<PAGE>
<TABLE>
<CAPTION>
<S><C>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 29, 1999
REGISTRATION NO. 333-88829
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------
PENINSULA GAMING COMPANY, LLC
(Exact name of registrant as specified in its charter)
(FOR CO-REGISTRANTS, PLEASE SEE TABLE OF OTHER REGISTRANTS ON THE FOLLOWING PAGE)
DELAWARE 7993 42-1483875
(State or other jurisdiction of (Primary standard industrial (I.R.S. Employer
incorporation or organization) classification code number) Identification No.)
-----------
3RD STREET ICE HARBOR
P. O. BOX 1750
DUBUQUE, IOWA 52004-1683
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
-----------
NATALIE A. SCHRAMM
3RD STREET ICE HARBOR
P. O. BOX 1750
DUBUQUE, IOWA 52004-1683
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
-----------
COPY TO:
RONALD S. BRODY, ESQ.
MAYER, BROWN & PLATT
1675 BROADWAY
NEW YORK, NEW YORK
(212) 506-2500
-----------
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this registration statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /_________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /__________
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED PRICE PER UNIT OFFERING PRICE REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
12 1/4% Senior Secured Notes
due July 1, 2006,..................... $71,000,000 100%(1) $71,000,000 $19,738
</TABLE>
(1) Calculated based on the book value of the securities to be received by the
registrant in the exchange in accordance with Rule 457(f)(2) under the
Securities Act of 1933.
(2) Pursuant to Rule 457(n) under the Securities Act of 1933, no separate fee
is payable for the subsidiary guarantees.
-----------
THE CO-REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE CO-REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
<PAGE>
TABLE OF OTHER REGISTRANTS
<TABLE>
<CAPTION>
PRIMARY STANDARD
STATE OF I.R.S. EMPLOYER INDUSTRIAL
EXACT NAME OF REGISTRANT INCORPORATION IDENTIFICATION CLASSIFICATION
AS SPECIFIED IN ITS CHARTER OR ORGANIZATION NO. CODE NUMBER
<S> <C> <C> <C>
Peninsula Gaming Corp. .................... Delaware 52-2192665 7993
</TABLE>
-----------
PENINSULA GAMING CORP.
3RD STREET ICE HARBOR
P.O. BOX 1750
DUBUQUE, IOWA 52 004-1683
(Address, including zip code, and telephone number,
including a rea code, of each of the co-registrant's
principal executive offices)
-----------
NATALIE A. SCHRAMM
3RD STREET ICE HARBOR
P.O. BOX 1750
DUBUQUE, IOWA 52004-1683
(Name, address, including zip code, and telephone
number, including area code, of agent for service
for each of the co-registrants)
COPY TO:
RONALD S. BRODY, ESQ.
MAYER, BROWN & PLATT
1675 BROADWAY
NEW YORK, NEW YORK
(212) 506-2500
-----------
SUBJECT TO COMPLETION, DATED OCTOBER 12, 1999 The information in this
prospectus is incomplete and may be changed. We may not sell these securities
until the registration statement filed with the Securities and Exchange
Commission is effective. This prospectus is not an offer to sell these
securities and it is not soliciting an offer to buy these securities in any
state where the offer or sale is not permitted.
<PAGE>
PROSPECTUS
Peninsula Gaming Company, LLC
and
Peninsula Gaming Corp.
OFFER TO EXCHANGE UP TO $71,000,000 OF OUR
SERIES B 12 1/4% SENIOR SECURED NOTES DUE 2006,
FOR ALL OF OUR OUTSTANDING
SERIES A 12 1/4% SENIOR SECURED NOTES DUE 2006
-----------
- The exchange offer expires at 5:00 p.m., New York City time, on ,
1999, unless extended.
- The exchange offer is subject only to the conditions that the exchange
offer will not violate any applicable law or any interpretation of
applicable law by the staff of the Securities and Exchange Commission.
- All outstanding notes that are validly tendered and not validly
withdrawn will be exchanged.
- Tenders of outstanding notes may be withdrawn at any time before 5:00
p.m., New York City time, on the expiration date of the exchange
offer.
- The exchange of notes will not be a taxable exchange for U.S. federal
income tax purposes.
- We will not receive any proceeds from the exchange offer.
- The terms of the new notes to be issued are substantially identical to
your notes, except that the new notes will not have transfer
restrictions, and you will not have registration rights.
- There is no established trading market for the new notes, and we do
not intend to apply for listing of the new notes on any securities
exchange.
-----------
For a discussion of factors that you should consider before you participate
in the exchange offer, see "Risk Factors" beginning on page 12 of this
prospectus.
-----------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful and complete. Any representation to the contrary is a
criminal offense.
-----------
Neither the Iowa Racing and Gaming Commission nor any other regulatory
agency has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is
unlawful.
The date of this prospectus is _, 1999.
<PAGE>
<TABLE>
TABLE OF CONTENTS
<S> <C>
PROSPECTUS SUMMARY...........................................................1
FORWARD-LOOKING STATEMENTS..................................................13
RISK FACTORS................................................................14
THE TRANSACTIONS............................................................27
USE OF PROCEEDS.............................................................27
CAPITALIZATION..............................................................28
SELECTED COMBINED FINANCIAL DATA............................................29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS...............................32
BUSINESS....................................................................41
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK...................47
REGULATORY MATTERS..........................................................48
MANAGEMENT..................................................................54
PRINCIPAL SECURITYHOLDERS...................................................57
KEY RELATIONSHIPS AND RELATED TRANSACTIONS..................................59
THE EXCHANGE OFFER..........................................................62
DESCRIPTION OF THE NOTES....................................................74
DESCRIPTION OF INDEBTEDNESS................................................121
DESCRIPTION OF PENINSULA GAMING MEMBERSHIP INTERESTS.......................122
DESCRIPTION OF PENINSULA PARTNERS MEMBERSHIP INTERESTS.....................123
SPECIFIC FEDERAL INCOME TAX CONSIDERATIONS.................................130
PLAN OF DISTRIBUTION.......................................................135
LEGAL MATTERS..............................................................135
INDEPENDENT AUDITORS.......................................................135
INDEX TO COMBINED FINANCIAL STATEMENTS.....................................F-1
</TABLE>
-----------
You should rely only on the information contained in this prospectus. We
have not authorized any other person to provide you with different or additional
information. If anyone provides you with different or additional information,
you should not rely on it. The information in this prospectus is accurate as of
the date on the front cover.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ
IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL DATA, INCLUDING
THE COMBINED FINANCIAL STATEMENTS AND NOTES THERETO, APPEARING ELSEWHERE IN THIS
PROSPECTUS. ALL HISTORICAL FINANCIAL INFORMATION CONTAINED IN THIS PROSPECTUS
RELATES TO OUR PREDECESSOR COMPANIES, GREATER DUBUQUE RIVERBOAT ENTERTAINMENT
COMPANY, L.C. ("GREATER DUBUQUE RIVERBOAT") AND HARBOR COMMUNITY INVESTMENT,
L.C. ("HARBOR COMMUNITY"), ON A COMBINED BASIS. AS A RESULT OF THE CONSUMMATION
OF THE TRANSACTIONS OUTLINED UNDER "THE TRANSACTIONS," OUR PREDECESSOR
COMPANIES' HISTORICAL FINANCIAL INFORMATION MAY NOT BE MEANINGFUL TO AN
UNDERSTANDING OF OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS. REFERENCES
TO "WE," "US" AND "OUR" GENERALLY REFER TO PENINSULA GAMING COMPANY, LLC
("PENINSULA GAMING") AND PENINSULA GAMING CORP. ("PENINSULA CORP.") ON A
COMBINED BASIS AND DO NOT REFER TO PENINSULA GAMING PARTNERS, LLC ("PENINSULA
PARTNERS"), THE DIRECT PARENT OF PENINSULA GAMING AND THE INDIRECT PARENT OF
PENINSULA CORP. PENINSULA CORP. IS A CO-ISSUER OF THE NOTES AND WAS FORMED TO
FACILITATE THE OFFERING OF THE NOTES AND HAS NO ASSETS OR OPERATIONS. UNLESS THE
CONTEXT OTHERWISE REQUIRES, REFERENCES TO THE "SECURITIES" REFER TO THE NOTES.
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE INFORMATION SET FORTH UNDER
"RISK FACTORS" BEFORE INVESTING IN THE SECURITIES.
THE EXCHANGE OFFER
We sold $71 million of our 12 1/4% Senior Secured Notes due 2006 to
Jefferies & Co., Inc., as an initial purchaser, in a private placement of our
notes on July 15, 1999. The initial purchaser resold those notes in reliance on
Rule 144A, and other exemptions under the Securities Act of 1933.
On July 15, 1999, we also entered into a registration rights agreement with
the initial purchaser in which we agreed, among other things, to:
- file a registration statement with the Securities and Exchange
Commission relating to the exchange offer on or before October 13,
1999;
- deliver to you this prospectus;
- cause the registration statement, which includes this prospectus, to
become effective on or before December 13, 1999; and
- complete the exchange offer within 180 days after the registration
statement becomes effective.
You are entitled to exchange your notes for new registered 12 1/4% Senior
Secured Notes due 2006, with substantially identical terms as your notes, except
for transfer restrictions and registration rights. If we do not offer you the
opportunity to exchange your old notes, or if we commit other "registration
defaults," we may be required to pay you liquidated damages during the first
90-day period immediately following the occurrence of the registration default
in an amount equal to $.05 per week per $1,000 principal amount of your notes.
The weekly liquidated damages will increase by $.05 per $1,000 principal amount
of your notes following each subsequent 90-day period following the registration
default, up to a maximum of $.20 per week per $1,000 principal amount of your
notes, until we cure the registration default. You should read the discussion
under the heading "The Exchange Offer--Purpose and Effect; Registration
<PAGE>
Rights" and "Description of the Notes" for further information regarding
registration defaults, liquidated damages and the new notes that we are offering
in exchange for your notes.
We believe that you may resell the new notes issued in the exchange offer
without compliance with the registration and prospectus delivery provisions of
the Securities Act of 1933, subject to the conditions described under "The
Exchange Offer." You should read that section for further information regarding
the exchange offer.
TERMS OF THE EXCHANGE OFFER
The exchange offer relates to the exchange of up to $71.0 million aggregate
principal amount of outstanding old notes for an equal aggregate principal
amount of registered new notes. The new notes will be obligations of Peninsula
Gaming Company, LLC and its wholly-owned subsidiary, Peninsula Gaming Corp., and
will be governed by the same indenture that governs the outstanding old notes.
<TABLE>
<S> <C>
NEW NOTES........................................ We are offering registered 12 1/4% Senior Secured Notes
due 2006 for your notes. The terms of the registered new
notes and your notes are substantially identical, except:
- the new notes will be registered under the Securities
Act of 1933;
- the new notes will not bear any legends restricting
transfer; and
- except under limited circumstances, your rights under
the registration rights agreement, including
your right to receive additional interest, will terminate.
THE EXCHANGE OFFER............................... We are offering to exchange $1,000 in principal amount
of the new notes for each $1,000 in principal amount of
your old notes. As of the date of this prospectus, $71.0
million aggregate principal amount of the old notes is
outstanding.
EXPIRATION DATE.................................. You have until 5:00 p.m., New York City time, on
, 1999 to validly tender your old notes if you want to
exchange your old notes for new notes. We may extend
that date under some conditions.
CONDITIONS OF THE EXCHANGE
OFFER; EXTENSIONS; AMENDMENTS................. You are not required to tender any minimum principal
amount of your old notes in order to participate in the
exchange offer. If you validly tender and do not validly
withdraw your old notes, your old notes will be
exchanged for new notes as long as the exchange offer
does not violate any applicable law or any interpretation
of applicable law by the staff of the Securities and
Exchange Commission.
2
<PAGE>
We may delay or extend the exchange offer and, if
either of the above conditions is not met, we
may terminate the exchange offer. We will notify you
of any delay, extension or termination of the exchange
offer.
We may also waive any condition or amend the
terms of the exchange offer. If we materially
amend the exchange offer, we will notify you.
INTEREST......................................... The first interest payment date on your old notes is
January 1, 2000. Interest has accrued on your old notes
since July 15, 1999, but not yet been paid. If your old
notes are exchanged for new notes, you will not receive
any accrued interest on your old notes. You will receive
interest on your new notes from July 15, 1999.
PROCEDURES FOR TENDERING OLD NOTES;
SPECIAL PROCEDURES FOR BENEFICIAL
OWNERS........................................ If you want to participate in the exchange offer, you must
transmit a properly completed and signed letter of
transmittal, and all other documents required by the letter
of transmittal, to the exchange agent. Please send these
materials to the exchange agent at the address set forth in
the accompanying letter of transmittal prior to 5:00 p.m.,
New York City time, on the expiration date. You must
also send one of the following:
- certificates of your old notes;
- a timely confirmation of book-entry transfer
of your old notes into the exchange agent's
account at The Depository Trust Company; or
- the items required by the guaranteed delivery
procedures described below.
If you are a beneficial owner of your old notes and
your old notes are registered in the name of a
nominee, such as a broker, dealer, commercial bank or
trust company, and you wish to tender your old notes in
the exchange offer, you should instruct your
nominee to promptly tender the old notes on your behalf.
If you are a beneficial owner and you want to
tender your old notes on your own behalf, you must,
before completing and executing the letter of
transmittal and delivering your old notes, make
appropriate arrangements to either register ownership
of your old notes in your name or obtain a properly
completed
3
<PAGE>
bond power from the registered holder of your old notes.
By executing the letter of transmittal, you will
represent to us that:
- you are not our "affiliate" (as defined in Rule 405
under the Securities Act of 1933);
- you will acquire the new notes in the ordinary
course of your business;
- you are not a broker-dealer that acquired your notes
directly from us in order to resell them pursuant to
Rule 144A under the Securities Act of 1933 or any
other available exemption under the Securities Act of
1933;
- if you are a broker-dealer that acquired your notes as
a result of market-making or other trading activities,
you will deliver a prospectus in connection with any
resale of new notes; and
- you are not participating, do not intend to participate
and have no arrangement or understanding with any
person to participate in the distribution of the new notes.
If your old notes are not accepted for exchange for any reason,
we will return your old notes to you at our expense.
GUARANTEED DELIVERY PROCEDURES................... - If you wish to tender your old notes and:
- your old notes are not immediately available;
- you are unable to deliver on time your old notes or
any other document that you are required to deliver
to the exchange agent; or
- you cannot complete the procedures for delivery by
book-entry transfer on time;
then you may tender your old notes according to the
guaranteed delivery procedures that are discussed in the
letter of transmittal and in "The Exchange Offer--Guaranteed
Delivery Procedures."
ACCEPTANCE OF OLD NOTES
AND DELIVERY OF NEW NOTES..................... We will accept all old notes that you have properly
tendered on time when all conditions of the exchange
offer are satisfied or waived. The new notes will be
delivered promptly after we accept the old notes.
4
<PAGE>
WITHDRAWAL RIGHTS................................ Tenders of old notes may be withdrawn at any time prior
to 5:00 p.m., New York City time, on the expiration date.
THE EXCHANGE AGENT............................... Firstar Bank, N.A. (formerly known as Firstar Bank of
Minnesota, N.A.) is the exchange agent. Its address and
telephone number are set forth in "The Exchange
Offer--The Exchange Agent; Assistance."
FEES AND EXPENSES................................ We will pay all expenses relating to the exchange offer
and compliance with the registration rights agreement.
We will also pay some kinds of transfer taxes, if
applicable, relating to the exchange offer.
RESALES OF NEW NOTES............................. We believe that the new notes may be offered for resale,
resold and otherwise transferred by you without further
compliance with the registration and prospectus delivery
requirements of the Securities Act of 1933 if:
- you are not our "affiliate" (as defined in Rule 405
under the Securities Act of 1933);
- you acquire the new notes in the ordinary course of
your business;
- you are not a broker-dealer that purchased old notes
from us to resell them pursuant to Rule 144A under the
Securities Act of 1933 or any other available exemption
under the Securities Act of 1933; and
- you are not participating, and have no arrangement or
understanding with any person to participate, in a distribution
(within the meaning of the Securities Act of 1933) of the new
notes.
You should read the information under the heading "The Exchange
Offer--Resales of the New Notes" for a more complete description
of why we believe that you can freely transfer new notes received
in the exchange offer without registration or delivery of a
prospectus.
All broker-dealers that are issued new notes for their own accounts
in exchange for old notes that were acquired as a result of
market-making or other trading activities must acknowledge that they will
deliver a prospectus meeting the requirements of the Securities Act
of 1933 in connection with any resale of the new notes. If
you are a broker-dealer and are required to deliver a
prospectus, you may use this prospectus for an offer to resell,
a resale or other transfer of the new notes.
5
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES.................. The issuance of the new notes will not constitute a taxable exchange
for U.S. federal income tax purposes. You will not recognize any
gain or loss upon receipt of the new notes in exchange for old
notes. You should read the information under the heading "Specific
Federal Income Tax Consequences" For a more complete discussion of
the Federal income tax consequences of holding the notes.
REGISTRATION RIGHTS AGREEMENT.................... In connection with the sale of the old notes, we entered into a
registration rights agreement with the initial purchasers of the
old notes that grants the holders of the old notes registration
rights. As a result of making and consummating this exchange
offer, we will have fulfilled most of our obligations under the
registration rights agreement. If you do not tender your old
notes in the exchange offer, you will not have any further
registration rights under the registration rights agreement or
otherwise unless you were not eligible to participate in
the exchange offer or do not receive freely transferrable
new notes in the exchange offer. You should read the
information under the heading "The Exchange Offer--Purpose and
Effect; Registration Rights" for a more complete discussion of
the effects the exchange offer will have on your registration rights.
6
<PAGE>
TERMS OF THE NEW NOTES
ISSUERS.......................................... Peninsula Gaming Company, LLC and its wholly-owned
subsidiary Peninsula Gaming Corp.
NOTES OFFERED.................................... $71,000,000 in principal amount of 12 1/4% Senior
Secured Notes due 2006.
MATURITY......................................... July 1, 2006
INTEREST PAYMENT DATES........................... Semiannually, beginning on January 1, 2000.
GUARANTEES....................................... Subject to limited exceptions, if we create or acquire new
subsidiaries, they will fully and unconditionally
guarantee our obligations under the notes.
RANKING.......................................... The notes will rank senior in right of payment to any of
our subordinated indebtedness and will rank equally with
any of our senior indebtedness.
OPTIONAL REDEMPTION.............................. On or after July 1, 2003, all or some of the notes are
redeemable at our option at the following premiums, plus
interest:
FOR THE PERIOD BELOW PERCENTAGE
On or after July 1, 2003......................... 108.00%
On or after July 1, 2004......................... 105.33%
July 1, 2005 and thereafter...................... 102.67%
Prior to July 1, 2002, we may redeem up to 35% of the principal
amount of the notes at our option with the net proceeds of some
kinds of equity offerings at 112.25% of their face amount, plus
interest.
REQUIRED REGULATORY REDEMPTION................... The notes may be redeemed pursuant to required regulatory
redemptions.
CHANGE OF CONTROL OFFER.......................... Upon a change of control, holders of the notes will be
given the opportunity to sell us all or part of their notes at
101% of their face amount, plus interest.
SELECTED INDENTURE PROVISIONS.................... The indenture governing the notes will limit what we may do.
For example, the provisions of the indenture will limit our
ability to among other things:
7
<PAGE>
- incur more debt;
- pay dividends, redeem stock, or make other distributions;
- issue stock of subsidiaries;
- make investments;
- create liens;
- enter into transactions with affiliates;
- merge or consolidate; and
- transfer or sell assets.
In addition, the indenture governing the notes will prohibit
Peninsula Gaming Corp. from holding any assets, becoming liable for
any obligations (other than the notes) or engaging in any business
activity. These covenants are subject to a number of important
exceptions. See "Description of Notes--Material Covenants"
for a more complete discussion of these covenants and their exceptions.
EXCESS CASH FLOW OFFER AND
EXCESS PROCEEDS OFFER............................ Within 120 days after the end of each year our proposed hotel is in
operation, we will make an offer to all noteholders to purchase notes
with 50% of Excess Cash Flow, as defined in the indenture governing the
notes, for such operating year. In addition, net proceeds from the
sale of assets not (a) invested in assets related to the business of the
company, (b) applied to repay indebtedness under obligations attributable
to specific assets incurred in connection with the assets sold, or
(c) applied to repay indebtedness under the proposed senior credit facility
will be applied to make an offer to purchase notes.
</TABLE>
8
<PAGE>
THE COMPANY
We own and operate the Diamond Jo riverboat casino, one of only two
licensed gaming operations in Dubuque, Iowa. We are the leading gaming
facility in our market, having captured approximately 60% of Dubuque's casino
gaming revenues since 1995, our first full year of operations. We anticipate
that our business will grow through a combination of targeted marketing
initiatives, enhanced by our new electronic player tracking system that
tracks the gaming patterns and preferences of our patrons, and locally funded
development programs. Our player tracking system functions through the use of
personal game cards issued to our member patrons. Additionally, we intend to
construct a hotel contiguous to the Diamond Jo to capitalize on increased
customer traffic anticipated from the development programs and to expand our
geographic reach. We believe that these developments will provide us with
opportunities to significantly expand our customer base, resulting in
increased revenues.
The Diamond Jo is a three-story riverboat casino that has capacity
for 1,390 patrons. We offer our customers a selection of 650 slot machines
and 39 table games. Adjacent to the Diamond Jo is a two-story dockside
pavilion, featuring our Lighthouse Grill restaurant, Lucky Jo Saloon, Java Jo
Coffee Bar, gift shop, and Harbor View Room, our full service banquet
facility. Our facilities are open seven days a week, and the Diamond Jo
functions primarily as a dockside riverboat with continuous boarding.
Our principal executive offices are located at 3rd Street Ice
Harbor, P.O. Box 1750, Dubuque, Iowa 52004-1683. The telephone number of our
principal executive offices is (319) 583-7005.
9
<PAGE>
SUMMARY COMBINED FINANCIAL AND OPERATING DATA
The summary combined financial data set forth below for the years
ended December 31, 1996, 1997 and 1998 have been derived from the combined
financial statements of the predecessor companies included elsewhere in this
prospectus, which have been audited by Deloitte & Touche LLP, independent
auditors, whose report on the financial statements is included with the
combined financial statements. The summary combined financial data for the
six months ended June 30, 1998 and 1999, for the twelve months ended June 30,
1999, and at June 30, 1999 have been derived from the unaudited combined
financial statements of the predecessor companies which, in the opinion of
management, are prepared on a basis consistent with the audited combined
financial statements of the predecessor companies which appear elsewhere in
this prospectus and include all adjustments (consisting only of normal and
recurring adjustments) necessary for a fair presentation of our financial
position and results of operations on those dates and for those periods. The
summary financial data from July 15, 1999 (date of inception) to September
30, 1999 have been derived from the unaudited financial statements of
Peninsula Gaming and include all adjustments (consisting only of normal and
recurring adjustments) necessary for a fair presentation of our financial
position and results of operations at such dates and for such period.
Financial and operating results for the six months ended June 30, 1998 and
1999 and the period from July 15, 1999 (date of inception) to September 30,
1999, are not necessarily indicative of the results that may be expected for
the full fiscal year. The information presented below should be read in
conjunction with, and is qualified in its entirety by reference to,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the combined financial statements and the notes thereto
appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
PENINSULA
GAMING
PREDECESSOR COMPANIES PERIOD FROM
------------------------------------------------------------------------------ JULY 15, 1999
SIX MONTHS (DATE OF
FISCAL YEARS ENDED DECEMBER 31, ENDED JUNE 30, TWELVE INCEPTION) TO
----------------------------------- --------------------- MONTHS ENDED SEPTEMBER
1996 1997 1998 1998 1999 JUNE 30, 1999 30, 1999
--------- --------- --------- --------- ------- --------------- --------------
(DOLLARS IN THOUSANDS, EXCEPT OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net Revenues................... $42,252 $42,621 $45,849 $22,067 $22,903 $46,685 $10,530
Operating expenses............. 30,708 28,089 30,670 14,576 15,887 31,981 9,796
Depreciation and amortization.. 2,026 1,826 1,895 898 1,066 2,063 692
Income from operations......... 9,518 12,706 13,284 6,593 5,950 12,641 42
OTHER FINANCIAL DATA:
Cash flows from operating
activities................ 10,140 12,522 14,638 7,314 6,965 14,289 2,169
Cash flows from investing
activities................ (18,162) 4,196 (1,793) (518) 189 (1,086) (68,019)
Cash flows from financing
activities................ 10,249 (15,114) 12,806 (6,863) (7,857) (13,800) 74,744
Adjusted EBITDA(1)............. $14,013 $14,702 $16,107 $7,723 $7,641 $16,025 $3,868
Adjusted EBITDA margin......... 33.2% 34.5% 35.1% 35% 33.4% 34.3% 36.7%
Capital expenditures........... $17,812 $918 $1,393 $594 $358 $1,157 $44
OPERATING DATA:
Number of admissions........... 1,109,399 1,111,155 1,142,008 546,035 527,289 1,123,262 267,091
Win per position per day....... $119 $117 $128 $124 $128 $130 $139
Win per admission.............. $36 $37 $39 $39 $42 $40 $38
</TABLE>
<TABLE>
<S> <C>
Ratio of EBITDA to net interest expense(2)..................................................................... 2.0x
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
TWELVE
MONTHS ENDED
SEPTEMBER 30,
1999
-------------
<S> <C>
Ratio of net debt to EBITDA(3)................................................................................. 4.0x
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1999
ACTUAL
---------------------
(DOLLARS IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................ $8,894
Total assets......................................... 89,235
Total debt........................................... 70,673
Preferred membership interests(4).................... 7,000
Common membership interests(4)....................... 9,000
Retained deficit..................................... (2,069)
</TABLE>
- --------------------
(1) EBITDA represents earnings before interest, income taxes, depreciation
and amortization and excludes non-recurring charges and loss on sale of
assets for all periods presented. EBITDA for 1996 excludes $2.4 million
of operating lease expense related to the Diamond Jo prior to its
purchase. EBITDA is presented to enhance the understanding of our
financial performance and our ability to service our indebtedness,
including the notes. We understand that it is used by some investors as
one measure of cash flow and enables a comparison of our performance
with the performance of other companies that report EBITDA. EBITDA is
not a measurement determined in accordance with generally accepted
accounting principles ("GAAP") as an indicator of financial performance
and should not be considered an alternative to, or more meaningful
than, net income or income from operations, as an indicator of our
operating performance, or cash flows from operating activities as a
measure of liquidity. Our definition of EBITDA may not be the same as
that used by other companies. The following table sets forth the
calculation of adjusted EBITDA:
<TABLE>
<CAPTION>
PENINSULA
PREDECESSOR COMPANIES GAMING
------------------------------------------------------------------------ --------------
SIX MONTHS ENDED 12 MONTHS PERIOD FROM
FISCAL YEARS ENDED DECEMBER 31, JUNE 30, ENDED JULY 15 TO
-------------------------------- ------------------ JUNE 30, SEPTEMBER 30,
1996 1997 1998 1998 1999 1999 1999
------ ------ ------ ------ ------ ---------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Income from operations........... $9,518 $12,706 $13,284 $6,593 $5,950 $12,641 $ 42
Adjustments:
Depreciation/amortization...... 2,026 1,826 1,895 898 1,066 2,063 692
Non-recurring charges*......... 58 170 928 232 625 1,321 3,134
Operating lease expense........ 2,411 --- --- --- --- --- ---
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
PENINSULA
PREDECESSOR COMPANIES GAMING
------------------------------------------------------------------------ --------------
SIX MONTHS ENDED 12 MONTHS PERIOD FROM
FISCAL YEARS ENDED DECEMBER 31, JUNE 30, ENDED JULY 15 TO
-------------------------------- ------------------ JUNE 30, SEPTEMBER 30,
1996 1997 1998 1998 1999 1999 1999
------ ------ ------ ------ ------ ---------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Totals: 4,495 1,996 2,823 1,130 1,691 3,384 3,826
------- ------- ------- ------ ------- -------- --------
------- ------- ------- ------ ------- -------- --------
Adjusted EBITDA.................. $14,013 $14,702 $16,107 $7,723 $7,641 $16,025 $3,868
------- ------- ------- ------ ------- -------- --------
------- ------- ------- ------ ------- -------- --------
</TABLE>
* Non-recurring charges include sale of business expenses and ownership
litigation expenses related to the predecessor companies and start-up and
organization costs related to Peninsula Gaming.
(2) Net interest expense is defined as total interest expense less interest
income and amortization of deferred financing costs and original issue
discount.
(3) Net debt is defined as total debt less cash and cash equivalents. EBITDA
includes a deduction of $0.2 million of executive compensation expense
that will be incurred annually.
(4) Peninsula Gaming issued $7.0 million of preferred membership interests
to Greater Dubuque Riverboat and received a $9.0 million capital
contribution from Peninsula Partners ($6.0 million of which was
contributed to the capital of Peninsula Partners through the sale of
common membership interests and $3.0 million of which was contributed to
the capital of Peninsula Partners through the sale of convertible
preferred membership interests). See "The Transactions," "Key
Relationships and Related Transactions--Equity Contribution,"
"Description of Peninsula Gaming Membership Interests" and "Description
of Peninsula Partners Membership Interests" for a detailed discussion of
the capitalization of the Company and its affiliates.
12
<PAGE>
FORWARD-LOOKING STATEMENTS
Throughout this prospectus we make forward-looking statements.
Forward-looking statements include the words "may," "will," "estimate,"
"intend," "continue," "believe," "expect" or "anticipate" and other similar
words. The forward-looking statements contained in this prospectus are
generally located in the material set forth under the headings "Prospectus
Summary," "Risk Factors," "Capitalization," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business,"
but may be found in other locations as well. These forward-looking statements
generally relate to plans and objectives for future operations and are based
upon management's reasonable estimates of future results or trends. Although
we believe that the plans and objectives reflected in or suggested by these
forward-looking statements are reasonable, the plans or objectives may not be
achieved. Actual results may differ from projected results due, but not
limited, to unforeseen developments, including developments relating to the
following:
- the availability and adequacy of our cash flow to satisfy
our obligations, including payment of the notes and additional
funds required to support capital improvements and
development,
- economic, competitive, demographic, business and other conditions
in our local and regional markets, including competition in the
Dubuque gaming market,
- changes or developments in the laws, regulations or taxes in the
gaming industry, including riverboat gaming and liquor regulation
under Iowa law,
- actions taken or omitted to be taken by third parties, including
customers, suppliers, competitors, members and shareholders, as
well as legislative, regulatory, judicial and other governmental
authorities,
- changes in business strategy, capital improvements, development
plans, including those due to environmental remediation concerns,
or changes in personnel or their compensation, including federal,
state and local minimum wage requirements,
- the loss of any license or permit, including the failure to
obtain an unconditional renewal of a required gaming license on a
timely basis,
- the termination of our operating agreement with the Dubuque Racing
Association, Ltd. or the failure of the Dubuque Racing Association,
Ltd. to continue as our "qualified sponsoring organization,"
- the loss of our riverboat casino or land-based facilities due to
casualty, weather, mechanical failure or any extended or
extraordinary maintenance or inspection that may be required, and
- other factors discussed under "Risk Factors" or elsewhere in this
prospectus.
You should read this prospectus completely and with the understanding
that actual future results may be materially different from what the issuers of
the notes expect. Unless otherwise required by law, we will not update
forward-looking statements even though our situation may change in the future.
13
<PAGE>
RISK FACTORS
You should consider carefully the risk factors below as well as the
other information in this prospectus before tendering your old notes in the
exchange offer.
DEPENDENCE UPON A SINGLE GAMING SITE--OUR RESULTS OF OPERATIONS ARE DEPENDENT
SOLELY ON THE DIAMOND JO, AND IF THE DIAMOND JO IS NOT IN SERVICE, OUR CASH FLOW
MAY NOT BE SUFFICIENT TO SATISFY OUR PAYMENT OBLIGATIONS UNDER THE NOTES.
Our profitability is entirely dependent upon the Diamond Jo. If we are
closed or if access to the Diamond Jo is limited in any significant way, our
results of operations could be materially adversely affected. We will have
little or no operating revenues for any period that the Diamond Jo is not in
service. Our riverboat could be out of service due to, among other things,
casualty, mechanical failure, physical damage or extended or extraordinary
maintenance or inspection, although we have had no such occurrences to date. In
addition, our riverboat is subject to United States Coast Guard regulations
which, among other things, govern its design, facilities and operations.
The Diamond Jo is subject to the risk of severe weather, including
snow, high wind, blizzard and flooding. Although we have had no such occurrences
to date, severe weather conditions could cause significant physical damage to
the Diamond Jo and, for a period of time, result in reduced hours of operation
or access to the Diamond Jo or the complete closure of the Diamond Jo. In the
last 3 years, we have closed the Diamond Jo twice for a short period of time,
generally less than a day, because of severe weather conditions. Severe weather
may also cause the closure of highways which provide access to the Diamond Jo.
This would reduce the number of people visiting the Diamond Jo. Any of these
events could have a material adverse effect on us. Although we maintain
insurance policies, insurance proceeds may not adequately compensate us for all
economic consequences of any loss. Should a loss occur, we could lose both our
invested capital and anticipated profits from the Diamond Jo.
We are also vulnerable to any negative economic, competitive,
demographic or other condition affecting the City of Dubuque and, to a lesser
extent, surrounding cities. If the local economy suffers a downturn or if any
of the area's larger employers, such as John Deere Dubuque Works, lay off
workers, the Diamond Jo may be adversely affected as the disposable income of
consumers in the area declines. Any of the foregoing factors could limit or
result in a decrease in the number of patrons at the Diamond Jo or a decrease
in the amount that patrons are willing to wager.
Requirement of a Certificate of Inspection--Our riverboat must hold a
Certificate of Inspection and a Certificate of Documentation from the United
States Coast Guard. Loss of the Certificate of Inspection would result in
discontinuance of operations.
Our riverboat must hold, and currently possesses, a Certificate of
Inspection and a Certificate of Documentation from the United States Coast
Guard. Loss of the Certificate of Inspection would preclude our use of the
Diamond Jo as an operating riverboat. The United States Coast Guard requires
periodic hull inspections. Our next hull inspection is expected to take place by
April 2000. A traditional dry dock hull inspection would result in the temporary
loss of service of our riverboat for up to approximately two weeks. The United
States Coast Guard, upon request and approval of the request, allows for an
underwater hull inspection instead of the traditional out of water dry dock
inspection. An underwater hull inspection does
14
<PAGE>
not result in any loss of services of the riverboat. If the Coast Guard
approves our request for an underwater hull inspection, we will be required
to perform another hull inspection within thirty 30 months from the date of
the underwater hull inspection. At that time, we may again seek approval from
the Coast Guard for an underwater hull inspection in order to avoid any loss
of services of the riverboat.
SUBSTANTIAL LEVERAGE--OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT OUR
FINANCIAL CONDITION AND PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER THE
NOTES.
We have debt of approximately $71 million. In addition, subject to
limited exceptions set forth in the indenture governing the notes, we may
incur additional debt in the future, including indebtedness under our
proposed $10.0 million credit facility. As a result of our indebtedness, the
ratio of indebtedness to total capital and the estimated ratio of earnings to
fixed charges as of September 30, 1999 are 10.3 and 1.6, respectively. Our
substantial debt will have important consequences to you and significant
effects on our future operations. Our substantial debt may, among other
things:
- increase our vulnerability to adverse economic and industry
conditions or a downturn in our business,
- limit our ability to fund or obtain additional financing for
future working capital, capital expenditures, and development
projects, including our planned hotel,
- limit our ability to fund a change of control offer,
- limit our flexibility in planning for, or reacting to, changes in
our business and industry,
- place us at a competitive disadvantage relative to the Dubuque
Greyhound Park (the "Greyhound Park") and our other competitors
that have less debt,
- limit our ability to borrow additional funds, and
- result in an event of default if we fail to comply with the
financial and other restrictive covenants contained in the
indenture governing the notes or in any new credit facility.
ABILITY TO SERVICE DEBT--TO SERVICE OUR DEBT, WE WILL REQUIRE A SIGNIFICANT
AMOUNT OF CASH. OUR ABILITY TO GENERATE CASH DEPENDS ON MANY FACTORS BEYOND OUR
CONTROL. WE CANNOT ASSURE YOU THAT OUR OPERATING RESULTS, CASH FLOW AND CAPITAL
RESOURCES WILL BE SUFFICIENT TO SATISFY OUR PAYMENT OBLIGATIONS IN THE FUTURE,
INCLUDING UNDER THE NOTES.
Our ability to service our obligations depends upon our future
operating performance, which will be subject to general economic conditions,
industry cycles and financial, business, regulatory and other factors
affecting our operations, many of which are beyond our control. Our business
might not continue to generate sufficient cash flow from operations in the
future to service our indebtedness or to satisfy our preferred membership
interests and other obligations, and we may be required, among other things,
to seek additional financing, to refinance or restructure all or a portion of
these obligations, to sell selected assets, or to reduce or delay planned
capital expenditures. Such measures might not be sufficient to enable us to
service the notes and satisfy our other obligations. In addition, any such
financing, refinancing or sale of assets might not be available to us on
economically favorable terms, if at all. We cannot assure you that our
operating results, cash flow and capital
15
<PAGE>
resources will be sufficient to satisfy our payment obligations in the
future, including under the notes. The amount of cashflow needed to pay the
interest on our notes is $6,390,000 annually. We will need $3.0 million in
January 2001, $4.0 million in August 2006, plus, in each case, all unpaid
dividends in an aggregate amount equal to $630,000 per year at the time of
redemption in order to satisfy our preferred membership interest obligations.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources" for more information on our
ability to generate cash sufficient to service our debt.
COMPETITION--INCREASED COMPETITION MAY HAVE A MATERIAL ADVERSE EFFECT ON OUR
BUSINESS, AND OUR BUSINESS MIGHT NOT CONTINUE TO GENERATE SUFFICIENT CASH FLOW
TO SERVICE OUR INDEBTEDNESS, INCLUDING UNDER THE NOTES.
The gaming industry is highly competitive. As new gaming opportunities
arise in existing gaming jurisdictions, in new gaming jurisdictions and on
Native American-owned lands, new or expanded operations by others can be
expected to increase competition in our industry and could limit new
opportunities for us or result in the saturation of our gaming markets. Casino
gaming does not have a long operating history in our jurisdiction and other
nearby jurisdictions and, therefore, the effects of competition in these
jurisdictions cannot be predicted with any degree of certainty.
Our gaming operations are highly dependent upon the Dubuque area. We
believe that the primary competitive factors in Dubuque are location,
availability and convenience of parking, number and types of slot machines
and gaming tables, types and pricing of amenities, services, entertainment
and overall atmosphere.
Since July 1997, our only competitor in the Dubuque area has been
the Greyhound Park. The Racing Association owns the Greyhound Park, which is
located three miles from us. The Greyhound Park offers some amenities which
we do not thave, including live greyhound racing from May through October and
simulcast greyhound racing all year, as well as simulcast horse racing on a
limited basis. As a not-for-profit organization, the Racing Association
distributes a percentage of its cash flow from the Greyhound Park to the City
of Dubuque and local charities and, through such contributions, has developed
a strong relationship with the local community and city officials. The Racing
Association also has no long-term indebtedness and therefore may be able to
react more quickly than we can to changes in our market. The Greyhound Park
is also not subject to Iowa's cruising laws, which require us to cruise 100
times per year for a minimum of two hours per cruise. Although Iowa law
currently prohibits the Greyhound Park from conducting some kinds of gaming
operations, including table games, video poker, video keno and other
electronic games of skill, Iowa gaming laws may be amended in the future,
permitting the Greyhound Park to operate these gaming activities. We may face
increased competition from the Greyhound Park in the future, due to changes
in Iowa gaming laws or a variety of other factors which could have a material
adverse effect on us.
