
concerning issuing temporary Senior Notes, registration of Senior Notes,
mutilated, destroyed, lost or stolen Senior 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
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(iv) the Legal and Covenant 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 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 Senior Notes. In the event Covenant Defeasance
occurs, certain events (not including non-payment, bankruptcy, receivership, and
insolvency events) described under "Events of Default" will no longer constitute
an Event of Default with respect to Senior Notes. In addition, the Note
Collateral will be released upon Covenant Defeasance or Legal Defeasance.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(i) the Company must irrevocably deposit with the Trustee, in trust,
for the benefit of the Holders of the Senior 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 as evidenced by a certificate
delivered to the Trustee, to pay the principal of, premium, if any, and
interest (including the maximum amount payable as Contingent Interest and
Liquidated Damages, if any) due on the outstanding Senior Notes on the
stated maturity date or on the applicable redemption date, as the case may
be, of such principal, premium, if any, or interest (including Contingent
Interest and Liquidated Damages, if any) on the outstanding Senior Notes on
the stated maturity date or on the applicable redemption date, as the case
may be, and the Company must specify whether the Senior Notes are being
defeased to maturity or to a particular redemption date;
(ii) in the case of Legal Defeasance, the Company shall have delivered
to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that, subject to customary assumptions
and exclusions:
(a) the Company has received from, or there has been published by, the
United States Internal Revenue Service a ruling; or
(b) since the Issuance Date of the Indenture, there has been a change
in the applicable U.S. federal income tax law, in either case to the effect
that and based thereon such opinion of counsel in the United States shall
confirm that, subject to customary assumptions and exclusions, the Holders
of the outstanding Senior Notes will not recognize income, gain or loss for
U.S. federal income tax purposes as a result of such Legal Defeasance and
will be subject to U.S. federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such Legal
Defeasance had not occurred;
(iii) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that, subject to customary
assumptions and exclusions, the Holders of the outstanding Senior Notes
will not recognize income, gain or loss for U.S. federal income tax
purposes as a result of such Covenant Defeasance and will be subject to
U.S. federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Covenant Defeasance had not
occurred;
(iv) no Default or Event of Default shall have occurred and be
continuing with respect to certain Events of Default on the date of such
deposit;
(v) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under, any material
agreement or instrument (other than the Indenture) to which the Company is
a party or by which the Company is bound;
(vi) the Company shall have delivered to the Trustee an opinion of
counsel to the effect that, after the 91st day following the deposit and as
of the date of such opinion and subject to customary assumptions and
exclusions following the deposit, the trust funds will not be subject to
the effect of any applicable bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally under any applicable
United States law;
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(vii) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of defeating, hindering, delaying or defrauding any creditors of the
Company or others; and
(viii) the Company shall have delivered to the Trustee an Officers'
Certificate and an opinion of counsel in the United States (which opinion
of counsel may be subject to customary assumptions and exclusions) each
stating that all conditions precedent provided for or relating to the Legal
Defeasance or the Covenant Defeasance have been complied with.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next three succeeding paragraphs, the Indenture,
the Senior Notes 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
Senior Notes then outstanding (including consents obtained in connection with a
tender offer or exchange offer for Senior Notes), provided that any required
governmental approval is obtained, including that of the IGC and subject to
certain provisions in the Indenture, any existing Default or Event of Default
(other than a Default or Event of Default in the payment of the principal of,
premium, if any, or interest (including Contingent Interest and Liquidated
Damages, if any) on the Senior Notes, except a payment default resulting from an
acceleration that has been rescinded) or compliance with any provision of the
Indenture or the Senior Notes may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Senior Notes (including
consents obtained in connection with a tender offer or exchange offer for Senior
Notes).
Without the consent of each holder of Senior Notes affected, an amendment
or waiver may not (with respect to any Senior Notes held by a non-consenting
holder of Senior Notes):
(i) reduce the principal amount of Senior Notes whose Holders must
consent to an amendment, supplement or waiver;
(ii) reduce the principal of or change the fixed maturity of any
Senior Note or alter or waive the provisions with respect to the redemption
of the Senior Notes (provided, however, that the term "redemption" as used
in this clause (ii) does not apply to any provision with respect to any
Repurchase Offer);
(iii) reduce the rate of or change the time for payment of interest
(including Contingent Interest) on any Senior Note;
(iv) waive a Default or Event of Default in the payment of principal
of, premium, if any, or interest (including Contingent Interest) on the
Senior Notes (except a rescission of acceleration of the Senior Notes by
the Holders of at least a majority in aggregate principal amount of the
then outstanding Senior Notes and waiver of the payment default that
resulted from such acceleration);
(v) make any Senior Note payable in money other than that stated in
the Senior Notes;
(vi) make any change in the provisions of the Indenture relating to
waivers of the past monetary Defaults or the rights of Holders of Senior
Notes to receive payments of principal of or premium, if any, or interest
(including Contingent Interest) on the Senior Notes:
(vii) release all or substantially all of the Note Collateral from the
Lien of the Indenture or the Collateral Documents; or
(viii) make any change in the provisions with respect to "Waiver of
Past Defaults" or "Rights of Holders of Senior Notes to Receive Payment" or
the foregoing amendment and waiver provisions.
Without the consent of Holders of at least 66- 2/3% of the outstanding
principal amount of the Senior Notes, the Company may not amend, alter or waive
the provisions with respect to "Offer to Repurchase Upon Change of Control."
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Notwithstanding the foregoing, without the consent of any Holder of Senior
Notes, and provided that any required governmental approval, including that of
the IGC, is obtained, the Company and the Trustee together may amend or
supplement the Indenture, the Senior Notes or the Collateral Documents to:
(i) cure any ambiguity, defect or inconsistency;
(ii) provide for uncertificated Senior Notes in addition to or in
place of certificated Senior Notes;
(iii) comply with the covenants of the Company in the Indenture;
(iv) to make any change that would provide any additional rights or
benefits to the Holders of the Senior Notes, or that does not adversely
affect the legal rights under the Indenture of any such Holder;
(v) comply with requirements of the SEC in order to effect or maintain
the qualification of the Indenture under the Trust Indenture Act;
(vi) enter into additional or supplemental Collateral Documents
including, without limitation, the First Preferred Ship Mortgage on the
Permanent Vessel; or
(vii) secure the Senior Notes with additional collateral.
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 leased 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 as trustee or resign.
The Holders of a majority in principal amount of the then outstanding
Senior Notes have the right to direct the time, method and place of conducting
any proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent person in the
conduct of his own affairs. Subject to such provisions, the Trustee is under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any holder of Senior Notes, unless such holder shall have offered to
the Trustee security and indemnity satisfactory to it against any loss,
liability or expense.
GOVERNING LAW
The Indenture and the Senior Notes are subject to certain exceptions,
governed by and construed in accordance with internal laws of the State of New
York, without regard to the choice of law rules thereof. The Collateral
Documents are governed, subject to certain exceptions, by the laws of the State
of Indiana.
ADDITIONAL INFORMATION
Any holder of the Senior Notes may obtain a copy of the Indenture and the
Collateral Documents without charge by writing to the Company at One Buffington
Harbor, Gary, Indiana, 46406-3000, Attention: Chief Financial Officer.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Indebtedness" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person merged
with or into such specified Person, including
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Indebtedness incurred in connection with, or in contemplation of, such other
Person merging with or into such specified Person and (ii) Indebtedness
encumbering any asset acquired by such specified Person.
"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 the definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided, however,
that for purposes of the covenant entitled "Transactions with Affiliates,"
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Asset Sale" means the sale, conveyance, transfer or other disposition
(whether in a single transaction or a series of related transactions) of
property or assets (including by way of a sale and leaseback) of the Company
(each referred to in this definition as a "disposition") other than (i) a
disposition of inventory or other goods held for sale or disposition in the
ordinary course of business, (ii) any disposition that is a Restricted Payment
permitted under the covenant entitled "Restricted Payments" or that is a
dividend or distribution permitted under the covenant entitled "Restricted
Payments" or any Investment that is not prohibited thereunder or any disposition
of cash or Cash Equivalents, (iii) any single disposition, or related series of
dispositions, of assets with an aggregate fair market value of less than
$500,000, (iv) any Event of Loss, (v) any lease or sublease permitted as
described under the covenant entitled "Restrictions on Leasing and Dedication of
Property", and (vi) any sale of all or substantially all of the assets of the
Company which constitutes a Change of Control pursuant to clause (iii) of the
definition thereof.
"BDI" means Barden Development, Inc., an Indiana corporation.
"BDI Pledge Agreement" means that certain Pledge Agreement executed by BDI,
providing for a pledge of BDI's entire membership interest in the Company in
favor of the Trustee, for the ratable benefit of the Holders of the Senior
Notes, as the same may be amended in accordance with the terms thereof and the
Indenture.
"Beneficial Owner" for purposes of the definition of Change of Control has
the meaning attributed to it in Rules 13d-3 and 13d-5 under the Exchange Act,
whether or not applicable, except that a "person" shall be deemed to have
"beneficial ownership" of all shares that any such person has the right to
acquire, whether such right is exercisable immediately or only after the passage
of time.
"Berthing Agreement" means the Majestic Berthing Agreement dated as of
April 23, 1996 between the Company and the BHR Joint Venture.
"BHR Joint Venture" means Buffington Harbor Riverboats, L.L.C., a Delaware
limited liability company, in which the Company owns a 50% membership interest.
"BHR Loss Proceeds" means any proceeds distributed to the Company from the
BHR Joint Venture which arise out of an Event of Loss with respect to the BHR
Joint Venture.
"BHR Operating Agreement" means the First Amended and Restated Operating
Agreement of Buffington Harbor Riverboats, L.L.C. made as of October 31, 1995,
as amended, by and between Trump Indiana, Inc., a Delaware corporation, and the
Company.
"BHR Pledge Agreement" means that certain Pledge Agreement executed by the
Company, providing for a pledge of the Company's entire membership interest in
the BHR Joint Venture in favor of the Trustee, for the ratable benefit of the
Holders of the Senior Notes, as the same may be amended in accordance with the
terms thereof and the Indenture.
"Board of Managers" means, with respect to any Person that is a limited
liability company, either the sole manager of such Person or, if there is more
than one manager, the managers of such Person, acting as a group, or any
committee of the managers of such Person authorized, with respect to any
particular matter, to exercise
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the power of the managers, or, if such Person is managed by its members, the
members of such Person, or any committee of the members of such Person
authorized, with respect to any particular matter, to exercise the power of the
members, or any successor to any such Person.
"Business Day" means any day other than a Legal Holiday.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized and reflected as a liability on the
balance sheet in accordance with GAAP.
"Capital Stock" means (i) with respect to any corporation, any and all
shares of stock issued by that corporation and (ii) with respect to any other
Person, any partnership interest, joint venture interest, limited liability
company member interest or other form of equity sharing or participation
interest, as applicable.
"Cash Collateral Accounts" shall have the meaning set forth in the Cash
Collateral and Disbursement Agreement.
"Cash Collateral and Disbursement Agreement" means the Cash Collateral and
Disbursement Agreement among the Company, the Trustee, and NBD Bank, a Michigan
banking association, as Disbursement Agent, substantially in the form delivered
to the Trustee on the Issuance Date.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than six
months from the date of acquisition, (iii) certificates of deposit and
Eurodollar time deposits with maturities of six months or less from the date of
acquisition, bankers' acceptances with maturities not exceeding six months and
overnight bank deposits, in each case with any commercial bank having capital
and surplus in excess of $300 million, (iv) repurchase obligations with a term
of not more than seven days for underlying securities of the types describes in
clauses (ii) and (iii) entered into with any financial institution meeting the
qualification specified in clause (iii) above, (v) commercial paper rated P-1 or
the equivalent thereof by Moody's Investors Service or A-1 or the equivalent
thereof by Standard & Poor's Ratings Group and in each case maturing within one
year after the date of acquisition and (vi) investment funds investing solely in
securities of the types described in clauses (ii) - (v) above.
"Change of Control" means the occurrence of any of the following: (i) prior
to the completion of a bona fide underwritten initial public offering by the
Company, the failure at any time of Excluded Persons as a group to own and
control at least 40% of the voting power of the Capital Stock of the Company;
(ii) after the completion of a bona fide underwritten initial public offering by
the Company, the acquisition, in one or more transactions, of beneficial
ownership (within the meaning of Rule 13d-3 under the Exchange Act) by (A) any
person or entity (other than an Excluded Person) or (B) any group of persons or
entities (excluding any group in which Excluded Persons beneficially own in the
aggregate at least 75% of the equity and voting interests beneficially owned by
the group) who constitute a group (within the meaning of Section 13(d)(3) of the
Exchange Act), in either case, of Capital Stock of the Company such that, as a
result of such acquisition, such person, entity or group beneficially owns
(within the meaning Rule 13d-3 under the Exchange Act), directly or indirectly,
30% or more of the voting power of the Capital Stock of the Company entitled to
vote in the election of directors, managers, general partners or other similar
governing bodies of the Company then outstanding; provided, however, that no
Change of Control shall be deemed to have occurred if (A) Excluded Persons
beneficially own, in the aggregate, at such time, a greater percentage of total
voting power of the Capital Stock of the Company entitled to vote in the
election of directors, managers, general partners or other similar governing
bodies of the Company than such other person, entity or group or (B) at the time
of such acquisition, Excluded Persons (or any of them) possess the ability (by
contract or otherwise) to elect, or cause the election, of a majority of the
members of the Company's Board of Managers; (iii) any merger or consolidation of
the Company with or into any person or any sale, transfer or other conveyance,
whether direct or indirect, of all or substantially all of the assets of the
Company, on a consolidated basis, in one transaction or series of related
transactions, if immediately after giving effect to such transaction or
transactions, any person or group (other than Excluded Persons or groups
including Excluded Persons to the extent contemplated by clause (i) or (ii)
above, whichever is then applicable) is or becomes the Beneficial Owner,
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directly or indirectly, of more than the percentage of the Capital Stock of the
Company contemplated by clause (i) or (ii) above, whichever is then applicable;
or (iv) during any period of 12 consecutive months after the Issuance Date,
individuals who at the beginning of any such 12-month period constituted the
Board of Managers of the Company (together with any new managers whose election
by such Board or whose nomination for election by the members of the Company was
approved by a vote of a majority of the managers then still in office who were
either managers at the beginning of such period or whose election or nomination
for election was previously so approved), cease for any reason to constitute a
majority of the managers of the Company then in office.
"Charter" means the Charter Agreement dated August 17, 1995 by and among
New Yorker Acquisition Corporation, the Company and President Casinos, Inc.,
providing for the leasing by the Company of the Chartered Vessel, as amended.
"Chartered Vessel" means the riverboat casino gaming vessel, U.S.O.C. No.
538911, to be chartered by the Company pursuant to the Charter.
"Collateral Documents" means, collectively, the BDI Pledge Agreement, the
BHR Pledge Agreement, the Cash Collateral and Disbursement Agreement, the
Security Agreement, the Trademark Security Agreement, and any other agreements,
instruments, financing statements or other documents that evidence, set forth or
limit the Lien of the Trustee in the Note Collateral.