Our operating agreement with the Racing Association, hereinafter
referred to as the "Racing Association operating agreement," currently
restricts the number of slot machines at the Greyhound Park to 600 provided
that we do not increase the number of slot machines at the Diamond Jo to more
than 650. Furthermore, pursuant to the Racing Association operating
agreement, we require that the weighted average theoretical slot payback
percentage at the Greyhound Park not exceed ours by more than 0.5%. With
respect to any given gaming property, the weighted average theoretical slot
payback percentage for such property is the average payout probability of all
slot machines at that property according to the
16
<PAGE>
manufacturers' specifications. If the Racing Association increases the
weighted average theoretical slot payback percentage or the number of slot
machines, this could increase competition by attracting customers to its
gaming operations. All of the restrictions under the Racing Association
operating agreement will terminate if we or any of our affiliates operate
another gaming facility in Dubuque County or the adjoining counties in
Illinois or Wisconsin.
We also currently face limited competition from numerous other
gaming facilities located approximately 60 to 120 miles from us. These
facilities include the Miss Marquette, located in Marquette, Iowa; the
Mississippi Belle II, located in Clinton, Iowa; the Meskwaki Casino, a Native
American gaming establishment located in Tama, Iowa; other Native American
gaming establishments in Wisconsin and Minnesota; the Lady Luck Bettendorf,
located in Bettendorf, Iowa; the President Casino, located in Davenport,
Iowa; and the Casino Rock Island, located in Rock Island, Illinois. Under
existing Iowa law, the number of riverboat gaming licenses in Iowa is limited
to ten, subject to limited exceptions. There are currently nine licensed
riverboat gaming facilities operating in Iowa, and the gaming commission
recently granted a gaming license for a riverboat to be located south of Des
Moines, Iowa, approximately 250 miles from us, although that boat is not yet
in operation. Legislation was recently enacted in Illinois to provide for
dockside gaming in Illinois and to relocate an existing but non-operating
riverboat gaming license to Cook County, Illinois (outside the city limits of
the City of Chicago). Should Iowa or any neighboring state adopt more
favorable gaming laws or laws authorizing new or additional gaming
facilities, these events could increase the competition that we face.
In addition to competing with gaming facilities in Iowa, Illinois,
Wisconsin and Minnesota, we compete to some extent with gaming facilities
nationally and other forms of gaming on both a local and national level,
including state-sponsored lotteries, charitable gaming and pari-mutuel
wagering, which is a form of betting, such as racetrack betting, where the
odds of winning are based on the amounts wagered. We also compete to some
extent with other forms of entertainment including motion pictures, sporting
events and other recreational activities. It is possible that these secondary
competitors could reduce the number of visitors to the Diamond Jo or the
amount they are willing to wager, which could have a material adverse effect
on us. See "Business--Competition" for a detailed discussion of our
competitive environment.
GAMING REGULATIONS--CHANGES IN GAMING LAWS AND OUR GAMING LICENSE STATUS MAY
HAVE A MATERIAL ADVERSE EFFECT ON OUR OPERATIONS BY PROHIBITING OR LIMITING
GAMING IN THE STATE OF IOWA, AND WE MAY NOT BE ABLE TO CONTINUE TO SERVICE OUR
INDEBTEDNESS, INCLUDING UNDER THE NOTES.
We are subject to regulation by the State of Iowa and, to a lesser
extent, by federal law. We are subject to regulations that apply specifically
to the gaming industry and casinos, in addition to regulations applicable to
businesses generally. Legislative or administrative changes in applicable
legal requirements, including legislation to prohibit casino gaming, have
been proposed from time to time. It is possible that the applicable
requirements to operate an Iowa gaming facility will become more stringent
and burdensome, and that taxes, fees and expenses may increase. It is also
possible that the number of authorized gaming licenses in Iowa may increase,
which would intensify the competition that we face. Our failure to comply
with detailed regulatory requirements may be grounds for the suspension or
revocation of one or more of our licenses which would have a material adverse
effect on us. See "Regulatory Matters" for more information about our
regulatory requirements.
Under Iowa law and regulations, the ownership and operation of
casino facilities in Iowa are subject to regulation by the gaming commission.
The gaming commission requires various
17
<PAGE>
licenses, findings of suitability, registrations, permits and approvals to be
held by us and our affiliates in order to conduct gaming operations. The
gaming commission may, among other things, limit, condition, suspend or
revoke a license to operate a gaming facility for any of the various reasons
set forth in Iowa law and regulations. For example, Iowa law and regulations
require the gaming commission to revoke a license if, among other things, the
licensee has been suspended from operating a gambling operation in another
jurisdiction, the licensee has made a false statement of a material fact to
the gaming commission, or the licensee lacks financial responsibility
sufficient for the enterprise it conducts. Substantial fines or forfeiture of
assets for violations of gaming laws or regulations may be levied against us,
our affiliates and the persons involved in the violations. In addition, the
actions of persons associated with us and our management and employees, over
whom we may have no control, could jeopardize any licenses held by us in
Iowa. The suspension or revocation of any of our licenses, the levying of
substantial fines on us or the forfeiture of our assets would have a material
adverse effect on us.
We have obtained all governmental licenses, findings of suitability,
registrations, permits and approvals necessary for the operation of the Diamond
Jo. However, gaming licenses and related approvals are deemed to be privileges
under Iowa law and regulations, and we can give no assurance that any additional
licenses, permits and approvals that may be required will be given or that
existing ones will not be revoked. Renewal is subject to, among other things,
continued satisfaction of suitability requirements. In addition, as a condition
to the issuance of our gaming license, we have committed to spend up to a
maximum of $11.5 million to develop a hotel contiguous to the Diamond Jo. This
development process must be commenced by December 2000. Failure to satisfy these
conditions could result in the revocation of our gaming license, which would
prevent us from operating the Diamond Jo as a casino and would have a material
adverse effect on us. We can give no assurance that we will be successful in
satisfying these conditions, including obtaining the capital necessary to build
the hotel and, accordingly, we can give no assurance that we will successfully
renew our gaming license in a timely manner, or at all.
Proposals to amend or supplement Iowa's gaming statutes are frequently
introduced in the Iowa state legislature. In addition, the state legislature
from time to time considers proposals to amend or repeal existing laws and
regulations, which could effectively prohibit riverboat gaming in the State of
Iowa, limit the expansion of existing operations or otherwise adversely affect
our operations.
REQUIRED REGULATORY REDEMPTION-- SECURITYHOLDERS MAY BE REQUIRED TO BE LICENSED
BY A GAMING AUTHORITY AND, IF NOT SO LICENSED, THEIR NOTES WILL BE SUBJECT TO
REDEMPTION.
We are required to notify the gaming commission as to the identity
of, and may be required to submit background information regarding, each
owner, partner or any other person who has a beneficial interest of five
percent or more, direct or indirect, in Peninsula Gaming. The gaming
commission may also request that we provide them with a list of persons
holding beneficial ownership interests in Peninsula Gaming of less than five
percent. For purposes of these rules, "beneficial interest" includes all
direct and indirect forms of ownership or control, voting power or investment
power held through any contract, lien, lease, partnership, stockholding,
syndication, joint venture, understanding, relationship, present or
reversionary right, title or interest, or otherwise. The gaming commission
may determine that holders of the securities have a "beneficial interest" in
Peninsula Gaming.
If any gaming authority, including the gaming commission, requires
any person, including a record or beneficial owner of the securities, to be
licensed, qualified or found suitable, that person must apply for a license,
qualification or finding of suitability within the time period specified
18
<PAGE>
by the gaming authority. The person would be required to pay all costs of
obtaining a license, qualification or finding of suitability. If a record or
beneficial owner of any of the notes is required to be licensed, qualified or
found suitable and is not licensed, qualified or found suitable by the gaming
authority within the applicable time period, their notes will be subject to
redemption. See "Regulatory Matters--Regulatory Requirements Applicable to
Owners of the Securities and Others," "Description of Peninsula
Gaming--Membership Interests--Peninsula Gaming Operating Agreement" and
"Description of Notes--Redemption" for more information about regulatory
redemptions affecting the notes.
RACING ASSOCIATION OPERATING AGREEMENT--OUR OPERATIONS ARE SUBJECT TO THE
RACING ASSOCIATION OPERATING AGREEMENT. IF THE RACING ASSOCIATION OPERATING
AGREEMENT IS TERMINATED OR NOT EXTENDED, WE MAY NOT BE ABLE TO OPERATE THE
DIAMOND JO, AND WE MAY NOT BE ABLE TO CONTINUE TO SERVICE OUR INDEBTEDNESS,
INCLUDING THE NOTES.
Under Iowa law, a license to operate a riverboat casino is granted
to a not-for-profit "qualified sponsoring organization," which may either
operate the riverboat itself or enter into an agreement with another party
that must obtain its own operator's license. We have entered into such an
agreement with the Racing Association, which holds the "qualified sponsoring
organization" license for the Diamond Jo. The Racing Association owns the
Greyhound Park, which is its primary source of revenue. Under some
circumstances, we can be required to pay the Racing Association for the right
to operate the Diamond Jo. Neither we nor our predecessor companies have been
required to make these payments since the Racing Association commenced casino
operations at the Greyhound Park in 1995. See "KEY RELATIONSHIPS AND RELATED
TRANSACTIONS--Relationship with Dubuque Racing Association," for a discussion
of our obligation to make these payments to the Racing Association. In
addition, beginning April 1, 2000, we will be required to pay to the Racing
Association $0.50 per patron on the Diamond Jo, without regard to the
revenues of the Greyhound Park. The payment for 1998 would have been
approximately $571,000.
The Racing Association operating agreement expires by its terms on
December 31, 2008. If the Racing Association operating agreement is
terminated or not extended, we may not be able to operate the Diamond Jo. The
Racing Association may elect not to renew the operating agreement for various
reasons, but the operating agreement will not need to be renewed until after
the maturity date of the notes. However, either we or the Racing Association
may terminate the operating agreement in the event that the other party
breaches any provision of the operating agreement, becomes subject to
bankruptcy proceedings, breaches applicable law, or otherwise fails to
fulfill its obligations and duties under the operating agreement. See
"Reauthorization of Gaming in Dubuque County, Iowa". For additional
information concerning the Racing Association operating agreement, see "Key
Relationships and Related Transactions--Relationship with the Dubuque Racing
Association."
REAUTHORIZATION OF GAMING IN DUBUQUE COUNTY, IOWA--THE DUBUQUE COUNTY ELECTORATE
MUST VOTE IN 2002 AND EVERY EIGHT YEARS THEREAFTER WHETHER TO CONTINUE TO ALLOW
RIVERBOAT GAMING IN DUBUQUE COUNTY, IOWA. IF RIVERBOAT GAMING IS DISCONTINUED,
WE MAY NOT BE ABLE TO CONDUCT OUR GAMING OPERATIONS, AND WE MAY NOT BE ABLE TO
CONTINUE TO SERVICE OUR INDEBTEDNESS, INCLUDING THE NOTES.
Under Iowa law, a license to conduct gaming may be issued in a county
only if the county electorate has approved the gaming, and a reauthorization
referendum requiring majority approval must be held every eight years. On May
17, 1994, the electorate of Dubuque County, Iowa, which
19
<PAGE>
includes the City of Dubuque, approved gaming by approximately 80% of the
votes cast. If any reauthorization referendum is defeated, a previously
issued gaming license will remain valid for a total of nine years from the
date of original issuance of the license, subject to earlier nonrenewal or
revocation under Iowa law and regulations.
If a gaming reauthorization referendum to be submitted to the
Dubuque County electorate in the general election to be held in 2002 fails,
our license which was issued on July 15, 1999 (the "date of licensure" under
Iowa law) and the Racing Association's sponsoring license will remain valid
for nine years from their respective dates of original issuance. Although
Iowa law and regulations are unclear as to whether the original issuance date
of the Racing Association's license is our date of licensure or on or before
March 18, 1993 (the date the Racing Association first received its gaming
license as the qualified sponsoring organization of the Diamond Jo), the
gaming commission administrator has indicated to us in writing that, in his
opinion, the original issuance date of the Racing Association's sponsoring
license will be our date of licensure. We can give no assurance, however,
that this interpretation will be followed by the gaming commission or other
governmental authorities. If the 2002 Referendum fails and the original
issuance date of the Racing Association's license is determined to be on or
before March 18, 1993, it is unlikely that we would be able to conduct gaming
operations on the Diamond Jo. If the 2002 Referendum fails and the original
issuance date of the Racing Association's license is determined to be our
date of licensure, we would be able to conduct gaming operations on the
Diamond Jo until 2008; PROVIDED, that the Racing Association operating
agreement is not terminated.
RISKS RELATED TO HOTEL/ICE HARBOR DEVELOPMENT--THERE CAN BE NO ASSURANCE THAT
EITHER THE PROPOSED HOTEL OR THE ICE HARBOR REDEVELOPMENT PROJECT WILL BE
COMPLETED ON TIME. OUR INABILITY TO COMPLETE THE PROPOSED HOTEL MAY RESULT IN
THE REVOCATION OF OUR GAMING LICENSE.
As a condition to the grant of our gaming license, we are required
by the gaming commission to spend up to a maximum of $11.5 million toward the
development and construction of a hotel contiguous to the Diamond Jo, unless
the costs of the development and construction exceed $11.5 million. If the
costs exceed $11.5 million, we would be required to build a hotel only if
another entity funded the excess costs. The development and construction of
this hotel may require additional financing. There can be no assurance that
this financing will be available to us on satisfactory terms or, if
necessary, that this financing will be approved by the gaming commission or
other governmental authorities. In addition, covenants in the indenture
governing the notes may restrict our ability to obtain any such additional
financing. Any additional financing may also cause us to become more
leveraged, which could adversely affect our ability to satisfy our debt
service requirements with respect to the notes and our ability to redeem
preferred membership interests.
We expect to develop a hotel concurrently with the proposed Ice Harbor
redevelopment project sponsored by the City of Dubuque together with individual
and corporate donors. We can give no assurance that funds necessary for the Ice
Harbor redevelopment project will be obtained or that this project will be
completed, as planned, within the next four years, if at all. Further, even if
the Ice Harbor redevelopment project is completed, we can give no assurance that
it will be successful in establishing the Ice Harbor as a community center and
tourist destination. If any of the foregoing were to occur, additional visitors
may not be attracted to the Ice Harbor.
20
<PAGE>
RISKS RELATED TO HOTEL/ICE HARBOR DEVELOPMENT--Construction problems and delays
could substantially increase costs or prevent completion of the proposed hotel
or the Ice Harbor redevelopment project. Our inability to complete the proposed
hotel may result in the revocation of our gaming license.
The hotel development project will be subject to various development
and construction risks, including but not limited to environmental problems,
risks of delays in obtaining necessary permits, licenses, and approvals,
disruption to existing operations, changes in law applicable to the project,
shortages of materials and skilled labor, labor disputes, work stoppages,
engineering or geological problems, fire and other natural disasters, weather
interferences and other delays, any or all of which could substantially increase
costs or significantly delay or prevent completion of the proposed hotel and/or
Ice Harbor redevelopment project.
RISKS RELATED TO HOTEL/ICE HARBOR DEVELOPMENT--Construction near the Diamond Jo
could adversely affect our operating results by discouraging patrons from
entering our facilities during the period of construction. This would reduce our
cash flow and might affect our ability to service our debt obligations.
Construction near the Diamond Jo could adversely affect our operating
results by discouraging patrons from entering our facilities during the
construction phase. Although our financial commitment to build the hotel is
limited to a maximum of $11.5 million, assuming we are able to build a hotel
within budgetary constraints, our inability to commence the construction process
by December 2000 may result in a refusal by the gaming commission to renew our
gaming license, which would prevent us from conducting gaming operations on the
Diamond Jo. See "Business--Properties" for more information about our properties
and development plans.
LIQUOR REGULATION--Revocation of our liquor license, which is subject to
extensive regulation, could have a material adverse effect on our gaming
operations and our ability to generate cash to service our indebtedness
The sale of alcoholic beverages by us will be subject to licensing,
control and regulation by state and local agencies in Iowa. Subject to limited
exceptions, all persons who have a financial interest in us, by ownership, loan
or otherwise, must be disclosed in an application filed with, and are subject to
investigation by, the liquor agencies. All liquor licenses are subject to annual
renewal, are revocable and are not transferable. Persons who have a direct or
indirect interest in any Iowa liquor licensee, other than hotel and restaurant
liquor licensees, may be prohibited from purchasing or holding the notes. The
liquor agencies have broad powers to limit, condition, suspend or revoke any
liquor license. Any disciplinary action with respect to our liquor licenses
could, and any failure to renew or revocation of our liquor license would, have
a material adverse effect on us.
ENVIRONMENTAL MATTERS--We are subject to environmental laws and potential
exposure to environmental liabilities. This may affect our ability to develop,
sell or rent our property or to borrow money where such property is required to
be used as collateral.
We are subject to various federal, state and local environmental laws,
ordinances and regulations, including those governing the remediation of soil
and groundwater contaminated by petroleum products or hazardous substances or
wastes, and the health and safety of our employees. Under these laws, ordinances
or regulations, a current or previous owner or operator of property may be
liable for the costs of removal or remediation of some kinds of hazardous
substances or
21
<PAGE>
petroleum products on, under, or in its property, without regard
to whether the owner or operator knew of, or caused, the presence of the
contaminants, and regardless of whether the practices that resulted in the
contamination were legal at the time they occurred. The presence of, or failure
to remediate properly, the substances may adversely affect the ability to sell
or rent the property or to borrow funds using the property as collateral.
Additionally, the owner of a site may be subject to claims by third parties
based on damages and costs resulting from environmental contamination emanating
from a site. We do not anticipate any material adverse effect on our earnings or
competitive position relating to environmental matters, but it is possible that
future developments could lead to material costs of environmental compliance for
us or materially impact our ability to construct a hotel.
We have reviewed environmental assessments (in some cases including
soil and groundwater testing) relating to our currently owned and leased
properties in Dubuque, Iowa, and other properties we may lease from the City
of Dubuque or other parties, including property adjacent to the Diamond Jo on
which we propose to construct a hotel. As a result, we have become aware that
there is contamination present on some of these properties apparently due to
past industrial activities. With respect to parcels we currently own or
lease, we believe, based on the types and amount of contamination identified,
the anticipated uses of the property and the potential that the
contamination, in some cases, may have migrated onto our properties from
nearby properties, that any cost to clean up these properties will not result
in a material adverse effect on our earnings. With respect to the properties
we may lease in connection with the planned hotel, further investigations are
underway to determine the extent to which these properties are contaminated.
We intend to negotiate agreements with the owner(s) of these properties that
will, among other things, address in a satisfactory manner the responsibility
for any environmental cleanup or remediation that these properties may
require. There can be no assurance, however, that we will be able to
negotiate such an arrangement or that we may not be required to contribute
toward cleaning up contamination on the properties we own or lease. Any
required remediation may have a material and adverse impact on our plans and
ability to build a hotel or may have an impact on the City of Dubuque's
planned redevelopment project by, among other things, increasing costs and
delaying the initiation of the projects until such remediation is complete.
In addition, remediation may partially block access to the Diamond Jo,
thereby reducing the number of patrons that visit us.
TAXATION--An increase in the taxes and fees that we pay could have a material
adverse effect on us, and might reduce the cash flow available to service our
indebtedness, including under the notes.
We believe that one of the primary reasons that jurisdictions have
legalized gaming is the prospect of significant additional revenue for the
jurisdictions. As a result, gaming companies, including us, are typically
subject to significant taxes and fees relating to their gaming operations, which
are subject to increase at any time. Currently, we are taxed at an effective
rate of approximately 20% of our adjusted gross receipts by the State of Iowa
and we pay the City of Dubuque a fee equal to $0.50 per patron. In addition, all
Iowa riverboats share equally in costs of the gaming commission and related
entities to administer gaming in Iowa, which is currently approximately $316,000
per year per riverboat. In addition, there have been proposals from time to time
to tax all gaming establishments, including riverboat casinos, at the federal
level. Any material increase in taxes or fees, or in costs of the gaming
commission and related entities, would have a material adverse affect on us. See
"Regulatory Matters" for more information about the taxes and fees we are
required to bear.
22
<PAGE>
DIFFICULTY IN ATTRACTING AND RETAINING QUALIFIED EMPLOYEES--We believe that
there is a shortage of skilled labor in the gaming industry which will make it
more difficult for us to retain qualified employees. An increase in labor costs
could reduce our income from operations available to service our indebtedness,
including under the notes.
The operation of our business requires qualified executives, managers
and skilled employees with gaming industry experience. We believe that a
shortage of skilled labor exists in the gaming industry which will make it
increasingly difficult and expensive to attract and retain qualified employees.
Moreover, the low unemployment rate in the Dubuque area contributes to the
limited pool of skilled labor available to us. Increasing competition in our
market is expected to lead to higher costs in order to retain and attract
qualified employees. While we believe that we will be able to attract and retain
qualified employees, there can be no assurance that we will be able to do so.
We are dependent upon the available labor pool of unskilled and
semi-skilled employees. We are also subject to the Fair Labor Standards Act,
which governs matters such as minimum wage, overtime and other working
conditions. In addition, Iowa law effectively requires that we pay employees 25%
more than the federally mandated minimum wage rates. Changes in applicable state
or federal laws and regulations, particularly those governing minimum wages,
could increase labor costs, which could have a material adverse effect on our
income from operations.
POSSIBLE CONFLICTS OF INTEREST--Possible conflicts of interest between various
entities might detract from Peninsula Partners' ability to manage and operate
the Diamond Jo, which could have a material adverse effect on holders of the
securities.
Peninsula Partners, the parent and sole manager of Peninsula Gaming,
is primarily responsible for managing the Diamond Jo. Although Peninsula
Partners and its affiliates do not currently manage other gaming operations,
neither Peninsula Partners nor any of its affiliates is restricted from managing
other gaming operations, including new gaming ventures or facilities that may
compete with us, except that some of the restrictions under the Racing
Association operating agreement will terminate if we or any of our affiliates
operate another gaming facility in Dubuque County or the adjoining counties of
Illinois or Wisconsin. These activities could require significant amounts of
time of Peninsula Partners' officers and managers. While we believe that any new
ventures will not detract from Peninsula Partners' ability to manage and operate
the Diamond Jo, there can be no assurance that these ventures will not have a
material adverse effect on Peninsula Gaming or Peninsula Partners.
M. Brent Stevens and Andrew R. Whittaker, managers of Peninsula
Partners, are a managing director and executive vice president, respectively, of
Jefferies & Company, Inc., the initial purchaser of the old notes. Mr. Stevens
owns 22.5% of the voting common membership interests of Peninsula Partners. In
addition, the initial purchaser and some of its affiliates, officers and
employees are members of, and control, Peninsula Partners Investors, LLC, a
Delaware limited liability company, which owns 39.0% of the voting common
membership interests of Peninsula Partners. As a result of the above, the
initial purchaser and some of its affiliates, officers and employees control us.
There can be no assurance that all of our interests will be aligned in the
future. See "Principal Securityholders" for more information about our equity
securityholders.
23
<PAGE>
ABILITY TO REALIZE ON COLLATERAL--Gaming or other regulations may delay or
otherwise impede the trustee's ability to foreclose on the collateral securing
the notes and pay the securityholders the amount due on the notes.
Under the indenture governing the notes, if an event of default
occurs, including, but not limited to, default for 30 days in the payment
when due of interest on the notes, default in payment of principal (or
premium, if any) on the notes when due at maturity or otherwise, the
revocation of our gaming license, and the commencement of bankruptcy or
insolvency proceedings, the trustee may accelerate the notes and, among other
things, initiate a proceeding to foreclose on the collateral securing the
notes and take control of our gaming operations. However, Iowa law and
regulations or other laws may impede the trustee's ability to take these
actions.
The trustee's ability to foreclose upon the collateral is limited by
Iowa gaming laws which require that owners and operators of gaming
establishments hold a valid gaming license. Since the licensing process may be
very costly and time consuming, the trustee's ability to foreclose on any of the
collateral securing the notes may be materially impaired. Also, the right of the
trustee to repossess and dispose of the collateral after the occurrence of an
event of default is likely to be significantly impaired by applicable bankruptcy
laws if a bankruptcy proceeding were to be commenced by or against us prior to
the trustee having repossessed and disposed of the collateral. Under applicable
bankruptcy laws, a secured creditor is prohibited from repossessing its security
from a debtor in a bankruptcy case without bankruptcy court approval. Under any
of these circumstances, the noteholders might not be fully compensated for their
investment in the notes in an event of default. See "Description of
Notes--Security--Gaming Law Limitations" for more information about
limitations imposed by applicable gaming laws on the security for the notes.
In addition, the trustee's ability to foreclose on the collateral
securing the notes will also be subject to provisions contained in an
intercreditor arrangement with the lenders under our proposed credit facility
and limitations arising under applicable bankruptcy and insolvency laws. See
"Description of Indebtedness--Intercreditor Agreement" and "Description of
Notes--Security--Bankruptcy Limitations" for more information about these
limitations.
COLLATERAL VALUE--Holders of the securities may lose money on their investment
because the value of the collateral securing the notes may be less than the
amount due on the notes. Following liquidation of the Company's assets and
payment to other lenders, the remaining funds may be insufficient to pay the
amount due on the notes.
The liquidation value of the collateral securing the notes is unlikely
to produce proceeds in an amount sufficient to pay the principal of, premium, if
any, and accrued and unpaid interest and liquidated damages, if any, on the
notes. The ability of the trustee to foreclose on any of the collateral will be
subject to the provisions of the documents creating the trustee's security
interest in the collateral, as well as the considerations discussed in the
preceding section. In addition, there can be no assurance that the security
interest in any cash collateral will be enforceable against other creditors
under applicable laws.
Furthermore, assets subject to capitalized leases and that secure
indebtedness the proceeds of which were used to purchase such assets will not be
included in the collateral securing the notes; and the liens on the collateral
securing the notes will be subordinated to up to $10.0 million of liens under
our proposed credit facility. As a result, upon any bankruptcy, liquidation,
reorganization or similar proceedings involving the Company or its subsidiaries,
our lenders under
24
<PAGE>
the new credit facility, capitalized leases and indebtedness relating to the
purchase of specific assets will be entitled to be repaid in full before any
payment is made to you from the proceeds of the assets securing those kinds
of indebtedness.
In addition, the trustee under the indenture and the lenders under our
proposed credit facility will enter into an intercreditor agreement to govern
the relationships among them and their obligations and rights with respect to
the collateral securing the notes and securing the new credit facility.
Financing by multiple lenders with security interests in common collateral may
result in complexity and lack of flexibility in our financial arrangements. See
"Description of Indebtedness--Intercreditor Agreement" and "Description of
Notes--Security" for more information about the security interests in the
collateral securing the notes.
INABILITY TO REPURCHASE NOTES WHEN REQUIRED--We may not be able to repurchase
the notes when we are required to do so.
We are required to repurchase the notes if ordered to do so by any
governmental authority or upon the occurrence of a change of control. Within
120 days after the end of each year the hotel is in operation, we will make
an offer to all noteholders to purchase notes with 50% of Excess Cash Flow,
as defined in the indenture governing the notes, for such operating year. In
addition, net proceeds from the sale of assets not (a) invested in assets
related to the business of the Company, (b) applied to repay indebtedness
under obligations attributable to specific assets incurred in connection with
the assets sold, or (c) applied to repay indebtedness under the proposed
senior credit facility will be applied to make an offer to purchase notes.
There can be no assurance that we will have sufficient funds to consummate a
required regulatory redemption, to purchase notes with excess cash flow as
described above, to purchase notes with excess proceeds from asset sales as
described above or to repurchase notes upon a change of control, that we will
be able to refinance the notes at affordable rates, or that any redemption or
repurchase, if consummated, would not have a material adverse effect on our
business. Investors might lose all or part of their investment in the notes
if we are not able to repurchase the notes when we are required to do so. See
"Description of Notes--Redemption," "--Repurchase Upon Change of Control,"
"--Excess Cash Flow Offer," "--Limitation on Asset Sales," "Description of
Peninsula Partners Membership Interests--Convertible Preferred Membership
Interests--Repurchase Upon Change of Control" and "--Peninsula Partners
Operating Agreement" for more information on required redemptions and
potential limitations on the Company's ability to generate sufficient funds
for repurchase of the notes.
PUBLICLY TRADED PARTNERSHIP CLASSIFICATION--We may be subject to corporate level
federal income tax if we become a publicly traded partnership which would have
an adverse impact on our financial strength and our ability to service our
indebtedness.
We may be classified as a publicly traded partnership for U.S. federal
income tax purposes if either (1) the notes are classified as equity, rather
than debt, for U.S. federal income tax purposes and are deemed to be "publicly
traded" or (2) our equity interests are deemed to be "publicly traded." As a
publicly traded partnership, we would become subject to U.S. federal income tax
as a corporation which, in turn, may, among other things, materially adversely
affect our ability to make payments on the notes. In connection with the
original issuance of the old notes, Mayer, Brown & Platt delivered its opinion
to the effect that, for U.S. federal income tax purposes, (i) the notes will be
treated as indebtedness and (ii) we will not be treated as a publicly traded
partnership taxable as a corporation. This opinion was based on factual
representations and assumptions. See "Specific United States Federal Income Tax
Considerations--U.S. Federal Tax Characterization of the Notes and
25
<PAGE>
Peninsula Gaming" for more information concerning those representations and
assumptions and the circumstances under which we might be treated as a
publicly traded partnership. Notwithstanding this opinion, the Internal
Revenue Service may successfully assert that we are subject to U.S. federal
income taxation as a publicly traded partnership.
YEAR 2000 COMPLIANCE--Although we believe that we are year 2000 compliant, we
can give no assurance that Year 2000 issues will not negatively affect us,
resulting in disruptions in operations and, consequently, in our ability to
service our indebtedness.
The potential for system and processing failures of date-related data
resulting from computer-controlled systems using two digits rather than four to
define the applicable year is commonly referred to as the "Year 2000" problem.
For example, computer programs that have time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This problem could
result in system failure or miscalculations causing, in addition to significant
problems with suppliers or vendors, disruptions of our operations, including,
among other things, a temporary inability to process transactions, send invoices
or engage in similar normal business activities. We believe that we have taken
adequate steps to address the Year 2000 problem and do not anticipate that the
Year 2000 problem will have a material adverse effect on our operations. While
we believe our planning efforts are adequate to address Year 2000 concerns,
there can be no assurance that we will achieve the predicted estimates, and
actual results could differ materially from those planned or anticipated. For
additional information concerning the Company's response to the Year 2000 issue,
see "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000 Readiness."
OLD NOTES SUBJECT TO TRANSFER RESTRICTIONS--You may not be able to sell your old
notes if you do not exchange them for registered new notes in the exchange
offer.
If you do not exchange your old notes for new notes in the exchange
offer, your old notes will continue to be subject to the restrictions on
transfer as stated in the legend on the old notes. In general, you may not offer
or sell the old notes unless they are:
- registered under the Securities Act of 1933;
- offered or sold pursuant to an exemption from the Securities Act
of 1933 and applicable state securities laws; or
- offered or sold in a transaction not subject to the Securities
Act of 1933 and applicable state securities laws.
We do not currently anticipate that we will register the old notes
under the Securities Act of 1933.
HOLDERS WHO DO NOT TENDER THEIR OLD NOTES WILL HAVE NO FURTHER REGISTRATION
RIGHTS--Securityholders who do not tender their old notes will have no further
registration rights under the registration rights agreement.
Holders who do not tender their old notes, except for limited instances
involving the initial purchaser or holders of old notes who are not eligible to
participate in the exchange offer or who do not receive freely transferrable new
notes pursuant to the exchange offer, will not
26
<PAGE>
have any further registration rights under the registration rights agreement
or otherwise and will not have rights to receive additional interest.
LIMITED MARKET FOR OLD NOTES--The market for old notes may be significantly more
limited after the exchange offer and you may not be able to sell your old notes
after the exchange offer.
If old notes are tendered and accepted for exchange pursuant to the
exchange offer, the trading market for old notes that remain outstanding may be
significantly more limited. As a result, the liquidity of the old notes not
tendered for exchange may be adversely affected. The extent of the market for
old notes and the availability of price quotations would depend upon a number of
factors, including the number of holders of old notes remaining outstanding and
the interest of securities firms in maintaining a market in the old notes. An
issue of securities with a similar outstanding market value available for
trading, which is called the "float," may command a lower price than would be
comparable to an issue of securities with a greater float. As a result, the
market price for old notes that are not exchanged in the exchange offer may be
affected adversely as old notes exchanged pursuant to the exchange offer reduce
the float. The reduced float also may make the trading price of the old notes
that are not exchanged more volatile.
27
<PAGE>
THE TRANSACTIONS
On July 15, 1999, we completed the acquisition of (1) the Diamond Jo,
pursuant to an asset purchase agreement, dated as of January 15, 1999, as
amended, between Peninsula Partners and Greater Dubuque Riverboat, and (2)
related real property, pursuant to a real property purchase agreement, dated as
of January 15, 1999, between Peninsula Partners and Harbor Community, for an
aggregate purchase price of $77.0 million, subject to customary post-closing
adjustments. The purchase price was financed from (1) the issuance and sale by
Peninsula Gaming of $7.0 million of preferred membership interests to Greater
Dubuque Riverboat, (2) a capital contribution of $9.0 million from Peninsula
Partners (consisting of capital contributions of $6.0 million from common
members of Peninsula Partners and $3.0 million of proceeds from the issuance and
sale by Peninsula Partners of convertible preferred membership interests) and
(3) the net proceeds of the offering of the notes. Prior to the consummation of
the transactions contemplated by the acquisition agreements, Peninsula Partners
assigned the agreements to Peninsula Gaming. See "Key Relationships and Related
Transactions--Equity Contribution," "Description of Peninsula Gaming Membership
Interests" and "Description of Peninsula Partners Membership Interests" for
more information about these transactions.
Set forth below is a table showing the sources of funds and the
purchase price we paid in connection with the acquisition:
<TABLE>
<CAPTION>
Sources of Funds for the Acquisition Acquisition Purchase Price
------------------------------------ --------------------------
(dollars in thousands)
<S> <C> <S> <C>
Sale of Notes, net of discount................. $70,181 Cash Purchase Price, net of
$2,000 cash acquired......................... $68,000
Sale of Common Membership Interests............ 9,000 Issuance of Preferred Membership Interests..... 7,000
Sale of Preferred Membership Interests......... 7,000
</TABLE>
Pursuant to the acquisition agreements, Greater Dubuque Riverboat and
Harbor Community have agreed to indemnify us for losses we incur as a result of
breaches of their representations and warranties and for limited other matters.
With few exceptions, these indemnification obligations are limited in amount,
are secured by the preferred membership interests in a face amount of $3.0
million and expire after specified periods of time. To the extent not used to
satisfy the indemnification obligations, we must redeem $3.0 million of
preferred membership interests on or prior to January 15, 2001. See "Description
of Peninsula Gaming Membership Interests--Preferred Membership Interests" for
more information about the terms of the preferred membership interests.
For a description of the properties that we acquired and the leases
that we entered into in connection with the transactions contemplated by the
acquisition agreements, see "Business--Properties."
USE OF PROCEEDS
We will not receive any proceeds from the exchange offer. In
consideration for issuing the new notes, we will receive outstanding old notes
in like original principal amount at maturity. All old notes received in the
exchange offer will be canceled.
28
<PAGE>
CAPITALIZATION
The following table sets forth, at September 30, 1999, our actual
capitalization, which gives effect to the acquisitions, the offering of the
notes and the equity contribution from Peninsula Partners and the application of
the net proceeds from the equity contribution. The following table should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the financial statements and notes
thereto included elsewhere in this prospectus.
<TABLE>
<CAPTION>
ACTUAL
----------------------
SEPTEMBER 30, 1999
(DOLLARS IN THOUSANDS)
<S> <C>
Cash and cash equivalents(1).............. $8,894
----------------------
Debt:
Senior Secured Notes(2)................... $70,197
Capital lease obligations................. 476
----------------------
Total debt....................... 70,673
Preferred membership interests(3)......... 7,000
Common membership interests(3)............ 9,000
Retained earnings (deficit) (2,069)
----------------------
Total capitalization............. $84,604
----------------------
----------------------
</TABLE>
- ----------------------
(1) In connection with the acquisition of the Diamond Jo, we acquired $2.0
million of cash and cash equivalents from Greater Dubuque Riverboat.
Additionally, approximately $2.0 million of the net proceeds from the
offering of the notes and the equity contribution received from
Peninsula Partners (which included, among other things, the proceeds
from the sale of Peninsula Partners' convertible preferred membership
interests) after deduction for capitalized debt issuance costs and
acquisition and start-up costs shall be used for general corporate
purposes.
(2) Reflects $71.0 million aggregate principal amount of notes less
original issue discount of approximately $0.8 million.
(3) Peninsula Gaming issued $7.0 million of preferred membership interests
to Greater Dubuque Riverboat and received a $9.0 million equity
contribution from Peninsula Partners ($6.0 million of which was
contributed to the capital of Peninsula Partners by common members of
Peninsula Partners and $3.0 million of which was contributed to the
capital of Peninsula Partners through the sale of Peninsula Partners'
convertible preferred membership interests). See "The Transactions,"
"Key Relationships and Related Transactions--Equity Contribution,"
"Description of Peninsula Gaming Membership Interests" and "Description
of Peninsula Partners Membership Interests" for more information about
these transactions.
29
<PAGE>
SELECTED COMBINED FINANCIAL DATA
The selected combined financial data set forth below at December 31,
1997, and 1998 and for the years ended December 31, 1996, 1997 and 1998 have
been derived from the combined financial statements of the predecessor
companies, Greater Dubuque Riverboat and Harbor Community, included elsewhere in
this prospectus, which have been audited by Deloitte & Touche LLP, independent
auditors, whose report on the financial duty is included with the combined
financial statements. The selected financial data at and for the years ended
December 31, 1994 and 1995 have been derived from the accounting records of
Greater Dubuque Riverboat, and the balance sheet data at December 31, 1996 has
been derived from the combined accounting records of the predecessor companies.
The selected combined financial data at and for the six months ended June 30,
1998 and 1999 are derived from the unaudited combined financial statements of
the predecessor companies, and the selected financial data from July 15, 1999
(date of inception) to September 30, 1999 has been derived from the unaudited
financial statements of Peninsula Gaming, all of which, in the opinion of
management, are prepared on a basis consistent with the audited combined
financial statements which appear elsewhere in this prospectus and include all
adjustments (consisting only of normal and recurring adjustments) necessary for
a fair presentation of the combined financial position and results of operations
of the predecessor companies and Peninsula Gaming at such dates and for such
periods. Financial and operating results for the six months ended June 30, 1998
and 1999 and for the period from July 15, 1999 (date of inception) to September
30, 1999 are not necessarily indicative of the results that may be expected for
the full fiscal year. The information presented below should be read in
conjunction with, and is qualified in its entirety by reference to,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the combined financial statements and the notes thereto
appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
PENINSULA
PREDECESSOR COMPANIES GAMING
----------------------------------------------------------------------- ------------------
PERIOD FROM
JULY 15, 1999
SIX MONTHS ENDED (DATE OF INCEPTION)
FISCAL YEAR ENDED DECEMBER 31, JUNE 30, TO SEPTEMBER 30,
--------------------------------------------------- ---------------- ------------------
1994 1995 1996 1997 1998 1998 1999 1999
------- ------- ------- ------- ------- ------- ------- ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Casino............................. $14,965 $30,493 $40,267 $40,572 $44,167 $21,238 $21,993 $10,104
Food and beverage.................. 489 1,457 2,104 2,034 1,960 927 1,060 503
Other.............................. 67 191 308 395 275 131 106 55
Less: Promotional allowances....... (105) (408) (427) (380) (553) (229) (256) (133)
------- ------- ------- ------- ------- ------- ------- ------------------
Net revenues....................... 15,416 31,733 42,252 42,621 45,849 22,067 22,903 10,530
------- ------- ------- ------- ------- ------- ------- ------------------
Expenses:
Casino............................. 6,820 14,157 16,014 16,335 17,273 8,371 9,008 3,809
Food and beverage.................. 548 1,681 2,980 2,557 2,830 1,343 1,572 744
Boat operations.................... 764 1,505 1,997 2,005 2,056 1,008 964 424
Other.............................. 15 67 86 76 68 33 27 14
Selling, general and
administrative................ 3,938 8,076 9,573 6,946 7,515 3,588 3,691 1,670
Depreciation and amortization...... 636 1,133 2,026 1,826 1,895 898 1,066 692
Non-recurring expenses(1).......... 55 101 58 170 928 233 625 3,134
------- ------- ------- ------- ------- ------- ------- -----------------
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
PENINSULA
PREDECESSOR COMPANIES GAMING
----------------------------------------------------------------------- ------------------
PERIOD FROM
JULY 15, 1999
SIX MONTHS ENDED (DATE OF INCEPTION)
FISCAL YEAR ENDED DECEMBER 31, JUNE 30, TO SEPTEMBER 30,
--------------------------------------------------- ---------------- ------------------
1994 1995 1996 1997 1998 1998 1999 1999
------- ------- ------- ------- ------- ------- ------- ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total expenses..................... 12,776 26,720 32,734 29,915 32,565 15,474 16,953 10,488
------- ------- ------- ------- ------- ------- ------- ------------------
Income From Operations............. 2,640 5,013 9,518 12,706 13,284 6,593 5,950 42
Other income (expense):
Interest income.................... 13 16 81 222 142 64 73 57
Interest expense................... (1,017) (1,007) (1,813) (1,772) (1,142) (664) (319) (1,958)
Loss on sale of assets............. -- -- (6,878) (88) (74) (48) (98) (8)
------- ------- ------- ------- ------- ------- ------- ------------------
Total other expense................ (1,004) (991) (8,610) (1,638) (1,074) (648) (344) (1,909)
Preferred Dividends................ -- -- -- -- -- -- -- 131
------- ------- ------- ------- ------- ------- ------- ------------------
Net income (loss) to common
interests......................... $1,636 $4,022 $908 $11,068 $12,210 $5,945 $5,606 $(1,998)
------- ------- ------- ------- ------- ------- ------- ------------------
------- ------- ------- ------- ------- ------- ------- ------------------
Ratio of earnings to fixed
charges(2).................... 2.4x 4.6x 1.5x 6.5x 10.8x 9.3x 16.1x 0.1x (3)
OTHER DATA:
Cash flows from operating
activities.................... 3,416 6,067 10,140 12,522 14,638 7,314 6,965 2,169
Cash flows from investing
activities.................... 2,078 3,257 (18,162) 4,196 (1,793) (518) 189 (68,019)
Cash flows from financing
activities.................... 452 2,760 10,249 (15,114) (12,806) (6,863) (7,857) 74,744
Adjusted EBITDA(4)................. $3,331 $8,113 $14,013 $14,702 $16,107 $7,723 $7,641 $3,868
</TABLE>
<TABLE>
<CAPTION> AT
AT DECEMBER 31, AT JUNE 30, SEPTEMBER 30,
--------------------------------------------------- ----------------- -------------
1994 1995 1996 1997 1998 1998 1999 1999
------- ------- ------- ------- ------- ------- ------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets..................... $2,176 $2,528 $6,661 $6,255 $6,767 $6,264 $5,118 $8,894
Total assets....................... 14,684 21,713 33,440 28,915 29,252 28,526 27,177 89,235
Current liabilities................ 3,768 6,607 8,325 6,829 8,133 8,855 6,620 4,797
Total debt......................... 9,137 11,118 23,132 15,100 9,822 12,839 7,223 70,673
Total members' equity.............. 4,187 8,000 7,528 11,513 16,697 12,856 17,043 6,931
</TABLE>
- ----------------------------
(1) Consists of non-recurring charges related to sale of business and
litigation involving the prior owners of the Diamond Jo and Greater
Dubuque Riverboat.
(2) For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as income before income taxes plus fixed charges.
Fixed charges include interest expense on all indebtedness,
amortization of deferred financing costs and one-third of rental
expense on operating leases representing that portion of rental expense
deemed to be attributable to interest.
(3) Peninsula Gaming's ratio of earnings to fixed charges for the period
from July 15, 1999 (date of inception) to September 30, 1999 would have
been 1.6x if the start-up and organizational costs expensed during this
period were excluded.
31
<PAGE>
(4) EBITDA represents earnings before interest, income taxes, depreciation
and amortization and excludes non-recurring charges (startup and
organization costs, ownership litigation, and sale of business
expenses) and loss on sale of assets for all periods presented. EBITDA
for 1995 and 1996 excludes $1.9 million and $2.4 million, respectively,
of operating lease expense related to the Diamond Jo prior to its
purchase. EBITDA is presented to enhance the understanding of our
financial performance and our ability to service our indebtedness,
including the notes. We understand that it is used by some investors
as one measure of cash flow and enables a comparison of our performance
with the performance of other companies that report EBITDA. EBITDA is
not a measurement determined in accordance with GAAP as an indicator of
financial performance and should not be considered an alternative to,
or more meaningful than, net income or income from operations as an
indicator of our operating performance, or cash flows from operating
activities as a measure of liquidity. Our definition of EBITDA may not
be the same as that used by other companies.
32
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION
WITH THE "SELECTED COMBINED FINANCIAL DATA" AND THE COMBINED FINANCIAL
STATEMENTS AND THE RELATED NOTES THERETO APPEARING ELSEWHERE IN THIS
PROSPECTUS. SOME STATEMENTS CONTAINED IN MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONSTITUTE "FORWARD- LOOKING
STATEMENTS" WITHIN THE MEANING OF THE LITIGATION REFORM ACT, WHICH INVOLVE
RISKS AND UNCERTAINTIES. SEE "FORWARD-LOOKING STATEMENTS" FOR INFORMATION
CONCERNING THE USE OF FORWARD-LOOKING STATEMENTS.
We own and operate the Diamond Jo casino, the only riverboat gaming
facility in Dubuque, Iowa. The Diamond Jo opened in May 1994 with a small
riverboat gaming facility that included 332 slot machines and 17 table games.
During 1994, Iowa changed some of its restrictions on gaming including:
(1) allowing slot machines at racetracks,
(2) requiring riverboats to make only 100 cruises per year
enabling them to operate predominantly dockside,
(3) eliminating loss and betting limits, and
(4) eliminating the space restrictions on gaming vessels
that could be used for gaming purposes.
In October 1995, the Diamond Jo doubled its size by replacing its smaller
riverboat casino with the current riverboat casino. Our current riverboat casino
contains 650 slot machines and 39 table games.
With respect to our operating results since our acquisition of the
Diamond Jo, we derive approximately 96% of our net revenues from casino
operations, while the rest is derived primarily from food and beverage sales.
Casino operating expenses, which consist primarily of payroll and gaming
taxes, constitute approximately 40% of our casino revenues. Under some
circumstances, in the future we could be required to bear additional expenses
payable under the Racing Association operating agreement. See "Key
Relationships and Related Transactions--Relationship with Dubuque Racing
Association" for more information about these expenses. Our business
activities since inception have been financed from (1) cash flow from
operations, (2) equity and other capital contributions of our members and (3)
secured financing.
RESULTS OF OPERATIONS
The results of operations for the three months ended September 30, 1999
discussed below include our results of operations for the two and a half months
ended September 30, 1999 and the combined results of operations for the half
month ended July 15, 1999 for the predecessor companies. The results of
operations for the three months ended September 30, 1998 discussed below are the
results of operations for the predecessor companies. As a result of the
substantially different capital structure of our company in comparison to that
of the predecessor companies, and of the application of purchase accounting in
connection with the acquisition, our results of operations may not be entirely
comparable to the results of operation of the predecessor companies. In order to
allow for the transfer of ownership of the Diamond Jo in accordance with gaming
commission guidelines, the Diamond Jo was closed for 30 business hours
33
<PAGE>
on July 14 and 15. The results of operations discussed below have not been
adjusted for this closure.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Three Months Ended September 30
----------------------------------
Statement of Operations Data 1998 1999
- ----------------------------- ------------ ------------
<S> <C> <C>
REVENUES:
Casino............................... $11,680,531 $11,875,593
Food and beverage.................... 549,747 593,636
Other................................ 76,189 61,932
Less: Promotional allowances......... (138,043) (154,413)
------------ ------------
Net revenues......................... 12,168,424 12,376,748
EXPENSES:
Casino............................... 4,259,116 4,299,330
Food and beverage.................... 798,274 888,838
Boat operations...................... 526,600 514,298
Other................................ 18,398 16,666
Selling, general and administrative 1,891,342 2,097,996
Organizational costs (1)............. -- 3,134,095
Selling and litigation expenses (1).. 266,359 1,246,346
Depreciation and amortization........ 471,571 782,836
------------ ------------
Total expenses....................... 8,231,660 12,980,405
------------ ------------
Income From Operations............... 3,936,764 (603,657)
OPERATING DATA:
Number of admissions................. 322,455 312,442
Win per position per day............. $134 $138
Win per admission.................... 36 38
</TABLE>
(1) Consists of non-recurring charges related to the write-off of
organizational costs in accordance with generally accepted accounting
principals and sale of business and certain litigation costs incurred
by the predecessor company.
34
<PAGE>
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1998
For the three months ended September 30, 1999 and 1998, Dubuque was
a two-casino market consisting of the Diamond Jo and the Greyhound Park.
Casino gaming win in the Dubuque market increased 7.1% to $21.3 million for
the three months ended September 30, 1999 from $19.8 million for the three
months ended September 30, 1998. We believe this increase was primarily due
to an increase in the number of slot machines at the Greyhound Park from an
average of 585 during the three month period ended September 30, 1998 to 600,
an increase in popular nickel machines at the Greyhound Park from 58 to 119
and changes in our game mix. Admissions to casinos in the Dubuque market were
substantially unchanged at 580,099 for the three months ended September 30,
1999 compared to 575,800 for the three months ended September 30, 1998. For
the three months ended September 30, 1999, our share of the Dubuque market
casino gaming win decreased to 56.1% from 58.9% and casino admissions
decreased to 53.9% from 56.0%, in each case, for the three months ended
September 30, 1998. We believe these decreases were primarily due to the
Greyhound Park reconfiguring its floor plan and increasing the number of its
slot machines from an average of approximately 585 during the three month
period ended September 30, 1998 to 600 at September 30, 1999, the maximum
number the Greyhound Park is presently contractually permitted to have, as
well as to the Diamond Jo being closed for 30 business hours in connection
with the transfer of ownership.
Net revenues increased 1.7% to $12.4 million for the three months ended
September 30, 1999 from $12.2 million for the three months ended September
30,1998 due primarily to improved marketing efforts, better tracking of, and
communication with, our VIP players through our new electronic player tracking
system and a continued review and change in our game mix. Our admissions for the
three months ended September 30, 1999 decreased 3.1% to 312,442 from 322,455 for
the three months ended September 30, 1998 primarily due to our closure and the
improvements at the Greyhound Park discussed above. For the three months ended
September 30, 1999, our win per admission increased 5.4% to $38.16 from $36.22
for the three months ended September 30, 1998. Our gaming positions, or,
generally, the maximum number of patrons who can play at our slot machines and
gaming tables at any one time, were 949 at each of September 30, 1999 and
September 30, 1998. Consistent with an increase in net revenues, win per gaming
position increased 3.3% to $138.09 from the three months ended September 30,
1999 from $133.70 for the three months ended September 30, 1998. Our casino
revenues increased 1.7% to $11.9 million for the three months ended September
30, 1999 from $11.7 million for the three months ended September 30, 1998.
Casino revenues were derived 82.0% from slot machines and 18.0% from table games
for the three months ended September 30, 1999 compared to 82.9% and 17.1% from
table games, respectively, for the three months ended September 30, 1998. The
increase in casino revenues were due primarily to an increase in slot revenues
of 1.5% to $9.8 million for the three months ended September 30, 1999 from $9.7
million for the three months ended September 30, 1998. Food and beverage
revenues, other revenues and promotional allowances were substantially unchanged
at $0.5 million for the three months ended September 30, 1999 and the three
months ended September 30, 1998. Promotional allowances represent the estimated
value of goods and services provided free of charge to casino patrons under our
various marketing programs.
Casino operating expenses were substantially unchanged at $4.3 million
or 36.2% of casino revenues for the three months ended September 30, 1999
compared to $4.3 million or 36.4% of casino revenues for the three months ended
September 30, 1998. Food and beverage expenses increased 11.3% to $0.9 million
for the three months ended September 30, 1999 from
35
<PAGE>
$0.8 million for the three months ended September 30, 1998. We believe this
increase was due to an increase in food cost due to an increase in food
product quality. Selling, general and administrative expenses increased 10.9%
to $2.1 million for the three months ended September 30, 1999 from $1.9
million for the three months ended September 30, 1998 primarily due to an
increase in marketing expenses of $103,000 and insurance expenses of $38,000.
Non-recurring expenses for the three months ended September 30, 1999 included
$3.1 million related to the write-off of organizational costs in accordance
with generally accepted accounting principals and $1.2 million related to
sale of the business and certain litigation costs incurred by the predecessor
companies. Non-recurring expenses for the three months ended September 30,
1998 included $0.3 million related to sale of the business and certain
litigation costs incurred by the predecessor companies.
Depreciation and amortization expenses increased 66% to $0.8 million
for the three months ended September 30, 1999 from $0.5 million for the three
months ended September 30, 1998. This increase was primarily due to the
amortization of goodwill and other intangibles of $0.3 million. Net interest
expense was $2.6 million for the three months ended September 30, 1999 and $0.1
million for the three months ended September 30, 1998. This increase in interest
expense is due to the issuance of the old notes on July 15, 1999.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
For the six months ended June 30, 1999 and 1998, Dubuque was a
two-casino market consisting of the Diamond Jo and the Greyhound Park. Casino
gaming win in the Dubuque market increased 9.4% to $38.3 million for the six
months ended June 30, 1999 from $35.0 million for the six months ended June 30,
1998. We believe this increase was primarily due to an increase in the number of
slot machines at the Greyhound Park from an average of 545 during the six month
period ended June 30, 1998 to 600, an increase in popular nickel machines at the
Greyhound Park from 58 to 104 and changes in our game mix. Admissions to casinos
in the Dubuque market decreased .8% to 955,738 for the six months ended June 30,
1999 from 963,530 for the six months ended June 30, 1998, primarily due to
unusually inclement weather during January 1999. For the six months ended June
30, 1999, our share of the Dubuque market casino gaming win decreased 3.1% to
57.4% from 60.6% and casino admissions decreased 1.5% to 55.2% from 56.7%, in
each case, for the six months ended June 30, 1998. We believe our market share
decrease was primarily due to the Greyhound Park reconfiguring its floor plan
and increasing the number of its slot machines from an average of approximately
545 during the six month period ended June 30, 1998 to 600 at June 30, 1999, the
maximum number the Greyhound Park is presently contractually permitted to have.
Net revenues increased 3.8% to $22.9 million for the six months ended
June 30, 1999 from $22.1 million for the six months ended June 30, 1998 due
primarily to improved marketing efforts, better tracking of, and communication
with, our VIP players through our new electronic player tracking system and a
continued review and change in our game mix. Our admissions for the six months
ended June 30, 1999 decreased 3.4% to 527,289 from 546,035 for the six months
ended June 30, 1998 primarily as a result of unusually inclement weather during
January 1999. For the six months ended June 30, 1999, our win per admission
increased 7.3% to $41.71 from $38.89 for the six months ended June 30, 1998 Our
gaming positions were unchanged at 949 at each of June 30, 1999 and June 30,
1998. Consistent with an increase in net revenues, win per gaming position
increased 3.6% to $128.04 for the six months ended June 30, 1999 from $123.64
for the six months ended June 30, 1998. Our casino revenues also increased 3.6%
to $22.0 million for the six months ended June 30, 1999 from $21.2 million for
the six months ended June 30, 1998. Casino revenues
36
<PAGE>
were derived 80.9% from slot machines and 19.1% from table games for the six
months ended June 30, 1999 compared to 80.3% from slot machines and 19.7%
from table games, respectively, for the six months ended June 30, 1998. The
increase in casino revenues was due primarily to an increase in slot revenues
of 4.3% to $17.8 million for the six months ended June 30, 1999 from $17.1
million for the six months ended June 30, 1998. We believe that the increases
in slot revenues, casino revenues and win per gaming position were due
primarily to the same reasons net revenues increased for the six months ended
June 30, 1999 over the corresponding period of the prior year. Food and
beverage revenues and other revenues increased 10.2% to $1.2 million for the
six months ended June 30, 1999 compared to $1.1 million for the six months
ended June 30, 1998, primarily due to an increase in food and beverage sales.
Promotional allowances increased by 11.7% to $0.26 million for the six months
ended June 30, 1999 compared to $0.23 million for the six months ended June
30, 1998 due to an increase in complimentary food and beverage provided to
our Diamond Club members. Promotional allowances represent the estimated
value of goods and services provided free of charge to casino patrons under
our various marketing programs.
Casino operating expenses increased 7.6% to $9.0 million or 41.0% of
casino revenues for the six months ended June 30, 1999 from $8.4 million or
39.4% of casino revenues for the six months ended June 30, 1998. This increase
of $0.6 million was due primarily to increased rental expense related to vendor
participation slot machines of approximately $0.4 million and higher gaming
taxes of approximately $0.1 million as a result of higher revenues. Food and
beverage expenses increased approximately $0.2 million or 17.1% to $1.6 million
for the six months ended June 30, 1999 from $1.3 million for the six months
ended June 30, 1998. We believe this increase was due to an increase in food
cost due to increased patronage at our bars and restaurants, an increase in food
product quality and an increase in payroll expenses of approximately $0.1
million. Selling, general and administrative expenses increased 2.9% to $3.7
million for the six months ended June 30, 1999 from $3.6 million for the six
months ended June 30, 1998, primarily due to an increase in insurance costs of
approximately $44,000 as well as an increase in management bonus expenses of
approximately $35,000. Included in the six months ended June 30, 1999 and 1998
operating expenses were non-recurring expenses of $0.6 million and $0.2 million,
respectively, related to the sale of the business and litigation involving the
prior owners of the Diamond Jo and Greater Dubuque Riverboat.
Depreciation and amortization expense increased 18.7% to $1.1 million
for the six months ended June 30, 1999 from $0.9 million for the six months
ended June 30, 1998. This increase was due to the addition of our new electronic
player tracking system and the replacement/upgrade of slot machines. Net
interest expense was $0.2 million for the six months ended June 30, 1999 and
$0.6 million for the six months ended June 30, 1998. The reduction of interest
expense was due to a decline in outstanding debt and more favorable interest
rates on outstanding loans. Loss on disposal of assets was $0.1 million for the
six months ended June 30, 1999 and less than $0.1 million for the six months
ended June 30, 1998. These losses were attributable primarily to the
replacement/upgrade of slot machines.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
In 1998, Dubuque was a two-casino market consisting of the Diamond Jo
and the Greyhound Park. In 1997, Dubuque was a three-casino market for the
months of January through June and a two casino market for the months of July
through December. The third casino, the Silver Eagle, ceased operations in July
1997 due in part, we believe, to competitive pressures and the effects of
restrictive Illinois gaming regulations. Casino gaming win in the Dubuque market
increased 9.6% to $73.5 million in 1998 from $67.1 million in 1997. We believe
this increase was primarily due to
37
<PAGE>
increased advertising and promotions by the Diamond Jo and the Greyhound
Park. Admissions to casinos in the Dubuque market of 2.0 million in 1998
increased 1.9% from admissions in 1997. Our share of the Dubuque market
casino gaming win and admissions were substantially unchanged at 60.0% and
56.7%, respectively, in 1998, and 60.5% and 56.2%, respectively, in 1997.
Net revenues increased 7.6% to $45.8 million in 1998 from $42.6
million in 1997. Our admissions of 1.1 million in 1998 increased 2.8% from
admissions in 1997. In 1998, win per admission increased 5.9% to $38.67 from
$36.51 in 1997 as a result of increased marketing expenditures, our new
electronic player tracking system and changes in our game mix, including
changes to the payout probabilities on our slot machines. Our gaming
positions, were 949 at the end of both 1998 and 1997 In 1998, win per gaming
position increased 8.9% to $127.51 from $117.13 in 1997 as a result of the
foregoing reasons. Our casino revenues increased 8.9% to $44.2 million in
1998 from $40.6 million in 1997. Casino revenues were derived 80.9% from slot
machines and 19.1% from table games in 1998 compared to 79.3% and 20.7%,
respectively, in 1997. Slot revenues increased 10.9% to $35.7 million in 1998
from $32.2 million in 1997. This increase was primarily due to a 18.6%
increase in slot machine coin-in, which was partially offset by a decrease in
the slot machine hold percentage. We lowered the slot machine hold
percentages to encourage longer play from, and to enhance the overall gaming
experience for, our current customer base which we believe has resulted in
increased slot revenue. Table revenues were substantially unchanged at $8.5
million in 1998 compared to $8.4 million in 1997. Food and beverage and other
revenues decreased 8.0% to $2.2 million in 1998 from $2.4 million in 1997 due
to lower food and beverage prices designed to attract more gaming customers.
Promotional allowances increased 45.6% to $0.6 million in 1998 from $0.4
million in 1997 due to increased complimentary food and beverage provided to
our Diamond Club members.
Casino operating expenses increased 5.7% to $17.3 million in 1998 from
$16.3 million in 1997, but decreased as a percentage of casino revenues to 39.1%
in 1998 from 40.3% in 1997. The increase of $1.0 million was due primarily to
higher gaming taxes associated with the increased casino revenues that we
generated in 1998 as compared to 1997. Food and beverage expenses increased $0.3
million in 1998 due to an emphasis on serving higher quality food and beverages.
Selling, general and administrative expenses increased 8.2% to $7.5 million in
1998 from $6.9 million in 1997. The increase of $0.6 million was primarily the
result of higher employee benefit costs. Included in 1998 and 1997 operating
expenses were non-recurring expenses of $0.7 million and $0.1 million,
respectively, related to the sale of the business and $0.2 million and $0.1
million, respectively, related to litigation involving the prior owners of the
Diamond Jo and Greater Dubuque Riverboat.
Depreciation and amortization expense increased 3.8% to $1.9 million in
1998 from $1.8 million in 1997. The increase in depreciation and amortization
expense was primarily due to the purchase of our new electronic player tracking
system. Net interest expense was $1.0 million and $1.5 million in 1998 and 1997,
respectively. The reduction of interest expense was due to a decline in
outstanding debt and more favorable interest rates on outstanding loans. Loss on
disposal of assets, which was primarily related to the replacement/upgrade of
slot machines, was substantially unchanged at $0.1 million.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
In 1997, Dubuque was a three-casino market for the months of January
through June and a two-casino market for the months of July through December. In
1996, Dubuque was a two-casino market for the months of January through May and
a three-casino market for the months of June
38
<PAGE>
through December. After initially closing in December 1995, the Silver Eagle
reopened in May 1996 and then permanently closed in July 1997. Casino gaming
win in the Dubuque market increased 5.8% to $67.1 million in 1997 from $63.4
million in 1996. We believe this increase was primarily due to a 1.4%
increase in casino admissions in the Dubuque market to 2.0 million in 1997
from 1.9 million in 1996. Our share of the Dubuque market casino gaming win
and admissions were 60.5% and 56.2%, respectively, in 1997 and 63.6% and
56.9%, respectively, in 1996. We believe our market share declined in 1997
compared to 1996 as a result of an increase in the number of slot machines at
the Greyhound Park to 555 from 526.
Net revenues were substantially unchanged at $42.6 million in 1997
compared to $42.3 million in 1996. Our admissions for 1997 and 1996 were
substantially unchanged at 1.1 million. In 1997, win per admission was
substantially unchanged at $36.51 compared to $36.30 in 1996. Our gaming
positions were 949 at the end of 1997 and 923 at the end of 1996. In 1997,
win per gaming position decreased slightly to $117.13 from $119.20 in 1996 as
a result of the increased number of gaming positions. Our casino revenues
were substantially unchanged at $40.6 million in 1997 compared to $40.3
million in 1996. Casino revenues were derived 79.3% from slot machines and
20.7% from table games for 1997 compared to 75.8% and 24.2%, respectively,
for 1996. We believe the change in revenues derived from slot machines and
table games is reflective of the increasing popularity of slot machines among
our customer base. Slot revenues increased 5.4% to $32.2 million in 1997
compared to $30.5 million in 1996. This increase was primarily due to a 8.3%
increase in slot machine coin-in, which was partially offset by a decrease in
the slot machine hold percentage. The increase in slot machine coin-in was
the result of our emphasis on lower denomination slot machines which received
higher levels of customer play. Table revenues decreased 13.9% to $8.4
million in 1997 from $9.7 million in 1996. The decrease in table revenues was
due to a 14.1% decrease in table game hold percentages. We believe the
decline in table game hold percentage was due to the increased sophistication
of players of table games. Food and beverage revenues, other revenues and
promotional allowances were substantially unchanged at $2.0 million in 1997
and 1996.
Casino operating expenses increased 2.0% to $16.3 million or 40.3% of
casino revenues in 1997 from $16.0 million or 39.8% of casino revenues in 1996.
The increase of $0.3 million was due primarily to increases in wages for casino
employees. Food and beverage expenses decreased $0.4 in 1997 million due to our
focus on controlling food costs. Selling, general and administrative expenses
decreased 27.4% to $6.9 million in 1997 from $9.6 million in 1996. This decrease
was primarily related to the elimination of the operating lease for our current
riverboat prior to its purchase in August 1996. Included in 1997 operating
expenses are non-recurring expenses of $0.1 million, related to the sale of the
business. Included in both 1997 and 1996 operating expenses are non-recurring
expenses of $0.1 million related to litigation involving the prior owners of the
Diamond Jo and Greater Dubuque Riverboat.
Depreciation and amortization expense decreased 9.8% to $1.8 million in
1997 from $2.0 million in 1996. The decrease in depreciation and amortization
expense was due to the disposal of our original riverboat in December 1996. Net
interest expense was $1.5 million and $1.7 million in 1997 and 1996,
respectively. The reduction in interest expense was due to a decline in
outstanding debt and more favorable interest rates on outstanding loans. Loss on
disposal of assets was $0.1 million and $6.9 million in 1997 and 1996,
respectively. The loss in 1997 was attributable almost entirely to the
replacement/upgrade of slot machines while the loss in 1996 was attributable
primarily to the sale of our original riverboat.
39
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
During 1998, we generated $14.6 million in cash flows from operations
as compared to $12.5 million in 1997. The increase in cash flows from operations
was due to an increase in net income of $1.1 million and changes in working
capital of $0.9 million due to increases in accounts payable and accrued
expenses.
Net cash flows used for investing activities were $1.8 million in 1998.
The primary uses of funds were for maintenance capital expenditures. Net cash
flows provided by investing activities were $4.2 million in 1997. The majority
of the proceeds were from the payment of a note receivable from a related party
relating to the sale of our original riverboat in 1996.
Cash flows used by financing activities in 1998 were $12.8 million
comprised primarily of $5.8 million of payments on long-term debt and $7.0
million of member distributions. Cash flows used by financing activities for
1997 were $15.1 million comprised primarily of $8.0 million of payments on
long-term debt and $6.6 million of member distributions.
We believe that cash on hand and cash generated from operations will be
sufficient to satisfy our working capital requirements, maintenance capital
expenditures and other cash obligations. However, we cannot assure you that this
will be the case. If cash on hand and cash generated from operations are
insufficient to meet these obligations, we may have to refinance our debt or
sell some or all of our assets to meet our obligations. See "Risk
Factors--Ability to Service Debt," "--Racing Association Operating Agreement"
and "--Taxation" for more information relating to other requirements that may
affect our ability to meet these obligations.
Under the terms of the indenture governing the notes, we have the
ability to obtain a new credit facility in the future to borrow up to $10.0
million if we determine that the availability of this facility would benefit our
operations. We have engaged in preliminary discussions with lenders, and we
intend to enter into a credit facility in the near future. We expect to finance
the future construction of our planned hotel out of cash from operations and may
secure additional financing through a portion of any new credit facility. We
expect that the total cost to build the hotel will not exceed $11.5 million.
There can be no assurance, however, that, if a credit facility is required for
the hotel development, we will be able to enter into the credit facility on
commercially reasonable terms. In that case, the failure to obtain a credit
facility may materially affect our ability to finance the construction of our
planned hotel, which may result in the revocation of our gaming license or
otherwise negatively affect our operations and cash flows. See "Risk
Factors--Risks Related to Hotel/Ice Harbor Development Plans" for more
information concerning the risks and contingencies involved with our development
plans.
SEASONALITY AND INFLATION
Our business is subject to seasonal fluctuations in the Iowa gaming
business, which is typically weaker from November through February as a result
of adverse weather conditions, and typically stronger from March through
October. In general, our payroll and general and administrative expenses are
affected by inflation. Although inflation has not had a material effect on our
business to date, we could experience the effects of inflation in future
periods.
YEAR 2000 READINESS
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We have reviewed our computer systems, and, except as discussed below,
we believe that our operations are year 2000 compliant. The software programs on
which we rely for financial and gaming operations are year 2000 compliant. We
have updated or replaced our significant hardware.
We recently surveyed our vendors and suppliers to ascertain their year
2000 compliance and to determine what precautions, if any, we must take to
ensure that year 2000 issues do not interrupt our operations in early 2000. We
have received written responses from a majority of our vendors and suppliers
that they are year 2000 compliant. We believe that the vendors and suppliers who
have not responded to our surveys are not significant to our operations or may
be replaced. Although any of our suppliers or vendors could be affected by the
year 2000 issues, two areas of particular concern are payroll and electricity.
We rely on a third-party payroll service provider for timely payment of
our employees' wages. A failure of the computer systems of our payroll service
provider could result in unpaid wages, with a potential material adverse effect
on our operations. In December 1999, we intend to set aside sufficient cash
reserves to cover several weeks of payroll expense, which we would disburse to
our employees if year 2000 problems prevent our payroll services provider from
making the payments.
We rely on a local utility for our electricity supply. However, we
have the capacity to generate electricity sufficient for our operating needs
by using generators powered by the riverboat's diesel engines. We intend to
store sufficient fuel by December 1999 to allow us to generate electricity
for our operations for several weeks, should our local supplier of
electricity fail to provide service at the beginning of next year.
In accordance wih Coast Guard directives, we prepared a detailed
contingency plan for dealing with year 2000 issues, and submitted it to the
Coast Guard in July of this year. The plan, as required, addresses all of our
major operations, including mechanical and electrical systems.
The cost of our year 2000 compliance program has not been material.
We do not anticipate future costs to materially affect our operations. See
"Risk Factors--Year 2000 Compliance" for more information concerning the
risks arising from the year 2000 issue.
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BUSINESS
GENERAL
We own and operate the Diamond Jo riverboat casino, one of only two
licensed gaming operations in Dubuque, Iowa. We are the leading gaming facility
in our market, having captured approximately 60% of Dubuque's casino gaming
revenues since 1995, our first full year of operations. Our net revenues in 1998
increased 7.6% from 1997 to $45.8 million. We attribute our success to our
competitive position and our unique local gaming operations, offering the most
gaming positions and the only table games, video poker and video keno within 60
miles of Dubuque. Further, we believe that additional competitors are
effectively precluded from entering our market due to constraints imposed by
existing laws on the availability of gaming licenses.
We anticipate continued growth through a combination of targeted
marketing initiatives, enhanced by our new electronic player tracking system,
and locally funded development programs, including the $27 million redevelopment
project in Dubuque's Ice Harbor, where the Diamond Jo is located. This project
is designed to establish the Ice Harbor as a community center and tourist
destination. Additionally, we intend to construct a hotel contiguous to the
Diamond Jo to capitalize on increased customer traffic anticipated from the Ice
Harbor redevelopment project and to expand our geographic reach. We believe that
these developments will provide us with opportunities to significantly expand
our customer base, resulting in increased revenues.
THE DIAMOND JO
The Diamond Jo is a three-story, approximately 51,900 square foot
riverboat casino, replicating a classic 19th century paddlewheel. The riverboat
has the capacity for 1,390 patrons, features a spacious two-story atrium, and
offers 650 slot machines and 39 table games in approximately 17,800 square feet
of gaming space. Adjacent to the Diamond Jo is a two-story, approximately 33,000
square foot dockside pavilion, featuring our recently renovated 116-seat
Lighthouse Grill restaurant, our 175-seat Lucky Jo Saloon, our 30-seat Java Jo
Coffee Bar, our gift shop, and our 205-seat Harbor View Room, a full service
banquet facility. Approximately 1,000 convenient parking spaces are available to
our patrons, including valet parking. The Diamond Jo is open seven days a week
(7 a.m. to 2 a.m. on Sunday, Monday, and Tuesday; 8 a.m. to 4 a.m. on Wednesday
and Thursday; and 24 hours on Friday and Saturday) and functions primarily as a
dockside riverboat with continuous boarding. The Diamond Jo is required by Iowa
law to cruise only 100 times per year, for a minimum of two hours per cruise,
which we satisfy by conducting a two-hour cruise at 7:00 a.m. on weekdays during
the spring and summer months.
The Diamond Jo operates from, and the dockside pavilion is located in,
Dubuque's Ice Harbor, a waterfront development on the Mississippi River in
downtown Dubuque. The Diamond Jo is centrally located in the Ice Harbor in
downtown Dubuque and is accessible from each of the major highways in the area.
On average, more than 30,000 vehicles pass our site per day. We share our
dockside pavilion with the Spirit of Dubuque dinner-boat and the Iowa Welcome
Center, featuring a museum, historical exhibits, shops, and an observation deck.
The Mississippi River Museum is located within a five-minute walk from our site.
Several cruise ships that operate on the Mississippi River, such as the Delta
Queen and the Mississippi Queen, stop at the Ice Harbor regularly during the
summer months. We believe that the Diamond Jo is among the principal
entertainment venues for residents in and around Dubuque.
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CITY OF DUBUQUE
Dubuque is situated at the intersection of Illinois, Iowa and Wisconsin
and acts as the region's trade hub. Dubuque has a diverse employer base, which
includes John Deere Dubuque Works, Farmland Foods, Flexsteel Industries, CIGNA
Corporation and Eagle Manufacturing, as well as local schools and hospitals. The
Diamond Jo currently draws approximately 95% of its patrons from within a
100-mile radius of the Diamond Jo, an area of approximately 2.8 million
residents with an average household income of approximately $48,500. Casino
gaming revenues in Dubuque have grown at a compound annual rate of 7.5% since
1996, and there are no betting or loss limits in Iowa. We believe that visitors
to Dubuque and Galena, a historic community located 15 miles east of Dubuque,
offer us a potential additional source of revenues. Dubuque contains several
tourist attractions, drawing more than one million visitors annually, and Galena
draws more than two million visitors annually.
In an effort to revitalize and enhance downtown Dubuque and to honor
and preserve the Mississippi River, the Dubuque County Historical Society's
Mississippi River Museum, the City of Dubuque, and the Dubuque Area Chamber of
Commerce Foundation and numerous private corporations, foundations and
individuals, as well as state and federal agencies, have recently commenced a
redevelopment project around the Ice Harbor in downtown Dubuque. This project is
expected to restore beauty and excitement to the Ice Harbor through the
development of eight different projects. 17.3 million has been funded to date
for this planned $27 million redevelopment project. Plans for the redevelopment
project, which the City of Dubuque expects will be completed in several phases
over the next four years, include the following:
- a retired steamboat where visitors will learn about navigation
and how the Mississippi River system of locks and dams works
(recently put in place);
- a one-third mile promenade along the perimeter of the Fourth
Street Peninsula with decorative paving, historic lighting,
benches, and landscaping (construction to begin in October 1999);
- a 500-foot walkway along the Ice Harbor from the River Museum to
the Rivers Edge Plaza (construction to begin in June 2000);
- an eight-mile extension of the existing 18-mile Heritage Trail
system with links to riverfront parks and other attractions
(construction to begin in June 2000);
- a 5,000 square foot landscaped open area to be used as a dock for
large boats and a site for relaxation and river watching
(construction to begin in April 2001);
- a 70,000 square foot museum (construction to begin in 2000);
- an outdoor wetland habitat for wildlife with several large
aquariums and a unique educational center (construction to begin
in July 2000); and
- a 7,500 square foot amphitheater with seating for 1,000 people
for festivals, music and drama to be constructed on the levee at
the historic Star Brewery (construction to begin in July 2001).
This redevelopment project is designed to enhance the attractiveness of
the Ice Harbor as a community center and tourist destination, which we believe
should lead to increased foot traffic
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around the site of, and increased admissions to, the Diamond Jo. To further
capitalize on the Ice Harbor redevelopment project and to comply with
requirements imposed by the gaming commission in connection with the grant of
our gaming license, we intend to develop a hotel contiguous to our riverboat
casino and dockside pavilion. The hotel is expected to contain 100 to 150
guest rooms and offer meeting space to attract professional and civic
organizations for conferences, banquets and other events. The hotel should
enable us to extend our geographic reach and target nearby tourist markets,
including more than two million annual visitors to Galena.
CASINO OPERATIONS
We regularly adjust our overall game mix to appeal to our target
market, based on, among other factors, the coin-in, hold percentage, location
and age of our various slot machines. Approximately 70% of the Diamond Jo's
gaming positions are slot machines. The 650 slot machines, all of which have
bill validators, include denominations of $0.05 to $25.00, with more than 97% of
the machines $1.00 or lower in denomination. At any one time, approximately 20%
to 25% of our slot machines are video poker, video keno, and other electronic
games of skill. Since January 1996, we have replaced or installed conversion
packages on approximately 413 slot machines. Conversion packages are
installations of new glass, reels and, on occasion, other coinhandling equipment
to slot machines to update or replace the game and its appearance without
replacing the entire machine. The recent authorization in Iowa of wide area
progressives, networks of slot machines throughout several casinos resulting in
higher jackpots, has allowed us to further improve our product mix with the
introduction of 8 linked slot machines. The 39 table games offered by the
Diamond Jo include three craps, two roulette, 25 blackjack, two Caribbean Stud,
two Let-It-Ride, and five poker tables, primarily with low betting limits.
During 1998, slot machines accounted for 80.9% of our gaming revenues,
generating an average win per slot machine per day of approximately $150. Table
games accounted for 19.1% of our gaming revenues in 1998, generating an average
win per table per day of approximately $586. Our win per gaming position
increased by 8.9% in 1998 from 1997, which we believe reflects our success in
changing our game mix during the year.