"Commencement Date" means the first day that the Majestic Star Casino
becomes Operating.
"Completion Reserve Account" shall have the meaning set forth in the Cash
Collateral and Disbursement Agreement.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (a) an amount
equal to any extraordinary loss plus any net loss realized in connection with
any Asset Sale (to the extent such losses were deducted in computing
Consolidated Net Income), plus (b) Consolidated Interest Expense of such Person
for such period, plus (c) Consolidated Depreciation and Amortization Expense of
such Person for such period to the extent such depreciation and amortization
were deducted in computing Consolidated Net Income, in each case, on a combined
basis for such Person and its Subsidiaries and determined in accordance with
GAAP.
"Consolidated Depreciation and Amortization Expense" means with respect to
any Person for any period, the total amount of consolidated depreciation and
amortization expense and other noncash charges (excluding any noncash item that
represents an accrual, reserve or amortization of a cash expenditure for a
future period) of such Person for such period as defined in accordance with
GAAP.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the sum of (a) consolidated interest expense of such Person and its
Subsidiaries for such period, whether paid or accrued, to the extent such
expense was deducted in computing Consolidated Net Income (including
amortization of original issue discount and deferred financing fees, non-cash
interest payments, the interest component of Capital Lease Obligations, and net
payments (if any) pursuant to Hedging Obligations, excluding amortization of
deferred financing fees), (b) consolidated capitalized interest of such Person
and its Subsidiaries for such period, whether paid or accrued, to the extent
such expense was deducted in computing Consolidated Net Income, (c) commissions,
discounts and other fees and charges paid or accrued with respect to letters of
credit and bankers' acceptance financing, (d) to the extent not included above,
the maximum amount of interest which would have to be paid by such Person or its
Subsidiaries under a Guarantee of Indebtedness of any other Person if such
Guarantee were called upon and (e) 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 combined basis, determined in accordance with GAAP, provided,
however, that (i) the Net Income for such period 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
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of dividends or distributions paid in cash (or to the extent converted into
cash) to the referent Person or a Wholly Owned Subsidiary thereof in respect of
such period, (ii) the Net Income of any Person acquired in a pooling of
interests transaction shall not be included for any period prior to the date of
such acquisition, and (iii) the cumulative effect of a change in accounting
principles shall be excluded.
"Consolidated Net Worth" means, with respect to any Person at any time, the
sum of the following items, as shown on the consolidated balance sheet of such
Person and its Subsidiaries as of such date (i) the common equity or members
capital of such Person and its Subsidiaries, (ii) (without duplication), (a) the
aggregate liquidation preference of Preferred Stock of such Person and its
Subsidiaries (other than Disqualified Capital Stock), and (b) any increase in
depreciation and amortization resulting from any purchase accounting treatment
from an acquisition or related financing, (iii) less any goodwill incurred
subsequent to the Issuance Date, and (iv) less any write up of assets (in excess
of fair market value) after the Issuance Date, in each case on a consolidated
basis for such Person and its Subsidiaries, determined in accordance with GAAP,
provided, that in calculating Consolidated Net Worth any gain or loss from any
Asset Sale shall be excluded.
"Construction Budget" means itemized schedules setting forth on a line item
basis all of the costs (including financing costs) estimated to be incurred in
connection with improvements to the Chartered Vessel and the financing, design,
development, construction, equipping and opening of the Gaming Complex and the
Permanent Vessel, as the case may be, by the Company, as such schedules are
delivered to the Disbursement Agent as of the Issuance Date and as amended from
time to time in accordance with the Cash Collateral and Disbursement Agreement.
"Construction Supervisor" shall have the meaning set forth in the Cash
Collateral and Disbursement Agreement.
"Contingent Interest" means as of any payment date, Contingent Interest on
the Senior Notes accrued through the Accrual Period last ended (including any
Accrual Period that ends on such payment date) and any Contingent Interest
previously accrued and the payment of which has been permitted to be deferred.
"Contingent Interest Accrual" means, at any time, the total amount of
Contingent Interest accrued and unpaid through and as of such time.
"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.
"Delivery" means, with respect to the Permanent Vessel, the first time that
(i) all Liens (other than Permitted Liens) relating to the construction of the
Permanent Vessel have been paid and released, (ii) the Permanent Vessel is in a
condition (including installation of furnishings, fixtures and equipment) so
that the Permanent Vessel is fit to receive guests in the ordinary course of
business and (iii) the construction supervisor for the Permanent Vessel or an
independent construction expert appointed by the Company and acceptable to the
Trustee shall have delivered a certificate to the Trustee certifying that the
Permanent Vessel is complete in all material respects in accordance with the
Plans and Specifications therefor and in compliance with all applicable laws,
ordinances and regulations (including gaming laws and ordinances) with respect
to the physical structure, health and safety, environmental and hazardous
materials, fire, equipment, security and physical operating (gaming and other)
requirements of the Permanent Vessel.
"Development Agreement" means the Development Agreement dated March 26,
1996 between the Company and the City of Gary.
"Disbursement Agent" means NBD Bank, a Michigan banking association, as the
Disbursement Agent under the Cash Collateral and Disbursement Agreement.
"Disqualified Capital Stock" means any Capital Stock which, by its terms
(or by the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, 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 May 15,
2003.
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"Dollars" and "$" mean lawful money of the United States of America.
"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 institution of any proceedings for
the condemnation or seizure of such property or asset or for the exercise of any
right of eminent domain; (iii) 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 (iv) any settlement in lieu of clause (ii) or (iii) above.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Offer" means the registration by the Company under the Securities
Act of the Senior Notes pursuant to a registration statement pursuant to which
the Company is obligated to offer the holders of all outstanding Transfer
Restricted Securities the opportunity to exchange all such outstanding Transfer
Restricted Securities held by such holders for Senior Exchange Notes in an
aggregate principal amount equal to the aggregate principal amount of the
Transfer Restricted Securities tendered in such exchange offer by such holders.
"Excluded Persons" means (a) the Company or any Subsidiary of the Company,
(b) any employee benefit plan of the Company or any trustee or similar fiduciary
holding Capital Stock of the Company for or pursuant to the terms of any such
plan, (c) BDI, (d) Barden Management, Inc., (e) Don H. Barden or his spouse, (f)
the estate of Don H. Barden, (g) any descendant of Don H. Barden or the spouse
of any such descendant, (h) the estate of any such descendant or the spouse of
any such descendant, (i) any trust or other arrangement for the benefit of the
spouse of Don H. Barden or any such descendant or the spouse of any such
descendant and (j) any charitable organization or trust established by Don H.
Barden.
"Existing Indebtedness" means the aggregate principal amount of
Indebtedness (other than Capital Lease Obligations) of the Company or its
Subsidiaries in existence on the Issuance Date, plus interest accruing thereon,
after application of the net proceeds of sale of the Senior Notes as described
in this Offering Memorandum, until such amounts are repaid.
"First Preferred Ship Mortgage" means the first preferred ship mortgage on
the Permanent Vessel, to be dated as of the date of Delivery of the Permanent
Vessel, between the Company and the Trustee.
"Fixed Charge Coverage Ratio" means, with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period. In the event that the
Company or any of its Subsidiaries incurs, assumes, guarantees or redeems any
Indebtedness (other than working capital financing) 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 event for which the calculation of
the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed
Charge Coverage Ratio shall be calculated given 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 four-quarter period. For purposes of making the
computation referred to above, acquisitions, dispositions and discontinued
operations (as determined in accordance with GAAP) that have been made by the
Company or any of its Subsidiaries, including all mergers, consolidations and
dispositions, during the four-quarter reference period or subsequent to such
reference period and on or prior to the Calculation Date shall be calculated on
a pro forma basis assuming that all such acquisitions, dispositions,
discontinued operations, mergers, consolidations (and the reduction of any
associated fixed charge obligations resulting therefrom) had occurred on the
first day of the four-quarter reference period.
"Fixed Charges" means with respect to any Person for any period, the sum of
(a) the Consolidated Interest Expense (excluding, solely for purposes of this
definition, Contingent Interest paid or accrued) and (b) the product of (i) all
dividend payments on any series of Preferred Stock of such Person, and (ii) a
fraction, the numerator of which is one and the denominator of which is one
minus the then current combined
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federal, state and local statutory income tax rate of such Person, expressed as
a decimal, in each case, on a consolidated basis and in accordance with GAAP.
"Fixed Interest" means, interest at the rate of 12 3/4% per annum of the
principal amount of the Senior Notes.
"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.
"Gaming Complex" means the facilities to be constructed, owned and operated
by the BHR Joint Venture including, without limitation, all related berthing and
parking facilities, as well as any hotel or other ancillary structures and
facilities and all furniture, fixtures and equipment at any time contained
therein.
"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 by the granted under the Indiana Riverboat Gambling Act, and the
regulations promulgated pursuant thereto, and other applicable federal, state,
foreign or local laws.
"Gaming Regulatory Authority" means any agency, authority, board, bureau,
commission, department, office or instrumentality of any nature whatsoever of
the United States or foreign government, any state, province or any city or
other political subdivision, whether now or hereafter existing, or any officer
or official thereof, including, without limitation, the IGC or 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.
"Government Securities" means securities that are (i) direct obligations of
the United States of America for the timely payment of which its full faith and
credit is pledged or (ii) obligations of a Person controlled or supervised by
and acting as an agency or instrumentality of the United States of America the
timely payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America, which, in either case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act), as custodian with respect to any such Government Security
or a specific payment of principal of or interest on any such Government
Security held by such custodian for the account of the holder of such depository
receipt; provided, however, that (except as required by law) such custodian is
not authorized to make any deduction from the amount payable to the holder of
such depository receipt from any amount received by the custodian in respect of
the Government Security or the specific payment of principal of or interest on
the Government Security evidenced by such depository receipt.
"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.
"Harbor Lease" means the Harbor Lease Agreement dated as of June 29, 1995
by and between Trump Indiana, Inc. and Lehigh Portland Cement Company as
assigned by Trump Indiana, Inc. to the BHR Joint Venture pursuant to the
Assignment of Harbor Lease Agreement dated as of October 31, 1995 by and between
Trump Indiana, Inc. and the BHR Joint Venture.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) currency exchange or interest rate swap agreements,
currency exchange or interest rate cap agreements and currency exchange or
interest rate collar agreements and (ii) other agreements or arrangements
designed to protect such Person against fluctuations in currency exchange or
interest rates.
"Holder" means a Person in whose name a Senior Note is registered.
"IGC" means the Indiana Gaming Commission, or any successor Gaming
Regulatory Authority thereto.
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"Indebtedness" means, with respect to any Person, (i) any indebtedness of
such Person, whether or not contingent (a) in respect of borrowed money,
including accrued and unpaid Contingent Interest, (b) evidenced by bonds, notes,
debentures or similar instruments or letters of credit (or reimbursement
agreements in respect thereof), (c) representing the balance deferred and unpaid
of the purchase price of any property (including Capital Lease Obligations),
except any such balance that constitutes an accrued expense or trade payable, or
(d) representing any Hedging Obligations, if and to the extent any of the
foregoing indebtedness (other than letters of credit and Hedging Obligations)
would appear as a liability upon a balance sheet of such Person prepared in
accordance with GAAP, (ii) to the extent not otherwise included, any obligation
by such Person to be liable for, or to pay, as obligor, guarantor or otherwise,
on the Indebtedness of another Person (other than by endorsement of negotiable
instruments for collection in the ordinary course of business) and (iii) to the
extent not otherwise included, Indebtedness of another Person secured by a Lien
on any asset of the referent Person (whether or not such Indebtedness is assumed
by such referent Person).
"Independent Financial Advisor" means an accounting, appraisal or
investment banking firm of nationally recognized standing that is, in the
judgment of the Company's Board of Managers, (i) qualified to perform the task
for which it has been engaged and (ii) disinterested and independent with
respect to the Company and each Affiliate of the Company.
"Interest Reserve Account" shall have the meaning set forth in the Cash
Collateral and Disbursement Agreement.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the form of loans (including
Guarantees), advances or capital contributions (excluding commissions, travel
and similar advances to officers and employees made in the ordinary course of
business), purchases or other acquisitions by such Person of Equity Interests or
other securities and all other items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP.
"Issuance Date" means the closing date for the sale and original issuance
of the Senior Notes.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York or at a place of payment on the Senior
Notes are authorized by law, regulation or executive order to remain closed. If
a payment date is a Legal Holiday at a place of payment, payment may be made at
that place on the next succeeding day that is not a Legal Holiday, and no
interest shall accrue on the interest that was due for the intervening period.
"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).
"Liquidated Damages" means all liquidated damages then owing pursuant to
Section 5 of the Registration Rights Agreement.
"Majestic Star Casino" means, prior to Delivery of the Permanent Vessel,
the Chartered Vessel and the Gaming Complex proposed to be constructed at
Buffington Harbor in Gary, Indiana with respect to which the Company has applied
for a Gaming License, and after Delivery of the Permanent Vessel, the Permanent
Vessel and such Gaming Complex.
"Manager of the Company" means BDI.
"Minimum Facilities" means, with respect to the Majestic Star Casino at
least 800 operating slot machines, 40 operating table games, 2,300 usable
parking spaces, adequate access to the local highway system and all banking,
coin, token, security and other ancillary equipment and facilities necessary to
operate the Majestic Star Casino on a 20 hour per day, seven days a week basis.
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"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 or the extinguishment of any Indebtedness of such
Person or any of its Subsidiaries, and (ii) excluding any extraordinary gain
(but not loss), together with any related provision for taxes on such
extraordinary gain (but not loss).
"Net Loss Proceeds" means the aggregate cash proceeds received by the
Company in respect of any Event of Loss, including, without limitation,
insurance proceeds, condemnation awards or damages awarded by any judgment, net
of the direct costs in recovery of such proceeds (including, without limitation,
legal, accounting, appraisal and insurance adjuster fees) and any taxes paid or
payable as a result thereof.
"Net Proceeds" means the aggregate cash proceeds received by the Company in
respect of any Asset Sale, net of the direct costs relating to such Asset Sale
(including, without limitation, legal, accounting and investment banking or
brokerage 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), amounts required to be applied
to the repayment of Indebtedness secured by a Lien (other than the Senior Notes)
on the asset or assets that are the subject of such Asset Sale and any reserve
for adjustment in respect of the sale price of such asset or assets.
"Note to Principal Member" means the outstanding Indebtedness of the
Company due and owing to BDI pursuant to the promissory note dated March 31,
1996 in the aggregate principal amount of $10,759,355, plus any interest accrued
thereon.
"Obligations" means any principal, premium, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Offering" means the Offering of the Senior Notes by the Company.
"Officer" means, with respect to any Person, the Chairman of the Board, the
Chief Executive Officer, the President, the Chief Operating Officer, the Chief
Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the
Secretary or any Vice President of such Person.
"Officers' Certificate" means a certificate signed on behalf of the Company
by two Officers of the Manager of the Company, one of whom must be the principal
executive officer, the principal financial officer, the treasurer or the
principal accounting officer of the Manager of the Company that meets the
requirements of Section 11.05 of the Indenture.