MARKETING STRATEGY
We have developed marketing and promotional strategies designed to
attract new customers and reward frequent gaming customers. In order to attract
new customers and create a high level of brand recognition, we frequently use
billboard, print, radio, and television advertising throughout the Dubuque area
as well as promotional offerings. In addition, in order to maintain and enhance
goodwill within the Dubuque area, we sponsor numerous community events. We
believe we are Dubuque's largest sponsor of these events, which include air
shows, hydroplane races, concerts and holiday celebrations, such as Memorial Day
and 4th of July fireworks. We have also implemented extensive employee
incentives and training programs designed to provide a high level of
personalized service to our customers. Patrons of the Diamond Jo are offered
membership to our players' club, known as the Diamond Club, which includes
bimonthly mailings, gaming incentives, and food and beverage discounts. In
September 1998, we installed a state-of-the-art electronic player tracking
system to monitor slot machine activity in real time, as well as the frequency
and level of play of our Diamond Club members. This system enables us to focus
our marketing efforts on our most valued customers and increase revenues from
our existing customer base. Better tracking of, and communications with, our VIP
players through our new electronic player tracking system, among other things,
resulted in our win per admission increasing 7.3% for the six months ended June
30, 1999 compared to the same period in 1998. With the help of this system, we
can identify customer habits, such as the day of the week, time of day and
dollar denominations our players' club members prefer to play. We can also store
pertinent information for each member,
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including birthdates, favorite sports and music preferences. All of this
information allows us to better define our members and gives us the ability
to improve our marketing efforts by tailoring our promotions and direct mail
offers.
COMPETITION
GENERAL. Riverboat gaming licenses in the State of Iowa are granted to
not-for-profit "qualified sponsoring organizations" which may operate the
riverboats themselves or may enter into agreements with other parties to operate
the riverboats. The granting of new licenses requires regulatory approval, which
includes, among other things, satisfactory feasibility studies. The Racing
Association is the not-for-profit organization that holds the Diamond Jo's
qualified sponsoring organization gaming license and has contracted with us to
operate the Diamond Jo. See "Regulatory Matters" and "Key Relationships and
Related Transactions--Relationship with Dubuque Racing Association" for more
information concerning our relationship with the Racing Association.
In 1998, the gaming commission adopted a rule that limits the number of
riverboat gaming licenses in Iowa to ten, subject to limited exceptions
(including licenses issued to purchasers of existing licensed facilities and
licenses issued to replace an existing facility if its license is surrendered,
not renewed, or revoked) and prohibits the transfer of a license outside the
county in which the riverboat operated on May 1, 1998. There are currently nine
licensed riverboat gaming facilities operating in Iowa, and the gaming
commission recently approved a gaming license for a riverboat to be located
south of Des Moines, Iowa, approximately 250 miles from us, that is not yet in
operation. The rule also prohibits existing licensees from increasing the number
of table games or slot machines at their gaming facilities without prior gaming
commission approval. The 1999 legislature considered, but did not adopt,
proposals to further limit the number of riverboats and expansion of existing
boats and to make other changes in Iowa's gaming laws.
The Dubuque gaming market borders other neighboring gaming markets.
These neighboring markets include: (1) Elgin and Aurora, Illinois to the east;
(2) Marquette, Iowa and Native American gaming in Wisconsin and Minnesota to the
north; (3) Des Moines, Iowa and Native American gaming in Tama, Iowa to the
west; and (4) Clinton, Iowa and the Quad Cities (Bettendorf and Davenport, Iowa
and Moline and Rock Island, Illinois) to the south. We believe that the Diamond
Jo competes only indirectly with gaming facilities in these neighboring markets.
See "Risk Factors--Competition" for more information concerning the risks
arising from our competitive environment.
DUBUQUE. The Diamond Jo's principal competition is the only other licensed
gaming facility in Dubuque, the Greyhound Park. The Greyhound Park, which opened
its casino in 1995, is located three miles north of the Diamond Jo and offers
600 slot machines and live greyhound racing from May through October of each
year with simulcasts from other greyhound tracks. The Greyhound Park also
offers, on a limited basis, simulcasts of horse races. The Greyhound Park is
owned and operated by the Racing Association. As a not-for-profit organization,
the Racing Association distributes a percentage of its cash flow to the City of
Dubuque and local charities. The Racing Association operating agreement allows
us to restrict the number of slot machines at the Greyhound Park to 600 if we do
not increase the number of slot machines at the Diamond Jo to more than 650. In
addition, subject to limited conditions, the Racing Association operating
agreement allows us to require that the weighted average theoretical slot
payback percentage at the Greyhound Park not exceed ours by more than 0.5%. We
have elected to apply both of these restrictions to the Greyhound Park. Under
Iowa law, table games, video poker, video keno and other electronic games of
skill are not permitted at the Greyhound Park and, subject to limited
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conditions, we may prevent the Greyhound Park from having these games even if
they were allowed to operate them under Iowa law. See "Risk Factors-- Racing
Association Operating Agreement" and "Key Relationships and Related
Transactions--Relationship with Dubuque Racing Association" for more
information concerning our relationship with the Racing Association.
The Diamond Jo competed with the Silver Eagle, which was located
five miles east of us in East Dubuque, Illinois, through substantially all of
1995 and from May 1996 to July 1997, the date on which the Silver Eagle
ceased operations. We believe the Silver Eagle ceased operations as a result
of competitive pressures from (1) the Diamond Jo, which commenced operations
of a larger riverboat during 1995, (2) the Greyhound Park, which commenced
operations during 1995, and (3) relaxation of Iowa gaming laws in 1995,
permitting riverboat casinos in Iowa, such as the Diamond Jo, to operate
predominately dockside while Illinois legislation required riverboat casinos
in Illinois, such as the Silver Eagle, to operate only while cruising.
Legislation was recently enacted in Illinois to provide for dockside gaming
in Illinois (which dockside gaming is limited to ten licenses, nine of which
are currently active and the tenth of which, we believe, will be located in
Rosemont, Illinois) and to relocate the existing but inactive riverboat
gaming license to Cook County, Illinois (outside the city limits of the City
of Chicago). We believe that additional competitors are effectively precluded
from entering our market, due to constraints imposed by existing laws on the
availability of gaming licenses. See "Risk Factors--Competition" for more
information concerning the risks arising from our competitive environment.
Since 1995, our first full year of operations, we have consistently
captured approximately 60% of the casino gaming revenues in Dubuque.
EMPLOYEES
We maintain a staff of approximately 475 to 500 full-time equivalent
employees, depending upon the time of the year. None of our employees are
covered by a collective bargaining agreement. The Company has not experienced
any labor problems resulting in a work stoppage, and believes it maintains good
relations with its employees.
LEGAL PROCEEDINGS
Except as described below, we are not a party to, and none of our
property is the subject of, any pending legal proceedings other than litigation
arising in the normal course of business. We believe this litigation is either
covered by insurance or not material. We are not assuming liability for any
litigation involving the Diamond Jo or any of the related real property pursuant
to our acquisition of the Diamond Jo from Greater Dubuque Riverboat and of the
real property from Harbor Community. These acquisitions are referred to herein
as, the "acquisition of the Diamond Jo."
The footnotes to the historical financial statements included in this
prospectus contain references to expenses associated with Greater Dubuque
Riverboat ownership litigation. We are not a party to this litigation, and,
under the terms of our acquisition agreements, we have not assumed any
liabilities in connection with this litigation.
On June 3, 1999, Greater Dubuque Riverboat filed an arbitration demand
with the American Arbitration Association concerning the rights, privileges and
preferences relating to the preferred membership interests we issued in
connection with our acquisition of the Diamond Jo. Prior to consummation of the
acquisition of the Diamond Jo, however, Greater Dubuque
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Riverboat's claims arising out of the arbitration demand were resolved, and
on July 15, 1999, the arbitration demand was withdrawn by Greater Dubuque
Riverboat.
PROPERTIES
The properties acquired by us upon consummation of the acquisition of
the Diamond Jo are located within the historic Ice Harbor district on the west
bank of the Mississippi River in Dubuque, Iowa. These properties consist of
several parcels of real property owned by Harbor Community. We own a fee
interest in (1) the dockside pavilion, consisting of approximately 33,000 square
feet, (2) surface parking lots within close proximity to the dockside pavilion,
and (3) the walkway connecting the dockside pavilion to the dock to which the
Diamond Jo is moored.
In addition to the properties we purchased, we currently lease (1)
property used as a patio located between the dockside pavilion and the Diamond
Jo and (2) property used as surface parking consisting of approximately 445
parking spaces that are in close proximity to the Diamond Jo, a portion of which
is expected to be used for construction of the new hotel. These leased
properties are currently owned by the City of Dubuque and leased to the Racing
Association, which in turn subleases these properties to us. The sublease
requires us to pay one dollar ($1.00) per year as rent. In connection with the
acquisition of the Diamond Jo, we are acquiring Greater Dubuque Riverboat's
interests in this sublease. The terms of the Racing Association lease with the
City of Dubuque and our sublease with the Racing Association have each been
extended through December 31, 2008.
The Racing Association is also party to a parking agreement by and
among the City of Dubuque, Greater Dubuque Riverboat and other parties, which
governs the use of the parking spaces we currently sublease from the Racing
Association. Pursuant to this parking agreement, our patrons have the
non-exclusive right to use the approximately 445 parking spaces currently
subleased from the Racing Association. This agreement also gives our patrons and
employees the non-exclusive right to use approximately 335 additional parking
spaces that are owned by the City of Dubuque and are located in close proximity
to the Diamond Jo. In exchange for these parking rights and the extension of the
sublease with the Racing Association, we are required, under some circumstances,
to share costs of maintaining the subleased parking lots. In the future, we may
amend the parking agreement to reallocate parking spaces that may be affected by
the construction of our planned hotel.
The gaming commission approved our application for a license to operate
a gaming riverboat on May 20, 1999, effective upon the transfer of the Diamond
Jo to us. As a condition to the grant of our gaming license, we are required by
the gaming commission to spend up to a maximum of $11.5 million to develop and
construct a hotel contiguous to the Diamond Jo and to commence construction of
the hotel by December 2000. If we do not commence construction by December 2000,
the gaming commission may refuse to renew our gaming license, which would
prevent us from conducting gaming operations. It is contemplated that the hotel
will contain 100 to 150 guest rooms and offer meeting space for conferences,
banquets and other events. Although construction of the new hotel is expected to
result in the loss of some existing parking spaces, we believe there will be
adequate alternatives available to address our parking needs. Our ability to
develop and construct the hotel will, among other things, depend upon the
availability of sufficient financing and our receipt of necessary permits and
licenses. We intend to commence construction of the hotel by the end of December
2000. We presently have neither commitments for any financing nor the requisite
permits, licenses or approvals necessary for construction of the proposed hotel,
and no assurance can be given that these financing, permits, licenses and
approvals will be timely
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received, if at all. See "Risk Factors--Risks Related to Hotel/Ice Harbor
Development" for more information about the risks associated with our
development plans.
In connection with our commitment to develop and construct the
hotel, we are currently negotiating a lease with the City of Dubuque for (1)
a parcel of real property on which we plan to construct the hotel, and (2) a
parcel of real property presently used as a patio for the dockside pavilion.
These properties are currently subject to the Racing Association sublease
described above and, assuming we enter into the city lease, will be excluded
from the Racing Association sublease and instead will be leased by us
directly from the City of Dubuque. Subject to approval of the Racing
Association and the gaming commission, we expect that the city lease will
provide for a minimum lease term of thirty-nine (39) years and annual rent of
One Dollar ($1.00) through December 31, 2004. Thereafter, through the end of
the lease term annual rent is expected to be based on a percentage of the
excess by which the appraised value of the leased property exceeds the
appraised value of certain real estate to be deeded by Harbor Community to
the City of Dubuque . We will pay all property taxes for properties leased
from the City of Dubuque. We can give no assurances that we will be able to
enter into the city lease on the terms described above or on terms
satisfactory to us.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We have $71 million principal amount of notes outstanding under our
indenture. We have no variable rate debt. Our fixed debt instruments are not
generally affected by a change in the market rates of interest and therefore,
these instruments generally do not have an impact on future earnings. However,
as our fixed rate debt matures, future earnings and cash flows may be impacted
by changes in interest rates related to debt incurred to fund repayments under
maturing facilities. Additionally, should we assume variable rate debt in the
future, we will be subject to market risk, which is the risk of loss from
changes in market prices and interest rates.
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REGULATORY MATTERS
GENERAL
We are subject to regulation by the State of Iowa and, to a lesser
extent, by federal law. We are subject to regulations that apply specifically
to the gaming industry and casinos, in addition to regulations applicable to
businesses generally. Legislative or administrative changes in applicable
legal requirements, including legislation to prohibit casino gaming, have
been proposed from time to time. It is possible that the applicable
requirements to operate an Iowa gaming facility will become more stringent
and burdensome, and that taxes, fees and expenses may increase. It is also
possible that the number of authorized gaming licenses in Iowa may increase,
which would intensify the competition that we face. Our failure to comply
with detailed regulatory requirements may be grounds for the suspension or
revocation of one or more of our licenses which would have a material adverse
effect on us. See "Risk Factors--Gaming Regulations" for more information
about the risks arising from our regulatory requirements.
IOWA RIVERBOAT GAMING REGULATION
Our operations are subject to Chapter 99F of the Iowa Code and the
regulations promulgated thereunder and the licensing and regulatory control of
the gaming commission.
Under Iowa law, the legal age for gaming is 21, and wagering on a
"gambling game" is legal when conducted by a licensee on an "excursion
gambling boat." An "excursion gambling boat" is a self-propelled excursion
boat, and a "gambling game" is any game of chance authorized by the gaming
commission. While dockside casino gaming is currently authorized by the
gaming commission, a licensed excursion gambling boat is required to conduct
at least one two-hour excursion cruise each day for at least 100 days during
the excursion season to operate during the off-season. The excursion season
is from April 1st through October 31st of each calendar year. The excursions
conducted by the Diamond Jo during the 1998 cruising season satisfied the
requirements of Iowa law for the conduct of off-season operations.
The legislation permitting riverboat gaming in Iowa authorizes the
granting of licenses to "qualified sponsoring organizations." A "qualified
sponsoring organization" is defined as a nonprofit corporation organized
under Iowa law, whether or not exempt from federal taxation, or a person or
association that can show to the satisfaction of the gaming commission that
the person or association is eligible for exemption from federal income
taxation under Sections 501(c)(3), (4), (5), (6), (7), (8), (10) or (19) of the
Internal Revenue Code (a "not-for-profit corporation"). The not-for-profit
corporation may operate the riverboat itself, or it may enter into an
agreement with another party (a "boat operator") to operate the riverboat on
its behalf. A boat operator must be approved and licensed by the gaming
commission. The Racing Association, a not-for-profit corporation organized
for the purpose of operating a pari-mutuel greyhound racing facility in
Dubuque, Iowa, first received a riverboat gaming license in 1990 and has
served as the "qualified sponsoring organization" of the Diamond Jo since
March 18, 1993. The Racing Association subsequently entered into the Racing
Association operating agreement with Greater Dubuque Riverboat, authorizing
Greater Dubuque Riverboat to operate riverboat gaming operations in Dubuque.
The Racing Association operating agreement was approved by the gaming
commission on March 18, 1993. The term of the Racing Association operating
agreement currently runs until March 31, 2002, with two three-year renewal
options thereafter, subject to the satisfaction of limited conditions. We
will assume the rights and obligations of Greater Dubuque Riverboat under the
Racing Association operating agreement. See "Key Relationships and Related
Transactions--Relationship with
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Dubuque Racing Association" for more information about our relationship with
the Racing Association.
Under Iowa law, a license to conduct gaming may be issued in a
county only if the county electorate has approved the gaming. The electorate
of Dubuque County, Iowa, which includes the City of Dubuque, approved gaming
on May 17, 1994 by referendum, including gaming conducted by the Diamond Jo.
Approximately 80% of the votes cast approved gaming at that time. However,
the 2002 Referendum must be held at the general election in 2002, and a
reauthorization referendum must be held each eight years thereafter. Each
referendum requires the vote of a majority of the votes cast. If any
reauthorization referendum is defeated, Iowa law provides that any previously
issued gaming license will remain valid for a total of nine years from the
date of original issuance of the license, subject to earlier nonrenewal or
revocation under Iowa law and regulations applicable to all licenses.
For a discussion of possible adverse consequences to us if the 2002
Referendum does not pass, see "Risk Factors--Racing Association Operating
Agreement" and "--Reauthorization of Gaming in Dubuque County, Iowa" for
more information about the possible consequences of a change in the laws or
regulations applicable to us.
Proposals to amend or supplement Iowa's gaming statutes are
frequently introduced in the Iowa state legislature. In addition, the state
legislature from time to time considers proposals to amend or repeal Iowa law
and regulations, which could effectively prohibit riverboat gaming in the
State of Iowa, limit the expansion of existing operations or otherwise affect
our operations. Although we do not believe that a prohibition of riverboat
gaming in Iowa is likely, we can give no assurance that changes in Iowa
gaming laws will not occur or that the changes will not have a material
adverse effect on our business. See "Risk Factors--Gaming Regulations" for
more information about the possible consequences of a change in the laws or
regulations applicable to us.
The gaming commission adopted in 1998 a rule that prohibits
licensees, including the Diamond Jo, from increasing the number of gaming
tables and gaming machines without gaming commission approval. This approval
is based on several factors, including whether the increase will:
(1) positively impact the community in which the licensee
operates,
(2) result in permanent improvements and land-based
developments, and
(3) have a detrimental impact on the financial viability
of other licensees operating in the same market. As a
result of this rule, we may be unable to increase the
number of gaming positions on the Diamond Jo.
Substantially all of the Diamond Jo's material transactions are
subject to review and approval by the gaming commission. All contracts or
business arrangements, verbal or written, with any related party or in which
the term exceeds three years or the total value of the contract exceeds
$50,000 must be submitted in advance to the gaming commission for approval.
Additionally, contracts negotiated between the Diamond Jo and a related party
must be accompanied by economic and qualitative justification.
We must submit detailed financial, operating and other reports to the
gaming commission. We must file monthly gaming reports indicating adjusted gross
receipts received from gambling games and the total number and amount of money
received from admissions. Additionally, we must
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file annual financial statements covering all financial activities related to
our operations for each fiscal year. We must also keep detailed records
regarding our equity structure and owners.
Iowa has a graduated wagering tax on riverboat gambling equal to
five percent (5%) of the first one million dollars of adjusted gross
receipts, ten percent (10%) on the next two million dollars of adjusted gross
receipts and twenty percent (20%) on adjusted gross receipts of more than
three million dollars. In addition, Iowa riverboats share equally in costs of
the gaming commission and related entities to administer gaming in Iowa,
which is currently approximately $316,000 per year per riverboat. Further,
the Diamond Jo pays to the City of Dubuque a fee equal to $.50 per passenger.
See "Risk Factors--Taxation" for more information about the taxes and fees
we are required to pay.
If the gaming commission decides that a gaming law or regulation has
been violated, the gaming commission has the power to assess fines, revoke or
suspend licenses or to take any other action as may be reasonable or
appropriate to enforce the gaming rules and regulations. In addition, renewal
is subject to, among other things, continued satisfaction of suitability
requirements.
REGULATORY REQUIREMENTS APPLICABLE TO OWNERS OF THE SECURITIES AND OTHERS
We are required to notify the gaming commission as to the identity of
(and may be required to submit background information regarding) each director,
corporate officer and owner, partner, joint venturer, trustee or any other
person who has a beneficial interest of five percent (5%) or more, direct or
indirect, in Peninsula Gaming. The gaming commission may also request that we
provide them with a list of persons holding beneficial ownership interests in
Peninsula Gaming of less than five percent (5%). For purposes of these rules,
"beneficial interest" includes all direct and indirect forms of ownership or
control, voting power or investment power held through any contract, lien,
lease, partnership, stockholding, syndication, joint venture, understanding,
relationship, present or reversionary right, title or interest, or otherwise.
The gaming commission may determine that holders of the notes, Peninsula
Gaming's common membership interests and preferred membership interests, and
Peninsula Partners' common membership interests and convertible preferred
membership interests have a "beneficial interest" in us. The gaming commission
may limit, make conditional, suspend or revoke the license of a licensee in
which a director, corporate officer or holder of a beneficial interest in the
person includes or involves any person or entity which is found to be ineligible
as a result of want of character, moral fitness, financial responsibility, or
professional qualifications or due to failure to meet other criteria employed by
the gaming commission.
If any gaming authority, including the gaming commission, requires any
person, including a record or beneficial owner of the securities, to be
licensed, qualified or found suitable, the person must apply for a license,
qualification or finding of suitability within the time period specified by the
gaming authority. The person would be required to pay all costs of obtaining the
license, qualification or finding of suitability. If a record or beneficial
owner of any of the notes or any membership interest of Peninsula Partners or
Peninsula Gaming is required to be licensed, qualified or found suitable and is
not licensed, qualified or found suitable by the gaming authority within the
applicable time period, these notes or membership interests will be subject to
regulatory redemption procedures. Notes to be redeemed pursuant to a required
regulatory redemption are redeemable by us, in whole or in part, at any time
upon not less than 20 Business Days nor more than 60 days notice (or such
earlier date as may be ordered by any governmental authority). See "Risk
Factors--Required Regulatory Redemption," "Description of Peninsula Gaming
Membership Interests--Peninsula Gaming Operating Agreement,"
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"Description of Notes--Redemption" and "Description of Peninsula Partners
Membership Interests--Peninsula Partners Operating Agreement" for more
information about the gaming regulations potentially applicable to the
holders of the notes.
As of the date of this prospectus, the gaming commission has not
required the securityholders to apply for a finding of suitability to own the
securities. However, the gaming commission could require a holder of the
securities to submit an application in the future.
FEDERAL REGULATION OF SLOT MACHINES
We are required to make annual filings with the U.S. Attorney
General in connection with the sale, distribution or operation of slot
machines. All requisite filings for the most recent year and the current year
have been made.
POTENTIAL CHANGES IN TAX AND REGULATORY REQUIREMENTS
From time to time, federal and state legislators and officials have
proposed changes in tax law, or in the administration of the laws, affecting
the gaming industry. The gaming commission and the Iowa legislature consider
from time to time limitations on the expansion of gaming in Iowa and other
changes in gaming laws and regulations. See "Business--Competition."
Proposals at the national level have included a federal gaming tax and
limitations on the federal income tax deductibility of the cost of furnishing
complimentary promotional items to customers, as well as various measures
which would require withholding on amounts won by customers or on negotiated
discounts provided to customers on amounts owed to gaming companies. It is
not possible to determine with certainty the likelihood of possible changes
in tax or other laws or in the administration of the laws. The changes, if
adopted, could have a material adverse effect on our financial results.
The United States Congress created a national commission, the
National Gaming Impact Study Commission, which generally has the duty to
conduct a comprehensive legal and factual study of gambling in the United
States and existing federal, state and local policies and practices with
respect to the legalization or prohibition of gambling activities, to
formulate and propose changes in the policies and practices and to recommend
legislation and administrative actions for such changes. The national
commission issued its report to President Clinton, Congress, state governors
and Native American tribal leaders on June 18, 1999. Any of the
recommendations made by the national commission could result in the enactment
of new laws and/or the adoption of new regulations which could have an
adverse impact on the gaming industry. While we are unable at this time to
determine the ultimate disposition of any of the recommendations that the
national commission made, management does not believe that any of the
recommendations, if enacted, would be reasonably expected to have a material
adverse effect on our gaming operations.
LIQUOR REGULATIONS
The sale of alcoholic beverages by us is or will be subject to the
licensing, control and regulation by the liquor agencies, which include the City
of Dubuque and the Alcoholic Beverage Division of the Iowa Department of
Commerce. The applicable liquor laws allow the sale of liquor during legal hours
which are Monday through Saturday from 6 a.m. to 2 a.m. the next day and Sunday
from 8 a.m. to 2 a.m. on Monday. Subject to few exceptions, all persons who have
a financial interest in us, by ownership, loan or otherwise, must be disclosed
in an application filed with, and are subject to investigation by, the liquor
agencies. Persons who have a direct or indirect
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interest in any Iowa liquor license, other than hotel or restaurant liquor
licenses, may be prohibited from purchasing or holding the notes. All
licenses are subject to annual renewal, are revocable and are not
transferable. The liquor agencies have the full power to limit, condition,
suspend or revoke any license or to place a liquor licensee on probation with
or without conditions. Any disciplinary action could, and revocation would,
have a material adverse effect upon the operations of our business. Many of
our owners, officers and managers must be investigated by the liquor agencies
in connection with our liquor permits. Changes in licensed positions must be
approved by the liquor agencies.
UNITED STATES COAST GUARD
The Diamond Jo is also regulated by the United States Coast Guard,
whose regulations affect boat design and stipulate on-board facilities,
equipment and personnel (including requirements that each vessel be operated by
a minimum complement of licensed personnel), in addition to restricting the
number of persons who can be aboard the boat at any one time. Our riverboat must
hold, and currently possesses, a Certificate of Inspection and a Certificate of
Documentation from the United States Coast Guard. Loss of the Certificate of
Inspection would preclude our use of the Diamond Jo as an operating riverboat.
In addition, the riverboat is subject to United States Coast Guard regulations
requiring periodic hull inspections. Our next hull inspection is expected to
take place by April 2000. A traditional dry dock hull inspection would result in
the temporary loss of service of the riverboat for up to approximately two
weeks. The United States Coast Guard, upon request and approval of the request,
allows for an underwater hull inspection instead of the traditional out of water
dry dock inspection. An underwater hull inspection does not result in any loss
of services of the riverboat. If the Coast Guard approves our request for an
underwater hull inspection, we will be required to perform another hull
inspection within thirty 30 months from the date of the underwater hull
inspection. At that time, we may again seek approval from the Coast Guard for an
underwater hull inspection in order to avoid any loss of services of the
riverboat.
All of our shipping employees employed on United States Coast Guard
regulated vessels, even those who have nothing to do with the actual operation
of the vessel, such as dealers, cocktail hostesses and security personnel, may
be subject to maritime law, which, among other things, exempts those employees
from state limits on workers' compensation awards. We maintain workers'
compensation insurance in compliance with applicable Iowa law.
THE SHIPPING ACT OF 1916; THE MERCHANT MARINE ACT OF 1936
The Shipping Act of 1916, as amended, and the Merchant Marine Act of
1936, as amended, and applicable regulations thereunder contain provisions
which would prevent persons who are not citizens of the United States from
holding in the aggregate more than 25% of our outstanding membership
interests, directly or indirectly. Peninsula Gaming's and Peninsula Partners'
respective operating agreements contain prohibitions against any purchase or
transfer of Peninsula Gaming's or Peninsula Partners' respective membership
interests to any person or entity if, following the purchase or transfer,
more than 25% of Peninsula Gaming's membership interests are owned, directly
or indirectly, by persons who are not citizens of the United States. Any such
purchase or transfer in violation of Peninsula Gaming's or Peninsula
Partners' respective operating agreements is null and void, and Peninsula
Gaming and Peninsula Partners will not recognize the purchaser, transferee or
purported beneficial owner as a direct or indirect holder of an interest in
Peninsula Gaming or Peninsula Partners, respectively, for any purpose. To the
extent required by maritime laws, the managing member, managers and the
officers of Peninsula Partners and Peninsula Gaming shall be citizens of the
United States. See "Description of
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Peninsula Gaming Membership Interests-- Peninsula Gaming Operating Agreement"
and "Description of Peninsula Partners Membership Interests-- Peninsula
Partners Operating Agreement" for more information about transferability of
our equity interests and restrictions on the holders of those interests.
OTHER REGULATIONS
We are subject to federal, state and local environmental and safety
and health laws, regulations and ordinances that apply to non-gaming
businesses generally, such as the Clean Air Act, Federal Water Pollution
Control Act, Occupational Safety and Health Act, Resource Conservation
Recovery Act, Oil Pollution Act and Comprehensive Environmental Response,
Compensation and Liability Act, each as amended. We have not incurred, and do
not expect to incur, material expenditures with respect to these laws. There
can be no assurances, however, that we will not incur material liability
pursuant to these laws in the future. See "Risk Factors--Environmental
Matters" for more information about the risks of environmental liabilities
on our operations.
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MANAGEMENT
OFFICERS OF PENINSULA GAMING AND MANAGERS OF PENINSULA PARTNERS
Peninsula Partners is our parent and sole manager. The following
table sets forth the names and ages of the executive officers of Peninsula
Gaming and of the managers and executive officers of Peninsula Partners.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- ---------------------------------------------------
<S> <C> <C>
M. Brent Stevens................... 39 Manager of Peninsula Partners; Director of Peninsula
Corp.; Chief Executive Officer of Peninsula Partners
and Peninsula Gaming; President and Treasurer of
Peninsula Corp.
Natalie A. Schramm................. 29 Chief Financial Officer and Controller of Peninsula
Gaming
Michael S. Luzich.................. 45 Manager of Peninsula Partners; Director of Peninsula
Corp.; Vice President of Corporate Development and
Secretary of Peninsula Partners; Vice President and
Secretary of Peninsula Corp.; Secretary of Peninsula
Gaming
Terrance W. Oliver................. 50 Manager of Peninsula Partners
William L. Westerman............... 67 Manager of Peninsula Partners
Andrew R. Whittaker................ 37 Manager of Peninsula Partners
</TABLE>
MANAGEMENT PROFILES
Following is a brief description of the business experience of each of
the executive officers of Peninsula Gaming and of the managers and executive
officers of Peninsula Partners listed in the preceding table.
M. BRENT STEVENS - MANAGER OF PENINSULA PARTNERS; CHIEF EXECUTIVE OFFICER OF
PENINSULA PARTNERS AND PENINSULA GAMING; DIRECTOR OF PENINSULA CORP.; PRESIDENT
AND TREASURER OF PENINSULA CORP. Since 1990, Mr. Stevens has been employed by
Jefferies & Company, Inc., and presently is a managing director in the Corporate
Finance department. Mr. Stevens joined the Company in December, 1998.
NATALIE A. SCHRAMM - CHIEF FINANCIAL OFFICER AND CONTROLLER OF PENINSULA GAMING.
Ms. Schramm has served as our chief financial officer and controller since July
15, 1999. Ms. Schramm joined our predecessor, Greater Dubuque Riverboat
Entertainment Company, L.C., in November 1996 and was formerly employed by Aerie
Hotels and Resorts in Oak Brook, Illinois as Corporate Accounting Manager. She
was responsible for the corporate accounting functions of the Silver Eagle, the
Eagle Ridge Inn and Resorts, located in Galena, Illinois and the Essex Hotel,
located in Chicago, Illinois. She served as Internal Audit Manager for the
Silver Eagle and was a member of a development team that successfully pursued a
riverboat gaming license in Indiana. Ms. Schramm joined the Company in July,
1999.
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<PAGE>
MICHAEL S. LUZICH - MANAGER, VICE PRESIDENT OF CORPORATE DEVELOPMENT AND
SECRETARY OF PENINSULA PARTNERS; DIRECTOR, VICE PRESIDENT AND SECRETARY OF
PENINSULA CORP.; SECRETARY OF PENINSULA GAMING. Mr. Luzich is the founder and
President of the Cambridge Investment Group, L.L.C., an investment and
development company located in Las Vegas, Nevada. Prior to October 1995, Mr.
Luzich was a founding partner and director of Fitzgeralds New York, Inc. and
Fitzgeralds Arizona Management, Inc., which are development companies
responsible, respectively, for the Turning Stone Casino near Syracuse, New
York, for the Oneida Tribe and the Cliff Castle Casino near Sedona, Arizona,
for the Yavapai-Apachi Tribe. Mr. Luzich joined the Company in December,
1998.
TERRANCE W. OLIVER - MANAGER OF PENINSULA PARTNERS. Since 1993, Mr. Oliver has
served as a director of and consultant to Mikohn Gaming Corporation, a gaming
equipment manufacturer headquartered in Las Vegas. From 1988 until 1993, Mr.
Oliver served as Chairman of the Board to the predecessor company of Mikohn.
From 1984 until 1996, Mr. Oliver was a founding shareholder, board member and
executive officer of Fitzgeralds Gaming Corporation. Mr. Oliver retired as the
Chief Operating Officer of Fitzgeralds Gaming Corporation in 1996. Mr. Oliver
joined the Company in September, 1999.
WILLIAM L. WESTERMAN - MANAGER OF PENINSULA PARTNERS. Since 1992, Mr.
Westerman has assumed the positions of Chairman of the Board, Chief Executive
Officer and President of Riviera, Inc. and Chairman of the Board and Chief
Executive Officer of Riviera Operating Corporation. From July 1, 1991 until
his appointment as Chairman of the Board, Mr. Westerman served as a
consultant to Riviera, Inc. From 1973 until June 30, 1991, Mr. Westerman held
various positions with Cellu-Craft Inc. and Alusuisse Flexible Packaging,
manufacturers of flexible packaging used primarily for food products,
including serving as President and Chief Executive Officer of Cellu-Craft
Inc. and President of Alusuisse Flexible Packaging, a wholly owned subsidiary
of Alusuisse, which purchased Cellu-Craft Inc. on June 30, 1989. Mr.
Westerman joined the Company in July, 1999.
ANDREW R. WHITTAKER - MANAGER OF PENINSULA PARTNERS. Since 1990 Mr.
Whittaker has been employed by Jefferies & Company, Inc. and presently is an
executive vice president in the Corporate Finance department. Mr. Whittaker
joined the Company in July, 1999.
EMPLOYMENT AND CONSULTING AGREEMENTS
JAMES P. RIX, FORMERLY CHIEF OPERATING OFFICER OF PENINSULA GAMING. Mr. Rix
resigned as our Chief Operating Officer, effective November 20, 1999. Mr. Rix
entered into an employment agreement with us which has a term of three years,
commencing July 15, 1999. Under the terms of his employment agreement, Mr.
Rix was paid a signing bonus of $100,000 and was entitled to receive an
annual base salary of $250,000 and, subject to various conditions, an annual
performance based bonus. Mr. Rix's employment agreement provides for
severance payments upon the occurrence of limited events specified in his
agreement. Mr. Rix has agreed to restrictions which will limit his ability to
compete with us for a one-year period following his termination of employment.
NATALIE A. SCHRAMM. Ms. Schramm has entered into an employment agreement with us
which has a term of two years commencing July 15, 1999 and which renews
automatically for successive one year terms, unless terminated by her or us for
reasons specified in her employment agreement. Under the terms of her employment
agreement, Ms. Schramm is entitled to a signing bonus of $25,000, an annual base
salary of $82,500 and a yearly performance based bonus of at least $20,000. Ms.
Schramm is further entitled to at least a 5% annual salary increase, the actual
amount of the increase to be determined by the board of managers of Peninsula
Partners. Ms. Schramm
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<PAGE>
has agreed to restrictions which will limit her ability to compete with us
for a one-year period following her termination of employment.
MICHAEL S. LUZICH. Peninsula Partners has entered into a consulting agreement
with Mr. Luzich, pursuant to which Mr. Luzich, in consideration for corporate
development and consulting services to be rendered thereunder, is entitled to
receive compensation consisting of base salary and incentive payments in an
aggregate annual amount not to exceed $340,000. The consulting agreement has
a one year term and, subject to the occurrence of various termination events,
is renewable automatically for successive one year terms. Mr. Luzich is
entitled to reimbursement of reasonable business expenses as approved by the
board of managers of Peninsula Partners and incurred in connection with the
performance of his services.
EXECUTIVE COMPENSATION
We were not organized until 1999. Based on existing agreements with
members of our senior management, only Mr. Rix and Ms. Schramm will receive
compensation in excess of $100,000 during 1999.
Subject to the approval of the holders of at least 85% of the voting
common membership interests of Peninsula Partners, Peninsula Partners' board
of managers may, from time to time, issue additional incentive based equity
interests in Peninsula Partners at no less than fair market value.
SUMMARY COMPENSATION TABLE
The following table sets forth all compensation awarded to, earned
by or paid to each of our Chief Executive Officer and to each of our
executive officers for all services rendered since the date of consummation
of the acquisition on July 15, 1999 through November 26, 1999.
<TABLE>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------------- ------------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
FISCAL SALARY COMPENSATION OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) BONUS ($) ($) (#) ($)
- ------------------------------ ------ ------ --------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
M. Brent Stevens.............. 1999 -- -- -- -- --
CHIEF EXECUTIVE OFFICER
Natalie A. Schramm........... 1999 26,791.18 20,000(1) -- -- 25,000(2)
CHIEF FINANCIAL OFFICER
James P. Rix.................. 1999 81,730.73 -- 501.38(3) -- 100,000(4)
FORMERLY, CHIEF OPERATING
OFFICER
</TABLE>
(1) Ms. Schramm is entitled to a minimum annual bonus of $20,000 pursuant to
the terms of her employment agreement.
(2) Ms. Schramm received a $25,000 signing bonus upon commencement of her
employment.
(3) Represents reimbursement of club membership dues.
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<PAGE>
(4) Mr. Rix received a $100,000 signing bonus upon commencement of his
employment. Mr. Rix resigned as our chief operating officer on
September 22, 1999.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
We have no standing Compensation Committees. All compensation
decisions are made by Peninsula Partners, our parent and sole manager. The
managers of Peninsula Partners each participate in the determination of
executive officer compensation.
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<PAGE>
PRINCIPAL SECURITYHOLDERS
All of Peninsula Gaming's outstanding common membership interests are owned
by Peninsula Partners, its parent and sole manager. All of Peninsula Corp.'s
outstanding common stock is owned by Peninsula Gaming. The table below sets
forth information regarding the beneficial ownership of the voting common
membership interests of Peninsula Partners by (a) each person or entity known by
us to own beneficially 5% or more of the common membership interests of
Peninsula Partners, (b) each manager and executive officer of Peninsula Partners
and (c) all managers and executive officers of Peninsula Partners as a group.
Greater Dubuque Riverboat holds 100% of our issued and outstanding preferred
membership interests, which, subject to limited exceptions, will have no voting
rights, except as required by applicable law. On July 15, 1999, Peninsula
Partners issued 500,000 convertible preferred membership interests; each of
which is initially convertible into one Peninsula Partners non-voting common
membership interest, representing 33.33% of the fully diluted common membership
interests of Peninsula Partners on such date. Peninsula Partners does not have
outstanding any of its non-voting common membership interests. See "Description
of Peninsula Gaming Membership Interests" and "Description of Peninsula Partners
Membership Interests" for more information about our different classes of
membership interests. Unless otherwise indicated, the address of each manager or
executive officer of Peninsula Partners is c/o Peninsula Gaming Company, LLC,
3rd Street Ice Harbor, P.O. Box 1750, Dubuque, IA 52004-1683.
<TABLE>
<CAPTION>
VOTING COMMON
MEMBERSHIP INTERESTS PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED CLASS
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
M. Brent Stevens........................................................ 225,000(1) 22.50%
11100 Santa Monica, 10th Floor
Los Angeles, CA 90071
Peninsula Partners Investors, LLC(2)................................... 413,333(3) 41.33%
11100 Santa Monica, 10th Floor
Los Angeles, CA 90071
Michael S. Luzich....................................................... 300,000 30.00%
James P. Rix(4)......................................................... 46,667 4.67%
Terrance Oliver......................................................... 15,000 1.50%
Natalie A. Schramm...................................................... 0 0%
William L. Westerman.................................................... 0 0%
2901 Las Vegas Blvd., South
Las Vegas, NV 89109
Andrew R. Whittaker..................................................... 20,000(3) 2.00%
11100 Santa Monica, 10th Floor
Los Angeles, CA 90071
All managers and executive officers as a group (6 persons)(5)........... 1,000,000 100.00%
</TABLE>
- -------------------
(1) Mr. Stevens holds 225,000 Peninsula Partners common membership interests
directly and 413,333 Peninsula Partners common membership interests
indirectly through Peninsula Partners Investors, LLC.
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<PAGE>
Mr. Stevens is the sole managing member of Peninsula Partners Investors and
exercises voting and investment power over the Peninsula Partners common
membership interests owned by Peninsula Partners Investors. Mr. Stevens
does not own any membership interests in Peninsula Partners Investors, LLC.
(2) Mr. Stevens and Mr. Whittaker, managers of Peninsula Partners, are a
managing director and executive vice president, respectively, of Jefferies
& Company, Inc., the initial purchaser in the offering of the old notes on
July 15, 1999. In addition, Jefferies & Company, Inc. and some of its
affiliates, officers and employees are members of, and control, Peninsula
Partners Investors, LLC.
(3) Mr. Whittaker holds an economic interest in 20,000 Peninsula Partners
common membership interests indirectly through his membership in Peninsula
Partners Investors, but does not exercise voting or investment power with
respect to, and disclaims a beneficial ownership interest in, these
Peninsula Partners common membership interests.
(4) Under the terms of Peninsula Partners' operating agreement, as a result of
Mr. Rix's resignation from his position as Chief Operating Officer of
Peninsula Gaming, Peninsula Partners has the right (but not the obligation)
to purchase all of Mr. Rix's common membership interests for the lesser of
$280,000 or the fair market value of his common membership interests as
determined by Peninsula Partners' board of managers.
(5) Includes 413,333 Peninsula Partners common membership interests held by
Peninsula Partners Investors, LLC, over which Mr. Stevens exercises voting
and investment power.
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<PAGE>
KEY RELATIONSHIPS AND RELATED TRANSACTIONS
RELATIONSHIP WITH DUBUQUE RACING ASSOCIATION
The Racing Association is a not-for-profit corporation organized for the
purpose of operating the Greyhound Park, a pari-mutuel greyhound racing facility
in Dubuque, Iowa. On February 22, 1993, the Racing Association entered into the
Racing Association operating agreement which authorizes us to operate riverboat
gaming operations in Dubuque. The Racing Association operating agreement has
since been amended several times and expires by its terms on December 31, 2008.
Beginning April 1, 2000, we will be required to make a $0.50 per admission
payment to the Racing Association, without regard to our revenues or profits.
Based on 1998 admissions, this payment would have amounted to approximately
$570,000. Under the Racing Association operating agreement, subject to limited
conditions, we are required to pay the Racing Association, for the right to
operate the Diamond Jo, an amount equal to the excess of 32% of the first $30
million of the combined gaming revenues of the Racing Association and the
Diamond Jo, plus 8% of the next $12 million of these total gaming revenues,
plus, if there are no competing gaming operations in neighboring counties of
Illinois and Wisconsin, 8% of the next $4 million of total gaming revenues, over
the Racing Association's gaming revenues from the Greyhound Park. This formula
is subject to change if the Racing Association ceases to operate the Greyhound
Park or if we operate a riverboat smaller than the current Diamond Jo. We
currently make no payments to the Racing Association because the Racing
Association's revenues from the Greyhound Park are greater than the specified
percentage of our total gaming revenues.
The Racing Association operating agreement allows us to restrict the number
of slot machines at the Greyhound Park to 600; PROVIDED, that we do not increase
the number of slot machines at the Diamond Jo to more than 650. In addition, we
may require that the weighted average theoretical slot payback percentage at the
Greyhound Park not exceed ours by more than 0.5% so long as the rates we set are
reasonable and in good faith. Additionally, we cannot require the Racing
Association to change rates on its machines more than four times per contract
year. We have elected to apply both of these restrictions to the Greyhound Park.
These restrictions terminate on the earlier of:
(1) our operation of a replacement riverboat that is not of equal or
greater size than the Diamond Jo or on which we operate fewer total
gaming positions than on the Diamond Jo, and
(2) March 31, 2002. Without these restrictions, either we or the Racing
Association may,
(a) increase the number of slot machines upon a determination by the
gaming commission, among other things, that the additional slot
machines would not have a detrimental impact on the Racing
Association's or our financial viability, as applicable, and
(b) increase the weighted average theoretical slot payback
percentage, either of which actions, if taken by the Racing
Association, could result in increased competition from the
Greyhound Park. Iowa law currently prohibits
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<PAGE>
pari-mutuels, such as the Greyhound Park, from operating table
games, and we believe that table games will not become
permissible at racetracks in Iowa.
If changes to Iowa law prior to April 1, 2000 permit pari-mutuels to
operate table games, under the Racing Association operating agreement, we are
entitled to prohibit the Racing Association from operating table games at the
Greyhound Park. In this case, our ability to prohibit table games at the
Greyhound Park will terminate on the earlier of:
(1) our operation of a replacement riverboat that is not of equal or
greater size to the Diamond Jo or on which we operate fewer total
gaming positions than on the Diamond Jo, and
(2) July 11, 2000.
The above restrictions are subject to the express approval and regulatory
supervision of the gaming commission. Additionally, all of the restrictions
under the Racing Association operating agreement will terminate if we or any of
our affiliates operate another gaming facility in Dubuque County or the
adjoining counties of Illinois or Wisconsin. Under the Racing Association
operating agreement, we have the right to sell the Diamond Jo and related
facilities, subject to the approval of the gaming commission, as long as the
acquiror agrees to abide by the terms of the Racing Association operating
agreement.
For a discussion of risks relating to the Racing Association operating
agreement, see "Risk Factors-- Racing Association Operating Agreement."
MANAGING MEMBER INDEMNIFICATION
Pursuant to our and Peninsula Partners' operating agreements, we and
Peninsula Partners have agreed, subject to few exceptions, to indemnify and hold
harmless our members, Peninsula Partners and Peninsula Partners members, as the
case may be, from liabilities incurred as a result of their positions as our
sole manager and as members of us or Peninsula Partners, as the case may be.
EQUITY CONTRIBUTION
The common members of Peninsula Partners have made a capital contribution
of $6.0 million to Peninsula Partners in exchange for their common membership
interests. Peninsula Partners immediately contributed this $6.0 million and the
$3.0 million raised in the offering of the old notes through the sale of
Peninsula Partners' convertible preferred membership interests to Peninsula
Gaming, in exchange for common membership interests in Peninsula Gaming.
Peninsula Gaming used this capital contribution from Peninsula Partners to
finance in part the acquisition of the Diamond Jo. Additionally, we issued $7.0
million face amount of preferred membership interests to Greater Dubuque
Riverboat in connection with the acquisition of the Diamond Jo. See "Description
of Peninsula Gaming Membership Interests" and "Description of Peninsula Partners
Membership Interests" for more information about those transactions.
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OPERATING AGREEMENT OF PENINSULA PARTNERS
Pursuant to Peninsula Partners' operating agreement, the management of
Peninsula Partners is vested in a board of managers comprised of five
individuals, two of whom must be independent managers. At any time that M. Brent
Stevens, together with any entity controlled by Mr. Stevens, beneficially holds
at least 5% of the voting common membership interests of Peninsula Partners, Mr.
Stevens is entitled to designate three of Peninsula Partners' managers,
including one of the two independent managers. The two independent managers
shall serve as members of the independent committee. Under Peninsula Partners'
operating agreement, Peninsula Partners Advisors, LLC, a Delaware limited
liability company, of which Mr. Stevens is the sole managing member, may from
time to time render financial advisory and consulting services to Peninsula
Partners and will be entitled to receive commercially reasonable fees for the
services consistent with industry practices. Subject to the terms of the
indenture governing the notes, these fees will be paid by us as distributions to
Peninsula Partners.
At any time that Michael Luzich, together with any entity controlled by Mr.
Luzich, beneficially holds at least 5% of the voting common membership interests
of Peninsula Partners, Mr. Luzich is entitled to designate two of Peninsula
Partners' managers, including the other independent manager.
Presently, Peninsula Partners' board of managers is comprised of five
managers. A manager may resign at any time, and the member who designates a
manager may remove or replace that manager from the board of managers at any
time.
OPERATING AGREEMENT OF PENINSULA GAMING
Pursuant to the terms of Peninsula Gaming's operating agreement, if we
repay, redeem or refinance 90% or more of the notes on or prior to July 1, 2003,
certain members of management, including Messrs. Luzich and Stevens, will be
entitled to receive, at Mr. Stevens' discretion, an aggregate of $1.5 million
payable by Peninsula Gaming.
ENGAGEMENT OF MANAGEMENT CONSULTANT
Peninsula Partners has engaged Riviera Gaming Management, Inc. to assist,
on an interim basis, with transitional matters, including the selection of a new
chief operating officer to oversee our riverboat casino operations. Riviera
Gaming Management, Inc., a wholly-owned subsidiary of Riviera Holdings
Corporation, which owns the Riviera Hotel & Casino in Las Vegas, Nevada, will be
paid customary fees and expenses in connection with this engagement. Mr.
Westerman, a manager on the board of managers of Peninsula Partners, is Chairman
of the Board of Riviera, Inc., an affiliate of Riviera Gaming Management, Inc.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT; REGISTRATION RIGHTS
On July 15, 1999, we sold the old notes in a private placement to Jefferies
& Co., Inc., as the initial purchaser. The initial purchaser then resold the old
notes under an offering circular dated July 8, 1999 in reliance on Rule 144A,
and other available exemptions under the Securities Act of 1933, as amended. On
July 15, 1999, we also entered into a registration rights agreement with the
initial purchaser pursuant to which we agreed, among other things, to:
- file a registration statement with the Securities and Exchange
Commission relating to the exchange offer under the Securities Act of
1933 no later than October 13, 1999;
- use our best efforts to cause the exchange offer registration
statement to be declared effective under the Securities Act of 1933 on
or before December 13, 1999;
- use our commercially reasonable efforts to commence the exchange offer
within 30 days after the exchange offer registration statement is
declared effective by the Securities and Exchange Commission;
- keep the exchange offer open for acceptance for at least 30 days after
notice of the exchange offer is mailed to holders of the old notes;
- keep the exchange offer registration statement effective until
consummation of the exchange offer;
- cause the exchange offer to be consummated not later than 30 business
days following the date of the effectiveness of the exchange offer
registration statement;
- promptly after the close of the exchange offer, accept for exchange
all old notes validly tendered for exchange prior to the expiration of
the exchange offer;
- promptly after the close of the exchange offer, deliver all validly
tendered old notes to the Firstar Bank, N.A., the trustee, and cause
the trustee to promptly deliver new notes to each holder equal in
aggregate principal amount to the old notes tendered for exchange by
the holder.
Under the registration rights agreement, we agreed to file a shelf
registration statement if:
- we or the holders of a majority in aggregate principal amount of the
old notes determine, in our or their reasonable judgment, that they
will not receive new notes that they may resell to the public without
volume restriction under the Securities Act of 1933 and without
similar restriction under applicable blue sky or state securities
laws;
- we are not permitted to effect the exchange offer under applicable law
or applicable interpretations of law by the Securities and Exchange
Commission staff;
- for any reason, the exchange offer is not consummated by January 11,
2000; or
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- within six months of the consummation of the exchange offer, any
holder of old notes notifies us that it:
(1) is not entitled to participate in the exchange offer; or
(2) may not resell the new notes acquired by it in the exchange offer
to the public without restriction under applicable state and
federal securities laws.
If we have not yet filed an exchange offer registration statement and we
are required to file a shelf registration statement, we must file the shelf
registration statement prior to October 13, 1999. If we have filed an exchange
offer registration statement and we are required to file a shelf registration
statement, we must use our commercially reasonable efforts to file the shelf
registration statement relating to the old notes on or before the 20th day after
the obligation to file the shelf registration statement arises. We will use our
best efforts to cause the shelf registration statement to be declared effective
as promptly as practicable after the filing thereof.
If the shelf registration statement is filed, we will use our best efforts
to keep the shelf registration statement continuously effective, supplemented
and amended until the second anniversary of the effective date of the shelf
registration statement or a shorter period that will terminate when all the
notes covered by the shelf registration statement have been sold pursuant to the
shelf registration statement or a subsequent shelf registration statement
covering all of the old notes has been declared effected under the Securities
Act.
A holder who sells old notes pursuant to the shelf registration statement
generally will be required to be named as a selling securityholder in the
prospectus and to deliver a copy of the prospectus to purchasers. If we are
required to file a shelf registration statement, we will provide to each holder
of the old notes copies of the prospectus that is a part of the shelf
registration statement and notify each holder when the shelf registration
statement becomes effective. The holder will be subject to some of the civil
liability provisions under the Securities Act of 1933 in connection with these
sales and will be bound by the provisions of the registration rights agreement
that are applicable to the holder (including indemnification and contribution
obligations).
The registration rights agreement requires us to pay the holders of the
notes additional interest if a registration default exists. A registration
default will exist if:
- we fail to file any of the registration statements required by the
registration rights agreement on or prior to the date specified for
the filing;
- any of the registration statements is not declared effective by the
Securities and Exchange Commission on or prior to the date specified
for the effectiveness;
- we have not exchanged new notes for all validly tendered old notes
within 30 days after the exchange offer is declared effective by the
Securities and Exchange Commission; or
- the shelf registration statement is declared effective but thereafter,
during the period for which we are required to maintain the
effectiveness of the shelf registration statement, it ceases to be
effective or usable in connection with the resale of the new notes
covered by the shelf registration statement, and we fail to file and
have declared effective a subsequent shelf registration statement.
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If a registration default exists, the Issuers will pay liquidated damages
to each holder of registrable notes, during the first 90-day period immediately
following the occurrence of the registration default in an amount equal to $.05
per week per $1,000 principal amount of notes held by the Holder. Thereafter,
the weekly liquidated damages amount will increase by $.05 per $1,000 principal
amount of the notes following each subsequent 90-day period following the
registration default up to a maximum of $.20 per week per $1,000 principal
amount of notes, until the registration default is cured. All accrued liquidated
damages will be paid in the same manner as interest payments on the notes on
semiannual damages payment dates that correspond to interest payment dates for
the notes. Following the cure of a registration default, the accrual of
liquidated damages will cease.
The exchange offer is intended to satisfy our exchange offer obligations
under the registration rights agreement. The above summary of the registration
rights agreements is not complete and is subject to, and qualified by reference
to, all of the provisions of the registration rights agreement. A copy of the
registration rights agreement is filed as an exhibit to the registration
statement that includes this prospectus.
If you participate in the exchange offer, you will, with limited
exceptions, receive notes that are freely tradeable and not subject to
restrictions on transfer. You should read this prospectus under the heading
"--Resales of the New Notes" for more information relating to your ability to
transfer new notes.
The exchange offer is not being made to, nor will we accept tenders for
exchange from, holders of old notes in any jurisdiction in which the exchange
offer or the acceptance of the exchange offer would not be in compliance with
the securities laws or blue sky laws of the jurisdiction.
EXPIRATION DATE; EXTENSIONS
The expiration date at the exchange offer is , 1999 at
5:00 p.m., New York City time. We may extend the exchange offer in our sole
discretion. If we extend the exchange offer, the expiration date will be the
latest date and time to which the exchange offer is extended. We will notify the
exchange agent of any extension by oral or written notice and will make a public
announcement of the extension no later than 9:00 a.m., New York City time, on
the next business day after the previously scheduled expiration date.
We expressly reserve the right, in our sole and absolute discretion:
- to delay accepting any old notes;
- to extend the exchange offer;
- if any of the conditions under "--Conditions of the Exchange Offer"
have not been satisfied, to terminate the exchange offer; and
- to waive any condition or otherwise amend the terms of the exchange
offer in any manner.
If the exchange offer is amended in a manner we deem to constitute a
material change, we will promptly disclose the amendment by means of a
prospectus supplement that will be distributed to the registered holders of the
old notes. Any delay in acceptance, extension, termination or amendment will be
followed promptly by an oral or written notice of the event to the exchange
agent. We will
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also make a public announcement of the event. Without limiting the manner in
which we may choose to make any pubic announcement and subject to applicable
law, we have no obligation to publish, advertise or otherwise communicate any
pubic announcement other than by issuing a release to a national news service.
TERMS OF THE EXCHANGE OFFER
We are offering, upon the terms and subject to the conditions set forth in
this prospectus and in the accompanying letter of transmittal, to exchange
$1,000 in principal amount of new notes for each $1,000 in principal amount of
outstanding old notes. We will accept for exchange any and all old notes that
are validly tendered on or before 5:00 p.m., New York City time, on the
expiration date. Tenders of the old notes may be withdrawn at any time before
5:00 p.m., New York City time, on the expiration date. The exchange offer is not
conditioned upon any minimum principal amount of old notes being tendered for
exchange. However, the exchange offer is subject to the terms of the
registration rights agreement and the satisfaction of the conditions described
under "--Conditions of the Exchange Offer." Old notes may be tendered only in
multiples of $1,000. Holders may tender less than the aggregate principal amount
represented by their old notes if they appropriately indicate this fact on the
letter of transmittal accompanying the tendered old notes or indicate this fact
pursuant to the procedures for book-entry transfer described below.
As of the date of this prospectus, $71.0 million in aggregate principal
amount of the old notes were outstanding. Solely for reasons of administration,
we have fixed the close of business on , 1999 as the record date
for purposes of determining the persons to whom this prospectus and the letter
of transmittal will be mailed initially. Only a holder of the old notes, or the
holder's legal representative or attorney-in-facto, whose ownership is reflected
in the records of Firstar Bank, N.A., as registrar, or whose notes are held of
record by the depositary, may participate in the exchange offer. There will be
no fixed record date for determining the eligible holders of the old notes who
are entitled to participate in the exchange offer. We believe that, as of the
date of this prospectus, no holder is our "affiliate" (as defined in Rule 405
under the Securities Act of 1933).
We will be deemed to have accepted validly tendered old notes when, as and
if we give oral or written notice of our acceptance to the exchange agent. The
exchange agent will act as agent for the tendering holders of old notes and for
purposes of receiving the new notes from us. If any tendered old notes are not
accepted for exchange because of an invalid tender or otherwise, certificates
for the unaccepted old notes will be returned, without expense, to the tendering
holder as promptly as practicable after the expiration date.
Holders of old notes do not have appraisal or dissenters' rights under
applicable law or the indenture as a result of the exchange offer. We intend to
conduct the exchange offer in accordance with the applicable requirements of the
Securities Exchange Act of 1934 and the rules and regulations under the
Securities Exchange Act of 1934, including Rule 14e-1.
Holders who tender their old notes in the exchange offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the letter of transmittal, transfer taxes with respect to the exchange of old
notes pursuant to the exchange offer. We will pay all charges and expenses,
other than transfer taxes in some circumstances, in connection with the exchange
offer. See "--Fees and Expenses" for more information about the costs of the
exchange offer.
NEITHER WE NOR OUR MANAGING MEMBER MAKES ANY RECOMMENDATION TO HOLDERS
OF OLD NOTES AS TO WHETHER TO TENDER ANY OF THEIR OLD NOTES PURSUANT TO THE
EXCHANGE OFFER. IN ADDITION, NO ONE HAS
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BEEN AUTHORIZED TO MAKE ANY RECOMMENDATION. HOLDERS OF OLD NOTES MUST MAKE THEIR
OWN DECISION WHETHER TO PARTICIPATE IN THE EXCHANGE OFFER AND, IF THE HOLDER
CHOOSES TO PARTICIPATE IN THE EXCHANGE OFFER, THE AGGREGATE PRINCIPAL AMOUNT OF
OLD NOTES TO TENDER, AFTER READING CAREFULLY THIS PROSPECTUS AND THE LETTER OF
TRANSMITTAL AND CONSULTING WITH THEIR ADVISORS, IF ANY, BASED ON THEIR OWN
FINANCIAL POSITION AND REQUIREMENTS.
CONDITIONS OF THE EXCHANGE OFFER
You must tender your old notes in accordance with the requirements of this
prospectus and the letter of transmittal in order to participate in the exchange
offer.
Notwithstanding any other provision of the exchange offer, or any extension
of the exchange offer, we will not be required to accept for exchange any old
notes, and we may terminate or amend the exchange offer if we are not permitted
to effect the exchange offer under applicable law or any interpretation of
applicable law by the staff of the Securities and Exchange Commission. If we
determine in our sole discretion that any of these events or conditions has
occurred, we may, subject to applicable law, terminate the exchange offer and
return all old notes tendered for exchange or may waive any condition or amend
the terms of the exchange offer.
We expect that the above conditions will be satisfied. The above conditions
are for our sole benefit and may be waived by us at any time in our sole
discretion. Our failure at any time to exercise any of the above rights will not
be a waiver of those rights and each right will be deemed an ongoing right that
may be asserted at any time. Any determination by us concerning the events
described above will be final and binding upon all parties.
INTEREST
Each new note will bear interest from the most recent date to which
interest has been paid or duly provided for on the old note surrendered in
exchange for the new note or, if no interest has been paid or duly provided for
on the old note, from July 15, 1999. Holders of the old notes whose old notes
are accepted for exchange will not receive accrued interest on their old notes
for any period from and after the last interest payment date to which interest
has been paid or duly provided for on their old notes prior to the original
issue date of the new notes or, if no interest has been paid or duly provided
for, will not receive any accrued interest on their old notes, and will be
deemed to have waived the right to receive any interest on their old notes
accrued from and after such interest payment date or, if no such interest has
been paid or duly provided for, from and after July 15, 1999.
PROCEDURES FOR TENDERING OLD NOTES
The tender of a holder's old notes and our acceptance of old notes will
constitute a binding agreement between the tendering holder and us upon the
terms and conditions of this prospectus and the letter of transmittal. Unless a
holder tenders old notes according to the guaranteed delivery procedures or the
book-entry procedures described below, the holder must transmit the old notes,
together with a properly completed and executed letter of transmittal and all
other documents required by the letter of transmittal, to the exchange agent at
its address before 5:00 p.m., New York City time, on the expiration date. The
method of delivery of old notes, letters of transmittal and all other required
documents is at the election and risk of the tendering holder. If delivery is by
mail, we recommend delivery by registered mail, properly insured, with return
receipt requested. Instead of delivery by mail, we recommend that each holder
use an overnight or hand delivery service. In all cases, sufficient time should
be allowed to assure timely delivery.
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Any beneficial owner of the old notes whose old notes are registered in the
name of a broker, dealer, commercial bank, trust company or other nominee and
who wishes to tender old notes in the exchange offer should contact that
registered holder promptly and instruct that registered holder to tender on its
behalf. If the beneficial owner wishes to tender directly, it must, prior to
completing and executing the letter of transmittal and tendering old notes, make
appropriate arrangements to register ownership of the old notes in its name.
Beneficial owners should be aware that the transfer of registered ownership may
take considerable time.
Any financial institution that is a participant in DTC's Book-Entry
Transfer Facility system may make book-entry delivery of the old notes by
causing DTC to transfer the old notes into the exchange agent's account in
accordance with DTC's procedures for the transfer. To be timely, book-entry
delivery of old notes requires receipt of a confirmation of a book-entry
transfer before the expiration date. Although delivery of the old notes may be
effected through book-entry transfer into the exchange agent's account at DTC,
the letter of transmittal, properly completed and executed, with any required
signature guarantees and any other required documents or an agent's message (as
described below), must in any case be delivered to and received by the exchange
agent at its address on or before the expiration date, or the guaranteed
delivery procedure set forth below must be complied with.
DTC has confirmed that the exchange offer is eligible for DTC's Automated
Tender Offer Program. Accordingly, participants in DTC's Automated Tender Offer
Program may, instead of physically completing and signing the applicable letter
of transmittal and delivering it to the exchange agent, electronically transmit
their acceptance of the exchange offer by causing DTC to transfer old notes to
the exchange agent in accordance with DTC's Automated Tender Offer Program
procedures for transfer. DTC will then send an agent's message to the exchange
agent.
The term "agent's message" means a message transmitted by DTC, received by
the exchange agent and forming part of the book-entry confirmation, which states
that DTC has received an express acknowledgment from a participant in DTC's
Automated Tender Offer Program that is tendering old notes that are the subject
of the book-entry confirmation; that the participant has received and agrees to
be bound by the terms of the applicable letter of transmittal or, in the case of
an agent's message relating to guaranteed delivery, that the participant has
received and agrees to be bound by the applicable notice of guaranteed delivery;
and that we may enforce the agreement against that participant.
Each signature on a letter of transmittal or a notice of withdrawal must be
guaranteed unless the old notes are tendered:
- by a registered holder who has not completed the box entitled "Special
Delivery Instructions"; or
- for the account of an eligible institution (as described below).
If a signature on a letter of transmittal or a notice of withdrawal is
required to be guaranteed, the signature must be guaranteed by a participant in
a recognized Medallion Signature Program (a "Medallion Signature Guarantor"). If
the letter of transmittal is signed by a person other than the registered holder
of the old notes, the old notes surrendered for exchange must be endorsed by the
registered holder, with the signature guaranteed by a Medallion Signature
Guarantor. If any letter of transmittal, endorsement, bond power, power of
attorney or any other document required by the letter of transmittal is signed
by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a
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corporation or other person acting in a fiduciary or representative capacity,
that person should sign in that capacity when signing. The person must submit to
us evidence satisfactory, in our sole discretion, of his or her authority to so
act unless we waive the requirement.
As used in this prospectus with respect to the old notes, a "registered
holder" is any person in whose name the old notes are registered on the books of
the registrar. An "eligible institution" is a firm that is a member of a
registered national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or any other "eligible guarantor institution"
as the term is defined in Rule 17Ad-15 under the Securities Exchange Act of
1934.
We will determine in our sole discretion all questions as to the validity,
form, eligibility (including time of receipt), acceptance and withdrawal of old
notes tendered for exchange. Our determination will be final and binding. We
reserve the absolute right to reject old notes not properly tendered and to
reject any old notes if acceptance might, in our judgment or our counsel's
judgment, be unlawful. We also reserve the absolute right to waive any defects
or irregularities or conditions of the exchange offer as to particular old notes
at any time, including the right to waive the ineligibility of any holder who
seeks to tender old notes in the exchange offer.
Our interpretation of the terms and conditions of the exchange offer,
including the letter of transmittal and its instructions, will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of old notes for exchange must be cured within the
period of time as we determine. Neither our company nor the exchange agent is
under any duty to give notification of defects in the tenders or will incur any
liability for failure to give the notification. The exchange agent will use
reasonable efforts to give notification of defects or irregularities with
respect to tenders of old notes for exchange but will not incur any liability
for failure to give the notification. Tenders of old notes will not be deemed to
have been made until the irregularities have been cured or waived.
By tendering, you will represent to us that, among other things:
- you are not our "affiliate" (as defined in Rule 405 under the
Securities Act of 1933);
- you will acquire the new notes in the ordinary course of your
business;
- you are not a broker-dealer that acquired your notes directly from us
in order to resell them pursuant to Rule 144A under the Securities Act
of 1933 or any other available exemption under the Securities Act of
1933;
- if you are a broker-dealer that acquired your notes as a result of
market-making or other trading activities, you will deliver a
prospectus in connection with any resale of new notes; and
- you are not participating, do not intend to participate and have no
arrangement or understanding with any person to participate in the
distribution of the new notes.
In connection with a book-entry transfer, each participant will confirm
that it makes the representations and warranties contained in the letter of
transmittal.
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GUARANTEED DELIVERY PROCEDURES
If you wish to tender your old notes and:
- your old notes are not immediately available;
- you are unable to deliver on time your old notes or any other document
that you are required to deliver to the exchange agent; or
- you cannot complete the procedures for delivery by book-entry transfer
on time;
you may tender your old notes according to the guaranteed delivery procedures
described in the letter of transmittal. Those procedures require that:
- tender must be made by or through an eligible institution and a notice
of guaranteed delivery must be signed by the holder;
- on or before the expiration date, the exchange agent must receive from
the holder and the eligible institution a properly completed and
executed notice of guaranteed delivery by mail or hand delivery
setting forth the name and address of the holder, the certificate
number or numbers of the tendered old notes and the principal amount
of tendered old notes; and
- properly completed and executed documents required by the letter of
transmittal and the tendered old notes in proper form for transfer or
confirmation of a book-entry transfer of the old notes into the
exchange agent's account at DTC must be received by the exchange agent
within four business days after the expiration date of the exchange
offer.
Any holder who wishes to tender old notes pursuant to the guaranteed
delivery procedures must ensure that the exchange agent receives the notice of
guaranteed delivery and letter of transmittal relating to the old notes before
5:00 p.m., New York City time, on the expiration date.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all the conditions to the exchange offer, we
will accept old notes that are properly tendered in the exchange offer prior to
5:00 p.m., New York City time, on the expiration date. The new notes will be
delivered promptly after acceptance of the old notes. For purposes of the
exchange offer, we will be deemed to have accepted validly tendered old notes
when, as and if we have given notice to the exchange agent.
WITHDRAWAL RIGHTS
Tenders of the old notes may be withdrawn by delivery of a written or
facsimile transmission notice to the exchange agent at its address set forth
under "--The Exchange Agent; Assistance" at any time before 5:00 p.m., New York
City time, on the expiration date. Any such notice of withdrawal must:
- specify the name of the person having deposited the old notes to be
withdrawn;
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- identify the old notes to be withdrawn, including the certificate
number or numbers and principal amount of the old notes, or, in the
case of old notes transferred by book-entry transfer, the name and
number of the account at DTC to be credited;
- be signed by the holder in the same manner as the original signature
on the letter of transmittal by which old notes were tendered,
including any required signature guarantees, or be accompanied by a
bond power in the name of the person withdrawing the tender, in
satisfactory form as determined by us in our sole discretion, executed
by the registered holder, with the signature guaranteed by a Medallion
Signature Guarantor, together with the other documents required upon
transfer by the indenture; and
- specify the name in which the old notes are to be re-registered, if
different from the person who deposited the old notes.
All questions as to the validity, form and eligibility (including time of
receipt) of the notices will be determined by us, in our sole discretion. Any
old notes withdrawn will be deemed not to have been validly tendered for
exchange for purposes of the exchange offer and will be returned to the holder
without cost as soon as practicable after withdrawal. Properly withdrawn old
notes may be retendered pursuant to the procedures described under "--Procedures
for Tendering Old Notes" at any time on or before the expiration date.
THE EXCHANGE AGENT; ASSISTANCE
Firstar Bank, N.A. is the exchange agent. All tendered old notes, executed
letters of transmittal and other related documents should be directed to the
exchange agent. Questions and requests for assistance and requests for
additional copies of the prospectus, the letter of transmittal and other related
documents should be addressed to the exchange agent as follows:
BY REGISTERED OR CERTIFIED MAIL: BY HAND OR OVERNIGHT COURIER:
Firstar Bank, N.A. Firstar Bank, N.A.
101 East Fifth Street 101 East Fifth Street
St. Paul, Minnesota 55101 St. Paul, Minnesota 55101
BY TELEPHONE OR FACSIMILE:
Phone: (651) 229-2600 Facsimile: (651) 229-6415
FEES AND EXPENSES
We will bear the expenses of soliciting old notes for exchange. The
principal solicitation is being made by mail by the exchange agent. Additional
solicitation may be made by telephone, facsimile or in person by officers and
regular employees of our company and our affiliates and by persons so engaged by
the exchange agent.
We will pay the exchange agent reasonable and customary fees for its
services and will reimburse the exchange agent for its reasonable out-of-pocket
expenses in connection with its services and pay other registration expenses,
including fees and expenses of the trustee under the indenture, filing fees,
blue sky fees and printing and distribution expenses.
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We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to brokers, dealers or others soliciting
acceptance of the exchange offer.
We will pay all transfer taxes, if any, applicable to the exchange of old
notes pursuant to the exchange offer. If, however, a transfer tax is imposed for
any reason other than the exchange of old notes pursuant to the exchange offer,
then the amount of those transfer taxes, whether imposed on the registered
holder or any other persons, will be payable by the tendering holder. If
satisfactory evidence of payment of those taxes or exemption is not submitted
with the letter of transmittal, the amount of those transfer taxes will be
billed directly to the tendering holder.
ACCOUNTING TREATMENT
The new notes will be recorded at the same carrying value as the old notes,
as reflected in our accounting records on the date of the exchange. Accordingly,
we will recognize no gain or loss for accounting purposes. The expenses of the
exchange offer will be amortized over the term of the new notes.
CONSEQUENCES OF NOT EXCHANGING OLD NOTES
As a result of this exchange offer, we will have fulfilled most of our
obligations under the registration rights agreement. Holders who do not tender
their old notes, except for limited instances involving the initial purchasers
or holders of old notes who are not eligible to participate in the exchange
offer or who do not receive freely transferrable new notes pursuant to the
exchange offer, will not have any further registration rights under the
registration rights agreement or otherwise and will not have rights to receive
additional interest. Accordingly, any holder who does not exchange its old notes
for new notes will continue to hold the untendered old notes and will be
entitled to all the rights and subject to all the limitations applicable under
the indenture, except to the extent that the rights or limitations, by their
terms, terminate or cease to have further effectiveness as a result of the
exchange offer.
Any old notes that are not exchanged for new notes pursuant to the exchange
offer will remain restricted securities within the meaning of the Securities Act
of 1933. In general, the old notes may be resold only:
- to our company or any of our subsidiaries;
- inside the United States to a "qualified institutional buyer" in
compliance with Rule 144A under the Securities Act of 1933;
- inside the United States to an institutional "accredited investor" (as
defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act of
1933) or an "accredited investor" that, prior to the transfer,
furnishes or has furnished on its behalf by a U.S. broker-dealer to
the trustee under the indenture a signed letter containing various
representations and agreements relating to the restrictions on
transfer of the new notes, the form of which letter can be obtained
from the trustee;
- outside the United States in compliance with Rule 904 under the
Securities Act of 1933;
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- pursuant to the exemption from registration provided by Rule 144 under
the Securities Act of 1933, if available; or
- pursuant to an effective registration statement under the Securities
Act of 1933.
Each accredited investor that is not a qualified institutional buyer and
that is an original purchaser of any of the old notes from the initial
purchasers will be required to sign a letter confirming that it is an accredited
investor under the Securities Act of 1933 and that it acknowledges the transfer
restrictions summarized above.
RESALES OF THE NEW NOTES
We are making the exchange offer in reliance on the position of the staff
of the Securities and Exchange Commission as set forth in interpretive letters
addressed to third parties in other transactions. However, we have not sought
our own interpretive letter. Although there has been no indication of any change
in the staff's position, we cannot assure you that the staff of the Securities
and Exchange Commission would make a similar determination with respect to the
exchange offer as it has in its interpretive letters to third parties. Based on
these interpretations by the staff, and except as provided below, we believe
that new notes may be offered for resale, resold and otherwise transferred by a
holder who participates in the exchange offer and is not a broker-dealer without
further compliance with the registration and prospectus delivery provisions of
the Securities Act of 1933. In order to receive new notes that are freely
tradeable, a holder must acquire the new notes in the ordinary course of its
business and may not participate, or have any arrangement or understanding with
any person to participate, in the distribution (within the meaning of the
Securities Act of 1933) of the new notes. Holders wishing to participate in the
exchange offer must make the representations described in "--Procedures for
Tendering Old Notes" above.
Any holder of old notes:
- who is our "affiliate" (as defined in Rule 405 under the Securities
Act of 1933);
- who did not acquire the new notes in the ordinary course of its
business;
- who is a broker-dealer that purchased old notes from us to resell them
pursuant to Rule 144A under the Securities Act of 1933 or any other
available exemption under the Securities Act of 1933; or
- who intends to participate in the exchange offer for the purpose of
distributing (within the meaning of the Securities Act of 1933) new
notes;
will be subject to separate restrictions. Each holder in any of the above
categories:
- will not be able to rely on the interpretations of the staff of the
Securities Act of 1933 in the above-mentioned interpretive letters;
- will not be permitted or entitled to tender old notes in the exchange
offer; and
- must comply with the registration and prospectus delivery requirements
of the Securities Act of 1933 in connection with any sale or other
transfer of old notes, unless the sale is made pursuant to an
exemption from such requirements.
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In addition, if you are a broker-dealer holding old notes acquired for your
own account, then you may be deemed a statutory "underwriter" within the meaning
of the Securities Act of 1933 and must deliver a prospectus meeting the
requirements of the Securities Act of 1933 in connection with any resales of
your new notes. Each broker-dealer that receives new notes for its own account
pursuant to the exchange offer must acknowledge that it acquired the old notes
for its own account as a result of market-making activities or other trading
activities and must agree that it will deliver a prospectus meeting the
requirements of the Securities Act of 1933 in connection with any resale of
those new notes. The letter of transmittal states that, by making the above
acknowledgment and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act of 1933.
Based on the position taken by the staff of the Securities and Exchange
Commission in the interpretive letters referred to above, we believe that
broker- dealers that acquired old notes for their own accounts, as a result of
market- making or other trading activities ("Participating Broker-Dealers"), may
fulfill their prospectus delivery requirements with respect to the new notes
received upon exchange of old notes (other than old notes that represent an
unsold allotment from the original sale of the old notes) with a prospectus
meeting the requirements of the Securities Act of 1933, which may be the
prospectus prepared for an exchange offer so long as it contains a description
of the plan of distribution with respect to the resale of the new notes.
Accordingly, this prospectus, as it may be amended or supplemented, may be used
by a Participating Broker-Dealer during the period referred to below in
connection with resales of new notes received in exchange for old notes where
the old notes were acquired by the Participating Broker-Dealer for its own
account as a result of market-making or other trading activities. Subject to the
provisions of the registration rights agreement, we have agreed that this
prospectus may be used by a Participating Broker-Dealer in connection with
resales of the new notes. See "Plan of Distribution." However, a Participating
Broker-Dealer that intends to use this prospectus in connection with the resale
of new notes received in exchange for old notes pursuant to the exchange offer
must notify us, or cause us to be notified, on or before the expiration date of
the exchange offer, that it is a Participating Broker-Dealer. This notice may be
given in the space provided for that purpose in the letter of transmittal or may
be delivered to the exchange agent at the address set forth under "--The
Exchange Agent; Assistance." Any Participating Broker- Dealer that is our
"affiliate" may not rely on these interpretive letters and must comply with the
registration and prospectus delivery requirements of the Securities Act of 1933
in connection with any resale transaction.
Each Participating Broker-Dealer that tenders old notes pursuant to the
exchange offer will be deemed to have agreed, by execution of the letter of
transmittal, that upon receipt of notice from us of the occurrence of any event
or the discovery of any fact that makes any statement contained in this
prospectus untrue in any material respect or that causes this prospectus to omit
to state a material fact necessary in order to make the statements contained
herein, in light of the circumstances under which they were made, not misleading
or of the occurrence of other events specified in the registration rights
agreement, the Participating Broker-Dealer will suspend the sale of new notes
pursuant to this prospectus until we have amended or supplemented this
prospectus to correct the misstatement or omission and have furnished copies of
the amended or supplemented prospectus to the Participating Broker-Dealer or we
have given notice that the sale of the new notes may be resumed, as the case may
be.
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DESCRIPTION OF THE NOTES
The old notes were, and the new notes will be, issued pursuant to an
indenture, dated as of July 15, 1999, among Peninsula Gaming Company, LLC and
Peninsula Gaming Corp., as issuers, and Firstar Bank, N.A. (formerly known as
Firstar Bank of Minnesota, N.A.), as trustee. The form and terms of the new
notes are substantially identical to the form and terms of the old notes, except
that the new notes:
- will be registered under the Securities Act of 1933; and
- will not bear any legends restricting transfer.
The new notes will be issued solely in exchange for an equal principal
amount of old notes, in registered form, without coupons and in denominations of
$1,000 and integral multiples thereof. As of the date of this prospectus, $71.0
million aggregate principal amount of old notes is outstanding.
In the following summaries:
- "new notes" refers to the registered notes being offered by this
prospectus;
- "old notes" refers to your old notes that may be exchanged for new
notes in the exchange offer;
- "notes" refers collectively to the new notes and the old notes;
- "Peninsula Gaming Company" refers only to Peninsula Gaming Company,
LLC. and not to its wholly-owned subsidiary Peninsula Gaming Corp.;
- "Peninsula Corp." refers to Peninsula Gaming Corp., our only
wholly-owned subsidiary. Peninsula Corp. was incorporated solely for
the purpose of serving as a co-issuer of the notes in order to
facilitate the offering of the notes. Peninsula Corp. does not have
any operations or assets and does not have any revenues. Investors
should not expect Peninsula Corp. to participate in servicing the
principal, interest, liquidated damages, if any, premium or any other
payment obligations on the notes. See "--Material
Covenants--Restrictions on Activities of Peninsula Corp." for more
information about the limitations on the activities of Peninsula
Corp.; and
- you can find definitions of certain terms under the subsection
"Definitions."