"Operating" means, with respect to the Majestic Star Casino, the first time
that (i) all material Gaming Licenses have been granted and have not been
revoked or suspended, (ii) all Liens (other than Liens created by the Collateral
Documents or Permitted Liens) related to the construction of the Majestic Star
Casino 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 Cash
Collateral Accounts to discharge such Liens, (iii) the Construction Supervisor
of the Majestic Star Casino shall have delivered a certificate to the Trustee
certifying that the Majestic Star Casino is complete in all material respects in
accordance with the Plans and Specifications therefor and all applicable
building laws, ordinances and regulations, (iv) the Majestic Star Casino is in a
condition (including installation of furnishings, fixtures and equipment) to
receive guests in the ordinary course of business and (v) gaming and other
operations in accordance with applicable law are open to the general public and
are being conducted at the Majestic Star Casino with respect to at least the
Minimum Facilities for such Majestic Star Casino.
"Operating Expenses" means all operating expenses of the Company with
respect to any commercial enterprise, determined in accordance with GAAP
consistently applied. Operating Expenses shall include, without limitations: (i)
all accrued interest expense (whether or not distributed and whether or not
deposited) with respect to the Senior Notes; (ii) depreciation and amortization;
and (iii) any bond premium under the Indenture.
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"Payment Default" means any failure to pay when due, any principal, premium
or interest on the Senior Notes, whether at stated maturity, upon acceleration,
upon redemption or in connection with a Repurchase Offer, in each case, without
giving effect to any grace period.
"Permanent Vessel" means the riverboat gaming vessel to be constructed by
the Company subsequent to the Offering and containing at least 36,000 square
feet of gaming space.
"Permitted Investments" means (a) any Investments in Cash Equivalents, (b)
other Investments in any Person that do not exceed in the aggregate $50,000 at
any time outstanding and (c) any Investments in a tax-exempt money market mutual
fund meeting the requirements of 17 C.F.R. sec.270.2a-7.
"Permitted Liens" means: (a) existing Liens; (b) Liens created by the
Senior Notes, the Indenture and the Collateral Documents; (c) Liens incurred in
the ordinary course of business including Liens incurred pursuant to clause (d)
of the covenant entitled "Limitations on Incurrence of Indebtedness and Issuance
of Disqualified Capital Stock"; (d) Liens securing Acquired Indebtedness;
provided that such Liens (i) are not incurred in connection with, or in
contemplation of the acquisition of the property or assets acquired and (ii) do
not extend to or cover any property or assets of the Company or any Subsidiary
other than the property or assets so acquired; (e) Liens to secure certain
Indebtedness that is otherwise permitted under the Indenture and that are used
to finance the cost of the property subject thereto; provided that (i) any such
Lien is created solely for the purpose of securing Indebtedness representing, or
incurred to finance, refinance or refund, 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 or
construction) of the property subject thereto, (ii) such Lien does not extend to
or cover any other property other than such item of property and any
improvements on such item; (f) additional Liens on assets and properties of the
Company securing indebtedness permitted to be incurred pursuant to the Indenture
in an amount not to exceed $6.0 million; (g) Liens in favor of the Trustee; (h)
any replacement, extension or renewal, in whole or in part, of any Lien
described in the foregoing clauses provided that to the extent any such clause
limits the amount secured or the assets subject to such Liens, no extension or
renewal shall increase the amount or the assets subject to such Liens; (i) Liens
to secure the performance of statutory obligations, surety or appeal bonds,
performance bonds or other obligations of a like nature incurred in the ordinary
course of business or in the construction of the Majestic Star Casino and which
obligations are not expressly prohibited by the Indenture; (j)(1) Liens for
taxes, assessments or governmental charges or claims or (2) statutory Liens of
landlords, and carriers', warehousemen's, mechanics', suppliers', materialmen's,
repairmen's, crew wages, maritime or other similar Liens arising in the ordinary
course of business or in the construction of the Majestic Star Casino, in the
case of (1) and (2), with respect to amounts that either (A) are not yet
delinquent or (B) are being contested in good faith by appropriate proceedings
as to which appropriate reserves or other provisions have been made in
accordance with GAAP; and (k) easements, rights of way, navigational servitudes,
restrictions, minor defects or irregularities in title and other similar charges
or encumbrances which do not interfere in any material respect with the ordinary
conduct of business of the Company and its Subsidiaries.
"Permitted Proceed Uses" means (i) to fund improvements to the Majestic
Star Casino in accordance with the Construction Budget, (ii) to fund capital
contributions to the BHR Joint Venture in accordance with the BHR Operating
Agreement, (iii) to fund the construction of the Permanent Vessel, (iv)
repayment of the Note to Principal Member, (v) to fund the Interest Reserve
Account in an amount equal to the first two scheduled Fixed Interest payments
with respect to the Senior Notes, and (vi) to fund certain other disbursements
as permitted by the Cash Collateral and Disbursement Agreement, each to be
disbursed in accordance with the Cash Collateral and Disbursement Agreement.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"Plans and Specifications" means all drawings, plans and specifications
prepared by or on behalf of the Company, as the same may be amended or
supplemented from time to time, and, if required, submitted to and approved by
the appropriate Gaming Regulatory Authorities, which describe and show the
Majestic Star Casino and the labor and materials necessary for construction or
purchase thereof.
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"Preferred Stock" means any Equity Interest with preferential right of
payment of dividends or upon liquidation, dissolution or winding up.
"Principal Business" means the casino gaming business and any activity or
business incidental, directly related or similar thereto, or any business or
activity that is a reasonable extension, development or expansion thereof or
ancillary thereto, including any hotel, entertainment, recreation or other
activity or business designed to promote, market, support, develop, construct or
enhance the casino gaming business operated by the Company and any business or
activity that is required to meet the commitments of the Company pursuant to the
Development Agreement.
"Registration Rights Agreement" means the Registration Rights Agreement,
dated as of the Issuance Date, by and among the Company and the other party or
parties named on the signature pages thereof, substantially in the form
delivered to the Trustee on the Issuance Date.
"Restricted Investment" means any Investment other than a Permitted
Investment.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Agreement" means that certain Security Agreement to encumber
certain assets of the Company in favor of the Trustee, for the ratable benefit
of the Holders of the Senior Notes, as the same may be amended in accordance
with the terms thereof and the Indenture.
"Semiannual Period" means each period that begins on October 1 and ends on
the next succeeding March 31 or each period that begins on April 1 and ends on
the next succeeding September 30.
"Senior Exchange Notes" means Indebtedness of the Company identical in all
material respects to the Senior Notes that are issued by the Company in exchange
for the Senior Notes pursuant to the Exchange Offer.
"Senior Notes" means, prior to the consummation of the Exchange Offer, the
Company's 12 3/4% Senior Secured Notes Due 2003 issued in accordance with the
Indenture, and after the consummation of the Exchange Offer, the Senior Notes
(if any) and the Senior Exchange Notes, in each case as amended or modified from
time to time in accordance with the terms thereof and the Indenture, issued
under the Indenture.
"Subordinated Indebtedness" means any other Indebtedness of the Company
which is expressly by its terms subordinated in right of payment of the Senior
Notes.
"Subsidiary" means (i) any instrumentality or subdivision or subunit of the
Company that has a separate legal existence or status or whose property and
assets would not be bound by the terms of the Indenture or the Collateral
Documents or (ii) with respect to any Person, 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 such Person or a combination thereof.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. sec.sec.
77aaa-77bbbb) as in effect on the date on which the Indenture is qualified under
the TIA.
"Trademark Security Agreement" means that certain Trademark Security
Agreement executed by the Company to encumber the "Majestic Star Casino" service
mark in favor of the Trustee, for the ratable benefit of the Holders of the
Senior Notes, as the same may be amended in accordance with the terms thereof
and the Indenture.
"Transfer Restricted Securities" means securities that bear or are required
to bear the legend set forth in Section 2.06 of the Indenture.
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"Trustee" means the party named as such above until a successor replaces it
in accordance with the applicable provisions of the Indenture and thereafter
means the successor serving thereunder.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
or Disqualified Capital Stock, as the case may be, at any date, the number of
years obtained by dividing (a) the sum of the products obtained by multiplying
(x) the amount of each then remaining installment, sinking fund, serial maturity
or other required payments of principal, including payment at final maturity, in
respect thereof, by (y) the number of years (calculated to the nearest
one-twelfth) that will elapse between such date and the making of such payment,
by (b) the then outstanding principal amount or liquidation preference, as
applicable, of such Indebtedness or Disqualified Capital Stock, as the case may
be.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person and one or
more Wholly Owned Subsidiaries of such Person.
FORM, DENOMINATION AND BOOK-ENTRY PROCEDURES
The Senior Notes issued to "qualified institutional buyers" were initially
represented by a single global note in fully registered form (the "Global Senior
Note"). The Senior Exchange Notes exchanged for Senior Notes represented by the
Global Senior Note will be represented by a single global note in fully
registered form (the "Global Senior Exchange Note"), unless the beneficial
holders thereof request otherwise. The Global Senior Exchange Note will be
deposited upon issuance with DTC and registered in the name of DTC or a nominee
of DTC (the "Global Note Registered Owner"). Except as set forth below, the
Global Senior Exchange Note may be transferred, in whole and not in part, only
to another nominee of DTC or to a successor of DTC or its nominee.
DTC has advised the Company that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in those securities between Participants through electronic
book-entry changes in accounts of its Participants. The Participants include
securities brokers and dealers (including the Initial Purchaser), banks, trust
companies, clearing corporations and certain other organizations. Access to
DTC's system is also available to other entities such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a Participant, either directly or indirectly (collectively, the "Indirect
Participants"). Persons who are not Participants may beneficially own securities
held by or on behalf of DTC only through the Participants or the Indirect
Participants. The ownership interest and transfer of ownership interest of each
actual purchaser of each security held by or on behalf of DTC are recorded on
the records of the Participants and Indirect Participants.
DTC has also advised the Company that, pursuant to procedures established
by it, (i) upon deposit of the Global Senior Exchange Note, DTC will credit the
accounts of Participants designated by the beneficial holders thereof with
portions of the principal amount of the Global Senior Exchange Note and (ii)
ownership of such interests in the Global New Note will be shown on, and the
transfer of ownership thereof will be effected only through, records maintained
by DTC (with respect to the Participants) or by the Participants and the
Indirect Participants (with respect to other owners of beneficial interests in
the Global Senior Exchange Note). 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 the Global Senior Exchange Note will be
limited to that extent.
Except as described below, owners of interests in the Global Senior
Exchange Note will not have Senior Exchange Notes registered in their names,
will not receive physical delivery of Senior Exchange Notes in definitive form
and will not be considered the registered owners or holders thereof under the
Indenture for any purpose.
Payments in respect of the principal of and premium, if any, and interest
on any Senior Exchange Notes registered in the name of the Global Note
Registered Owner will be payable by the Trustee to the Global
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Note Registered Owner in its capacity as the registered holder under the
Indenture. Under the terms of the Indenture, the Company and the Trustee will
treat the persons in whose names the Senior Exchange Notes, including the Global
Senior Exchange Note, are registered as the owners thereof for the purpose of
receiving such payments and for any and all other purposes whatsoever.
Consequently, neither the Company, the Trustee nor any agent of the Company or
the Trustee has or will have any responsibility or liability for (i) any aspect
of DTC's records or any Participant's records relating to or payments made on
account of beneficial ownership interests in the Global Senior Exchange Note, or
for maintaining, supervising or reviewing any of DTC's records or any
Participant's records relating to the beneficial ownership interests in the
Global Senior Exchange Note or (ii) any other matter relating to the actions and
practices of DTC or any of its Participants. DTC has advised the Company that
its current practice, upon receipt of any payment in respect of securities such
as the Senior Exchange Notes (including principal and interest), is to credit
the accounts of the relevant Participants with the payment on the payment date,
in amounts proportionate to their respective holdings in principal amount of
beneficial interests in the relevant security as shown on the records of DTC
unless DTC has reason to believe it will not receive payment on such payment
date. Payments by the Participants and the Indirect Participants to the
beneficial owners of Senior Exchange Notes will be governed by standing
instructions and customary practices and will be the responsibility of the
Participants or the Indirect Participants and will not be the responsibility of
DTC, the Trustee or the Company. Neither the Company nor the Trustee will be
liable for any delay by DTC or any of its Participants in identifying the
beneficial owners of the Senior Exchange Notes, and the Company and the Trustee
may conclusively rely on and will be protected in relying on instructions from
the Global Note Registered Owner for all purposes.
The Global Senior Exchange Note is exchangeable for definitive Senior
Exchange Notes (i) if DTC notifies the Company that it is unwilling or unable to
continue as depository of the Global Senior Exchange Note and the Company
thereupon fails to appoint a successor depository, (ii) if the Company, at its
option, notifies the Trustee in writing that it elects to cause the issuance of
the Senior Exchange Notes in definitive registered form, (iii) if there shall
have occurred and be continuing an Event of Default or any event which after
notice or lapse of time or both would be an Event of Default with respect to the
Senior Exchange Notes or (iv) as provided in the following paragraph. Such
definitive Senior Exchange Notes shall be registered in the names of the owners
of the beneficial interests in the Global Senior Exchange Note as provided by
the Participants. Senior Exchange Notes issued in definitive form will be in
fully registered form, without coupons, in integral multiples of $1,000. Upon
issuance of Senior Exchange Notes in definitive form, the Trustee is required to
register the Senior Exchange Notes in the name of, and cause the Senior Exchange
Notes to be delivered to, the person or persons (or the nominee thereof)
identified as the beneficial owners as DTC shall direct.
A Senior Exchange Note in definitive form may be issued upon the request of
any Person having a beneficial interest in the Global Senior Exchange Note, or
upon the resale, pledge or other transfer of any Senior Exchange Note or
interest therein to any person or entity that is not a "qualified institutional
buyer" or that does not participate in DTC.
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SENIOR NOTES -- REGISTRATION RIGHTS
The Company and the Initial Purchaser entered into a registration rights
agreement on May 22, 1996 (the "Registration Rights Agreement") pursuant to
which the Company agreed, for the benefit of the holders of the Senior Notes,
that the Company would, at its cost, (i) within 45 days after the date of
original issue of the Senior Notes file a registration statement in accordance
with the Securities Act (an "Exchange Offer Registration Statement") with the
Commission with respect to a registered offer to exchange the Senior Notes for
the Senior Exchange Notes, which would have terms substantially identical in all
material respects to the Senior Notes and (ii) use their reasonable best efforts
to cause such Exchange Offer Registration Statement to be declared effective
under the Securities Act at the earliest possible time, but in no event later
than 120 days after filing with the Commission. Upon such Exchange Offer
Registration Statement being declared effective, the Company will offer to
holders of Senior Notes who are able to make certain representations an
opportunity to exchange properly tendered Senior Notes for Senior Exchange
Notes. The Company will keep the Exchange Offer open for not less than 20
business days (or longer if required by applicable law) after the date notice of
such Exchange Offer is mailed to the holders of the Senior Notes. For each
Senior Note surrendered to the Company, pursuant to such Exchange Offer, a
holder of the Senior Note will receive a Senior Exchange Note having a principal
amount at maturity equal to that of the surrendered Senior Note. Under existing
Commission interpretations, the Senior Exchange Notes would generally be freely
transferable after the Exchange Offer without further registration under the
Securities Act; provided, that in the case of broker-dealers, a prospectus
meeting the requirements of the Securities Act must be delivered as required.