The following summaries of the material provisions of the indenture, the
Security Documents (defined below) and the registration rights agreement among
the issuers of the notes and the initial purchaser are subject to all the
provisions of the indenture, the Security Documents and the registration rights
agreement, including the definitions contained in those documents. The terms of
the new notes include those stated in the indenture and those made part of the
indenture by reference to the Trust Indenture Act of 1939, as amended. The new
notes are subject to all of these terms, and the holders of the notes are
referred to the indenture and the Trust Indenture Act for more information.
Wherever we refer to particular sections or defined terms used in the indenture,
the sections or defined terms are automatically incorporated into this
prospectus. We have filed a
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copy of the indenture with the Securities and Exchange Commission and the
indenture is incorporated by reference into the registration statement. We will
provide copies of the indenture, the Security Documents and the registration
rights agreement upon request.
Under some circumstances, the Company may designate Subsidiaries formed or
acquired after the Issue Date as Unrestricted Subsidiaries. Unrestricted
Subsidiaries will not be subject to any of the restrictive covenants set forth
in the indenture.
PRINCIPAL, MATURITY AND INTEREST
The indenture does not limit the aggregate principal amount of notes that
may be issued and provides that, subject to the covenant in the indenture
described under "-- Material Covenants--Limitation on Incurrence of
Indebtedness," additional notes may be issued without the consent of the holders
of previously issued notes; PROVIDED, that additional notes may not be issued
with original issue discount as determined under section 1271 ET SEQ. of the
Internal Revenue Code of 1986, as amended (the "Code"). The notes will mature on
July 1, 2006. Interest on the notes is payable semiannually on July 1 and
January 1 of each year, beginning on January 1, 2000, to holders of record on
the immediately preceding June 15 and December 15, respectively. The notes bear
interest at 12 1/4% per annum from the date of original issuance. Interest on
the notes accrue from the most recent date to which interest has been paid or,
if no interest has been paid, from the date of original issuance. Interest is
computed on the basis of a 360-day year comprised of twelve 30-day months.
Principal and interest on the notes are payable at the office or agency of the
Issuers maintained for this purpose within the City of New York or, at the
option of the Issuers, payment of interest may be made by check mailed to the
holders at their respective addresses set forth in the register of holders.
Until changed by the Issuers, the Issuers' office or agency will be the office
of the Trustee maintained for this purpose. If a payment date is a Legal
Holiday, payment may be made at that place on the next succeeding day that is
not a Legal Holiday, and no interest will accrue for the intervening period.
The Trustee is presently our Paying Agent and Registrar. The Issuers may
change the Paying Agent or Registrar without prior notice to holders and,
subject to limited exceptions, the Issuers or any of their respective
Subsidiaries may act as Paying Agent or Registrar.
REDEMPTION
AT THE OPTION OF THE COMPANY. Except as described below, the Issuers may
not elect to redeem the notes prior to July 1, 2003. After that date, the
Issuers may elect to redeem the notes, in whole or in part, upon 30 to 60 days'
notice, at the redemption prices set forth below, plus accrued and unpaid
interest , if any, to the date of redemption, if redeemed during the 12-month
period beginning on July 1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE OF PRINCIPAL AMOUNT
- ---- ------------------------------
<S> <C>
2003...................................... 108.00%
2004...................................... 105.33%
2005 and thereafter....................... 102.67%
</TABLE>
In addition, prior to July 1, 2002, the Issuers may redeem up to 35% of the
aggregate principal amount of the outstanding notes at a redemption price of
112.25% of their principal
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amount, plus accrued and unpaid interest, if any, through the date of
redemption, with the net cash proceeds of one or more Equity Offerings;
PROVIDED, that (i) the redemption occurs within 60 days of the Equity Offering
and (ii) at least 65% of the aggregate principal amount of notes remains
outstanding immediately after each redemption.
These restrictions do not limit the Company's right to separately make open
market, privately negotiated or other purchases of the notes from time to time.
REQUIRED REGULATORY REDEMPTION. Notes are redeemable by the Issuers at any
time upon 20 Business Days to 60 calendar days notice (or such earlier date
as may be ordered by any governmental authority) at a price equal to the
lesser of
(i) the holder's cost of obtaining the note, and
(ii) 100% of the principal amount ,
(iii) plus, in either case, accrued and unpaid interest , if any, to
the date of redemption (or such earlier period as ordered by a
governmental authority).
The Issuers are not required to pay or reimburse any holder or beneficial
owner of the notes for the expenses of the holder or beneficial owner related to
the application for any gaming license, qualification or finding of suitability
in connection with a Required Regulatory Redemption. The expenses of any such
holder or beneficial owner will be the obligation of the holder or beneficial
owner.
MANDATORY. The notes are not subject to any mandatory redemption (except for a
Required Regulatory Redemption) and do not have the benefit of any sinking fund.
REDEMPTION PROCEDURES. If less than all of the notes are to be redeemed at any
time, the Trustee will select the notes for redemption in compliance with the
requirements of the principal national securities exchange, if any, on which the
notes are listed, or, if the notes are not listed, by any method that the
Trustee deems to be fair and appropriate; PROVIDED, that notes in denominations
of $1,000 or less may not be redeemed in part. Except for a Required Regulatory
Redemption that requires less notice, notice of redemption will be mailed by
first-class mail 30 to 60 days before the redemption date to the registered
address of each holder of notes to be redeemed. A new note in principal amount
equal to any unredeemed portion will be issued in the name of the holder upon
cancellation of the original note. On and after the date of redemption, interest
will not accrue on notes called for redemption, unless the Issuers default in
making the redemption payment.
SUBSIDIARY GUARANTORS
The repayment of the notes is unconditionally and irrevocably guaranteed,
jointly and severally, by all future Restricted Subsidiaries. On the Issue Date,
the Company had no Subsidiaries other than Peninsula Corp., which is a co-issuer
and co-obligor of the noteso. So long as any notes remain outstanding, any
future Restricted Subsidiary will enter into a Subsidiary Guaranty.
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If the Company sells all of the Capital Stock of any Subsidiary Guarantor
to a Person other than the Company or any of its Subsidiaries, and the Net
Proceeds from the sale are used in accordance with the covenant described under
"--Limitation on Asset Sales," then the Subsidiary Guarantor will be released
from all of its Obligations under its Subsidiary Guaranty and the indenture.
The Obligations of each Subsidiary Guarantor under its Subsidiary Guaranty
are limited to the maximum amount that will not constitute a fraudulent
conveyance or fraudulent transfer under federal or state law and not render a
Subsidiary Guarantor insolvent.
SECURITY
The Company will pledge as collateral (the "Collateral") to the Trustee, as
security for the Issuers' obligations with respect to the notes, all of its
interest in:
(1) the riverboat and the land-based facility comprising the Diamond
Jo, including without limitation all leased property;
(2) all real property and all additions or improvements ;
(3) substantially all of its furniture, fixtures and equipment,
inventory, accounts, contract rights and other general intangibles,
trademarks and trade names; and
(4) the Company's cash that is deposited in certain deposit accounts.
The Collateral shall not include the Excluded Assets. We can give you no
assurance that the security interest in the cash collateral can be perfected
under applicable laws.
The security interest was created in the riverboat pursuant to a first
preferred ship mortgage (the "Ship Mortgage"), in real property pursuant to a
mortgage (the "Shore Mortgage" and, together with the Ship Mortgage, the
"Mortgages"), and in all other Collateral pursuant to a security agreement from
the Company in favor of the Trustee (the "Security Agreement" and, together with
the Mortgages, the "Security Documents"). The Trustee's security interest in the
Collateral will be subordinated to any lien securing any Senior Credit Facility.
If the Company wishes to incur any new Indebtedness, the Trustee is permitted to
enter into an intercreditor agreement substantially in the form attached as an
exhibit to the indenture.
The Collateral may not be sufficient to satisfy payments due on the notes.
No appraisals of the Collateral have been prepared, in connection with this
offering. Moreover, the amount to be received upon a sale of Collateral will be
dependent upon numerous factors, including the condition, age and useful life of
the Collateral at the time of the sale, as well as the timing and manner of the
sale. All or some of the Collateral is illiquid and may have no readily
ascertainable market value. Additionally, due to gaming, real estate,
bankruptcy, securities and other laws, the Trustee may not be able to exercise
remedies under the indenture and the Security Documents. See "Risk
Factors--Collateral" for more information about potential limitations on the
adequacy of the Collateral to fully secure the notes.
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If an Event of Default exists, the Trustee, in addition to any rights or
remedies available under the indenture and the Security Documents, and subject
to the Intercreditor Agreement, may take any action it deems advisable to
protect and enforce its rights in the Collateral. While Indebtedness is
outstanding under the Senior Credit Facility, rights of the holders and the
Trustee are subject to the Intercreditor Agreement. Subject to the Intercreditor
Agreement, the proceeds received by the Trustee from any sale or foreclosure
will be applied first to pay the expenses of the sale or foreclosure and fees
and other amounts then payable to the Trustee under the indenture, and then to
pay amounts due and payable on the notes.
GAMING LAW LIMITATIONS. Gaming laws limit the Trustee's ability to foreclose on
the Collateral. These laws generally require that Persons who own or operate a
casino or purchase or sell gaming equipment hold a valid gaming license and
require the approval of the gaming commission for any transfer of a Gaming
License. No Person can hold a gaming license in the State of Iowa unless that
Person is found qualified and suitable by the Gaming Authority. In order for the
Trustee to be found qualified and suitable, the Gaming Authority could require
the Trustee and the holders to file applications, be investigated and be found
qualified or suitable as an owner or operator of gaming establishments. The
applicant for qualification, a finding of suitability or licensing must pay all
costs of the investigation. If the Trustee is unable or chooses not to qualify,
be found suitable, or be licensed to own or operate the assets, it would have to
retain an entity that was, or could be, qualified, suitable or licensed to own
or operate the assets.
This licensing process requires a considerable amount of time, taking
several months at a minimum. In addition, in any foreclosure sale or subsequent
resale by the Trustee, licensing requirements under the relevant gaming laws may
limit the number of potential bidders and may delay any sale. Either of those
events could have an adverse effect on the sale price of the Collateral.
Therefore, the practical value of realizing on the Collateral may be limited.
Moreover, if a Default occurred after a disapproval of gaming in the 2002
referendum, the Gaming Authority might be prohibited from permitting the
existing license to be transferred or from issuing a new license for the Diamond
Jo. See "Risk Factors--Reauthorization of Gaming in Dubuque County, Iowa" for
more information about possible risks arising from the laws applicable to us.
BANKRUPTCY LIMITATIONS. The Trustee's right to repossess and sell the Collateral
is likely to be significantly impaired by bankruptcy laws if a bankruptcy
proceeding were to be commenced by or against either Issuer. Under the
Bankruptcy Code, a secured creditor is prohibited from repossessing its security
from a debtor in a bankruptcy case, or from disposing of security repossessed
from the debtor, without bankruptcy court approval. Moreover, the Bankruptcy
Code permits the debtor to retain and to use collateral owned as of the date of
the bankruptcy filing (and its proceeds) even though the debtor is in default
under the applicable debt instruments; PROVIDED, that the secured creditor is
given "adequate protection." The meaning of the term "adequate protection" may
vary according to circumstances. In view of the lack of a precise definition of
the term "adequate protection" and the broad discretionary powers of a
bankruptcy court, it is impossible to predict how long payments under the notes
could be delayed following commencement of a bankruptcy case, whether or when
the Trustee could repossess or dispose of the Collateral or whether or to what
extent holders would be compensated for any delay in payment or loss of value of
the Collateral through the requirement of "adequate protection." Furthermore, in
the event a bankruptcy court determines the value of the Collateral is not
sufficient to repay all amounts due on the notes, the holders would hold secured
claims only to the extent of the value of the Collateral to which the
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holders are entitled, and would hold unsecured claims with respect to the
shortfall. Applicable federal bankruptcy laws do not permit the payment and/or
accrual of post-petition interest, costs and attorneys' fees during a debtor's
bankruptcy case unless the claims are oversecured or the debtor is solvent at
the time of reorganization. In addition, if either Issuer becomes the subject of
a bankruptcy case, the bankruptcy court may void some kinds of transfers made by
that Issuer, including, without limitation, transfers held to be fraudulent
conveyances or preferences.
Further, limitations exist under the Merchant Marine Act of 1936 on the
ability of non-U.S. citizens to realize upon collateral consisting of vessels
documented under the laws of the United States. To the extent that the holders
are non-U.S. citizens, this limitation could adversely affect the ability of the
Trustee to complete a foreclosure on the Collateral. This ownership limitation
may also reduce the number of potential purchasers of the riverboat if the
Trustee seeks to sell the riverboat as a means of repaying the notes. The
Trustee may be required to foreclose through a federal admiralty court
proceeding. This proceeding would entail compliance with notice and other
procedural requirements, and could require posting of a substantial bond.
REPURCHASE UPON CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Issuers will offer to
repurchase all of the outstanding notes (the "Change of Control Offer") at a
purchase price of 101% of the principal amount, plus accrued and unpaid
interest, if any, to the date of repurchase (the "Change of Control Payment").
Within 30 days following any Change of Control, the Issuers must mail a notice
to each holder stating, among other things:
(1) the purchase price and the purchase date, which will be 30 to 45
days from the date the notice is mailed (the "Change of Control Payment
Date");
(2) that any holder electing to sell notes in the Change of Control
Offer must complete the form entitled "Option of Holder to Elect Purchase"
on the reverse of the notes and surrender them to the paying agent with
respect to the notes (the "Paying Agent"), at the address specified in the
notice, prior to the close of business on the third Business Day preceding
the Change of Control Payment Date; and
(3) that the holder may withdraw the election if it delivers to the
Paying Agent, by the close of business on the second Business Day
preceding the Change of Control Payment Date, a telegram, telex, facsimile
transmission or letter stating the name of the holder, the principal amount
of notes delivered for purchase, and a statement that the holder is
withdrawing its election to have the notes purchased.
To the extent that the provisions of any securities laws or regulations
conflict with the "Change of Control" provisions of the indenture, the Issuers
will comply with the applicable securities laws and regulations and will not be
deemed to have breached the "Change of Control" provisions of the indenture by
doing so.
On the Change of Control Payment Date, the Issuers will, to the extent
lawful,
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(1) accept for payment the notes tendered pursuant to the Change of
Control Offer,
(2) deposit with the Paying Agent the Change of Control Payment for
all notes tendered and not withdrawn, and
(3) deliver or cause to be delivered to the Trustee the accepted
notes, together with an Officers' Certificate stating that the notes
tendered to the Issuers are accepted for payment.
The Paying Agent will promptly mail the payment to each holder of accepted
notes, and the Trustee will authenticate and mail to each holder, or cause to be
transferred by book entry, a new note for any unpurchased portion of the notes
surrendered; PROVIDED, that each new note will be in the principal amount of
$1,000 or an integral multiple thereof. The Issuers will announce the results of
the Change of Control Offer on or as soon as practicable after the Change of
Control Payment Date.
Except as described above with respect to a Change of Control, the Issuers
are not required to repurchase or redeem the notes in the event of a takeover,
recapitalization or similar restructuring.
We cannot assure you that we will have sufficient funds to make required
purchases at the time of any Change of Control Offer.
The Issuers will not be required to make a Change of Control Offer upon a
Change of Control, if a third party makes a Change of Control Offer that
complies with the requirements for Change of Control Offer made by the Issuers,
and purchases all notes validly tendered and not withdrawn under the Change of
Control Offer.
Under New York law, which governs the indenture, the use of the term
"all or substantially all" such as in the definition of "Change of Control"
and under "--Merger, Consolidation or Sale of Assets" has no clearly
established meaning, and has been the subject of very limited judicial
interpretation. Accordingly, there may be a degree of uncertainty in
ascertaining whether any particular transaction involves a disposition of
"all or substantially all" of the assets of a Person. As a consequence, in
the event the holders elect to exercise their rights under the indenture but
the Issuers elect to contest the election, there could be no assurance as to
how a court would interpret the phrase under New York law. Accordingly, the
Trustee or the holders may be prevented from successfully asserting that a
Change of Control has occurred.
Management of the Company has no present intention to engage in a Change of
Control, although the Company could do so in the future. Subject to the
limitations discussed below, the Company could enter into transactions that
would not constitute a Change of Control under the indenture, but that would
increase the amount of Indebtedness outstanding, or otherwise affect the
Company's capital structure or credit ratings. The covenant described under
"--Limitation on Incurrence of Indebtedness" contains restrictions on the
ability of the Company to incur additional Indebtedness. The restrictions can
only be waived with the consent of the holders of a majority in principal amount
of the outstanding notes. Except for the limitations contained in the covenant,
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the indenture will not contain any covenants or protections for the holders in
the event of a highly leveraged transaction.
EXCESS CASH FLOW OFFER
Within 120 days after the end of each Hotel Operating Year, the Issuers
will make an offer to all holders (the "Excess Cash Flow Offer") to purchase the
maximum principal amount of notes that is an integral multiple of $1,000 that
may be purchased with 50% of Excess Cash Flow for the Operating Year (the
"Excess Cash Flow Offer Amount"). The purchase price will be cash equal to 101%
of the principal amount of the notes to be purchased, plus accrued and unpaid
interest to the date fixed for the closing of the Excess Cash Flow Offer. Each
Excess Cash Flow Offer will remain open for a period of 20 Business Days and no
longer, unless a longer period is required by law (the "Excess Cash Flow Offer
Period").
Promptly after the termination of the Excess Cash Flow Offer Period, the
Issuers will mail or deliver payment for the tendered notes PRO RATA or by such
other method as may be required by law, or, if less than the Excess Cash Flow
Offer Amount has been tendered, then for all notes tendered. The Issuers may
reduce the principal amount of notes to be purchased in an Excess Cash Flow
Offer by making other purchases or redemptions, except for a Change of Control
Offer or Excess Proceeds Offer. If holders tender notes in any Excess Cash Flow
Offer having an aggregate purchase price less than the Excess Cash Flow Offer
Amount, the Company may use any remaining Excess Cash Flow for general corporate
purposes.
To the extent that the provisions of any securities laws or regulations
conflict with the Excess Cash Flow Offer provisions of the indenture, the
Issuers will comply with the applicable securities laws and regulations and
shall not be deemed to have breached their obligations under the Excess Cash
Flow Offer provisions of the indenture by doing so.
The Company and its Restricted Subsidiaries will not create or permit any
restriction on the ability of the Issuers to make an Excess Cash Flow Offer or
to pay for the notes tendered for purchase.
We can give you no assurance that the Hotel will become Operating or, once
Operating, that sufficient funds to make required Excess Cash Flow Offer
repurchases.
MATERIAL COVENANTS
LIMITATION ON RESTRICTED PAYMENTS. The Company will not, and will not permit any
of its Restricted Subsidiaries to,
(1) declare or pay any dividend or make any distribution to holders of
Equity Interests of the Company or any of its Subsidiaries or make any
other payment to any Excluded Person or its Affiliate, other than some
kinds of dividends or distributions payable in Equity Interests of the
Company, and amounts payable to the Company or any Restricted Subsidiary;
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(2) purchase, redeem or otherwise pay for any Equity Interest of the
Company, any Subsidiary or any other Affiliate of the Company, other than
Equity Interests already owned by the Company or any Restricted
Subsidiary;
(3) make any principal payment on, or purchase, redeem, defease or
otherwise acquire or pay off any Indebtedness of the Company or any
Subsidiary Guarantor that is subordinated in right of payment to the notes
or the Subsidiary Guaranty, prior to any scheduled payment; or
(4) make any Restricted Investment.
All the payments and other actions set forth in clauses (1) through (4) above
are referred to as "Restricted Payments"). The above restrictions will not apply
if, at the time of the Restricted Payment:
(a) no Default or Event of Default exists or would occur as a
consequence of the Restricted Payment, and
(b) after giving effect to the Restricted Payment on a PRO FORMA
basis, the Company could incur at least $1.00 of additional Indebtedness
under the Interest Coverage Ratio test contained in the covenant described
under "--Limitation on Incurrence of Indebtedness," and
(c) the Restricted Payment, together with the aggregate of all other
Restricted Payments previously made, including permitted Restricted
Payments under clauses (1) and (2) below but excluding Restricted Payments
permitted by clauses (3) and (4) below, is less than the sum of:
(1) 50% of the Consolidated Net Income of the Company for the
period (taken as one accounting period) from the beginning of the
first fiscal quarter commencing immediately after the Issue Date to
the end of the Company's most recently ended fiscal quarter for which
internal financial statements are available at the time of the
Restricted Payment (or, if the Consolidated Net Income for the period
is a deficit, 100% of the deficit), plus
(2) 100% of the aggregate net cash proceeds (or of the net cash
proceeds received upon the conversion of non-cash proceeds into cash)
received by the Company from the issuance or sale, other than to a
Subsidiary, of Equity Interests of the Company (other than
Disqualified Capital Stock) after the Issue Date and on or prior to
the time of the Restricted Payment, plus
(3) 100% of the aggregate net cash proceeds (or of the net cash
proceeds received upon the conversion of non-cash proceeds into cash)
received by the Company from the issuance or sale, other than to a
Subsidiary, of any convertible or exchangeable debt security of the
Company that has been converted or exchanged into Equity Interests of
the Company (other than Disqualified Capital Stock) pursuant to the
terms thereof after the Issue Date and on or prior to the time of
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the Restricted Payment (including any additional net proceeds received
by the Company upon the conversion or exchange), plus
(4) the aggregate Return from Unrestricted Subsidiaries after the
Issue Date and on or prior to the time of the Restricted Payment.
The foregoing provisions will not prohibit:
(1) the payment of any dividend within 60 days after it is declared, if at
the date of declaration the payment would not have been prohibited by the
indenture;
(2) the redemption, purchase, retirement or other acquisition of any Equity
Interests of the Company or Indebtedness of the Company or any Restricted
Subsidiary in exchange for, or from the proceeds of, the substantially
concurrent sale of other Equity Interests of the Company, other than
Disqualified Capital Stock;
(3) with respect to each tax year that the Company qualifies as a Flow
Through Entity, and as long as no Event of Default exists or would occur as a
consequence, the payment of Permitted Tax Distributions; PROVIDED, that (A)
before the first payment of Permitted Tax Distributions during the calendar year
the Company provides an Officers' Certificate and Opinion of Counsel to the
effect that the Company and each Subsidiary in respect of which the
distributions are being made qualify as Flow Through Entities for Federal income
tax purposes and for the states in respect of which the distributions are being
made and (B) at the time of the distribution, the most recent audited financial
statements of the Company provided to the Trustee pursuant to the covenant
described under the caption "--Reports," provide that the Company and each such
Subsidiary were treated as Flow Through Entities for the period of the financial
statements;
(4) the redemption, repurchase or payoff of any Indebtedness of the Company
or a Restricted Subsidiary with proceeds of any Refinancing Indebtedness
permitted to be incurred pursuant to the provision described under "--Limitation
on Incurrence of Indebtedness";
(5) distributions to Peninsula Partners for (A) reasonable tax preparation,
accounting, legal and administrative fees and expenses incurred on behalf of the
Issuers or in connection with Peninsula Partners' ownership of the Issuers,
consistent with industry practice and (B) compensation to Peninsula Partners
executive officers pursuant to, and in accordance with, consulting agreements in
effect on the Issue Date;
(6) payments on or with respect to the redemption of Seller Preferred in an
aggregate amount not to exceed $3.0 million;
(7) reasonable and customary directors fees to, and indemnity provided on
behalf of, the Managers of Peninsula Partners and the Company, and customary
reimbursement of travel and similar expenses incurred in the ordinary course of
business;
(8) payment of a fee to some members of management of Peninsula Gaming and
Peninsula Partners, including Mr. Luzich and Mr. Stevens, in the aggregate
amount of $1.5 million,
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which fee will be paid, at the discretion of Mr. Stevens, in the event that we
redeem or refinance 90% or more of the notes on or prior to July 1, 2003; and
(9) Restricted Payments in an aggregate amount not to exceed $1.0 million.
Not later than the date of any Restricted Payment, the Company will deliver
to the Trustee an Officers' Certificate which states that the Restricted Payment
is permitted and which sets forth the basis upon which the calculations required
by this covenant were computed.
LIMITATION ON INCURRENCE OF INDEBTEDNESS. The Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly,
(1) create, incur, issue, assume, guaranty or otherwise become
directly, indirectly, contingently or otherwise liable with respect to
(collectively, "incur"), any Indebtedness, or
(2) issue any Disqualified Capital Stock;
PROVIDED, that the Company may incur Indebtedness and issue shares of
Disqualified Capital Stock, and a Restricted Subsidiary may incur Acquired
Debt, if
(a) no Default or Event of Default exists at the time of, or
would occur after giving effect on a PRO FORMA basis to the incurrence
or issuance, and
(b) the Interest Coverage Ratio for the Company's most recently
ended four full fiscal quarters for which internal financial
statements are available immediately before the date on which the
additional Indebtedness is incurred or the Disqualified Capital Stock
is issued would have been not less than 2.0 to 1.0 for the period from
the Issue Date through, but not including, January 1, 2003, and 2.25
to 1.0 thereafter.
In each case, the above matters will be determined on a PRO FORMA basis, as if
the additional Indebtedness had been incurred, or the Disqualified Capital Stock
had been issued, at the beginning of the four-quarter period; PROVIDED, that in
the case of Indebtedness other than Indebtedness outstanding under the Senior
Credit Facility, Purchase Money Obligations, Capital Lease Obligations or
Acquired Debt, the Weighted Average Life to Maturity and final stated maturity
of the Indebtedness is equal to or greater than the Weighted Average Life to
Maturity and final stated maturity of the notes.
However, the above limitations will not prohibit:
(1) Indebtedness under the Senior Credit Facility, as long as the
aggregate principal amount of Senior Credit Facility Indebtedness
outstanding on any given date does not exceed (a) $10.0 million if such
date is on or prior to the 90th day following the date on which the Hotel
is first Operating, or $5.0 million if such date is after such 90th day,
less (b) the aggregate amount of commitment reductions contemplated by
clause (3) under the caption "--Limitation on Asset Sales;"
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(2) Capital Lease Obligations or Purchase Money Obligations; as long
as the aggregate principal amount of such Indebtedness outstanding on any
given date, does not exceed $2.5 million, at any time;
(3) performance bonds, appeal bonds, surety bonds, insurance
obligations or bonds, Obligations under bankers acceptances and letters of
credit and other similar bonds or obligations incurred in the ordinary
course of business;
(4) Hedging Obligations incurred to fix the interest rate on any
variable rate Indebtedness otherwise permitted by the indenture; PROVIDED,
that the notional principal amount of each such Hedging Obligation does not
exceed the principal amount of the Indebtedness to which the Hedging
Obligation relates;
(5) Indebtedness of the Company or any Subsidiary Guarantor owed to a
Subsidiary Guarantor or the Company, that is unsecured and subordinated in
right of payment to the notes or the Subsidiary Guaranty; PROVIDED, that
any subsequent issuance or transfer of any Capital Stock that results in
any such Subsidiary Guarantor ceasing to be a Subsidiary Guarantor or any
transfer of the Indebtedness (other than to the Company or a Subsidiary
Guarantor) shall be deemed, in each case, to constitute the incurrence of
the Indebtedness by the Company or the Subsidiary Guarantor;
(6) Indebtedness outstanding on the Issue Date, including the notes
outstanding on the Issue Date;
(7) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument
inadvertently, or, only in the case of daylight overdrafts, deliberately
drawn against insufficient funds in the ordinary course of business;
(8) any Subsidiary Guaranty of the notes; and
(9) Indebtedness issued in exchange for, or the proceeds of which are
contemporaneously used to refinance Indebtedness incurred pursuant to the
Interest Coverage Ratio test set forth in the immediately preceding
paragraph, clause (6) above or this clause (9) (the "Refinancing
Indebtedness"); PROVIDED, that (a) the principal amount of the Refinancing
Indebtedness does not exceed the principal amount of Indebtedness so
refinanced, plus any required premiums and out-of-pocket expenses
reasonably incurred in connection therewith, (b) the Refinancing
Indebtedness has a final scheduled maturity that equals or exceeds the
final stated maturity, and a Weighted Average Life to Maturity that is
equal to or greater than the Weighted Average Life to Maturity, of the
Indebtedness being refinanced and (c) the Refinancing Indebtedness ranks,
in right of payment, no more favorable to the notes or applicable
Subsidiary Guaranty, as the case may be, than the Indebtedness being
refinanced.
LIMITATION ON ASSET SALES. The Company will not, and will not permit any
Restricted Subsidiary to, make any Asset Sale unless
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(1) the Company or the Restricted Subsidiary receives consideration at
the time of the Asset Sale not less than the fair market value of the
assets being sold;
(2) at least 75% of the consideration for the Asset Sale is in the
form of cash or Cash Equivalents, or liabilities of the Company or any
Restricted Subsidiary (other than liabilities that are subordinated to the
notes or any Subsidiary Guaranty) that are assumed by the transferee of the
assets; PROVIDED, that following the Asset Sale there is no further
recourse to the Company or its Restricted Subsidiaries with respect to the
liabilities; and PROVIDED FURTHER, that such assumed liabilities are not
liabilities subordinated to the notes or any Subsidiary Guarantee; and
(3) within 270 days of the Asset Sale, the Net Proceeds are
(a) invested in assets related to the business of the Company or
its Restricted Subsidiaries, which, in the case of an Asset Sale of
the Diamond Jo or any replacement Gaming Vessel (a "Replacement
Vessel"), must be a Gaming Vessel having a fair market value, as
determined by an independent appraisal, at least equal to the fair
market value of the Diamond Jo or the Replacement Vessel immediately
preceding the Asset Sale,
(b) applied to repay Indebtedness under Purchase Money
Obligations incurred in connection with the assets so sold,
(c) applied to repay Indebtedness under the Senior Credit
Facility and permanently reduce the commitment thereunder in the
amount of the Indebtedness so repaid or
(d) to the extent not used as provided in clauses (a), (b), or
(c) or any combination thereof, applied to make an offer to purchase
notes as described below (an "Excess Proceeds Offer"); PROVIDED, that
the Company will not be required to make an Excess Proceeds Offer
until the amount of Excess Proceeds is greater than $5.0 million.
The provisions in clauses (1) and (2) above will not apply to an Event of
Loss.
Pending the final application of any Net Proceeds, the Company may
temporarily reduce Indebtedness under the Senior Credit Facility or temporarily
invest the Net Proceeds in Cash Equivalents.
Net Proceeds not invested or applied as set forth in the preceding clauses
(3)(a), (3)(b) or (3)(c) are "Excess Proceeds." If the Company elects, or
becomes obligated to make an Excess Proceeds Offer, the Issuers will offer to
purchase notes having an aggregate principal amount equal to the Excess Proceeds
(the "Purchase Amount"). The purchase price will be 100% of the aggregate
principal amount thereof, plus accrued and unpaid interest, if any, to the
purchase date. The Issuers must begin the Excess Proceeds Offer not later than
300 days after the Asset Sale that produced the Excess Proceeds. If holders
tender notes in any Excess Proceeds Offer having an aggregate purchase price
less than the Excess Proceeds, the Company and its Restricted Subsidiaries may
use the portion of the Excess Proceeds remaining after payment of the purchase
price for general corporate purposes. Each Excess Proceeds Offer will remain
open for a period
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of 20 Business Days and no longer, unless a longer period is required by law
(the "Excess Proceeds Offer Period").
Promptly after the termination of the Excess Proceeds Offer Period, the
Issuers will mail or deliver payment for the notes PRO RATA or by such other
method as may be required by law, or, if less than the Purchase Amount has been
tendered, then for all notes tendered. The Issuers may reduce the principal
amount of notes to be purchased in an Excess Proceeds Offer through purchases or
redemptions, except for a Change of Control Offer or an Excess Cash Flow Offer,
subsequent to the date of the Asset Sale.
To the extent that the provisions of any securities laws or regulations
conflict with the "Asset Sale" provisions of the indenture, the Issuers will
comply with the applicable securities laws and regulations and shall not be
deemed to have breached their obligations under the "Asset Sale" provisions of
the indenture by doing so.
The Company will not create or permit any restriction that would impair the
ability of the Issuers to make an Excess Proceeds Offer upon an Asset Sale or to
pay for the notes tendered for purchase.
We can give you no assurance that sufficient funds will be available to
make required Excess Proceeds Offer repurchases.
LIMITATION ON LIENS. The Company will not permit any Lien on any asset of the
Company or any Restricted Subsidiary, or on any income or profits, or assign or
convey any right to receive income from such assets, except Permitted Liens.
LIMITATION ON RESTRICTIONS ON SUBSIDIARY DIVIDENDS. The Company will not permit
any encumbrance or restriction on the ability of any Restricted Subsidiary to:
(1) pay dividends or make any other distributions to the Company or
any of its Restricted Subsidiaries (a) on the Restricted Subsidiary's
Capital Stock or (b) with respect to any other interest or participation
in, or measured by, the Restricted Subsidiary's profits, or
(2) pay any Indebtedness owed to the Company or any of its Restricted
Subsidiaries, or
(3) make loans or advances to the Company or any of its Restricted
Subsidiaries, or
(4) transfer any of its assets to the Company or any of its Restricted
Subsidiaries,
except, with respect to clauses (1) through (4) above, for encumbrances or
restrictions existing under or by reason of:
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(a) a Senior Credit Facility containing dividend or other payment
restrictions that are not more restrictive in any material respect than
those contained in the indenture on the Issue Date;
(b) the indenture, the Security Documents and the notes;
(c) applicable law or any applicable rule or order of any Governmental
Authority;
(d) Acquired Debt; PROVIDED, that the encumbrances and restrictions
are not applicable to any Person, or the properties or assets of any
Person, other than the Person, or the property or assets of the Person, so
acquired;
(e) customary non-assignment and net worth provisions of any contract,
lease or license entered into in the ordinary course of business;
(f) customary restrictions on the transfer of assets subject to a
Permitted Lien imposed by the holder of the Lien;
(g) the agreements governing permitted Refinancing Indebtedness;
PROVIDED, that the restrictions contained in any agreement governing such
Refinancing Indebtedness are no more restrictive in any material respect
than those contained in any agreements governing the Indebtedness being
refinanced; and
(h) any restrictions with respect to a Restricted Subsidiary imposed
pursuant to a binding agreement that has been entered into for the sale or
disposition of all or substantially all of the Equity Interests or assets
of the Restricted Subsidiary; PROVIDED, that these restrictions only apply
to the Equity Interests or assets of the Restricted Subsidiary being sold.
MERGER, CONSOLIDATION OR SALE OF ASSETS. Neither Issuer may consolidate or merge
with or into, sell, assign, transfer, lease, convey or otherwise dispose of all
or substantially all of its properties or assets in one or more related
transactions to, any other Person, unless:
(1) the Issuer is the surviving Person or the Person formed by or
surviving any such consolidation or merger, or to which the sale,
assignment, transfer, lease, conveyance or other disposition has been made
is a corporation organized and existing under the laws of the United States
of America, any state thereof or the District of Columbia;
(2) the Person formed by or surviving any such consolidation or
merger, or the Person to which the sale, assignment, transfer, lease,
conveyance or other disposition has been made assumes all the Obligations
of the Issuer, pursuant to a supplemental indenture in a form reasonably
satisfactory to the Trustee, under the notes, the indenture, the Security
Documents and the Registration rights agreement;
(3) immediately after giving effect to the transaction on a PRO FORMA
basis, no Default or Event of Default exists;
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(4) the transaction would not result in the loss, suspension or
material impairment of any gaming license unless a comparable replacement
gaming license is effective prior to or simultaneously with the loss,
suspension or material impairment; and
(5) the Issuer, or any Person formed by or surviving any such
consolidation or merger, or to which the sale, assignment, transfer, lease,
conveyance or other disposition has been made, (a) has Consolidated Net
Worth immediately after the transaction, but prior to any purchase
accounting adjustments resulting from the transaction, equal to or greater
than the Consolidated Net Worth of the Issuer immediately preceding the
transaction and (b) will be permitted, at the time of the transaction and
after giving PRO FORMA effect to it as if the transaction had occurred at
the beginning of the applicable four-quarter period, to incur at least
$1.00 of additional Indebtedness pursuant to the Interest Coverage Ratio
test set forth in the covenant described under "--Limitation on Incurrence
of Indebtedness."
In the event of any transaction, other than a lease, described in and
complying with the conditions listed in the immediately preceding paragraph in
which the Issuer is not the surviving Person, such surviving Person or
transferee will succeed to, and be substituted for, and may exercise every right
and power of the Issuer, and such Issuer shall be discharged from its
Obligations, under the indenture, the notes, the Security Documents and the
Registration rights agreement, with the same effect as if such successor Person
had been named as the Issuer in those documents.
LIMITATION ON TRANSACTIONS WITH AFFILIATES. The Company will not, and will not
permit any of its Restricted Subsidiaries to sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into any contract, agreement, understanding, loan, advance
or guaranty with, or for the benefit of, any Affiliate (each of the foregoing,
an "Affiliate Transaction"), except for:
(1) Affiliate Transactions that, together with all related Affiliate
Transactions, have an aggregate value of not more than $1.0 million;
PROVIDED, that such transactions are conducted in good faith and on terms
that are no less favorable to the Company or the relevant Restricted
Subsidiary than those that would have been obtained in a comparable
transaction at such time by the Company or such Restricted Subsidiary on an
arm's-length basis from a non-Affiliate of the Company or such Restricted
Subsidiary;
(2) Affiliate Transactions that, together with all related Affiliate
Transactions, have an aggregate value of not more than $5.0 million;
PROVIDED, that (1) a majority of the disinterested Managers of the Company
or, if none, a disinterested committee appointed by the Managers of the
Company for such purpose, determine that such transactions are conducted in
good faith and on terms that are no less favorable to the Company or the
relevant Restricted Subsidiary than those that would have been obtained in
a comparable transaction at such time by the Company or such Restricted
Subsidiary on an arm's-length basis from a non-Affiliate of the Company or
such Restricted Subsidiary and (2) prior to entering into such transaction
the Company shall have delivered to the Trustee an Officers' Certificate
certifying to such effect; or
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(3) Affiliate Transactions for which the Company delivers to the
Trustee an opinion that the transaction is fair to the Company or such
Restricted Subsidiary from a financial point of view, issued by an
accounting, appraisal or investment banking firm of national standing.
However, the following will be deemed not to be Affiliate Transactions:
(a) transactions among the Issuers and/or any of the Subsidiary
Guarantors;
(b) Restricted Payments permitted by the provisions of the indenture
described above under "--Limitations on Restricted Payments"; and
(c) reasonable and customary compensation paid to officers, employees
or consultants of Peninsula Partners, the Company or any Restricted
Subsidiary, in each case for services provided to the Company or any
Restricted Subsidiary, as determined in good faith by the Managers or
senior executives of the Company.
RESTRICTION ON SALE AND ISSUANCE OF SUBSIDIARY STOCK. The Company will not, and
will not permit any Restricted Subsidiary to, issue or sell any Equity
Interests, other than directors' qualifying shares, of any Restricted
Subsidiary to any Person other than the Company or a Wholly Owned Subsidiary of
the Company; PROVIDED, that the Company and its Restricted Subsidiaries may sell
all of the Capital Stock of a Restricted Subsidiary owned by the Company and its
Restricted Subsidiaries if the Net Proceeds from such Asset Sale are used in
accordance with the terms of the covenant described under "--Limitation on Asset
Sales."