The Company has agreed for a period of at least 365 days after consummation of
the Exchange Offer to make available a prospectus meeting the requirements of
the Securities Act to any broker-dealer for use in connection with any resale of
any such Senior Exchange Notes so acquired. A broker-dealer that delivers such a
prospectus to purchasers in connection with such resales will be subject to
certain of the civil liability provisions under the Securities Act, and will be
bound by the provisions of the Registration Rights Agreement (including, without
limitation, certain indemnification and contribution rights and obligations).
Each holder of Senior Notes who wishes to exchange such Senior Notes for
Senior Exchange Notes in the Exchange Offer is required to make certain
representations including representations that (i) any Senior Exchange Notes to
be received by it will be acquired in the ordinary course of its business, (ii)
it is not engaged in, and does not intend to engage in and has no arrangement
with any person to participate in the distribution of the Senior Exchange Notes
and (iii) it is not an "affiliate," as defined in Rule 405 of the Securities
Act, of the Company.
In the event that applicable interpretations of the staff of the Commission
do not permit the Company to effect such an Exchange Offer, or if for any other
reason the Exchange Offer is not consummated because the Exchange Offer is not
permitted by applicable law or Commission policy or any holder of Senior Notes
of $500,000 or more notifies the Company within 20 business days following the
consummation of the Exchange Offer that such holder is prohibited by law or
Commission policy from participating in the Exchange Offer or subject to certain
other restrictions, the Company will, at its own expense, use its reasonable
best efforts to (i) as promptly as practicable, file a shelf registration
statement covering resales of the Senior Notes (a "Shelf Registration
Statement"), (ii) cause such Shelf Registration Statement to be declared
effective under the Securities Act and (iii) keep effective such Shelf
Registration Statement until the earlier of three years following the date of
original issue and such time as all of the Senior Notes have been sold
thereunder or otherwise cease to be a Transfer Restricted Security (as defined
in the Registration Rights Agreement). The Company will, in the event a Shelf
Registration Statement is required to be filed by it, provide to each holder of
a Senior Note copies of the prospectus which is a part of such Shelf
Registration Statement, notify each such holder of Senior Notes when such Shelf
Registration Statement for the Senior Notes has become effective and take
certain other actions as are required to permit unrestricted resales of the
Senior Notes. A holder of Senior Notes who sells such Notes pursuant to the
Shelf Registration Statement generally would be required to be named as a
selling security holder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with
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such sales and will be bound by the provisions of the Registration Rights
Agreement which are applicable to such a holder (including certain
indemnification and contribution rights and obligations).
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 (i) 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 in the Registration Rights Agreement,
(ii) any of such Registration Statements is not declared effective by the
Commission on or prior to the date specified for such effectiveness (the
"Effectiveness Target Date"), (iii) the Company fails to consummate the Exchange
Offer within 30 business days after the Effectiveness Target Date with respect
to the Exchange Offer Registration Statement or (iv) 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 Senior
Notes during the periods specified in the Registration Rights Agreement without
being succeeded immediately by a post effective amendment to such Registration
Statement that cures such failure and that is itself declared effective within a
five business day period (each such event referred to in clauses (i) through
(ii) above, a "Registration Default"), the Company will pay Liquidated Damages
to each holder of Senior 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 Senior Notes held by such
holder. Upon a Registration Default, Liquidated Damages will accrue at the rate
specified above until such Registration Default is cured and the amount of the
Liquidated Damages will increase by an additional $.05 per week per $1,000
principal amount of Senior 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 $.35 per $1,000 principal amount of Senior Notes
(regardless of whether one or more than one Registration Default is
outstanding). All accrued Liquidated Damages will be paid by the Company on each
interest payment date to the holders of the Senior Notes by wire transfer of
immediately available funds or by mailing checks to their registered addresses
if no such accounts have been specified.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which will be available upon request to the Company.
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MATERIAL FEDERAL INCOME TAX CONSIDERATIONS
The following summary of the material Federal income tax consequences
expected to result to holders whose Senior Notes are exchanged for Senior
Exchange Notes in the Exchange Offer is based upon the current provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), applicable Treasury
regulations, judicial and administrative rulings and practice. There can be no
assurance that the Internal Revenue Service (the "IRS") will not take a contrary
view, and no ruling from the IRS has been or will be sought. Legislative,
judicial or administrative changes or interpretations may occur 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 the Senior Note holders participating in the Exchange Offer.
This summary is for general information only and does not purport to
address all of the possible Federal income tax consequences or any state, local
or foreign tax consequences of the acquisition, ownership and disposition of the
Senior Notes or the Senior Exchange Notes or the Exchange Offer. It is limited
to investors who will hold the Senior Notes and the Senior Exchange Notes as
capital assets and does not address the federal income tax consequences that may
be relevant to particular investors in light of their unique circumstances or to
certain types of investors (such as dealers in securities; insurance companies;
financial institutions; foreign corporations, partnerships, trusts, nonresident
individuals; and tax-exempt entities) who may be subject to special treatment
under Federal income tax laws.
EXCHANGE OF SENIOR NOTES FOR SENIOR EXCHANGE NOTES
The exchange of Senior Exchange Notes for Senior Notes pursuant to the
Exchange Offer should not be treated as a taxable event for Federal income tax
purposes because the Senior Exchange Notes should not be considered to differ
materially in kind or extent from the Senior Notes. Rather, the Senior Exchange
Notes received by a holder of the Senior Notes should be treated as a
continuation of the Senior Notes in the hands of such holder. As a result, no
Federal income tax consequences should result to holders exchanging Senior Notes
for Senior Exchange Notes.
PURCHASERS OF SENIOR NOTES AT OTHER THAN ORIGINAL ISSUANCE PRICE
The foregoing does not address special rules which may affect the treatment
of purchasers that acquired Senior Notes other than at par, including those
provisions of the Internal Revenue Code relating to the treatment of "market
discount," and "amortizable bond premium." Any such purchaser should consult its
tax advisor as to the consequences to him of the acquisition, ownership, and
disposition of Senior Notes.
THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS FOR
GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, EACH HOLDER OF THE
SENIOR NOTES AND EACH PROSPECTIVE HOLDER OF THE SENIOR EXCHANGE NOTES SHOULD
CONSULT ITS TAX ADVISOR AS TO HOW ITS OWN PARTICULAR TAX SITUATION MIGHT BE
AFFECTED BY THE EXCHANGE OF THE SENIOR NOTES FOR THE SENIOR EXCHANGE NOTES AND
THE POTENTIAL TAX CONSEQUENCES TO IT OF THE ACQUISITION, OWNERSHIP AND
DISPOSITION OF THE SENIOR NOTES AND THE SENIOR EXCHANGE NOTES, INCLUDING THE
APPLICABILITY AND EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.
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PLAN OF DISTRIBUTION
Based on interpretations by the Staff set forth in no-action letters issued
to third parties, the Company believes that Senior Exchange Notes issued
pursuant to the Exchange Offer in exchange for the Senior Notes may be offered
for resale, resold and otherwise transferred by holders thereof (other than any
holder which is (i) an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act, (ii) a broker-dealer who acquired Notes directly from
the Company or (iii) broker-dealers who acquired Notes as a result of
market-making or other trading activities) without compliance with the
registration and prospectus delivery provisions of the Securities Act provided
that such Senior Exchange Notes are acquired in the ordinary course of such
holders' business, and such holders are not engaged in, and do not intend to
engage in, and have no arrangement or understanding with any person to
participate in, a distribution of such Senior Exchange Notes; provided that
broker-dealers ("Participating Broker-Dealers") receiving Senior Exchange Notes
in the Exchange Offer will be subject to a prospectus delivery requirement with
respect to resales of such Senior Exchange Notes. To date, the Staff has taken
the position that Participating Broker-Dealers may fulfill their prospectus
delivery requirements with respect to transactions involving an exchange of
securities such as the exchange pursuant to the Exchange Offer (other than a
resale of an unsold allotment from the sale of the Senior Notes to the Initial
Purchaser) with the Prospectus contained in the Registration Statement. Pursuant
to the Registration Rights Agreement, the Company has agreed to permit
Participating Broker-Dealers and other persons, if any, subject to similar
prospectus delivery requirements to use this Prospectus in connection with the
resale of such Senior Exchange Notes. The Company has agreed that, for a period
of 365 days after the Expiration Date, it will make this Prospectus, and any
amendment or supplement to this Prospectus, available to any broker-dealer that
requests such documents in the Letter of Transmittal.
Each holder of the Senior Notes who wishes to exchange its Senior Notes for
Senior Exchange Notes in the Exchange Offer will be required to make certain
representations to the Company as set forth in "The Exchange Offer -- Terms and
Conditions of the Letter of Transmittal." In addition, each holder who is a
broker-dealer and who receives Senior Exchange Notes for its own account in
exchange for Senior Notes that were acquired by it as a result of market-making
activities or other trading activities, will be required to acknowledge that it
will deliver a prospectus in connection with any resale by it of such Senior
Exchange Notes.
The Company will not receive any proceeds from any sale of Senior Exchange
Notes by broker-dealers. Senior Exchange Notes received by broker-dealers for
their own account pursuant to the Exchange Offer may be sold from time to time
in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the Senior Exchange Notes or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or a negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such Senior
Exchange Notes. Any broker-dealer that resells Senior Exchange Notes that were
received by it for its own account pursuant to the Exchange Offer and any broker
or dealer that participates in a distribution of such Senior Exchange Notes may
be deemed to be an "underwriter" within the meaning of the Securities Act and
any profit on any such resale of Senior Exchange Notes and any commissions
received by any such persons may be deemed to be underwriting compensation under
the Securities Act. The Letter of Transmittal states that by acknowledging that
it will deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act.
The Company has agreed to pay all expenses incidental to the Exchange Offer
other than commissions and concession of any brokers or dealers and will
indemnify holders of the Senior Notes (including any broker-dealers) against
certain liabilities, including liabilities under the Securities act, as set
forth in the Registration Rights Agreement.
92
<PAGE> 94
LEGAL MATTERS
Certain legal matters relating to this Exchange Offer will be passed upon
for the Company by Dykema Gossett PLLC, Detroit, Michigan.
EXPERTS
The financial statements of the Company included in this Registration
Statement have been audited by Coopers & Lybrand L.L.P., 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 in giving said report.
The audited financial statements of Buffington Harbor Riverboats, L.L.C.
included in this Prospectus have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in accounting and auditing in giving said reports.
93
<PAGE> 95
THE MAJESTIC STAR CASINO, LLC
(A COMPANY IN THE DEVELOPMENT STAGE)
REPORT ON AUDIT OF FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995 AND FOR THE PERIOD
DECEMBER 8, 1993 (DATE OF INCEPTION) TO DECEMBER 31, 1995
F-1
<PAGE> 96
INDEX TO AUDITED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
CONTENTS PAGES
Report of Independent Accountants.................................................... F-3
Financial Statements:
Balance Sheet as of December 31, 1995.............................................. F-4
Statement of Operations for the period December 8, 1993 (date of inception) to
December 31, 1995............................................................... F-4
Statement of Changes in Members' Equity for the period December 8, 1993 (date of
inception) to December 31, 1995................................................. F-4
Statement of Cash Flows for the period December 8, 1993 (date of inception) to
December 31, 1995............................................................... F-5
Notes to Financial Statements for the period December 8, 1993 (date of inception)
to December 31, 1995............................................................ F-6
</TABLE>
F-2
<PAGE> 97
REPORT OF INDEPENDENT ACCOUNTANTS
To the Members of
The Majestic Star Casino, LLC:
We have audited the accompanying balance sheet of The Majestic Star Casino,
LLC (a company in the development stage) as of December 31, 1995 and the related
statements of operations, changes in members' equity, and cash flows for the
period December 8, 1993 (date of inception) to December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our 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 The Majestic Star Casino,
LLC as of December 31, 1995, and the results of its operations and its cash
flows for the period December 8, 1993 (date of inception) to December 31, 1995
in conformity with generally accepted accounting principles.
/c/o/Coopers & Lybrand, L.L.P.
Detroit, Michigan
January 31, 1996
F-3
<PAGE> 98
THE MAJESTIC STAR CASINO, LLC
(a company in the development stage)
BALANCE SHEET AS OF DECEMBER 31, 1995
<TABLE>
<S> <C>
ASSETS
Cash and cash equivalents...................................................... $ 8,446,389
Investment in Buffington Harbor Riverboats, L.L.C. ............................ 21,823,018
Property and equipment......................................................... 74,846
Organization costs............................................................. 141,241
Deposits....................................................................... 250,000
Deferred expenses.............................................................. 4,392,729
-----------
Total assets................................................................. $35,128,223
===========
LIABILITIES AND MEMBERS' EQUITY
Liabilities:
Accounts payable............................................................... $ 119,573
-----------
Members' Equity:
Capital contributions.......................................................... 34,759,355
Retained earnings.............................................................. 249,295
-----------
Total members' equity........................................................ 35,008,650
-----------
Total liabilities and members' equity........................................ $35,128,223
===========
</TABLE>
THE MAJESTIC STAR CASINO, LLC
(a company in the development stage)
STATEMENT OF OPERATIONS
FOR THE PERIOD DECEMBER 8, 1993 (DATE OF INCEPTION) TO DECEMBER 31, 1995
<TABLE>
<S> <C>
Revenues:
Interest income, net......................................................... $ 249,295
-----------
Net income................................................................ $ 249,295
===========
</TABLE>
THE MAJESTIC STAR CASINO, LLC
(a company in the development stage)
STATEMENT OF CHANGES IN MEMBERS' EQUITY
FOR THE PERIOD DECEMBER 8, 1993 (DATE OF INCEPTION) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
TOTAL
CAPITAL RETAINED MEMBERS'
CONTRIBUTIONS EARNINGS EQUITY
------------ -------- -----------
<S> <C> <C> <C>
Balance, December 8, 1993................................ $ -- $ -- $ --
Capital contributions in 1995.......................... 32,547,090 -- 32,547,090
Noncash contributions.................................. 2,212,265 -- 2,212,265
Net income............................................. -- 249,295 249,295
----------- -------- -----------
Balance, December 31, 1995............................... $ 34,759,355 $249,295 $35,008,650
=========== ======== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 99
THE MAJESTIC STAR CASINO, LLC
(a company in the development stage)
STATEMENT OF CASH FLOWS
FOR THE PERIOD DECEMBER 8, 1993 (DATE OF INCEPTION) TO DECEMBER 31, 1995
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income.................................................................. $ 249,295
Adjustments to reconcile net income to net cash used in operating
activities:
Changes in assets and liabilities:
Increase in assets:
Deposits............................................................ (250,000)
Organization costs.................................................. (141,241)
Deferred expenses................................................... (2,585,863)
Increase in liabilities:
Accounts payable.................................................... 119,573
------------
Net cash used in operating activities.................................... (2,608,236)
------------
Cash flows from investing activities:
Purchase of property and equipment.......................................... (74,846)
Investment in Buffington Harbor Riverboats, L.L.C........................... (21,417,619)
------------
Net cash used in investing activities.................................... (21,492,465)
------------
Cash flows from financing activities:
Contributions made in 1995.................................................. 32,547,090
------------
Net cash provided by financing activities................................ 32,547,090
------------
Net increase in cash.......................................................... 8,446,389
Cash, beginning of period..................................................... --
------------
Cash, end of period........................................................... $ 8,446,389
============
Supplemental noncash operating and financing activities of the Company include
the following:
Deferred expenses of $918,286 were paid by a former member on behalf of the
Company and $888,580 were contributed to the Company by a current member.
Investment in Buffington Harbor Riverboats, L.L.C. of $87,167 was paid by a
former member on behalf of the Company and $318,232 was contributed to
the Company by a current member.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE> 100
THE MAJESTIC STAR CASINO, LLC
(a company in the development stage)
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD DECEMBER 8, 1993 (DATE OF INCEPTION) TO DECEMBER 31, 1995
1. ORGANIZATION:
The Majestic Star Casino, LLC (formerly Barden-Davis Casino, LLC and
formerly Barden PRC-Gary, LLC), (the "Company") was formed on December 8, 1993
as an Indiana limited liability company. The purpose of the Company is to
establish, develop and operate a riverboat casino gaming operation and other
ancillary activities in the City of Gary, Indiana (the "City"), in accordance
with the terms and conditions of a certificate of suitability (the
"Certificate") obtained from the Indiana Gaming Commission (the "Commission").
The Company is currently in the planning and evaluation phases of building
a riverboat casino.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
a. Cash and Cash Equivalents: The Company considers all highly liquid debt
investments purchased with an original maturity of three months or less to be
cash equivalents.
b. Property and Equipment: Property and equipment are stated at cost.
Depreciation has been deferred until the assets are placed in service.
Depreciation will be computed on the straight-line method and charged to
operations over the estimated useful lives of the related assets.
c. Organization Costs: Organization costs incurred in connection with the
formation of the limited liability company have been deferred until operations
commence and will be amortized over a period of five years.
d. Investment in Buffington Harbor Riverboats, L.L.C.: The Company accounts
for its 50 percent interest in Buffington Harbor Riverboats L.L.C. ("BHR") under
the equity method, whereby the initial investments are recorded at cost and then
adjusted for the Company's share of BHR's net income or loss or distributions.
The Company's investment will not be reduced below zero as a result of such
adjustments.
e. Deferred Expenses: Deferred expenses incurred in connection with the
development and opening of the riverboat casino have been deferred until
operations commence. As of December 31, 1995, deferred expenses consist
primarily of a development obligation ($2,750,000) paid to the City and
$1,642,729 for preopening and licensing costs. Preopening costs will be charged
to operations upon opening. Other deferred expenses will be amortized over five
years, the life of the license.
f. Federal Income Taxes: The Company has elected status as an LLC under the
Internal Revenue Code. Under this election, income of the Company is taxed
directly to the members and accordingly, there is no provision for federal
income taxes.
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<S> <C>
Furniture and equipment............................................. $ 5,459
Computer equipment.................................................. 10,559
Construction in progress............................................ 58,828
-------
$74,846
=======
</TABLE>
4. CERTIFICATE OF SUITABILITY:
On December 9, 1994, the Commission awarded the Company one of two
Certificates for a riverboat owner's license for a riverboat casino to be docked
in Gary, Indiana. The Certificate was valid for 180 days with renewal options.
The Certificate has been consistently renewed by the Commission and currently
expires on June 28, 1996. In accordance with the terms of the Certificate and as
determined by the Commission, the Company must comply with certain statutory and
regulatory requirements and other conditions. Upon
F-6
<PAGE> 101
THE MAJESTIC STAR CASINO, LLC
(a company in the development stage)
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
FOR THE PERIOD DECEMBER 8, 1993 (DATE OF INCEPTION) TO DECEMBER 31, 1995
4. CERTIFICATE OF SUITABILITY -- CONTINUED
satisfactory fulfillment of such requirements and conditions outlined by the
Commission, the Company will receive a permanent riverboat owner's license.
The second Certificate was issued to Trump Indiana, Inc. ("Trump"). The
Company and Trump have committed to a joint development and operation of a
docking location for which the entities will conduct separate but coordinated
riverboat gaming operations in the City.
5. CITY OF GARY INDIANA DEVELOPMENT OBLIGATION:
On September 7, 1995, the Company and the City entered into a Binding
Memorandum of Understanding for the purpose of summarizing procedures regarding
the acquisition and development of a certain parcel of land in accordance with
the Certificate. A similar memorandum was entered into between Trump and the
City. The Company paid the City $250,000 under the terms of this memorandum.
On September 29, 1995, the Company, Trump and the City entered into an
agreement which modified certain terms and conditions of each individual
entity's Memorandum of Understanding with the City. In accordance with this
agreement, the Company paid the City $2,500,000 and agreed to pay an additional
$2,500,000 on or before the ninetieth day following commencement of gaming
operations by the Company.
6. BUFFINGTON HARBOR RIVERBOATS, L.L.C.:
On October 31, 1995, the Company and Trump entered into the First Amended
and Restated Operating Agreement of Buffington Harbor Riverboats, L.L.C. ("BHR")
for the purpose of acquiring and developing certain facilities for the gaming
operations on 88 acres of land in the City ("BHR property"). The BHR is
responsible for the management, development and operation of the BHR property,
the joint docking location for each entity's gaming vessel.
As outlined in the agreement, each member is required to make certain
capital contributions. The Company's total capital contribution to the BHR as of
December 31, 1995 was $21,823,018. The total investment in the BHR is estimated
to be approximately $40 million.
As of December 31, 1995, BHR (a company in the development stage) had total
assets of $47,231,902 which included cash and cash equivalents of $14,056,869,
land and construction in progress of $32,603,593 and deferred preopening costs
of $571,880. BHR had liabilities of $3,512,085 and members' equity totaling
$43,719,817. Members' equity represents contributions of $21,823,018, each from
the Company and Trump, and net income (all interest income) of $73,781.
7. CHARTER AGREEMENT:
On August 17, 1995, the Company entered into a Charter Agreement
("Agreement") with New Yorker Acquisition Corporation ("Owner") and President
Casinos, Inc. for the purpose of leasing the Owner's casino gaming vessel
together with all improvements, furniture, fixtures and equipment. The Agreement
is effective upon the completion of certain renovations to the vessel and
expires on the fifth anniversary from the date of commencement, with early
termination options. Under the terms of the Agreement, the Company will pay the
Owner monthly, $125,000, subject to adjustments after the first 24 months. The
monthly rate for the final three years will be negotiated based on market rates.
The Company will be responsible for certain refurbishing and other expenses to
operate the vessel during the Agreement period as defined in the Agreement.
As defined by the Agreement, the Company has placed a security deposit in
escrow with a financial institution. As of December 31, 1995, the amount in
escrow was $250,000 plus accrued interest. The security deposit is refundable
pursuant to the terms of the Escrow Agreement.
F-7
<PAGE> 102
(This page intentionally left blank)
F-8
<PAGE> 103
THE MAJESTIC STAR CASINO, LLC
FINANCIAL STATEMENTS
AS OF JUNE 30, 1996 AND DECEMBER 31, 1995
AND FOR THE QUARTER AND THE SIX MONTHS ENDED
JUNE 30, 1996 AND THE PERIOD
ENDED DECEMBER 31, 1995
F-9
<PAGE> 104
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
CONTENTS PAGES
<S> <C>
Financial Statements:
Balance Sheets as of June 30, 1996 and December 31, 1995........................... F-11
Statements of Income for the quarter and six months ended June 30, 1996............ F-12
Statements of Changes in Members' Equity for the six months ended June 30, 1996 and
for the period ended December 31, 1995.......................................... F-13
Statements of Cash Flows for the six months ended June 30, 1996.................... F-14
Notes to Financial Statements for the six months ended June 30, 1996............... F-15
</TABLE>
F-10
<PAGE> 105
THE MAJESTIC STAR CASINO, LLC
BALANCE SHEETS
AS OF JUNE 30, 1996 AND DECEMBER 31, 1995
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
(unaudited) (audited)
------------ ------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents.................................... $ 8,091,788 $ 8,446,389
Accounts receivable, less allowance for doubtful accounts of
$20,000..................................................... 526,548 --
Inventories.................................................. 85,761 --
Prepaid expenses............................................. 1,728,539 --
------------ -----------
Total current assets......................................... 10,432,636 8,446,389
Property, equipment, and leasehold interests, net............... 16,119,925 74,846
Organizational costs, less accumulated amortization of $1,648
and $-0-, respectively....................................... 139,593 141,241
Deferred financing costs, less accumulated amortization of
$58,892...................................................... 3,746,460 --
Deferred costs, less accumulated amortization of $60,971 and
$-0-, respectively........................................... 5,344,108 4,392,729
Investment in Buffington Harbor Riverboats, L.L.C............... 40,233,573 21,823,018
Other assets and deposits....................................... 1,853,587 250,000
Restricted cash................................................. 70,765,322 --
------------ -----------
Total Assets................................................. $148,635,204 $ 35,128,223
============ ===========
LIABILITIES AND MEMBERS' EQUITY
Current Liabilities
Current maturities of long-term debt......................... $ 2,103,530 $ --
Accounts payable............................................. 972,513 119,573
Accrued liabilities
Payroll and related........................................ 792,178 --
Interest................................................... 1,739,291 --
Other accrued liabilities.................................. 4,431,972 --
------------ -----------
Total current liabilities.................................. 9,739,484 119,573
Long-term debt, net of current maturities....................... 119,635,770 --
------------ -----------
Commitments
Total Liabilities.......................................... 129,375,254 119,573
------------ -----------
Members' Equity
Capital contributions........................................ 24,000,000 34,759,355
Retained earnings (deficit).................................. (4,740,050) 249,295
------------ -----------
Total members' equity...................................... 19,259,950 35,008,650
------------ -----------
Total Liabilities and Members' Equity...................... $148,635,204 $ 35,128,223
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE> 106
THE MAJESTIC STAR CASINO, LLC
STATEMENTS OF INCOME
FOR THE QUARTER AND SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
JUNE 30, 1996 JUNE 30, 1996
(unaudited) (unaudited)
------------- ----------------
<S> <C> <C>
REVENUES
Casino......................................................... $ 5,478,869 $ 5,478,869
Food and beverage.............................................. 90,520 90,520
Other.......................................................... 17,540 17,540
----------- -----------
Gross Revenues................................................... 5,586,929 5,586,929
----------- -----------
COSTS AND EXPENSES
Casino......................................................... 985,105 985,105
Gaming and admission taxes..................................... 1,638,756 1,638,756
Food and beverage.............................................. 105,557 105,557
Advertising and promotion...................................... 580,514 580,514
General and administrative..................................... 456,228 456,228
Security and surveillance...................................... 88,287 88,287
Marine operations.............................................. 348,659 348,659
Economic incentive -- City of Gary............................. 165,907 165,907
Depreciation and amortization.................................. 339,943 339,943
Pre-opening costs.............................................. 4,586,879 4,586,879
----------- -----------
Total costs and expenses.................................... 9,295,835 9,295,835
----------- -----------
Operating loss................................................. (3,708,906) (3,708,906)
----------- -----------
Other income (expense)
Loss on investment in Buffington Harbor Riverboats,
L.L.C. ................................................... (582,860) (582,860)
Interest income............................................. 231,390 231,390
Interest expense............................................ (928,969) (928,969)
----------- -----------
Total other income (expense)................................ (1,280,439) (1,280,439)
----------- -----------
NET LOSS......................................................... $ (4,989,345) $ (4,989,345)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE> 107
THE MAJESTIC STAR CASINO, LLC
STATEMENTS OF CHANGES IN MEMBERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1996
AND FOR THE PERIOD ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
RETAINED TOTAL
CAPITAL EARNINGS/ MEMBERS'
CONTRIBUTIONS (DEFICIT) EQUITY
------------ ----------- ------------
<S> <C> <C> <C>
Balance, December 8, 1993........................... $ -- $ -- $ --
Capital contributions in 1995....................... 32,547,090 -- 32,547,090
Noncash contributions............................... 2,212,265 -- 2,212,265
Net income.......................................... -- 249,295 249,295
------------ ----------- ------------
Balance, December 31, 1995 (audited)................ 34,759,355 249,295 35,008,650
Reclassification of capital contribution............ (10,759,355) -- (10,759,355)
Net loss............................................ -- (4,989,345) (4,989,345)
------------ ----------- ------------
Balance, June 30, 1996 (unaudited).................. $ 24,000,000 $(4,740,050) $ 19,259,950
============ =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-13
<PAGE> 108
THE MAJESTIC STAR CASINO, LLC
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1996
(unaudited)
----------------
<S> <C>
Cash flows from operating activities:
Net loss..................................................................... $ (4,989,345)
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization.............................................. 339,943
Loss on investment in Buffington Harbor Riverboats, L.L.C. ................ 582,860
(Increase) decrease in accounts receivable, net............................ (526,548)
(Increase) decrease in inventories......................................... (85,761)
(Increase) decrease in prepaid expenses.................................... (1,728,539)
(Increase) decrease in other assets........................................ (1,171,720)
(Increase) decrease in accrued liabilities................................. 6,963,441
(Increase) decrease in accounts payable.................................... 552,940
------------
Net cash provided by (used in) operating activities.......................... (62,729)
------------
Cash flows from investing activities:
Acquisition of property, equipment and deposits............................ (16,290,692)
(Increase) decrease in long-term deposits.................................. (1,417,035)
Investment in Buffington Harbor Riverboats, L.L.C.......................... (18,993,415)
------------
Net cash provided by (used in) financing activities.......................... (36,701,142)
------------
Cash flows from financing activities:
Proceeds from issuance of 12.75% Senior Secured Notes...................... 105,000,000
Proceeds from issuance of long-term debt................................... 6,310,590
Repayment of debt.......................................................... (330,646)
Payment of senior secured notes issuance costs............................. (3,805,352)
Increase in restricted cash................................................ (70,765,322)
------------
Net cash provided by (used in) financing activities.......................... 36,409,270
------------
Net increase (decrease) in cash and cash equivalents......................... (354,601)
Cash and cash equivalents, beginning of year................................. 8,446,389
------------
Cash and cash equivalents, end of year....................................... $ 8,091,788
============
</TABLE>
Supplemental noncash financing activities include the following:
On March 31, 1996, contributions totaling $10,759,355 were reclassified
from Members' Equity to Long-term debt.
The accompanying notes are an integral part of the financial statements.