RULE 144A INFORMATION REQUIREMENT. The Issuers and the Subsidiary Guarantors
will furnish to the holders or beneficial holders of notes, upon their written
request, and to prospective purchasers designated by such holders or beneficial
holders, the information which the Issuers are required to deliver pursuant to
Rule 144A(d)(4) under the Securities Act for so long as is required for an offer
or sale of the notes to qualify for an exemption under Rule 144A.
SUBSIDIARY GUARANTORS. The Issuers will cause each Restricted Subsidiary to (1)
execute and deliver to the Trustee a supplemental indenture in form reasonably
satisfactory to the Trustee, under which the Restricted Subsidiary will
unconditionally guarantee all of the Issuers' Obligations under the notes and
the indenture and (2) deliver to the Trustee an Opinion of Counsel that such
supplemental indenture has been duly authorized, executed and delivered by such
Restricted Subsidiary and constitutes a legal, valid, binding and enforceable
obligation of such Restricted Subsidiary, in each case subject to customary
qualifications. Thereafter, such Restricted Subsidiary will be a Subsidiary
Guarantor for all purposes of the indenture.
ADDITIONAL COLLATERAL. The Company will, and will cause each of the Subsidiary
Guarantors to, grant to the Trustee a first priority security interest in all
Collateral, whether owned on the Issue Date or acquired afterward, and to
execute and deliver all documents and to take all action reasonably necessary to
perfect and protect the Trustee's security interest.
RESTRICTIONS ON ACTIVITIES OF PENINSULA CORP. Peninsula Corp. may not hold any
assets, become liable for any obligations or engage in any business activities;
PROVIDED, that Peninsula Corp. may
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be a co-obligor on the notes under the terms of the indenture and may perform
any activities directly related or necessary in connection with its obligations
under the indenture.
LIMITATION ON LINES OF BUSINESS. The Company will not, and will not permit any
of its Restricted Subsidiaries to, engage to any material extent in any business
other than a Related Business.
REPORTS. Regardless of whether required by the rules and regulations of the
Securities and Exchange Commission (the "Commission"), so long as any notes are
outstanding, the Company will furnish to the Trustee and holders, within 15 days
after the Company is or would have been required to file with the Commission,
(1) all quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K if the Company
were required to file such Forms, including for each a "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and, with respect
to the annual information only, a report by the Company's independent certified
public accountants and (2) all information that would be required to be
contained in a filing with the Commission on Form 8-K if the Company were
required to file such reports. Once the Company files a registration statement
with the Commission with respect to the notes, the Company will file such
information with the Commission so long as the Commission will accept such
filings.
EVENTS OF DEFAULT AND REMEDIES
Each of the following constitutes an Event of Default under the indenture:
(1) default for 30 days in the payment when due of interest on the
notes;
(2) default in payment of principal (or premium, if any) on the notes
when due at maturity, redemption, by acceleration or otherwise;
(3) default in the performance or breach of the covenants in the
indenture described under "--Repurchase Upon Change of Control,"
"--Limitation on Restricted Payments," "--Limitation on Asset Sales," or
"--Merger, Consolidation or Sale of Assets;"
(4) after notice, failure by the Issuers or any Subsidiary Guarantor
for 60 days to comply with any other agreements in the indenture or the
notes;
(5) a default occurs under any mortgage, indenture or instrument under
which there may be issued, secured or evidenced any Indebtedness for money
borrowed or guaranteed by the Issuers or any Restricted Subsidiary, if (a)
either (1) the default results from the failure to pay principal of or
interest on the Indebtedness or (2) as a result of the default the maturity
of the Indebtedness has been accelerated, and (b) the principal amount of
the Indebtedness, together with the principal amount of any other
Indebtedness with respect to which a payment default has occurred, or the
maturity of which has been so accelerated, exceeds $5.0 million in the
aggregate;
(6) failure by the Issuers or any Subsidiary to pay final judgments,
other than to the extent of any judgment as to which a reputable insurance
company has accepted liability,
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aggregating in excess of $5.0 million, which judgments are not discharged,
bonded or stayed within 60 days after their entry;
(7) the cessation of substantially all gaming operations of the
Company for more than 60 days, except as a result of an Event of Loss;
(8) any revocation, suspension, expiration, without previous or
concurrent renewal, or loss of any Gaming License of the Company for more
than 90 days;
(9) any event of default under a Security Document; and
(10) various events of bankruptcy or insolvency with respect to the
Issuers or any of the Subsidiary Guarantors.
If an Event of Default exists, the Trustee may declare by written notice to
the Issuers, or the holders of at least 25% in principal amount of the
outstanding notes may declare by written notice to the Issuers and the Trustee,
all the notes to be due and payable immediately. However, in the case of an
Event of Default arising from some events of bankruptcy or insolvency, all
outstanding notes will become due and payable without further action or notice.
Holders may not enforce the indenture or the notes except as provided in the
indenture. Subject to some limitations, holders of a majority in principal
amount of the outstanding notes may direct the Trustee in its exercise of any
trust or power.
The holders of a majority in aggregate principal amount of the outstanding
notes, by written notice to the Trustee, may on behalf of the holders of all of
the notes (1) waive any existing Default or Event of Default and its
consequences under the indenture except a continuing Default or Event of Default
in the payment of interest on, or the principal of, the notes or a Default or an
Event of Default with respect to any covenant or provision which cannot be
modified or amended without the consent of the holder of each outstanding note
affected, and/or (2) rescind an acceleration and its consequences if the
rescission would not conflict with any judgment or decree if all existing Events
of Default (except nonpayment of principal or interest that has become due
solely because of the acceleration) have been cured or waived.
The Issuers are required, upon becoming aware of any Default or Event
of Default, to deliver to the Trustee a statement specifying such Default or
Event of Default and what action the Issuers are taking or propose to take with
respect thereto.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator, stockholder, member or
controlling person of either of the Issuers or any Subsidiary Guarantor will
have any liability for any obligations of either of the Issuers or any
Subsidiary Guarantor under the notes, the indenture, the Security Documents or
the registration rights agreement or for any claim in respect of such
obligations or their creation. Each holder by accepting a note waives and
releases all such liability. The waiver and release is part of the consideration
for issuance of the notes and the Subsidiary Guarantees. Such waiver may not be
effective to waive liabilities under the federal securities laws, and it is the
view of the Commission that such a waiver is against public policy.
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LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Issuers may elect to have all of their obligations discharged with
respect to the outstanding notes ("Legal Defeasance") except for
(1) the rights of holders of outstanding notes to receive
payments in respect of the principal of, premium, if any, and interest
on the notes when such payments are due from the trust referred to
below,
(2) the Issuers' obligations concerning issuing temporary
notes, registration of notes, mutilated, destroyed, lost or stolen
notes and the maintenance of an office or agency for payment and money
for security payments held in trust,
(3) the rights, powers, trusts, duties and immunities of
the Trustee, and the Issuers' and the Subsidiary Guarantors'
obligations in connection therewith, and
(4) the Legal Defeasance provisions of the indenture.
In addition, the Issuers may elect to have their obligations released
with respect to the material covenants that are described in this prospectus
("Covenant Defeasance") and after that time any omission to comply with such
obligations will not constitute a Default or Event of Default under the notes.
In the event Covenant Defeasance occurs, certain events (not including
non-payment, bankruptcy, receivership, rehabilitation and insolvency events)
described under "Events of Default" will no longer constitute an Event of
Default with respect to the notes.
In order to exercise either Legal Defeasance or Covenant Defeasance,
(1) the Issuers must irrevocably deposit with the Trustee, in
trust, cash in U.S. dollars, non-callable Government Securities, or a
combination thereof, in amounts that will be sufficient, in the opinion
of a nationally recognized firm of independent public accountants, to
pay the principal of, premium, if any, and interest on the outstanding
notes on the stated maturity or on the applicable redemption date, as
the case may be, and the Issuers must specify whether the notes are
being defeased to maturity or to a particular redemption date;
(2) in the case of Legal Defeasance, the Issuers must deliver
to the Trustee an Opinion of Counsel confirming that (a) the Issuers
have received from, or there has been published by, the Internal
Revenue Service a ruling or (b) since the Issue Date, there has been a
change in the applicable federal income tax law to the effect that the
holders of the outstanding notes will not recognize income, gain or
loss for federal income tax purposes as a result of the Legal
Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been
the case if such Legal Defeasance had not occurred, and the Opinion of
Counsel must confirm that conclusion;
(3) in the case of Covenant Defeasance, the Issuers must
deliver to the Trustee an Opinion of Counsel confirming that the
holders of the outstanding notes will not recognize income, gain or
loss for federal income tax purposes as a result of the Covenant
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Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been
the case if such Covenant Defeasance had not occurred;
(4) no Default or Event of Default may exist on the date of
the deposit, other than a Default or Event of Default resulting from
the borrowing of funds to be applied to such deposito;
(5) such Legal Defeasance or Covenant Defeasance may not
result in a breach or violation of, or constitute a default under any
material agreement or instrument, other than the indenture, to which
the Issuers or any of the Subsidiaries are a party or by which the
Issuers or any of the Subsidiaries are bound;
(6) the Issuers must deliver to the Trustee an Officers'
Certificate stating that the deposit was not made by the Issuers with
the intent of preferring the holders over the other creditors of the
Issuers with the intent of defeating, hindering, delaying or defrauding
creditors of the Issuers or others; and
(7) each of the Issuers must deliver to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating, subject
to various factual assumptions and bankruptcy and insolvency
exceptions, that such Issuer has complied with all conditions precedent
contained in the indenture relating to the Legal Defeasance or the
Covenant Defeasance.
TRANSFER AND EXCHANGE
A holder may transfer or exchange notes in accordance with the
indenture. The Registrar and the Trustee may require a holder, among other
things, to furnish appropriate endorsements and transfer documents, and the
Issuers may require a holder to pay any taxes and fees required by law or
permitted by the indenture. The Issuers will not be required to transfer or
exchange any note selected for redemption. The Issuers will not be required to
transfer or exchange any note for a period of 15 days before a selection of
notes to be redeemed.
The registered holder of a note will be treated as the owner of it for
all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the following two paragraphs, the indenture and
the notes may be amended or supplemented with the consent of the holders of at
least a majority in aggregate principal amount of the outstanding notes and any
existing Default or Event of Default, except some kinds of payment defaults,
or compliance with any provision of the indenture or the notes may be waived
with the consent of the holders of a majority in aggregate principal amount of
the outstanding notes.
Without the consent of each holder affected, an amendment or waiver may
not:
(1) reduce the principal amount of notes whose holders must
consent to an amendment, supplement or waiver;
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(2) reduce the principal of, or the premium on, or change the
fixed maturity of, any note; alter the provisions with respect to the
payment on redemption of the notes; or alter the price at which
repurchases of the notes may be made in an Excess Proceeds Offer or
Change of Control Offer;
(3) reduce the rate of or change the time for payment of
interest on any note;
(4) waive a Default or Event of Default in the payment of
principal of or premium, if any, or interest on, or redemption payment
with respect to, any note, except a rescission of acceleration of the
notes by the holders of at least a majority in aggregate principal
amount of the notes and a waiver of the payment default that resulted
from the acceleration;
(5) make any note payable in money other than that stated
in the notes;
(6) make any change in the provisions of the indenture
relating to waivers of past Defaults with respect to, or the rights of
holders to receive payments of principal of or interest on, the notes;
(7) waive a redemption payment with respect to any note;
(8) adversely affect the contractual ranking of the notes or
Subsidiary Guarantees; or
(9) make any change in the foregoing amendment and waiver
provisions.
However, without the consent of the holders, the Issuers, the
Subsidiary Guarantors and the Trustee may amend or supplement the indenture or
the notes to cure any ambiguity, defect or inconsistency, to provide for
uncertificated notes in addition to or in place of certificated notes, to
provide for the assumption of any of the Issuers' or the Subsidiary Guarantors'
obligations to holders in the case of a merger or consolidation, to make any
change that would provide any additional rights or benefits to the holders or
that does not adversely affect the legal rights of any holder under the
indenture or the notes, to release any Subsidiary Guaranty permitted to be
released under the terms of the indenture, or to comply with requirements of the
Commission in order to effect or maintain the qualification of the indenture
under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The indenture contains various limitations on the rights of the Trustee
to obtain payment of claims in some cases, or to realize on some kinds of
property received in respect of any such claim . The Trustee is permitted to
engage in other transactions; PROVIDED, that, if the Trustee acquires any
conflicting interest, it must eliminate the conflict within 90 days, apply to
the Commission for permission to continue, or resign.
The holders of a majority in principal amount of the outstanding
notes will have the right to direct the time, method and place of conducting
any proceeding for exercising any remedy available to the Trustee, subject to
limited exceptions. In case an Event of Default occurs
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and is not cured, the Trustee is required to exercise its power with the
degree of care of a prudent person in the conduct of his or her own affairs.
Subject to these provisions, the Trustee is under no obligation to exercise
any of its rights or powers under the indenture at the request of any holder,
unless the holder shall have offered to the Trustee security and indemnity
satisfactory to it against any loss, liability or expense.
DEFINITIONS
Below are some of the defined terms used in the indenture. Reference
is made to the indenture for a full definition of all these terms, as well as
any other capitalized terms for which no definition is provided.
"2002 REFERENDUM" means a gaming reauthorization referendum to be
submitted to the Dubuque County, Iowa electorate in the general election to
be held in 2002.
"ACQUIRED DEBT" means Indebtedness of a Person existing at the time the
Person is merged with or into the Company or a Restricted Subsidiary or becomes
a Restricted Subsidiary, other than Indebtedness incurred in connection with, or
in contemplation of, the Person merging with or into the Company or a Restricted
Subsidiary or becoming a Restricted Subsidiary.
"ACQUISITION" means the Company's acquisition, on July 15, 1999, of the
Diamond Jo from Greater Dubuque Riverboat Entertainment Company, L.C. ("Greater
Dubuque Riverboat"), pursuant to the Asset Purchase Agreement, dated as of
January 15, 1999, as amended, between Peninsula Partners (formerly AB Capital,
LLC) and Greater Dubuque Riverboat (the "Asset Acquisition Agreement"), and
related real property from Harbor Community Investment, L.C. ("Harbor
Community"), pursuant to Real Property Purchase Agreement, dated as of January
15, 1999, between Peninsula Partners (formerly AB Capital, LLC) and Harbor
Community.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with the specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, will mean
(a) the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of the Person, whether through the
ownership of voting securities, by agreement or otherwise or (b) beneficial
ownership of 10% or more of the voting securities of the Person. However, the
Initial Purchaser shall be deemed not to be an Affiliate of Peninsula Partners,
the Company or any Restricted Subsidiary.
"APPLICABLE CAPITAL GAIN TAX RATE" means a rate equal to the sum of (a)
the highest marginal federal income tax rate applicable to net capital gain of
an individual who is a citizen of the United States plus (b) the greater of (i)
an amount equal to the sum of the highest marginal state and local income tax
rates applicable to net capital gain of an individual who is a resident of the
State of California and (ii) an amount equal to the sum of the highest marginal
state and local income tax rates applicable to net capital gain of an individual
who is a resident of the State of Iowa, multiplied by a factor equal to 1 minus
the highest marginal federal income tax rate described in (a) above.
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"APPLICABLE INCOME TAX RATE" means a rate equal to the sum of (a) the
highest marginal federal ordinary income tax rate applicable to an individual
who is a citizen of the United States plus (b) the greater of (i) an amount
equal to the sum of the highest marginal state and local ordinary income tax
rates applicable to an individual who is a resident of the State of California
and (ii) an amount equal to the sum of the highest marginal state and local
ordinary income tax rates applicable to an individual who is a resident of the
State of Iowa, multiplied by a factor equal to 1 minus the highest marginal
federal income tax rate described in (a) above.
"ASSET SALE" means any
(1) direct or indirect sale, assignment, transfer, lease,
conveyance, or other disposition (collectively, a "transfer"), other
than in the ordinary course of business, of any assets of the Company
or any Restricted Subsidiary;
(2) direct or indirect issuance or sale of any Capital Stock
of any Restricted Subsidiary, other than directors' qualifying shares,
in each case to any Person (other than the Company or a Restricted
Subsidiary; or
(3) Event of Loss
For purposes of this definition,
(a) any series of transactions that are part of a common plan
will be deemed a single Asset Sale and
(b) the term "Asset Sale" does not include
(1) any exchange of gaming equipment or furniture,
fixtures or other equipment for replacement items in the
ordinary course of business,
(2) any series of transactions that have a fair
market value, or result in gross proceeds, of less than $1.0
million or
(3) any disposition of all or substantially all of
the assets of the Company that is governed under and complies
with the terms of the covenant described under "--Material
Covenants--Merger, Consolidation or Sale of Assets."
"BENEFICIAL OWNER" has the meaning attributed to it in Rules 13d-3 and
13d-5 under the Exchange Act (as in effect on the Issue Date), whether or not
applicable, except that a "person" shall be deemed to have "beneficial
ownership" of all shares that any such person has the right to acquire, whether
the right is exercisable immediately or only after the passage of time.
"BANKRUPTCY CODE" means the United States Bankruptcy Code, codified at
11 U.S.C. Sections 101-1330, as amended.
"BUSINESS DAY" means any day other than a Legal Holiday.
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"CAPITAL LEASE OBLIGATION" means, as to any Person, the obligations of
the Person under a lease that are required to be classified and accounted for as
capital lease obligations under GAAP, and the amount of such obligations at any
date shall be the capitalized amount of such obligations at such date,
determined in accordance with GAAP.
"CAPITAL STOCK" means,
(1) with respect to any Person that is a corporation, any
and all shares, interests, participations, rights or other
equivalents (however designated) of corporate stock,
(2) with respect to a limited liability company, any and
all membership interests, and
(3) with respect to any other Person, any and all
partnership or other equity interests of the Person.
"CASH EQUIVALENT" means
(1) securities issued or directly and fully guaranteed or
insured by the United States of America or any agency or
instrumentality thereof, provided that the full faith and credit of
the United States of America is pledged in support thereof;
(2) time deposits and certificates of deposit and commercial
paper issued by the parent corporation of any domestic commercial bank
of recognized standing having capital and surplus in excess of $250.0
million and commercial paper issued by others rated at least A-2 or the
equivalent thereof by Standard & Poor's Corporation or at least P-2 or
the equivalent thereof by Moody's Investors Service, Inc. and in each
case maturing within one year after the date of acquisition;
(3) investments in money market funds substantially all of
whose assets comprise securities of the type described in clauses (1)
and (2) above, and
(4) repurchase obligations for underlying securities of the
types and with the maturities described above.
"CHANGE OF CONTROL" means the occurrence of any of the following
events:
(1) any merger or consolidation of the Company or Peninsula
Partners with or into any Person or any sale, transfer or other
conveyance, whether direct or indirect, of all or substantially all of
the assets of the Company or Peninsula Partners, on a consolidated
basis, in one transaction or a series of related transactions, if,
immediately after giving effect to the transaction(s), any "person" or
"group," as the terms are used for purposes of Sections 13(d) and
14(d) of the Exchange Act, whether or not applicable, other than an
Excluded Person, is or becomes the "beneficial owner," directly or
indirectly, of more than 50% of the total voting power in the aggregate
of the Voting Stock of the transferee(s) or surviving entity or
entities,
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(2) any "person" or "group," as the terms are used for
purposes of Sections 13(d) and 14(d) of the Exchange Act, whether or
not applicable, other than an Excluded Person, is or becomes the
"beneficial owner," directly or indirectly, of more than 50% of the
total voting power in the aggregate of the Voting Stock of the Company
or Peninsula Partners,
(3) after any bona fide underwritten registered public
offering of Capital Stock of the Company, during any period of 24
consecutive months after the Issue Date, individuals who at the
beginning of any the 24-month period constituted the Managers of the
Company (together with any new Managers whose election by the Managers
or whose nomination for election by the Members was approved by a vote
of a majority of the Managers then still in office who were either
Managers at the beginning of the period or whose election or nomination
for election was previously so approved, including new Managers
designated in or provided for in an agreement regarding the merger,
consolidation or sale, transfer or other conveyance, of all or
substantially all of the assets of the Company, if the agreement was
approved by a vote of the majority of Managers) cease for any reason to
constitute a majority of the Managers of the Company then in office,
(4) the Company adopts a plan of liquidation, or
(5) the first day on which the Company fails to own 99% of
the issued and outstanding Equity Interests of Peninsula Corp.
A "Change of Control" will not occur solely by reason of a Permitted
C-Corp Conversion.
"COMPANY" means Peninsula Gaming Company, LLC, a Delaware limited
liability company.
"CONSOLIDATED EBITDA" means, with respect to any Person (the referent
Person) for any period, consolidated income (loss) from operations of the Person
and its subsidiaries for the period, determined in accordance with GAAP, plus,
to the extent such amounts are deducted in calculating the income (loss) from
operations of the Person for the period, and without duplication,
(1) amortization, depreciation and other non-cash charges,
including, without limitation, amortization of goodwill, deferred
financing fees, and other intangibles but excluding
(a) non-cash charges incurred after the Issue Date
that require an accrual of or a reserve for cash charges for
any future period and
(b) normally recurring accruals such as reserves
against accounts receivables, and
(2) non-capitalized transaction costs incurred in connection
with actual or proposed financings, acquisitions or divestitures,
including the offering of the notes; PROVIDED, that
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(a) the income from operations of any Person that is
not a Wholly Owned Subsidiary of the referent Person or that
is accounted for by the equity method of accounting will be
included only to the extent of the amount of dividends or
distributions paid during the period to the referent Person or
a Wholly Owned Subsidiary of the referent Person,
(b) the income from operations of any Person
acquired in a pooling of interests transaction for any period
ending prior to the date of such acquisition will be excluded,
and
(c) the income from operations of any Restricted
Subsidiary will not be included to the extent that
declarations of dividends or similar distributions by that
Restricted Subsidiary are not at the time permitted, directly
or indirectly, by operation of the terms of its organizational
documents or any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to
that Restricted Subsidiary or its owners.
"CONSOLIDATED INTEREST EXPENSE" means, with respect to any Person
for any period,
(1) the 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 of such
Person for such period less
(2) amortization expense, write-off of deferred financing
costs and any charge related to any premium or penalty paid, in each
case accrued during such period in connection with redeeming or
retiring any Indebtedness before its stated maturity, as determined in
accordance with GAAP, to the extent such expense, cost or charge was
included in the calculation made pursuant to clause (a) above.
"CONSOLIDATED NET INCOME" means, with respect to any Person (the
referent Person) for any period, the aggregate of the Net Income of such Person
and its subsidiaries for such period, determined on a consolidated basis in
accordance with GAAP; PROVIDED, that
(1) the Net Income of any Person relating to any portion of
such period that such Person
(a) is not a Wholly Owned Subsidiary of the referent
Person or
(b) is accounted for by the equity method of
accounting will be included only to the extent of the amount
of dividends or distributions paid to the referent Person or a
Wholly Owned Subsidiary of the referent Person during such
portion of such period,
(2) the Net Income of any Person acquired in a pooling of
interests transaction for any period ending prior to the date of such
acquisition will be excluded, and
(3) the Net Income of any Restricted Subsidiary will not be
included to the extent that declarations of dividends or similar
distributions by that Restricted Subsidiary are not at
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the time permitted, directly or indirectly, by operation of the terms
of its organizational documents or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to
that Restricted Subsidiary or its owners.
"CONSOLIDATED NET WORTH" means, with respect to any Person, the total
stockholders' or members' equity of such Person determined on a consolidated
basis in accordance with GAAP, adjusted to exclude, to the extent included in
calculating such stockholders' or members' equity,
(1) the amount of any such stockholders' or members' equity
attributable to Disqualified Capital Stock or treasury stock of such
Person and its consolidated subsidiaries, and
(2) all upward revaluations and other write-ups in the book
value of any asset of such Person or a consolidated subsidiary of such
Person subsequent to the Issue Date, and
(3) all Investments in subsidiaries of such Person that are
not consolidated subsidiaries and in Persons that are not subsidiaries
of such Person.
"DEFAULT" means any event that is, or after notice or the passage of
time or both would be, an Event of Default.
"DISQUALIFIED CAPITAL STOCK" means any Equity Interest that (i) either
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable) is or upon the happening of an event would be
required to be redeemed or repurchased prior to the final stated maturity of the
notes or is redeemable at the option of the holder thereof at any time prior to
such final stated maturity, or (ii) is convertible into or exchangeable at the
option of the issuer thereof or any other Person for debt securities.
"EQUITY HOLDER" means
(1) with respect to a corporation, each holder of stock of
such corporation,
(2) with respect to a limited liability company or similar
entity, each member of such limited liability company or similar
entity,
(3) with respect to a partnership, each partner of such
partnership,
(4) with respect to any entity described in clause (1)(d) of
the definition of "Flow Through Entity," the owner of such entity, and
(5) with respect to a trust described in clause (1)(e) of
the definition of "Flow Through Entity," the persons treated for
federal income tax purposes as the owners thereof.
"EQUITY INTERESTS" means Capital Stock or warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
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"EQUITY OFFERING" means (i) an underwritten offering of Qualified
Capital Stock of the Company pursuant to a registration statement filed with and
declared effective by the Commission in accordance with the Securities Act or
(ii) an offering of Qualified Capital Stock of the Company pursuant to an
exemption from the registration requirements of the Securities Act.
"EVENT OF LOSS" means, with respect to any property or asset, any
(1) loss, destruction or damage of such property or asset or
(2) any condemnation, seizure or taking, by exercise of the
power of eminent domain or otherwise, of such property or asset, or
confiscation or requisition of the use of such property or asset.
"EXCESS CASH FLOW" means, with respect to any Hotel Operating Year, the
Consolidated EBITDA of the Company for such Hotel Operating Year, less the sum
of
(1) Consolidated Interest Expense of the Company that is paid
in cash during such Hotel Operating Year,
(2) up to $4.0 million in capital expenditures of the
Company and its Subsidiaries that are actually paid during such Hotel
Operating Year,
(3) principal payments made during such Hotel Operating Year
on Indebtedness permitted to be incurred pursuant to the covenant
described above under the caption "--Incurrence of Indebtedness" and
(4) Restricted Payments identified in clauses (3), (5), (6),
(7) or (8) of the second sentence under the caption "Limitation on
Restricted Payments" that are made during such Hotel Operating Year.
"EXCLUDED ASSETS" means
(1) cash, other than cash in bank and similar accounts;
(2) assets securing Purchase Money Obligations or Capital
Lease Obligations permitted to be incurred under the indenture;
(3) any agreements, permits, licenses or the like that cannot
be subject to a Lien under the Security Documents without the consent
of third parties, which consent is not obtained by the Company; and
(4) all Gaming Licenses;
PROVIDED, that Excluded Assets does not include the proceeds of assets under
clause (2), (3) or (4) or of any other Collateral to the extent such
proceeds do not constitute Excluded Assets.
"EXCLUDED PERSON" means
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(1) M. Brent Stevens, Michael S. Luzich and any Affiliate or
Manager of Peninsula Partners on the Issue Date (collectively, the
"Existing Holders"),
(2) any trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners or owners of which consist solely
of the Existing Holders and members of the immediate family of the
Existing Holders or
(3) any partnership the sole general partners of which
consist solely of the Existing Holders and members of the immediate
family of the Existing Holders.
"FLOW THROUGH ENTITY" means an entity that
(1) for Federal income tax purposes constitutes
(a) an "S corporation" (as defined in Section 1361(a) of
the Code),
(b) a "qualified subchapter S subsidiary" (as defined in
Section 1361(b)(3)(B) of the Code),
(c) a "partnership" (within the meaning of Section
7701(a)(2) of the Code) other than a "publicly traded
partnership" (as defined in Section 7704 of the Code),
(d) an entity that is disregarded as an entity
separate from its owner under the Code, the Treasury
regulations or any published administrative guidance of the
Internal Revenue Service, or
(e) a trust, the income of which is includible in
the taxable income of the grantor or another person under
sections 671 through 679 of the Code (the entities described
in the immediately preceding clauses (1), (2), (3), (4) and
(5), a "Federal Flow Through Entity") and
(2) for state and local jurisdictions in respect of which
Permitted Tax Distributions are being made, is subject to treatment on
a basis under applicable state or local income tax law substantially
similar to a Federal Flow Through Entity.
"gaap" means generally accepted accounting principles, as in effect
from time to time, set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity as approved
by a significant segment of the accounting profession, and in the rules and
regulations of the Commission.
"GAAP" means gaap as in effect on the Issue Date.
"GAMING AUTHORITIES" means any agency, authority, board, bureau,
commission, department, office or instrumentality of any nature whatsoever of
the United States or foreign government, any state, province or city or other
political subdivision, whether now or hereafter existing, or any officer
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or official thereof, including, without limitation, the gaming commission and
any other agency with authority to regulate any gaming operation or proposed
gaming operation owned, managed or operated by the Company or any of its
Subsidiaries.
"GAMING COMMISSION" means the Iowa Racing and Gaming Commission, or
any successor Gaming Authority.
"GAMING LICENSES" means every material license, material franchise,
material registration, material qualification, findings of suitability or other
material approval or authorization required to own, lease, operate or otherwise
conduct or manage riverboat, dockside or land-based gaming activities in any
state or jurisdiction in which the Company or any of its Restricted Subsidiaries
conducts businesso, including, without limitation, all such licenses granted by
the gaming commission under Chapter 99F of the Iowa Code, and the rules and
regulations promulgated thereunder, and all applicable liquor licenses.
"GAMING VESSEL" means a riverboat casino
(1) which is substantially similar in size and space to the
Diamond Jo,
(2) with at least the same overall qualities and amenities as
the Diamond Jo, and
(3) that is developed, constructed and equipped to be in
compliance with all federal, state and local laws, including, without
limitation, the cruising requirements of Chapter 99F of the Iowa Code.
In the event the laws of the State of Iowa change to permit the development and
operation of additional land-based casinos, the term "Gaming Vessel" shall be
deemed to include a land-based casino meeting the requirements of clauses (1),
(2) and (3) above.
"GOVERNMENT SECURITIES" means
(1) direct obligations of the United States of America for the
timely payment of which its full faith and credit is pledged or
(2) obligations of a Person controlled or supervised by and
acting as an agency or instrumentality of the United States of America
the timely payment of which is unconditionally guaranteed as a full
faith and credit obligation by the United States of America, which, in
either case, are not callable or redeemable at the option of the issuer
thereof, and shall also include a depository receipt issued by a bank
(as defined in Section 3(a)(2) of the Securities Act), as custodian
with respect to any such Government Security or a specific payment of
principal of or interest on any such Government Security held by such
custodian for the account of the holder of such depository receipt;
PROVIDED, that (except as required by law) such custodian is not
authorized to make any deduction from the amount payable to the holder
of such depository receipt from any amount received by the custodian in
respect of the Government Security or the specific payment of principal
of or interest on the Government Security evidenced by such depository
receipt.
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"GOVERNMENTAL AUTHORITY" means any agency, authority, board, bureau,
commission, department, office or instrumentality of any nature whatsoever of
the United States or foreign government, any state, province or any city or
other political subdivision or otherwise and whether now or hereafter in
existence, or any officer or official thereof, and any maritime authority.
"GUARANTY" or "GUARANTEE," used as a noun, means any guaranty,
other than by endorsement of negotiable instruments for collection in the
ordinary course of business, direct or indirect, in any manner (including,
without limitation, letters of credit and reimbursement agreements in respect
thereof), of all or any part of any Indebtedness or other Obligation.
"guarantee" or "guaranty" used as a verb, has a correlative meaning.
"HEDGING OBLIGATIONS" means, with respect to any Person, the
Obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates.
"HOLDER" means the Person in whose name a note is registered in the
register of the notes.
"HOTEL" means a hotel to be constructed by the Company or a Subsidiary
of the Company in or around Dubuque, Iowa, which is expected to be contiguous to
the Diamond Jo.
"HOTEL OPERATING YEAR" means (i) the four consecutive fiscal quarter
period of the Company beginning on the first day of the fiscal quarter
commencing immediately after the date that the Hotel first becomes Operating,
and (ii) each succeeding four consecutive fiscal quarter period.
"INDEBTEDNESS" of any Person means, without duplication
(1) all liabilities and obligations, contingent or
otherwise, of such Person
(a) in respect of borrowed money, regardless of
whether the recourse of the lender is to the whole of the
assets of such Person or only to a portion thereof,
(b) evidenced by bonds, debentures, notes or other
similar instruments,
(c) representing the deferred purchase price of
property or services, other than trade payables on customary
terms incurred in the ordinary course of business,
(d) created or arising under any conditional sale or
other title retention agreement with respect to property
acquired by such Person, even though the rights and remedies
of the seller or lender under such agreement in the event of
default are limited to repossession or sale of such property,
(e) representing Capital Lease Obligations,
(f) under bankers' acceptance and letter of credit
facilities,
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(g) to purchase, redeem, retire, defease or otherwise
acquire for value any Disqualified Capital Stock, or
(h) in respect of Hedging Obligations;
(2) all Indebtedness of others that is guaranteed by such
Person; and
(3) all Indebtedness of others that is secured by, or for
which the holder of such Indebtedness has an existing right, contingent
or otherwise, to be secured by, any Lien on property owned by such
Person, even though such Person has not assumed or become liable for
the payment of such Indebtedness;
PROVIDED, that the amount of such Indebtedness shall, to the extent such
Person has not assumed or become liable for the payment of such Indebtedness,
be the lesser of (1) the fair market value of such property at the time of
determination and (2) the amount of such Indebtedness. The amount of
Indebtedness of any Person at any date shall be the outstanding balance at
such date of all unconditional obligations as described above and the maximum
liability, upon the occurrence of the contingency giving rise to the
obligation, of any contingent obligations at such date. The principal amount
outstanding of any Indebtedness issued with original issue discount is the
accreted value of such Indebtedness.
"INTEREST COVERAGE RATIO" means, for any period, the ratio of (1)
Consolidated EBITDA of the Company for such period, to (2) Consolidated
Interest Expense of the Company for such period. In calculating Interest
Coverage Ratio for any period, PRO FORMA effect shall be given to the
incurrence, assumption, guarantee, repayment, repurchase, redemption or
retirement by the Company or any of its Subsidiaries of any Indebtedness
subsequent to the commencement of the period for which the Interest Coverage
Ratio is being calculated, as if the same had occurred at the beginning of
the applicable period. For purposes of making the computation referred to
above, acquisitions that have been made by the Company or any of its
Restricted Subsidiaries, including all mergers and consolidations, subsequent
to the commencement of such period shall be calculated on a PRO FORMA basis,
assuming that all such acquisitions, mergers and consolidations had occurred
on the first day of such period and Consolidated EBITDA for such period shall
be calculated without giving effect to clause (2) of the proviso set forth
in the definition of Consolidated EBITDA. Without limiting the foregoing, the
financial information of the Company with respect to any portion of such
period that falls before the Issue Date shall be adjusted to give PRO FORMA
effect to the issuance of the notes and the application of the proceeds
therefrom as if they had occurred at the beginning of such period.
"INVESTMENTS" means, with respect to any Person, all investments by
such Person in other Persons (including Affiliates) in the forms of loans,
guarantees, advances or capital contributions (excluding (i), payroll
commission, travel and similar advances to officers and employees of such Person
made in the ordinary course of business and (ii) bona fide accounts receivable
arising from the sale of goods or services in the ordinary course of business
consistent with past practice), purchases or other acquisitions for
consideration of Indebtedness, Equity Interests or other securities, and any
other items that are or would be classified as investments on a balance sheet
prepared in accordance with GAAP.
"IOWA CODE" means the Code of Iowa (1999), as amended from time to
time.
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"ISSUE DATE" means the date upon which the notes are first issued.
"ISSUERS" means Peninsula Corp. and the Company.
"LEGAL HOLIDAY" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York or at a place of payment are authorized by
law, regulation or executive order to remain closed.
"LIEN" means any mortgage, lien, pledge, charge, security interest or
encumbrance of any kind, regardless of whether filed, recorded or otherwise
perfected under applicable law.
"MANAGERS" means, with respect to any Person (i) if such Person is a
limited liability company, the board member, board members, manager or managers
appointed pursuant to the operating agreement of such Person as then in effect
or (ii) otherwise, the members of the Board of Directors or other governing body
of such Person.
"MEMBERS" means the holders of all of the Voting Stock of the Company.
"NET INCOME" means, with respect to any Person for any period,
(1) the net income (loss) of such Person for such period,
determined in accordance with GAAP, excluding (to the extent included
in calculating such net income)
(a) any gain or loss, together with any related
taxes paid or accrued on such gain or loss, realized in
connection with any Asset Sales and dispositions pursuant to
sale-leaseback transactions,
(b) any extraordinary gain or loss, together with
any taxes paid or accrued on such gain or loss and
(c) amortization of goodwill arising on the Issue
Date from the Acquisition and related transactions, reduced by
(2) the maximum amount of Permitted Tax Distributions for such
period.
"NET PROCEEDS" means the aggregate proceeds received in the form of
cash or Cash Equivalents in respect of any Asset Sale (including issuance or
other payments in an Event of Loss and payments in respect of deferred payment
obligations and any cash or Cash Equivalents received upon the sale or
disposition of any non-cash consideration received in any Asset Sale, in each
case when received), net of:
(1) the reasonable and customary direct out-of-pocket costs
relating to such Asset Sale (including, without limitation, legal,
accounting and investment banking fees and sales commissions), other
than any such costs payable to an Affiliate of the Company,
(2) taxes required to be paid by the Company, any of its
Subsidiaries, or any Equity Holder of the Company (or, in the case of
any Company Equity Holder that is a Flow
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Through Entity, the Upper Tier Equity Holder of such Flow Through
Entity) in connection with such Asset Sale in the taxable year that
such sale is consummated or in the immediately succeeding taxable year,
the computation of which shall take into account the reduction in tax
liability resulting from any available operating losses and net
operating loss carryovers, tax credits and tax credit carry forwards,
and similar tax attributes,
(3) amounts required to be applied to the permanent repayment
of Indebtedness in connection with such Asset Sale, and
(4) appropriate amounts provided as a reserve by the Company
or any Restricted Subsidiary, in accordance with GAAP, against any
liabilities associated with such Asset Sale and retained by the Company
or such Restricted Subsidiary, as the case may be, after such Asset
Sale.
"OBLIGATION" means any principal, premium, interest, penalty, fee,
indemnification, reimbursement, damage and other obligation and liability
payable under the documentation governing any liability.
"OPERATING" means the Hotel is in a condition, including installation
of furnishings, fixtures and equipment, to receive customers in the ordinary
course of business, and is open to the general public and operating in
accordance with applicable law.
"OPINION OF COUNSEL" means an opinion from legal counsel who is
reasonably acceptable to the Trustee. Such counsel may be an employee of or
counsel to either of the Issuers, any Subsidiary of either of the Issuers or the
Trustee.
"PENINSULA CORP." means Peninsula Gaming Corp., a Delaware corporation.
"PENINSULA PARTNERS" means Peninsula Gaming Partners, LLC, a Delaware
limited liability company, the direct parent and sole manager of the Company,
and the indirect parent of Peninsula Corp.