F-14
<PAGE> 109
THE MAJESTIC STAR CASINO, LLC
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
1. BASIS OF PRESENTATION:
The accompanying unaudited interim financial statements of The Majestic
Star Casino, LLC (the "Company") have been prepared in accordance with generally
accepted accounting principles, except that certain information and footnote
disclosures normally included in financial statements have been condensed or
omitted. In the opinion of management, the accompanying unaudited interim
financial statements contain all of the adjustments (consisting of normal
recurring adjustments) which are necessary for the fair presentation of the
results of the interim period. The results of operations for any interim period
are not necessarily indicative of results of operations for a full year. The
Company was formed on December 8, 1993, as an Indiana limited liability company,
to provide gaming and related entertainment to the public. The Company commenced
gaming operations in the City of Gary (the "City") at Buffington Harbor, located
in Lake County, in the State of Indiana in June 1996.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The accounting policies of the Company conform to generally accepted
accounting principles. The following is a summary of the more significant of
such policies:
Cash and Cash Equivalents -- Cash includes cash required for gaming
operations. The Company considers cash equivalents to include short-term
investments with original maturities of ninety days or less.
Inventories -- are stated at the lower of cost or market, cost being
determined principally on a first in, first out basis.
Property and Equipment -- are stated at cost. Depreciation and amortization
are computed using the straight line method over the estimated useful lives of
the assets. Costs of major improvements are capitalized; costs of normal repairs
and maintenance are charged to expense as incurred. Gains or losses on disposals
are recognized when incurred.
Capitalized Interest -- Statements No. 34 and 62 of the Financial
Accounting Standards Board require that interest costs be capitalized for those
assets that are constructed or acquired for the Company's own use and that
interest earned on investments acquired with the proceeds of the $105 million
12.75% senior secured notes due 2003 with contingent interest (the "Senior
Secured Notes") be offset against related construction assets until completed
for use. For the six months ended June 30, 1996, net interest expense
capitalized for the construction of a riverboat casino amounted to $554,232.
Deferred Financing Costs -- represent agent's commission, closing costs and
professional fees incurred in connection with the Senior Secured Notes. Such
costs are being amortized as additional interest expense over the seven year
term of the notes.
Organizational Costs -- are costs incurred in connection with the formation
of the limited liability company. These costs have been capitalized and are
being amortized over a period of five years.
Investment in Buffington Harbor Riverboats, L.L.C. -- the Company accounts
for its 50 percent interest in Buffington Harbor Riverboats L.L.C. ("BHR") under
the equity method, whereby the initial investments are recorded at cost and then
adjusted for the Company's share of BHR's net income or loss or distributions.
The Company's investment will not be reduced below zero as a result of such
adjustments.
Deferred Costs -- includes development obligation payments to the City and
licensing costs. Such payments and costs, which represent direct costs
associated with the development of the riverboat casino, were deferred until
operations commenced in June 1996 and are currently being amortized over five
years, the life of the gaming license. At December 31, 1995, deferred costs also
included pre-opening costs which were charged to operations in June 1996.
F-15
<PAGE> 110
THE MAJESTIC STAR CASINO, LLC
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
FOR THE SIX MONTHS ENDED JUNE 30, 1996
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
Restricted Cash -- represents cash and investments held in escrow in
association with the Senior Secured Notes, and are invested primarily in
securities of the U.S. government and its agencies, with original maturities
less than 180 days.
Casino Revenue -- is the net win from gaming activities, which is the
difference between gaming wins and losses.
Indirect Expenses -- certain indirect expenses of operating departments,
such as depreciation and amortization, are shown separately in the accompanying
statements of income and are not allocated to departmental operating costs and
expenses.
Federal Income Taxes -- the Company has elected status as a partnership
under the Internal Revenue Code. Under this election, income of the Company is
taxed directly to the members and, accordingly, there is no provision for
federal income taxes.
Long-Lived Assets -- During 1995, the Company adopted the provisions of
Statement of Financial Accounting Standard No. 121, "Accounting for the
Impairment of Long-Lived Assets" ("SFAS No. 121"). SFAS No. 121 requires, among
other things, that an entity review its long-lived and certain related
intangibles for impairment whenever changes in circumstances indicate that the
carrying amount of an asset may not be fully recoverable. Impairment of
long-lived assets exists, if, at a minimum the future expected cash flows
(undiscounted and without interest charges) from an entity's operations are less
than the carrying value of these assets. As a result of its review, the Company
does not believe that any impairment exists in the recoverability of its
long-lived assets.
3. CERTIFICATE OF SUITABILITY:
On December 9, 1994, the Commission awarded the Company one of two
certificates for a riverboat owner's license for a riverboat casino to be docked
in the City. Having complied with certain statutory and regulatory requirements
and other conditions of the Indiana Gaming Commission, the Company received a
five year riverboat owner's license on June 3, 1996.
The second Certificate was issued to Trump Indiana, Inc. ("Trump"). The
Company and Trump have committed to a joint development and operation of a
docking location from which the entities are conducting their respective
riverboat gaming operations in the City.
4. CITY OF GARY, INDIANA DEVELOPMENT OBLIGATION:
On September 7, 1995, the Company and the City entered into an agreement
for the purpose of summarizing procedures regarding the acquisition of a certain
parcel of land in accordance with the Certificate. The Company paid the City
$250,000 under the terms of this agreement.
On September 29, 1995, the Company, Trump and the City entered into an
agreement. In accordance with this agreement, the Company paid the City
$2,500,000 and agreed to pay an additional $2,500,000 on or before the ninetieth
day following commencement of gaming operations by the Company. As of June 30,
1996, $5,250,000 of deferred costs represent the Company's development
obligation to the City including the second payment of $2,500,000 which is
accrued and included in other accrued liabilities.
As of March 26, 1996, the City and the Company entered into a development
agreement which supersedes the September 7, 1995 agreement between the City and
the Company. The development agreement ("Development Agreement") requires the
Company, among other things, (1) to invest $116 million in various on-site and
off-site improvements over the next five years, (2) pay the City an economic
F-16
<PAGE> 111
THE MAJESTIC STAR CASINO, LLC
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
FOR THE SIX MONTHS ENDED JUNE 30, 1996
4. CITY OF GARY, INDIANA DEVELOPMENT OBLIGATION -- CONTINUED
incentive equal to 3% of the Company's adjusted gross receipts, as defined by
the Riverboat Gaming Act and (3) pay a default payment in the amount of damages
for failure to complete certain on-site developments, which amount is capped at
$12 million.
5. INVESTMENT IN BUFFINGTON HARBOR RIVERBOATS, L.L.C.:
On October 31, 1995, the Company and Trump entered into the First Amended
and Restated Operating Agreement of Buffington Harbor Riverboat, L.L.C. ("BHR")
for the purpose of acquiring and developing certain facilities for the gaming
operations on 88 acres of land in the City ("BHR Property"). BHR is responsible
for the management, development and operation of the BHR Property. The Company
and Trump have each entered into an agreement with BHR (the "Berthing
Agreement") to use BHR Property for their respective gaming operations.
The following represents selected financial information of BHR:
<TABLE>
<CAPTION>
JUNE 30, 1996 DECEMBER 31, 1995
------------- -----------------
<S> <C> <C>
BALANCE SHEET
Cash and cash equivalents....................................... 4,359,833 14,056,869
Property, equipment and construction in progress, net........... 76,673,514 32,603,593
Deferred pre-opening costs...................................... -- 571,440
Total assets.................................................... 82,672,643 47,231,902
Total liabilities............................................... 2,176,716 3,512,085
Capital contributions-The Majestic Star Casino, LLC............. 40,816,433 21,823,018
Total members' equity........................................... 80,495,927 43,719,817
INCOME STATEMENT
Gross revenue................................................... 959,140 --
Gross profit.................................................... 748,025 --
Net income (loss)............................................... (1,165,720) 73,781
</TABLE>
6. CHARTER AGREEMENT:
On August 17, 1995, the Company entered into a Charter Agreement
("Agreement") with New Yorker Acquisition Corporation ("Owner") and President
Casino, Inc. for the purpose of leasing the Owner's casino gaming vessel
together, with all improvements, furniture, fixtures and equipment.
The charter became effective on May 3, 1996, and expires on May 3, 2001,
subject to early termination options. Under the terms of the Agreement, the
Company will pay the Owner $125,000 monthly for the first 24 months. The monthly
rate for the final three years will be negotiated based on market rates. The
Company is responsible for certain refurbishing and expenses to operate the
vessel during the charter.
As required by the Agreement, the Company has placed a security deposit in
escrow with a financial institution. As of June 30, 1996 and December 31, 1995,
the amount in escrow including accrued interest was $1,667,035 and $250,000. The
security deposit is refundable pursuant to the terms of the escrow agreement.
7. LONG TERM DEBT:
Senior Secured Notes
On May 22, 1996, the Company completed a private offering of $105,000,000
of Senior Secured Notes due May 15, 2003.
F-17
<PAGE> 112
THE MAJESTIC STAR CASINO, LLC
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
FOR THE SIX MONTHS ENDED JUNE 30, 1996
7. LONG TERM DEBT -- CONTINUED
The Senior Secured Notes bear interest at a fixed rate of 12.75% per annum
payable May 15 and November 15 of each year commencing November 15, 1996.
Contingent interest is payable on the Senior Secured Notes, on each such
interest payment date, in an aggregate amount equal to 5.0% of the Company's
Consolidated Cash Flow, as defined in the Indenture between the Company and IBJ
Schroder Bank & Trust Company, as Trustee, dated May 22, 1996 (the "Indenture"),
for the six month period ending on March 31 or September 30 (each, a "Semiannual
Period") most recently completed prior to such interest payment date, based on a
maximum of $60.0 million of the Company's Consolidated Cash Flow during any two
consecutive Semiannual Periods; provided that no Contingent interest shall be
payable with respect to any period prior to the first day of the operation of
the Majestic Star Casino. Under certain circumstances, the Company, at its
option, may defer payment of all or a portion of any installment of contingent
interest.
A portion of the proceeds from the Senior Secured Notes will be used to
construct a new casino vessel ("Permanent Vessel") to replace the Chartered
Vessel.
The Senior Secured Notes are secured by, among other things (i) a pledge of
the Company's 50% membership interest in BHR, (ii) a collateral assignment of
the Company's interest in the Berthing Agreement, (iii) a pledge of all funds in
the collateral accounts into which the proceeds from the Senior Secured Notes
were deposited pending their use and (iv) upon delivery of the Permanent Vessel
to the Company, a duly perfected first preferred ship mortgage on such Permanent
Vessel.
The Indenture contains covenants, which among other things, restrict the
Company's ability to (i) make certain distributions and payments, (ii) incur
additional indebtedness, (iii) enter into transactions with affiliates, (iv)
sell assets or stock, and (v) merge, consolidate or transfer substantially all
of its assets.
Holders of Senior Secured Notes are entitled to certain exchange rights
under the terms of the Registration Rights Agreements (the "Agreement").
Pursuant to the Agreement, the Company has filed with the Securities and
Exchange Commission a registration statement with respect to an issue of Senior
Secured Notes of the Company registered under the Securities Act that are
identical in all material respects to the Senior Secured Notes (the "Senior
Exchange Notes") and, upon becoming effective, to offer the holders of the
Senior Secured Notes the opportunity to exchange their Senior Secured Notes for
a like principal amount of Senior Exchange Notes. The Company may be obligated
to pay liquidated damages to holders of the Senior Secured Notes under certain
circumstances if the Company is not in compliance with its registration
obligations.
Equipment Financing
At June 30, 1996, approximately $5.9 million of equipment financing was
outstanding of which $2.1 represents current maturities of long-term debt. This
debt, which carries an interest rate of 3% over prime, floating (prime was 8.25%
at June 30, 1996), is secured by certain gaming equipment and the remaining
balance will be repaid in equal monthly principal payments of approximately
$175,000.
Note to Member
At June 30, 1996, approximately $10.8 million was owed to a member of the
Company. This note carries a floating interest rate (5.73% at June 30, 1996) and
cannot be repaid, under the Indenture, until the completion of the Permanent
Vessel. This note resulted from the conversion of capital contributions into
debt on March 31, 1996.
F-18
<PAGE> 113
THE MAJESTIC STAR CASINO, LLC
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
FOR THE SIX MONTHS ENDED JUNE 30, 1996
8. LETTER OF CREDIT/SURETY BOND:
In May, 1996, the Company arranged for a $12.5 million five year surety
bond (the "Bond") to be issued to the Commission. The Bond's primary purpose is
to secure completion of the Company's off-site development obligations under the
Development Agreement. To support the Company's obligations to the bonding
company, the Company obtained a $3.5 million letter of credit from a bank to
benefit the bonding company. The beneficial owner of the Company (the "Owner")
guaranteed the Company's obligations to the bonding company under the Bond and
to the bank under the $3.5 million letter of credit.
If the Owner is required to make payments to the bank or the bonding
company as a result of the guaranty, the Company will be obligated to reimburse
the Owner for any such payments.
F-19
<PAGE> 114
BUFFINGTON HARBOR RIVERBOATS, L.L.C.
FINANCIAL STATEMENTS
FOR THE PERIOD FROM SEPTEMBER 27, 1995
THROUGH DECEMBER 31, 1995
F-20
<PAGE> 115
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Members of
Buffington Harbor Riverboats, L.L.C.:
We have audited the accompanying balance sheet of Buffington Harbor
Riverboats, L.L.C. (a Delaware limited liability company) as of December 31,
1995, and the related statements of operations, members' capital and cash flows
for the period from September 27, 1995 through December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our 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 Buffington Harbor
Riverboats, L.L.C. as of December 31, 1995, and the results of its operations
and its cash flows for the period from September 27, 1995 through December 31,
1995 in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Roseland, New Jersey
March 29, 1996
F-21
<PAGE> 116
BUFFINGTON HARBOR RIVERBOATS, L.L.C.
BALANCE SHEET
DECEMBER 31, 1995
<TABLE>
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents (Note 2)........................................... $14,056,869
Property, Plant and Equipment (Notes 2 and 3).................................. 32,603,593
Deferred Preopening Costs (Note 4)............................................. 571,440
-----------
Total assets.............................................................. $47,231,902
===========
LIABILITIES AND MEMBERS' CAPITAL
Current Liabilities:
Accounts payable............................................................. $ 2,940,645
Deferred Rent Expense (Note 4)................................................. 571,440
Commitments and Contingencies (Note 4)
Members' Capital............................................................... 43,719,817
-----------
Total liabilities and members' capital.................................... $47,231,902
===========
</TABLE>
BUFFINGTON HARBOR RIVERBOATS, L.L.C.
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM SEPTEMBER 27, 1995 THROUGH DECEMBER 31, 1995
<TABLE>
<S> <C>
Income:
Interest income.............................................................. $ 73,781
-----------
Net income................................................................ $ 73,781
===========
</TABLE>
BUFFINGTON HARBOR RIVERBOATS, L.L.C.
STATEMENT OF MEMBERS' CAPITAL
FOR THE PERIOD FROM SEPTEMBER 27, 1995 THROUGH DECEMBER 31, 1995
<TABLE>
<CAPTION>
MEMBER NET
CONTRIBUTIONS INCOME TOTAL
------------- ------- -----------
<S> <C> <C> <C>
Balance, September 27, 1995............................... $ 0 $ 0 $ 0
Capital contribution made by Trump Indiana, Inc......... 21,823,018 0 21,823,018
Capital contribution made by The Majestic Star Casino,
LLC.................................................. 21,823,018 0 21,823,018
Net income.............................................. 0 73,781 73,781
----------- ------- -----------
Balance, December 31, 1995................................ $ 43,646,036 $73,781 $43,719,817
=========== ======= ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
financial statement.
F-22
<PAGE> 117
BUFFINGTON HARBOR RIVERBOATS, L.L.C.
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM SEPTEMBER 27, 1995 THROUGH DECEMBER 31, 1995
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income.................................................................. $ 73,781
Cash flows from investing activities:
Purchases of property, plant and equipment.................................. (29,662,948)
------------
Cash flows from financing activities:
Contributed capital --
Trump Indiana, Inc. ..................................................... 21,823,018
The Majestic Star Casino, LLC............................................ 21,823,018
------------
Net cash flow provided by financing activities......................... 43,646,036
------------
Net increase in cash and cash equivalents.............................. 14,056,869
Cash and cash equivalents at September 27, 1995............................... 0
------------
Cash and cash equivalents at December 31, 1995................................ $ 14,056,869
============
Supplemental disclosure of noncash investing activities:
Purchase of property, plant and equipment................................... $ 2,940,645
============
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
F-23
<PAGE> 118
BUFFINGTON HARBOR RIVERBOATS, L.L.C.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. ORGANIZATION AND OPERATIONS:
Trump Indiana, Inc. ("Trump Indiana") and The Majestic Star Casino, LLC
("Barden"), the two holders of certificates of suitability for the Gary, Indiana
riverboat casinos formed Buffington Harbor Riverboats, L.L.C. ("BHR") on
September 27, 1995 and have entered into an agreement (the "BHR Agreement")
relative to the joint ownership, development and operation of all common land
based and waterside operations in support of the Trump Indiana and Barden
riverboat casinos. Under the BHR Agreement, BHR acquired property and is
constructing common roadways, utilities and other infrastructure improvements on
BHR's property. Trump and Barden shall contribute one-half of the costs required
pursuant to the BHR Agreement.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Property, Plant and Equipment -- Property, plant and equipment is carried
at cost. Substantially all of the property and equipment represent construction
in progress; accordingly no depreciation has been recorded for the period from
September 27, 1995 through December 31, 1995.
Income Taxes -- BHR makes no provision for income taxes since taxable
income is allocated to the members for inclusion in their respective income tax
returns.
Long-Lived Assets -- During 1995, BHR adopted the provisions of Statement
of Financial Accounting Standard No. 121, "Accounting for the Impairment of
Long-Lived Assets" ("SFAS No. 121"). SFAS No. 121 requires, among other things,
that an entity review its long-lived and certain related intangibles for
impairment whenever changes in circumstances indicate that the carrying amount
of an asset may not be fully recoverable. Impairment of long-lived assets
exists, if, at a minimum the future expected cash flows (undiscounted and
without interest charges) from an entity's operations are less than the carrying
value of these assets. As a result of its review, BHR does not believe that any
impairment exists in the recoverability of its long-lived assets.
Statement of Cash Flows -- For purposes of the statement of cash flows, the
Company considers all highly liquid debt instruments purchased with a maturity
of three months or less at the time of acquisition to be cash equivalents.
3. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment is comprised of the following as of December
31, 1995 --
<TABLE>
<S> <C>
Land and land improvements....................................... $22,988,872
Building......................................................... 1,435,684
Harbor improvements.............................................. 8,179,037
-----------
Total property, plant and equipment......................... $32,603,593
===========
</TABLE>
F-24
<PAGE> 119
BUFFINGTON HARBOR RIVERBOATS, L.L.C.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1995
4. COMMITMENTS AND CONTINGENCIES
Indiana Gaming Regulations -- The ownership and operation of riverboat
gaming operations in Indiana are subject to strict state regulation under the
Riverboat Gambling Act ("Act") and the administrative rules promulgated
thereunder. The Indiana Gaming Commission ("IGC") is empowered to administer,
regulate and enforce the system of riverboat gaming established under the Act
and has jurisdiction and supervision over all riverboat gaming operations in
Indiana, as well as all persons on riverboats where gaming operations are
conducted. The IGC is empowered to regulate a wide variety of gaming and
nongaming related activities, including the licensing of suppliers to, and
employees at, riverboat gaming operations and to approve the form of ownership
and financial structure of not only riverboat owner and supplier licensees, but
also their entity qualifiers and intermediary and holding companies. Indiana is
a new jurisdiction and the emerging regulatory framework is not yet complete.
The IGC has adopted certain final rules and has published others in proposed or
draft form which are proceeding through the review and final adoption process.
The IGC also has indicated its intent to publish additional proposed rules in
the future. The IGC has broad rulemaking power, and it is impossible to predict
what effect, if any, the amendment of existing rules or the finalization of
currently new rules might have on the operations of BHR, Trump Indiana and
Barden.
Leases -- BHR has entered into, or has been assigned, a number of
agreements with Lehigh Portland Cement Co. ("Lehigh Cement"), whereby BHR, among
other things, has leased certain property which is integral to the gaming
operations of Trump Indiana and Barden. The lease places certain restrictions on
the use of the harbor by the riverboats of Barden and Trump Indiana and requires
the reimbursement of certain costs which may be incurred by Lehigh Cement. The
lease is rent free through December 29, 1997 and subject to obtaining the
necessary regulatory permits, the lease will be extended beyond December 29,
1997 until December 31, 2005. BHR will be required to pay $125,000 per month
beginning in January, 1998. Minimum rental commitments under noncancelable
operating leases are as follows --
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 --
-----------------------------------------------------------------
<S> <C>
1996........................................................ $ 0
1997........................................................ 0
1998........................................................ 1,500,000
1999........................................................ 1,500,000
2000........................................................ 1,500,000
Thereafter.................................................. 7,500,000
-----------
$12,000,000
===========
</TABLE>
BHR has entered into a number of contracts for improvements to be made to
its property at Buffington Harbor.
F-25
<PAGE> 120
BUFFINGTON HARBOR RIVERBOATS, L.L.C.
FINANCIAL STATEMENTS
AS OF JUNE 30, 1996 AND DECEMBER 31, 1995
AND FOR THE QUARTER AND THE SIX MONTHS ENDED
JUNE 30, 1996 AND THE PERIOD
ENDED DECEMBER 31, 1995
F-26
<PAGE> 121
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
CONTENTS PAGES
Financial Statements:
Balance Sheets as of June 30, 1996 and December 31, 1995........................... F-28
Statements of Income for the quarter and six months ended June 30, 1996............ F-29
Statements of Changes in Members' Equity for the six months ended June 30, 1996 and
for the period ended December 31, 1995.......................................... F-30
Statement of Cash Flows for the six months ended June 30, 1996..................... F-31
Notes to Financial Statements for the six months ended June 30, 1996............... F-32
</TABLE>
F-27
<PAGE> 122
BUFFINGTON HARBOR RIVERBOATS, L.L.C.
BALANCE SHEETS
AS OF JUNE 30, 1996 AND DECEMBER 31, 1995
<TABLE>
<CAPTION>
JUNE 30, 1996 DECEMBER 31, 1995
(unaudited) (audited)
------------- -----------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents..................................... $ 4,359,833 $14,056,869
Accounts receivable........................................... 407,803 --
Inventory..................................................... 263,139 --
Prepaids...................................................... 30,277 --
----------- -----------
Total current assets..................................... 5,061,052 14,056,869
----------- -----------
Property and equipment, net..................................... 76,673,514 32,603,593
Deferred assets................................................. -- 571,440
Other assets.................................................... 938,077 --
----------- -----------
Total assets............................................. $ 82,672,643 $47,231,902
=========== ===========
LIABILITIES
Current liabilities
Accounts payable.............................................. $ 430,170 $ 2,940,645
Accrued liabilities........................................... 395,460 --
----------- -----------
Total current liabilities................................ 825,630 2,940,645
----------- -----------
Deferred rent expense........................................... 1,142,880 571,440
Deferred income................................................. 208,206 --
----------- -----------
Total liabilities........................................ 2,176,716 3,512,085
----------- -----------
MEMBERS' EQUITY
Capital contributions........................................... 81,587,866 43,646,036
Retained earnings (Deficit)..................................... (1,091,939) 73,781
----------- -----------
Total members' equity.................................... 80,495,927 43,719,817
----------- -----------
Total liabilities and members' equity......................... $ 82,672,643 $47,231,902
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-28
<PAGE> 123
BUFFINGTON HARBOR RIVERBOATS, L.L.C.
STATEMENTS OF INCOME
FOR THE QUARTER AND SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
FOR THE FOR THE SIX
QUARTER ENDED MONTHS ENDED
JUNE 30, 1996 JUNE 30, 1996
(unaudited) (unaudited)
------------- -------------
<S> <C> <C>
REVENUE
Food revenue....................................................... $ 267,546 $ 267,546
Beverage revenue................................................... 32,583 32,583
Valet revenue...................................................... 25,056 25,056
Berthing income.................................................... 600,000 600,000
Other income....................................................... 33,955 --
----------- -----------
Total revenue................................................. 959,140 959,140
----------- -----------
COST OF GOODS SOLD
Cost of goods sold -- food......................................... 202,970 202,970
Cost of goods sold -- beverage..................................... 8,145 8,145
----------- -----------
Total cost of goods sold...................................... 211,115 211,115
----------- -----------
Gross profit....................................................... 748,025 748,025
----------- -----------
OPERATING EXPENSES
Salaries and wages................................................. 491,655 491,655
Preopening expenses and other expenses............................. 1,345,086 1,345,086
----------- -----------
Total operating expenses...................................... 1,836,741 1,836,741
----------- -----------
Operating loss..................................................... (1,088,716) (1,088,716)
DEPRECIATION AND AMORTIZATION...................................... 261,030 261,030
----------- -----------
Net operating loss, before interest and taxes...................... (1,349,746) (1,349,746)
OTHER INCOME
Interest Income.................................................... 95,600 184,026
----------- -----------
Net loss........................................................... $ (1,254,146) $ (1,165,720)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE> 124
BUFFINGTON HARBOR RIVERBOATS, L.L.C.
STATEMENTS OF CHANGES IN MEMBERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND FOR THE PERIOD ENDED DECEMBER 31,
1995
<TABLE>
<CAPTION>
CAPITAL RETAINED TOTAL
CONTRIBUTIONS EARNINGS/(DEFICIT) MEMBERS' EQUITY
------------- ------------------ ---------------
<S> <C> <C> <C>
Balance, September 27, 1995....................... $ -- $ -- $ --
Capital contributions made by Trump Indiana,
Inc. ........................................ 21,823,018 21,823,018
Capital contributions made by The Majestic Star
Casino, LLC.................................. 21,823,018 21,823,018
Net Income...................................... 73,781 73,781
----------- ----------- -----------
Balance, December 31, 1995 (audited).............. 43,646,036 73,781 43,719,817
Capital contributions made by Trump Indiana,
Inc. ........................................ 18,993,415 18,993,415
Capital contributions made by The Majestic Star
Casino, LLC.................................. 18,948,415 18,948,415
Net Loss........................................ (1,165,720) (1,165,720)
----------- ----------- -----------
Balance, June 30, 1996 (unaudited)................ $ 81,587,866 $ (1,091,939) $80,495,927
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE> 125
BUFFINGTON HARBOR RIVERBOATS, L.L.C.
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
JUNE 30, 1996
(unaudited)
-------------
<S> <C>
NET LOSS...................................................................... $ (1,165,720)
Depreciation and amortization................................................. 261,030
Change in --
Accounts receivable......................................................... (407,803)
Inventory................................................................... (263,139)
Prepaids.................................................................... (30,277)
Deferred Preopening......................................................... 571,440
Other assets................................................................ (938,077)
Accounts payables........................................................... (2,510,475)
Accrued Liabilities......................................................... 395,460
Other Liabilities........................................................... 779,646
------------
Cash flows provided by (used in) operating activities.................. (3,307,915)
------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment............................................ (44,330,952)
------------
CASH FLOWS FROM FINANCING ACTIVITIES
Contributed capital --
Trump Indiana, Inc. ........................................................ 18,948,415
Majestic Star Casino, LLC................................................... 18,993,415
------------
Cash flows provided by financing activities............................ 37,941,831
------------
Net increase in cash and cash equivalents.............................. (9,697,036)
------------
Cash and cash equivalents, beginning of period................................ 14,056,869
------------
Cash and cash equivalents, end of period...................................... $ 4,359,833
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE> 126
BUFFINGTON HARBOR RIVERBOATS, L.L.C.
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
1. ORGANIZATION AND OPERATIONS:
The accompanying unaudited interim financial statements of Buffington
Harbor Riverboats, L.L.C. ("BHR") have been prepared in accordance with
generally accepted accounting principles, except that certain information and
footnote disclosures normally included in financial statements have been
condensed or omitted. In the opinion of management, the accompanying unaudited
interim financial statements contain all of the adjustments (consisting of
normal recurring adjustments) which are necessary for the fair presentation of
the results of the interim period. The results of operations for any interim
period are not necessarily indicative of results of operations for a full year.
Trump Indiana, Inc. ("Trump Indiana") and The Majestic Star Casino, LLC
("Barden"), the two license holders for the Gary, Indiana riverboat casinos
formed Buffington Harbor Riverboats, L.L.C. ("BHR") on September 27, 1995 and
have entered into an agreement (the "BHR Agreement") relative to the joint
ownership, development and operation of all common land based and waterside
operations in support of the Trump Indiana and Barden riverboat casinos. Under
the BHR Agreement, BHR acquired property and is constructing common roadways,
utilities and other infrastructure improvements on BHR's property. Trump and
Barden shall contribute one-half of the costs required pursuant to the BHR
Agreement. BHR commenced operations in June 1996.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents -- The Company considers cash equivalents to
include short-term investments with original maturities of ninety days or less.
Inventories -- are stated at the lower of cost or market, cost being
determined principally on a first in, first out basis.
Property, Plant and Equipment -- Property, plant and equipment is carried
at cost. Depreciation and amortization are computed using the straight line
method over the estimated useful lives of the assets. Costs of major
improvements are capitalized; costs of normal repairs and maintenance are
charged to expense as incurred. Gains or losses on disposals are recognized when
incurred.
Income Taxes -- BHR makes no provision for income taxes since taxable
income is allocated to the members for inclusion in their respective income tax
returns.
Long-Lived Assets -- During 1995, BHR adopted the provisions of Statement
of Financial Accounting Standard No. 121, "Accounting for the Impairment of
Long-Lived Assets" ("SFAS No. 121"). SFAS No. 121 requires, among other things,
that an entity review its long-lived and certain related intangibles for
impairment whenever changes in circumstances indicate that the carrying amount
of an asset may not be fully recoverable. Impairment of long-lived assets
exists, if, at a minimum the future expected cash flows (undiscounted and
without interest charges) from an entity's operations are less than the carrying
value of these assets. As a result of its review, BHR does not believe that any
impairment exists in the recoverability of its long-lived assets.
F-32
<PAGE> 127
BUFFINGTON HARBOR RIVERBOATS, L.L.C.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
FOR THE SIX MONTHS ENDED JUNE 30, 1996
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
Statement of Cash Flows -- For purposes of the statement of cash flows, the
Company considers all highly liquid debt instruments purchased with an original
maturity of three months or less at the time of acquisition to be cash
equivalents.
3. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment is comprised of the following as of June 30,
1996:
<TABLE>
<S> <C>
Land and land improvements....................................... $22,988,872
Building......................................................... 14,427,693
Harbor Improvements.............................................. 12,146,389
Barge............................................................ 2,385,358
Furniture and Equipment.......................................... 4,917,815
Other Improvements............................................... 20,068,417
Accumulated Depreciation......................................... (261,030)
-----------
$76,673,514
===========
</TABLE>
4. COMMITMENTS AND CONTINGENCIES:
Indiana Gaming Regulations -- The ownership and operation of riverboat
gaming operations in Indiana are subject to strict state regulation under the
Riverboat Gambling Act ("Act") and the administrative rules promulgated
thereunder. The Indiana Gaming Commission ("IGC") is empowered to administer,
regulate and enforce the system of riverboat gaming established under the Act
and has jurisdiction and supervision over all riverboat gaming operations in
Indiana, as well as all persons on riverboats where gaming operations are
conducted. The IGC is empowered to regulate a wide variety of gaming and
nongaming related activities, including the licensing of suppliers to, and
employees at, riverboat gaming operations and to approve the form of ownership
and financial structure of not only riverboat owner and supplier licensees, but
also their entity qualifiers and intermediary and holding companies. Indiana is
a new jurisdiction and the emerging regulatory framework is not yet complete.
The IGC has adopted certain final rules and has published others in proposed or
draft form which are proceeding through the review and final adoption process.
The IGC also has indicated its intent to publish additional proposed rules in
the future. The IGC has broad rulemaking power, and it is impossible to predict
what effect, if any, the amendment of existing rules or the finalization of
currently new rules might have on the operations of BHR, Trump Indiana and
Barden.
Leases -- BHR has entered into, or has been assigned, a number of
agreements with Lehigh Portland Cement Co. ("Lehigh Cement"), whereby BHR, among
other things, has leased certain property which is integral to the gaming
operations of Trump Indiana and Barden. The lease places certain restrictions on
the use of the harbor by the riverboats of Barden and Trump Indiana and requires
the reimbursement of certain costs which may be incurred by Lehigh Cement. The
lease is rent free through December 29, 1997 and subject to obtaining the
necessary regulatory permits, the lease will be extended beyond December 29,
1997 until
F-33
<PAGE> 128
BUFFINGTON HARBOR RIVERBOATS, L.L.C.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
FOR THE SIX MONTHS ENDED JUNE 30, 1996
4. COMMITMENTS AND CONTINGENCIES -- CONTINUED
December 31, 2005. BHR will be required to pay $125,000 per month beginning in
January, 1998. Minimum rental commitments under noncancelable operating leases
are as follows --
<TABLE>
<CAPTION>
PERIOD ENDED JUNE 30, 1996 --
-----------------------------------------------------------------
<S> <C>
1996........................................................ $ 0
1997........................................................ 0
1998........................................................ 1,500,000
1999........................................................ 1,500,000
2000........................................................ 1,500,000
Thereafter.................................................. 7,500,000
-----------
$12,000,000
===========
</TABLE>
BHR has entered into a number of contracts for improvements to be made to
its property at Buffington Harbor.
F-34
<PAGE> 129
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES OTHER THAN THE SECURITIES
TO WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATIONS THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary........................ 4
Risk Factors.............................. 12
The Exchange Offer........................ 20
Use of Proceeds........................... 28
Capitalization............................ 29
Selected Financial Data................... 30
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 31
Business.................................. 35
Material Agreements....................... 42
Regulation................................ 46
Management................................ 48
Certain Transactions...................... 50
Principal Security Holders................ 51
Description of Senior Notes............... 52
Senior Notes -- Registration Rights....... 89
Material Federal Income Tax
Considerations.......................... 91
Plan of Distribution...................... 92
Legal Matters............................. 93
Experts................................... 93
Index to Audited Financial Statements..... F-2
Index to Financial Statements............. F-10
Audited Financial Statements of Buffington
Harbor Riverboats, L.L.C. .............. F-20
Unaudited Financial Statements of
Buffington Harbor Riverboats, L.L.C. ... F-26
</TABLE>
------------------
UNTIL , 1996 (90 CALENDAR DAYS AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE SENIOR EXCHANGE NOTES,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
THE MAJESTIC STAR
CASINO, LLC
$105,000,000
12 3/4% SENIOR EXCHANGE SECURED NOTES
DUE 2003
WITH CONTINGENT INTEREST
PROSPECTUS
, 1996
<PAGE> 130
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Majestic Star Casino, LLC (the "Company") is an Indiana limited
liability company and is managed by Barden Development, Inc. (the "Manager").
Section 5 of the Company's Third Amended and Restated Operating Agreement (the
"Operating Agreement") provides that the Manager will not be liable to the
Company or to any member for any loss or damage arising out of the management of
the Company, or any other activities in its capacity as a Manager, unless caused
by the Manager's (a) receipt of a financial benefit to which it is not entitled,
(b) assenting to a distribution in violation of the Operating Agreement or the
Indiana Limited Liability Company Act, (c) commission of a crime, or (d)
material violations of the Operating Agreement that are both knowing and
willful. Further, the Operating Agreement generally provides that the Company
will indemnify the Manager (and its agents and employees) from all loss or
damage incurred by them in connection with the Company, unless such loss or
damage is caused by such person's gross negligence or bad faith. (To the extent
that such indemnification provisions purport to include indemnification for
liabilities arising under the securities laws, in the opinion of the Securities
and Exchange Commission, such indemnification is contrary to public policy and
is therefore unenforceable.)
The Manager of the Company is an Indiana corporation. Chapter 37 of the
Indiana Business Corporation Law (the "IBCL") sets forth the conditions and
limitations governing the indemnification of officers, directors and other
persons.
The IBCL provides for indemnification of directors and officers acting in
good faith and in a manner they reasonably believe to be in or not opposed to
the best interest of the Company (and, with respect to a criminal proceeding, if
they have reasonable cause to believe their conduct to be lawful or they have no
reasonable cause to believe their conduct to be unlawful) against liability
incurred in a proceeding in which they are a party. The IBCL requires
indemnification for reasonable expenses to the extent that a director or officer
is successful, on the merits or otherwise, in defending against any such
proceeding and otherwise requires in general that the indemnification provided
for above to be made on a determination (a) by a majority vote of a quorum of
the board of directors who were not parties to such proceeding, (b) if such
quorum cannot be obtained, by the majority vote of a committee duly designated
by the board of directors (in which designation directors who are parties may
participate), consisting solely of 2 or more directors not at the time parties
to the proceeding, (c) by legal counsel selected by the board of directors or
such committee, (d) by the full board, if a quorum cannot be obtained or a
committee cannot be designated or (e) by the shareholders, but shares owned by
or voted under the control of directors who are at the time parties to the
proceeding may not be voted on such determination. In certain circumstances, the
IBCL further permits advances to cover such expenses before a final
determination that indemnification is permissible, upon receipt of a written
affirmation by the directors or officers of their good faith belief that they
have met the applicable standard of conduct set forth in the IBCL, receipt of a
written undertaking by or on behalf of the directors or officers to repay such
amounts unless it shall ultimately be determined that they are entitled to
indemnification and a determination that the facts then known to those making
the advance would not preclude indemnification.
Indemnification under the IBCL is not exclusive of other rights to
indemnification to which a person may be entitled under a company's articles of
incorporation, bylaws, or a contractual agreement. Reference is made to Article
IX of the Company's Amended Bylaws which provide for indemnification of
directors and officers of the Company and authorizes the board of directors to
extend such indemnity to others to the full extent permitted by the aforesaid
sections of the IBCL.
The IBCL permits the Company to purchase insurance on behalf of its
directors and officers against liabilities arising out of their positions with
the Company whether or not such liabilities would be within the indemnification
provisions of the IBCL. The Company carries no such insurance.
II-1
<PAGE> 131
ITEM 21. EXHIBITS
A list of exhibits included as part of this Registration Statement is set
forth in the Exhibit Index which immediately precedes such exhibits and is
incorporated herein by reference.
ITEM 22. UNDERTAKINGS
1. The undersigned Registrant hereby undertakes as follows:
(a) 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; (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; (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.
(b) That, for the purpose of determining any liability under the Securities
Act, 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.
(c) To remove from registration by means of a post-effective amendment any of
the foregoing securities being registered which remain unsold at the termination
of the offering.
2. Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
a Registrant of expenses incurred or paid by a director, officer or
controlling person of such Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant against which such claim is asserted 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 them is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
3. The undersigned Registrant hereby undertakes to file an application for the
purpose of determining the eligibility under subsection (a) of section 310 of
the Trust Indenture Act ("Act") in accordance with the rules and regulations
prescribed by the Commission under section 305(b)(2) of the Act.
4. The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in this Registration Statement when it became effective.
II-2
<PAGE> 132
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Amendment No. 2 to the Registration Statement on Form S-4 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Detroit, State of Michigan on the 27th day of September, 1996.
THE MAJESTIC STAR CASINO, LLC
BY: BARDEN DEVELOPMENT, INC.,
THE MANAGER
By: /s/ DON H. BARDEN
------------------------------------
Don H. Barden, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE DATE
- --------------------------------------------- -------------------
<S> <C>
/s/ DON H. BARDEN September 27, 1996
- ---------------------------------------------
Don H. Barden
President and Chief Executive Officer
(Principal Executive Officer)
/s/ MICHAEL E. KELLY September 27, 1996
- ---------------------------------------------
Michael E. Kelly
Chief Financial Officer
(Principal Financial and Accounting
Officer)
</TABLE>
II-3
<PAGE> 133
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBITS PAGE NO.
- ----------- ------------------------------------------------------------------------ --------
<S> <C> <C>
3.1* Amended and Restated Articles of Organization of The Majestic Star
Casino, LLC.
3.2* Third Amended and Restated Operating Agreement of The Majestic Star
Casino, LLC dated as of March 29, 1996.
4.1* Purchase Agreement, dated as of May 22, 1996, by and between The
Majestic Star Casino, LLC and Wasserstein Perella Securities, Inc.
4.2* Indenture, dated as of May 22, 1996, by and between The Majestic Star
Casino, LLC, IBJ Schroder Bank & Trust Company, as Trustee, with respect
to the Senior Secured Notes due 2003 with Contingent Interest (the
"Senior Notes") and the holder of Senior Exchange Secured Notes due May
15, 2003 with Contingent Interest (the "Senior Exchange Notes").
4.3* Form of Senior Note and Senior Exchange Note (included in Exhibit 4.2).
4.4* Security Agreement, dated as of May 22, 1996, from The Majestic Star
Casino, LLC, in favor of the holders of Senior Notes and the Senior
Exchange Notes.
4.5* Pledge Agreement, dated as of May 22, 1996, from Barden Development,
Inc. in favor of the holders of Senior Notes and the Senior Exchange
Notes.
4.6* Pledge Agreement, dated as of May 22, 1996, from the Company in favor of
the holders of Senior Notes and the Senior Exchange Notes.
4.7* Trademark Security Agreement, dated as of May 22, 1996, from the Company
in favor of the holders of the Senior Notes and the Senior Exchange
Notes.
4.8* Cash Collateral Agreement, dated as of May 22, 1996, by and among the
Company, the Trustee and NBD Bank.
4.9* Registration Rights Agreement, dated as of May 22, 1996, by and between
The Majestic Star Casino, LLC, and Wasserstein Perella Securities, Inc.
5.1* Opinion of Dykema Gossett PLLC.
10.1* Employment Letter Agreement dated as of April 25, 1996 by and between
the Company and Don H. Barden.
10.2* Employment Letter Agreement effective as of December 4, 1995 by and
between the Company, and Thomas C. Bonner.
10.3* Employment Letter Agreement effective as of December 4, 1995 by and
between the Company, and Paul W. Sykes.
10.4* Employment Letter Agreement effective as of April 22, 1996, by and
between the Company and Michael E. Kelly.
10.5* Berthing Agreement, dated as of April 23, 1996, between the Company and
Buffington Harbor Riverboats, L.L.C.
10.6* First Amended and Restated Operating Agreement of Buffington Harbor
Riverboats, L.L.C., made as of October 31, 1995, by and between Trump
Indiana, Inc. and the Company, as amended to date.
10.7* Charter Agreement, dated August 17, 1995, by and among New Yorker
Acquisition Corporation, the Company and President Casinos, Inc, as
amended to date.
10.8* Development Agreement, dated March 26, 1996, by and between the Company
and the City of Gary, Indiana.
</TABLE>
II-4
<PAGE> 134
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBITS PAGE NO.
- ----------- ------------------------------------------------------------------------ --------
<S> <C> <C>
10.9* Harbor Lease Agreement, dated June 29, 1995, by and between Trump
Indiana, Inc. and Lehigh Portland Cement Company, as assigned by Trump
Indiana, Inc. to Buffington Harbor Riverboats, L.L.C. pursuant to the
Assignment Agreement dated as of October 31, 1995, by and between Trump
Indiana, Inc. and Buffington Harbor Riverboats, L.L.C.
10.10* Equipment Financing Agreement dated April 5, 1996 by and between the
Company and International Game Technology.
10.11* Master Surety Agreement by and between Company and United States
Fidelity and Guaranty Company.
10.12* Standby Letter of Credit Application and Reimbursement and Security
Agreement.
10.10* Equipment Financing Agreement dated May 5, 1996 by and between the
Company and International Game Technology.
10.13* Promissory Note dated March 31, 1996 from the Company to Barden
Development, Inc.
23.1* Consent of Dykema Gossett, PLLC (included in Exhibit 5.1).
23.2** Consent of Coopers & Lybrand, LLP.
23.3* Consent of Arthur Andersen, LLP.
25.1* Form T-1 Statement of Eligibility and Qualifications under Trust
Indenture Act of 1939 of IBJ Schroder Bank & Trust Company.
99.1* Form of Letter of Transmittal with respect to the Exchange Offer.
99.2* Form of Notice of Guaranteed Delivery.
99.3* Instruction to Registered Holder and/or Book Entry Transfer Participants
from Beneficial Owners.
99.4* Letter to Brokers, Dealers, Banks, Trust Companies and Other Nominees.
99.5* Letter to Clients for use by Brokers, Dealers, Banks, Trust Companies
and Other Nominees.
</TABLE>
- -------------------------
* Previously filed.
** Filed herewith.
(b) Financial Statement Schedules
All Schedules are omitted as the required information is inapplicable or
not present in amounts sufficient to require submission of the schedule, or
because the information is presented in the consolidated financial statements or
related notes.
II-5
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement of Form S-4 (File
No. 333-06489) on our report dated January 31, 1996, of our audit of the
financial statements of The Majestic Star Casino, L.L.C., as of December 31,
1995, and for the period December 8, 1993 (date of inception) to December 31,
1995. We also consent to the reference to our Firm under the caption "Experts."
Coopers & Lybrand, L.L.P.
Detroit, Michigan
September 27, 1996