"PERMITTED C-CORP CONVERSION" means a transaction resulting in the
Company becoming subject to tax under subchapter C of the Code (a "C
Corporation"); PROVIDED, that:
(1) the C Corporation resulting from such transaction
(a) is a corporation organized and existing under the
laws of any state of the United States or the District of
Columbia,
(b) assumes all of the obligations of the Company
under the notes, the Security Documents and the indenture
pursuant to a supplemental indenture in form reasonably
satisfactory to the Trustee and
(c) will have Consolidated Net Worth immediately
after the transaction equal to or greater than the
Consolidated Net Worth of the Company immediately preceding
the transaction;
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(2) the Company shall have provided to the Trustee 30 days'
advance notice of such transaction and evidence reasonably satisfactory
to the Trustee regarding the maintenance of the perfection, priority
and proof of the security interest of the Trustee in the Collateral;
(3) after giving effect to such transaction no Default or
Event of Default exists;
(4) such transaction would not
(a) result in the loss or suspension or material
impairment of any Gaming License unless a comparable
replacement Gaming License is effective prior to or
simultaneously with such loss, suspension or material
impairment or
(b) require any holder or beneficial owner of notes
to obtain a Gaming License or be qualified or found suitable
under the laws of any applicable gaming jurisdiction; and
(5) prior to consummation of such transaction, the Company
shall have delivered to the Trustee
(a) an Opinion of Counsel to the effect that the
holders of the outstanding notes will not recognize income
gain or loss for federal income tax purposes as a result of
such Permitted C-Corp Conversion and will be subject to
federal income tax on the same amounts, in the same manner,
and at the same times as would have been the case if such
Permitted C-Corp Conversion had not occurred and
(b) an Officers' Certificate as to compliance with all
of the above conditions.
"PERMITTED INVESTMENTS" means:
(1) Investments in the Company or in any Wholly Owned
Subsidiary;
(2) Investments in Cash Equivalents;
(3) Investments in a Person, if, as a result of such
Investment, such Person
(a) becomes a Wholly Owned Subsidiary, or
(b) is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets
to, or is liquidated into, the Company or a Wholly Owned
Subsidiary;
(4) Hedging Obligations;
(5) Investments as a result of consideration received in
connection with an Asset Sale made in compliance with the covenant
described under the caption "--Limitation on Asset Sales";
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(6) Investments existing on the Issue Date;
(7) Investments paid for solely with Capital Stock of the
Company other than Disqualified Capital Stocko;
(8) credit extensions to gaming customers in the ordinary
course of business, consistent with industry practice;
(9) stock, obligations or securities received in settlement
of debts created in the ordinary course of business and owing to the
Company
(a) in satisfaction of judgments or
(b) pursuant to any plan of reorganization or similar
arrangement upon the bankruptcy or insolvency of trade
creditors or customers; and
(10) loans or other advances to employees of the Company and
its Subsidiaries made in the ordinary course of business in an
aggregate amount not to exceed $0.5 million at any one time
outstanding.
"PERMITTED LIENS" means:
(1) Liens arising by reason of any judgment, decree or order
of any court for an amount and for a period not resulting in an Event
of Default with respect thereto, so long as such Lien is being
contested in good faith and is adequately bonded, and any appropriate
legal proceedings that may have been duly initiated for the review of
such judgment, decree or order shall not have been finally adversely
terminated or the period within which such proceedings may be initiated
shall not have expired;
(2) security for the performance of bids, tenders, trade,
contracts, other than contracts for the payment of money, or leases,
surety and appeal bonds, performance and return-of-money bonds and
other obligations of a like nature incurred in the ordinary course of
business, consistent with industry practice;
(3) Liens, other than Liens arising under ERISA, for taxes,
assessments or other governmental charges not yet delinquent or that
are being contested in good faith and by appropriate proceedings if
adequate reserves with respect thereto are maintained on the books of
the Company in accordance with gaap;
(4) Liens of carriers, warehousemen, mechanics, landlords,
material men, suppliers, repairmen or other like Liens arising by
operation of law in the ordinary course of business consistent with
industry practices, other than Liens arising under ERISA, and Liens
on deposits made to obtain the release of such Liens if
(a) the underlying obligations are not overdue for a
period of more than 30 days or
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(b) such Liens are being contested in good faith and
by appropriate proceedings and adequate reserves with respect
thereto are maintained on the books of the Company in
accordance with gaap;
(5) easements, rights of way, zoning and similar restrictions
and other similar encumbrances or title defects incurred in the
ordinary course of business, consistent with industry practices that,
in the aggregate, are not substantial in amount, and that do not in any
case materially detract from the value of the property, as such
property is used by the Company or a Subsidiary, or interfere with the
ordinary conduct of the business of the Company or any of its
Subsidiaries; PROVIDED, that such Liens are not incurred in connection
with borrowing money or any commitment to loan money or extend credit;
(6) pledges or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment
insurance and other types of social security legislation or otherwise
arising from statutory or regulatory requirements of the Company or any
of its Subsidiaries;
(7) Liens securing Refinancing Indebtedness incurred in
compliance with the indenture to refinance Indebtedness secured by
Liens; PROVIDED,
(a) such Liens do not extend to any additional property or
assets;
(b) if the Liens securing the Indebtedness being
refinanced were subordinated to or PARI PASSU with the Liens
securing the notes, the Subsidiary Guarantees or any
intercompany loan, as applicable, such new Liens are
subordinated to or PARI PASSU with such Liens to the same
extent, and any related subordination or intercreditor
agreement is confirmed; and
(c) such Liens are no more adverse to the interests of
holders than the Liens replaced or extended thereby;
(8) Liens that secure Acquired Debt or Liens on property of a
Person existing at the time such Person is merged into or consolidated
with, or such property was acquired by, the Company or any Restricted
Subsidiary; PROVIDED, that such Liens do not extend to or cover any
Person, property or assets other than those of the Person or property
being acquired and were not put in place in anticipation of such
acquisition;
(9) Liens that secure Purchase Money Obligations or Capital
Lease Obligations permitted to be incurred under the indenture;
PROVIDED that such Liens do not extend to or cover any property or
assets other than those being acquired, leased or developed;
(10) whether or not existing on the Issue Date, Liens
securing Obligations under the indenture, the notes, the Subsidiary
Guarantees or the Security Documents;
(11) Liens securing Indebtedness of the Company or any of its
Subsidiaries incurred pursuant to clause (1) under the caption
"--Limitation on Incurrence of Indebtedness";
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(12) with respect to any vessel included in the Collateral,
some kinds of maritime liens, including liens for crew's wages and
salvage;
(13) leases or subleases granted in the ordinary course of
business not materially interfering with the conduct of the business of
the Company or any of the Restricted Subsidiaries;
(14) Liens arising from precautionary Uniform Commercial Code
financing statement filings regarding operating leases entered into by
the Company or any of its Subsidiaries in the ordinary course of
business;
(15) Liens incurred in the ordinary course of business
securing Hedging Obligations, which Hedging Obligations relate to
Indebtedness that is otherwise permitted under the indenture;
(16) Liens existing on the Issue Date to the extent and in the
manner such Liens are in effect on the Issue Date;
(17) Liens on a pledge of the Capital Stock of any Unrestricted
Subsidiary securing any Indebtedness of such Unrestricted Subsidiary;
and
(18) Liens securing reimbursement obligations with respect to
commercial letters of credit that encumber documents and other property
relating to such letters of credit and the products and proceeds
thereof.
"PERMITTED TAX DISTRIBUTIONS" in respect of the Company and each
Subsidiary that qualifies as a Flow Through Entity means, with respect to any
taxable year, the sum of:
(1) the product of
(a) the excess of
(i) all items of taxable income or gain
(other than capital gain) allocated by the Company to
Equity Holders for such year over
(ii) all items of taxable deduction or loss
(other than capital loss) allocated to such Equity
Holders by the Company for such year and
(b) the Applicable Income Tax Rate, plus
(2) the product of
(a) the net capital gain (i.e., net long-term capital
gain over net short-term capital loss), if any, allocated by
the Company to Equity Holders for such year and
(b) the Applicable Capital Gain Tax Rate, plus
(3) the product of
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(a) the net short-term capital gain (i.e., net
short-term capital gain in excess of net long-term capital
loss), if any, allocated by the Company to Equity Holders for
such year and
(b) the Applicable Income Tax Rate, minus
(4) the aggregate Tax Loss Benefit Amount for the Company
for such year;
PROVIDED, that in no event shall the Applicable Income Tax Rate or the
Applicable Capital Gain Tax Rate exceed the greater of (x) the highest
aggregate applicable effective marginal rate of federal, state, and local
income to which a corporation doing business in the State of California would
be subject in the relevant year of determination (as certified to the Trustee
by a nationally recognized tax accounting firm) plus 5% and (y) 60%. For
purposes of calculating the amount of the Permitted Tax Distributions, the
proportionate part of the items of taxable income, gain, deduction or loss
(including capital gain or loss) of any Subsidiary that is a Flow Through
Entity shall be included in determining the taxable income, gain, deduction
or loss (including capital gain or loss) of the Company.
Estimated tax distributions shall be made within thirty days
following March 15, May 15, August 15, and December 15 based upon an estimate
of the excess of the tax distributions that would be payable for the period
beginning on January 1 of such year and ending on March 31, May 31, August
31, and December 31 if such period were a taxable year (computed as provided
above) over distributions attributable to all prior periods during such
taxable year.
The amount of the Permitted Tax Distribution shall be re-computed
promptly after (i) the filing by the Company and each Subsidiary that is
treated as a Flow Through Entity of their respective annual income tax
returns and (ii) an appropriate federal or state taxing authority finally
determines that the amount of the items of taxable income, gain, deduction,
or loss of the Company or any Subsidiary that is treated as a Flow Through
Entity for any taxable year or the aggregate Tax Loss Benefit Amounts carried
forward to such taxable year should be changed or adjusted (each of clauses
(i) and (ii) a "Tax Calculation Event"). To the extent that the Permitted Tax
Distributions previously paid to an Equity Holder in respect of any taxable
year are either greater than (a "Tax Distribution Overage") or less than (a
"Tax Distribution Shortfall") the Permitted Tax Distributions with respect to
such taxable year, as determined by reference to the computation of the
amount of the items of income, gain, deduction, or loss of the Company and
each Subsidiary in connection with a Tax Calculation Event, the amount of the
estimated Permitted Tax Distributions to be made to such Equity Holder on the
estimated tax distribution date immediately following such Tax Calculation
Event shall be reduced or increased as appropriate to the extent of the Tax
Distribution Overage or the Tax Distribution Shortfall. To the extent that a
Tax Distribution Overage remains after the estimated tax distribution date
immediately following such Tax Calculation Event, the amount of the estimated
Permitted Tax Distribution to be made to such Equity Holder on the subsequent
estimated tax distribution date shall be reduced to the extent of such Tax
Distribution Overage.
Prior to making any Permitted Tax Distributions, the Company shall
require each Equity Holder to agree that promptly after the second estimated
tax distribution date following a Tax Calculation Event, such Equity Holder
shall reimburse the Company to the extent of any remaining Tax Distribution
Overage.
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"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.
"PURCHASE MONEY OBLIGATIONS" means Indebtedness representing, or
incurred to finance (or to Refinance Indebtedness incurred to finance), the
cost
(1) of acquiring any assets (including furniture, fixtures
or equipment) and
(2) of construction or build-out of facilities (including
Purchase Money Obligations of any other Person at the time such
other Person is merged with or into or is otherwise acquired by the
Issuers); PROVIDED, that
(a) the principal amount of such Indebtedness does
not exceed 80% of such cost, including construction charges,
(b) any Lien securing such Indebtedness does not
extend to or cover any other asset or property other than the
asset or property being so acquired, constructed or built and
(c) such Indebtedness is (or the Indebtedness being
Refinanced was) incurred, and any Liens with respect thereto
are granted, within 180 days of the acquisition or
commencement of construction or build-out of such property or
asset.
"QUALIFIED CAPITAL STOCK" means, with respect to any Person, Capital
Stock of such Person other than Disqualified Capital Stock.
"RELATED BUSINESS" means the gaming, entertainment and hotel businesses
conducted or proposed to be conducted by the Company and its Subsidiaries as of
the Issue Date and any and all other businesses that in the good faith judgment
of the Managers of the Company are materially related or incidental businesses.
"RELATED PERSON" means any Person who controls, is controlled by or is
under common control with an Excluded Person; PROVIDED, that for purposes of
this definition "control" means the beneficial ownership of more than 50% of the
total voting power of the Voting Stock of a Person.
"REQUIRED REGULATORY REDEMPTION" means a redemption by the Issuers of
any holder's notes pursuant to, and in accordance with, any order of any
Governmental Authority with appropriate jurisdiction and authority relating to a
Gaming License, or to the extent necessary in the reasonable, good faith
judgment of the Managers of the Company to prevent the loss, failure to obtain
or material impairment or to secure the reinstatement of, any Gaming License,
where such redemption or acquisition is required because the holder or
beneficial owner of notes is required to be found suitable or to otherwise
qualify under any gaming or similar laws and is not found suitable or so
qualified within 30 days after being requested to do so, or such lesser period
that may be required by any Governmental Authority.
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"RESTRICTED INVESTMENT" means an Investment other than a Permitted
Investment.
"RESTRICTED SUBSIDIARY" means a Subsidiary other than an
Unrestricted Subsidiary.
"RETURN FROM UNRESTRICTED SUBSIDIARIES" means
(1) 50% of any dividends or distributions received by the
Company or a Restricted Subsidiary from an Unrestricted Subsidiary, to
the extent that such dividends or distributions were not otherwise
included in Consolidated Net Income of the Company, plus
(2) to the extent not otherwise included in
Consolidated Net Income of the Company, an amount equal to the net
reduction in Investments in Unrestricted Subsidiaries resulting from
(a) repayments of the principal of loans or
advances or other transfers of assets to the Company or any
Restricted Subsidiary from Unrestricted Subsidiaries or
(b) the sale or liquidation of any
Unrestricted Subsidiaries, plus
(3) to the extent that any Unrestricted Subsidiary of the
Company is designated to be a Restricted Subsidiary, the fair market
value of the Company's Investment in such Subsidiary on the date of
such designation.
"SELLER PREFERRED" means $7.0 million face amount of the Company's
redeemable preferred membership interests to be issued to Greater Dubuque
Riverboat on the Issue Date pursuant to the terms of the Asset Acquisition
Agreement.
"SENIOR CREDIT FACILITY" means any revolving credit agreement or
similar instrument, including, without limitation, working capital, construction
financing or equipment purchase lines of credit, entered into by the Company
governing the terms of a BONA FIDE borrowing from (1) a third party financial
institution that is primarily engaged in the business of commercial lending or
(2) a vendor or other provider of financial accommodations in connection with
the purchase of equipment, in either case for valid business purposes, including
any related notes, guarantees, collateral documents, instruments and agreements
executed in connection therewith and, in each case, as amended, renewed,
refunded, replaced or refinanced from time to time; PROVIDED, that such
agreements or instruments (x) have terms and conditions (including with respect
to the applicable interest rates and fees) customary for similar facilities
extended to borrowers comparable to the Company, and (y) do not permit the
Company to incur Indebtedness in an aggregate principal amount at any time
outstanding in excess of $10.0 million.
"SUBSIDIARY" means, with respect to any Person, (1) any corporation,
association or other business entity (including a limited liability company) of
which more than 50% of the total voting power of shares of Voting Stock thereof
is at the time owned or controlled, directly or indirectly, by such Person or
one or more of the other subsidiaries of that Person or a combination thereof
and (2) any partnership in which such Person or any of its subsidiaries is a
general partner.
"SUBSIDIARY" means any subsidiary of the Company.
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"SUBSIDIARY GUARANTY" means an unconditional and irrevocable guaranty
by a Subsidiary Guarantor of the Obligations of the Issuers under the notes and
the indenture, on a senior unsecured basis, as set forth in the indenture, as
amended from time to time in accordance with the terms thereof.
"SUBSIDIARY GUARANTOR" means any Subsidiary that has executed and
delivered in accordance with the indenture a Subsidiary Guaranty, and such
Person's successors and assigns.
"TAX LOSS BENEFIT AMOUNT" means with respect to any taxable year, the
amount by which the Permitted Tax Distributions would be reduced were a net
operating loss or net capital loss from a prior taxable year of the Company
ending subsequent to the Issue Date carried forward to the applicable taxable
year; PROVIDED, that for such purpose the amount of any such net operating loss
or net capital loss shall be used only once and in each case shall be carried
forward to the next succeeding taxable year until so used. For purposes of
calculating the Tax Loss Benefit Amount, the proportionate part of the items of
taxable income, gain, deduction, or loss (including capital gain or loss) of any
Subsidiary that is a Flow Through Entity for a taxable year of such Subsidiary
ending subsequent to the Issue Date shall be included in determining the amount
of net operating loss or net capital loss of the Company.
"UNRESTRICTED SUBSIDIARY" means any Subsidiary that, at or prior to the
time of determination, shall have been designated by the Managers of the Company
as an Unrestricted Subsidiary; PROVIDED, that such Subsidiary does not hold any
Indebtedness or Capital Stock of, or any Lien on any assets of, the Company or
any Restricted Subsidiary. If, at any time, any Unrestricted Subsidiary would
fail to meet the foregoing requirements as an Unrestricted Subsidiary, it shall
thereafter cease to be an Unrestricted Subsidiary for purposes of the indenture
and any Indebtedness of such Subsidiary shall be deemed to be incurred by a
Restricted Subsidiary as of such date.
The Managers of the Company may at any time designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; PROVIDED, that such designation shall
be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of any
outstanding Indebtedness of such Unrestricted Subsidiary and such designation
shall only be permitted if (1) such Indebtedness is permitted under the
Interest Coverage Ratio test set forth in the covenant described under the
caption "--Limitation on Incurrence of Indebtedness" calculated on a pro forma
basis as if such designation had occurred at the beginning of the four-quarter
reference period, and (2) no Default or Event of Default would be in existence
following such designation. The Company shall be deemed to make an Investment in
each Subsidiary designated as an Unrestricted Subsidiary immediately following
such designation in an amount equal to the Investment in such Subsidiary and its
subsidiaries immediately prior to such designation. Any such designation by the
Managers of the Company shall be evidenced to the Trustee by filing with the
Trustee a certified copy of the resolution of the Managers giving effect to such
designation and an Officers' Certificate certifying that such designation
complies with the foregoing conditions and is permitted by the covenant
described above under the caption "--Limitation on Incurrence of Indebtedness."
"UPPER TIER EQUITY HOLDER" means, in the case of any Flow Through
Entity the Equity Holder of which is, in turn, a Flow Through Entity, the person
that is ultimately subject to tax on a net income basis on the items of taxable
income, gain, deduction, and loss of the Company and its Subsidiaries that are
Flow Through Entities.
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"VOTING STOCK" means, with respect to any Person, (1) one or more
classes of the Capital Stock of such Person having general voting power to elect
at least a majority of the Board of Directors, managers or trustees of such
Person (regardless of whether at the time Capital Stock of any other class or
classes have or might have voting power by reason of the happening of any
contingency) and (2) any Capital Stock of such Person convertible or
exchangeable without restriction at the option of the holder thereof into
Capital Stock of such Person described in clause (1) above.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any
Indebtedness at any date, the number of years (rounded to the nearest
one-twelfth) obtained by dividing (1) the then outstanding principal amount
of such Indebtedness into (2) the total of the product obtained by
multiplying (a) the amount of each then remaining installment, sinking fund,
serial maturity or other required payments of principal, including payment at
final maturity, in respect thereof, by (b) the number of years (calculated to
the nearest one-twelfth) that will elapse between such date and the making of
such payment.
"WHOLLY OWNED SUBSIDIARY" of any Person means a subsidiary of such
Person all the Capital Stock of which (other than directors' qualifying shares)
is owned directly or indirectly by such Person; provided, that with respect to
the Company, the term Wholly Owned Subsidiary shall exclude Unrestricted
Subsidiaries.
BOOK-ENTRY, DELIVERY AND FORM
The old notes offered and sold to qualified institutional buyers of the
old notes are currently represented by one or more fully registered global notes
without interest coupons. The new notes issued in exchange for the old notes
will be represented by one or more fully registered global notes, without
interest coupons and will be deposited upon issuance with the Trustee as
custodian for The Depository Trust Company ("DTC"), in New York, New York, and
registered in the name of DTC or its nominee, in each case, for credit to an
account of a direct or indirect participant as described below.
Except as set forth below, the global notes may be transferred, in
whole and not in part, only to another nominee of DTC or to a successor of DTC
or its nominee. Beneficial interests in the global notes may not be exchanged
for Notes in certificated form except in limited circumstances. See "--Exchange
of Book-Entry Notes for Certificated Notes" for more information about the
circumstances in which certificated notes may be issued.
The notes, including beneficial interests in the global notes, are
subject to restrictions on transfer and bear a restrictive legend as described
under "Notice to Investors." In addition, transfer of beneficial interests in
the global notes are subject to the applicable rules and procedures of DTC and
its direct or indirect participants, which may change from time to time.
The notes may be presented for registration of transfer and exchange at
the offices of the Registrar.
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DEPOSITORY PROCEDURES
DTC has advised the Issuers that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in those securities between Participants through electronic
book-entry changes in accounts of Participants. The Participants include
securities brokers and dealers (including the Initial Purchaser), banks, trust
companies, clearing corporations and other organizations. Access to DTC's system
is also available to other entities such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly (collectively, the "Indirect
Participants"). Persons who are not Participants may beneficially own securities
held by or on behalf of DTC only through the Participants or Indirect
Participants. The ownership interest and transfer of ownership interest of each
actual purchaser of each security held by or on behalf of DTC are recorded on
the records of the Participants and Indirect Participants.
DTC has also advised us that pursuant to procedures established by it,
(1) upon deposit of the global notes, DTC will credit the
accounts of Participants designated by the Initial Purchaser with
portions of the principal amount of global notes and
(2) ownership of such interests in the global notes will be
shown on, and the transfer of ownership thereof will be effected only
through, records maintained by DTC (with respect to Participants) or
by Participants and the Indirect Participants (with respect to other
owners of beneficial interests in the global notes).
Investors in the global notes may hold their interests therein directly
through DTC, if they are Participants in such system, or indirectly through
organizations that are Participants in such system. All interests in a global
note may be subject to the procedures and requirements of DTC.
The laws of some states require that some persons take physical
delivery in definitive form of securities that they own. Consequently, the
ability to transfer beneficial interest in a global note to such persons may be
limited to that extent. Because DTC can act only on behalf of Participants,
which in turn act on behalf of Indirect Participants and some banks, the ability
of a person having a beneficial interest in a global note to pledge such
interest to persons or entities that do not participate in the DTC system, or
otherwise take actions in respect of such interest, may be affected by the lack
of a physical certificate evidencing such interest. For other restrictions on
the transferability of the notes, see "--Exchange of Book-Entry Notes for
Certificated Notes."
Except as described below, owners of interests in the global notes will
not have notes registered in their names, will not receive physical delivery of
notes in certificated form and will not be considered the registered owners or
holders thereof under the indenture for any purpose.
Payments in respect of the principal, premium, liquidated damages, if
any, and interest on a global note registered in the name of DTC or its nominee
will be payable by the Trustee to DTC or its nominee in its capacity as the
registered holder under the indenture. Under the terms of the indenture, the
Issuers and the Trustee will treat the persons in whose names the notes,
including the global notes, are registered as the owners thereof for the purpose
of receiving such payments and for
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any and all other purposes whatsoever. Consequently, none of the Issuers, the
Trustee or any agent of the Issuers or the Trustee have or will have any
responsibility or liability for
(1) any aspect of DTC's records or any Participant's or
Indirect Participant's records relating to or payments made on account
of beneficial ownership interests in the global notes, or for
maintaining, supervising or reviewing any of DTC's records or any
Participant's or Indirect Participant's records relating to the
beneficial ownership interests in the global notes or
(2) any other matter relating to the actions and practices of
DTC or any of its Participants or Indirect Participants.
DTC has advised the Issuers that its current practices, upon receipt of
any payment in respect of securities such as the notes (including principal and
interest), is to credit the accounts of the relevant Participants with the
payment on the payment date, in amounts proportionate to their respective
holdings in principal amount of beneficial interests in the relevant security
such as the global notes as shown on the records of DTC. Payments by
Participants and the Indirect Participants to the beneficial owners of notes
will be governed by standing instructions and customary practices and will not
be the responsibility of DTC, the Trustee or the Issuers. None of the Issuers or
the Trustee will be liable for any delay by DTC or its Participants in
identifying the beneficial owners of the notes, and the Issuers and the Trustee
may conclusively rely on and will be protected in relying on instructions from
DTC or its nominee as the registered owner of the notes for all purposes.
Interests in the global notes will trade in DTC's Same-Day Funds
Settlement System and secondary market trading activity in such interests will,
therefore, settle in immediately available funds, subject in all cases to the
rules and procedures of DTC and its Participants. Transfers between Participants
in DTC will be effected in accordance with DTC's procedures, and will be settled
in same-day funds.
DTC has advised the Issuers that it will take any action permitted to
be taken by a holder of notes only at the direction of one or more Participants
to whose account DTC interests in the global notes are credited and only in
respect of such portion of the aggregate principal amount of the notes as to
which such Participant or Participants has or have given direction. However, if
there is an Event of Default under the notes, DTC reserves the right to exchange
global notes for legended notes in certificated form, and to distribute such
notes to its Participants.
The information in this section concerning DTC and its book-entry
system has been obtained from sources believed to be reliable, but the Issuers
take no responsibility for the accuracy thereof.
Although DTC has agreed to the foregoing procedures to facilitate
transfers of interests in the global notes among Participants in DTC, it is
under no obligation to perform or to continue to perform such procedures, and
such procedures may be discontinued at any time. Neither the Initial Purchaser
nor the Trustee will have any responsibility for the performance by DTC or its
Participants or Indirect Participants of their respective obligations under the
rules and procedures governing their operations.
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EXCHANGE OF BOOK-ENTRY NOTES FOR CERTIFICATED NOTES
A global note is exchangeable for definitive notes in registered
certificated form if
(1) DTC
(a) notifies the Issuers that it is unwilling or
unable to continue as depositary for the global note and the
Issuers thereupon fail to appoint a successor depositary
within 90 days or
(b) has ceased to be a clearing agency registered
under the Exchange Act, or
(2) the Issuers, at their option, notify the Trustee in
writing that they elect to cause the issuance of the notes in
certificated form.
In addition, beneficial interests in a global note may be exchanged for
certificated notes upon request but only upon at least 20 days' prior written
notice given to the Trustee by or on behalf of DTC in accordance with customary
procedures. In all cases, certificated notes delivered in exchange for any
global note or beneficial interest therein will be registered in the names, and
issued in any approved denominations, requested by or on behalf of the
depositary (in accordance with its customary procedures) and will bear the
restrictive legend referred to in "Notice to Investors" unless the Issuers
determine otherwise in compliance with applicable law.
CERTIFICATED NOTES
Subject to limited conditions, any person having a beneficial interest
in a global note may, upon request to the Trustee, exchange such beneficial
interest for notes in certificated form (a "Certificated Note"). Upon any such
issuance, the Trustee is required to register such Certificated Notes in the
name of, and cause the same to be delivered to, such person or persons (or the
nominee of any thereof). All such Certificated Notes would be subject to the
legend requirements described herein under "Notice to Investors." In addition,
if
(1) the Issuers notify the Trustee in writing that DTC
(a) is no longer willing or able to act as a
depositary and the Issuers are unable to locate a qualified
successor within 90 days or
(b) has ceased to be a clearing agency registered
under the Exchange Act or
(2) the Issuers, at their option, notify the Trustee in
writing that they elect to cause the issuance of notes in the form of
Certificated Notes under the indenture,
then, upon surrender by the global note holder of its global note, notes in such
form will be issued to each person that the global note holder and the DTC
identify as being the beneficial owner of the related notes.
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None of the Issuers or the Trustee will be liable for any delay by the
global note holder or DTC in identifying the beneficial owners of notes and the
Trustee may conclusively rely on, and will be protected in relying on,
instructions from the global note holder or DTC for all purposes.
SAME DAY SETTLEMENT AND PAYMENT
The indenture requires that payments in respect of the notes
represented by a global note (including principal, premium, if any, interest and
liquidated damages, if any, thereon) be made by wire transfer of immediately
available next day funds to the accounts specified by the global note holder.
With respect to Certificated Notes, the Issuers will make all payments of
principal, premium, if any, interest and liquidated damages, if any, thereon by
wire transfer of immediately available funds to the accounts specified by the
holders thereof or, if no such account is specified, by mailing a check to each
such holder's registered address. The Issuers expect that secondary trading in
the Certificated Notes will also be settled in immediately available funds.
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DESCRIPTION OF INDEBTEDNESS
NEW CREDIT FACILITY
We may enter into a new credit facility of up to $10 million which
will be secured by substantially all of our current and future assets, other
than certain excluded assets. The lien on the collateral securing the new
credit facility will be senior to the lien on the collateral securing the
notes. We expect that any new credit facility will contain customary
conditions to closing and to borrowing and will contain representations and
warranties customary in other gaming-related financings. We also expect that
the new credit facility will contain various financial covenants and
restrictions on, among other things, indebtedness, investments, distributions
and mergers. There can be no assurance that we will be able to enter into a
new credit facility on terms satisfactory to us or at all. The establishment
of a new credit facility is subject to approval of the gaming commission.
INTERCREDITOR AGREEMENT
In connection with entering into our new credit facility, we expect
that the trustee under the indenture governing the notes will enter into an
intercreditor agreement with the lender under the credit facility. We anticipate
that the intercreditor agreement will provide, among other things, that
(1) the lender's lien on the collateral securing the new
credit facility will be senior to the lien on the collateral securing
the notes,
(2) during any insolvency proceedings, the lender under such
credit facility and the trustee under the indenture governing the notes
will coordinate their efforts to give effect to the relative priority
of their respective security interests in the collateral, and
(3) following an event of default, as defined in the
intercreditor agreement, all decisions with respect to such collateral,
including the time and method of any disposition thereof, will be made
in accordance with the terms of such intercreditor agreement.
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DESCRIPTION OF PENINSULA GAMING MEMBERSHIP INTERESTS
All of Peninsula Gaming's outstanding common membership interests are
owned by its parent, Peninsula Partners, and all of Peninsula Gaming's
outstanding preferred membership interests are owned by Greater Dubuque
Riverboat. All of Peninsula Corp.'s outstanding common stock is owned by
Peninsula Gaming. See "The Transactions" for more information about the holders
of our equity securities. The following summary of the material terms and
provisions of the membership interests of Peninsula Gaming is qualified in its
entirety by reference to the operating agreement of Peninsula Gaming, copies of
which are available upon request.
COMMON MEMBERSHIP INTERESTS OF PENINSULA GAMING
Peninsula Partners, as the holder of all of Peninsula Gaming's issued
and outstanding common membership interests, is entitled to vote on all matters
to be voted on by holders of common membership interests of Peninsula Gaming
and, subject to limitations contained in Peninsula Gaming's operating agreement
and the indenture, is entitled to dividends and other distributions if and when
declared by Peninsula Gaming's managers.
PREFERRED MEMBERSHIP INTERESTS OF PENINSULA GAMING
Greater Dubuque Riverboat, as the holder of all of Peninsula Gaming's
preferred membership interests, is entitled to receive, subject to restrictions
contained in the indenture, cumulative preferred distributions payable
semiannually at an annual rate of 9% of the original face amount thereof. Other
than limited consent rights and as required by law, holders of Peninsula
Gaming's preferred membership interests have no voting rights.
Subject to limitations contained in the indenture, to the extent not
used for any indemnification obligations of Harbor Community and Greater Dubuque
Riverboat under the acquisition agreements, Peninsula Gaming must redeem $3.0
million in original face amount of its preferred membership interests on January
15, 2001 at a redemption price of $3.0 million, plus any accrued and unpaid
preferred distributions through the date of redemption. Certain managers of
Peninsula Partners, who collectively have the ability to control us, have
guaranteed our obligation to redeem those preferred membership interests, plus
any accrued and unpaid preferred distributions through the date of redemption.
The balance of preferred membership interests not required to be redeemed by us
on January 15, 2001 must be redeemed by us 90 days after the seventh anniversary
of the closing date of the acquisition at a redemption price of $4.0 million,
plus any accrued and unpaid preferred distributions through the date of
redemption.
Under the terms of the acquisition agreements, preferred membership
interests in an original face amount of $3.0 million are currently being held in
escrow until January 15, 2001 as security for the indemnification obligations of
Greater Dubuque Riverboat and Harbor Community thereunder. See "The
Transactions" for more information about this escrow.
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DESCRIPTION OF PENINSULA PARTNERS MEMBERSHIP INTERESTS
The following summary of the material terms and provisions of the
membership interests of Peninsula Partners is qualified in its entirety by
reference to the operating agreement of Peninsula Partners, copies of which are
available upon request to Peninsula Partners. Each purchaser of convertible
preferred membership interests acknowledges and agrees that the membership
interests are subject to the provisions set forth below and all of the other
terms and conditions contained in Peninsula Partners' operating agreement.
COMMON MEMBERSHIP INTERESTS
Peninsula Partners has one class of voting common membership interests
and one class of non-voting common membership interests. Except as described
under "--Voting" and "--Peninsula Partners Operating Agreement--Required
Regulatory Redemptions or Repurchases" below, voting and non-voting common
membership interests will be entitled to identical rights and privileges. $6.0
million of voting common membership interests are outstanding. No non-voting
common membership interests are outstanding. See "The Transactions" and "Key
Relationships and Related Transactions--Equity Contribution" for more
information about our common membership interests.
RANKING. After any liquidation, dissolution or winding up of Peninsula Partners,
the holders of voting and non-voting common membership interests will be
entitled to their proportionate share in the distribution of all of the assets
of Peninsula Partners, after any required payments to the holders of preferred
membership interests of Peninsula Partners or other senior securities, and
after payment of all of Peninsula Partners' liabilities.
ALLOCATION OF INCOME. Profits and losses of Peninsula Partners will be allocated
to each holder of membership interests according to the percentage of membership
interests held by the holder.
DISTRIBUTIONS. The holders of common membership interests are entitled to
distributions if and when declared by the managers of Peninsula Partners,
subject to the restrictions imposed by any indebtedness of Peninsula Partners.
Under the indenture, we may make Permitted Tax Distributions to Peninsula
Partners to enable Peninsula Partners to distribute its members enough funds to
pay tax liabilities on their interests.
In addition, subject to the terms of the indenture, we may make
distributions to Peninsula Partners in excess of Permitted Tax Distributions.
Peninsula Partners generally may, in turn, distribute to holders of its common
membership interests amounts in excess of Permitted Tax Distributions.
REDEMPTIONS. Except as set forth below under "--Peninsula Partners Operating
Agreement--Redemption Upon Termination" and "--Required Regulatory Redemptions
or Repurchases," the common membership interests may not be redeemed so long as
any convertible preferred membership interests are outstanding.
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VOTING. Each holder of voting common membership interests is entitled to vote on
all matters to be voted on by the members of Peninsula Partners, PRO RATA
according to the percentage of common membership interests held by the holder.
Except as required by law and with respect to other limited matters,
holders of non-voting common membership interests are not entitled to vote.
Pursuant to Peninsula Partners' operating agreement, the management
of Peninsula Partners is vested in a board of managers comprised of five
individuals, two of whom must be independent managers. As long as M. Brent
Stevens controls at least 5% of the voting common membership interests of
Peninsula Partners, Mr. Stevens is entitled to designate three of Peninsula
Partners' managers, including one of the two independent managers.
Additionally, as long as Michael Luzich controls at least 5% of the voting
common membership interests of Peninsula Partners, Mr. Luzich is entitled to
designate two of Peninsula Partners' managers, including the other
independent manager.
RIGHTS OF FIRST REFUSAL AND CO-SALE RIGHTS. Peninsula Partners' operating
agreement limits the transfer of common membership interests owned by its
members. Some of these restrictions grant Mr. Stevens, Mr. Luzich, Peninsula
Partners or the common members rights of first refusal or co-sale rights upon a
transfer of common membership interests.
REGISTRATION RIGHTS. Except under some circumstances, when Peninsula Partners,
after an initial public offering and in connection with a secondary offering,
proposes to register any of its common membership interests under the Securities
Act, Peninsula Partners will notify each holder of non-voting common membership
interests of the proposed filing and, if requested by the holders, Peninsula
Partners will use its good faith efforts to register non-voting common
membership interests under the Securities Act.
CONVERTIBLE PREFERRED MEMBERSHIP INTERESTS
In connection with the acquisition of the Diamond Jo, Peninsula
Partners issued a total of $3.0 million face amount of its convertible preferred
membership interests in the offering of the old notes. See "Key Relationships
and Related Transactions--Equity Contribution" for more information about those
transactions.
CONVERSION RIGHTS AND ADJUSTMENTS. Each convertible preferred membership
interest is initially convertible into one non-voting common membership
interests of Peninsula Partners, subject to adjustment. For a description of the
non-voting common membership interests of Peninsula Partners into which the
convertible preferred membership interests are convertible, see "--Common
Membership Interests."
ALLOCATION OF INCOME. Profits and losses of Peninsula Partners will be divided
between each holder of membership interests, whether common or preferred, PRO
RATA according to the percentage of membership interests held by the holder.
DISTRIBUTIONS. The holders of convertible preferred membership interests are not
entitled to any distributions on the convertible preferred membership interests,
except that under the indenture, we
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may make Permitted Tax Distributions to Peninsula Partners to enable
Peninsula Partners to distribute to holders of Peninsula Partners membership
interests funds sufficient to pay tax liabilities on their interests.
In addition, subject to the terms of the indenture and Peninsula
Partners' indebtedness, if any, we may make distributions to Peninsula Partners
in excess of Permitted Tax Distributions. Peninsula Partners generally may, in
turn, distribute to holders of its common membership interests amounts in excess
of a PRO RATA portion of Permitted Tax Distributions. Holders of convertible
preferred membership interests are not entitled to receive any distributions in
excess of a PRO RATA portion of Permitted Tax Distributions, but their rights to
share in the assets of Peninsula Partners after redemption or liquidation will
be generally preserved as reflected in their capital account balances.
VOTING RIGHTS. The holders of convertible preferred membership interests have
no voting rights, except as required by law and as described below.
The operating agreement of Peninsula Partners provides that Peninsula
Partners may not, without the consent or approval of a majority-in-interest of
the holders of convertible preferred membership interests,
(1) amend, modify or revise the operating agreement if the
amendment, modification or revision would adversely affect the rights,
privileges or preferences of the convertible preferred membership
interests thereunder or
(2) issue any membership interests ranking on liquidation
senior to or equal to the convertible preferred membership interests
In addition, without the consent of all holders of convertible
preferred membership interests, Peninsula Partners may not merge with any
corporation, partnership or other entity and may not sell, lease or convey all
or substantially all of its assets to any entity, unless Peninsula Partners is
the surviving entity, or the successor entity that acquires all or substantially
all of the assets of Peninsula Partners expressly assumes all obligations of
Peninsula Partners with respect to the convertible preferred membership
interests.
REDEMPTION. Except as described below under "-- Peninsula Partners Operating
Agreement--Required Regulatory Redemptions or Repurchases," the convertible
preferred membership interests are not subject to redemption and have no stated
maturity.
LIQUIDATION PREFERENCE. Upon any liquidation, dissolution or winding up of
Peninsula Partners, the holders of convertible preferred membership interests,
before any distribution to common membership interests or other junior
securities, are entitled to be paid out of the assets of Peninsula Partners
available for distribution to its members an amount equal to (the "Preferred
Liquidation Preference") the greater of:
(1) the member's tax "capital account," which for an initial
holder of a convertible preferred membership interest, will be the
member's tax basis in its membership interest, as described in "United
States Federal Income Tax Considerations--U.S. Federal
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Income Tax Consequences For U.S. Holders of Convertible Preferred
Membership Interests and Non-Voting Common Membership Interests of
Peninsula Partners--Basis in Membership Interests," less the
liabilities of Peninsula Partners allocated to the members that are
included in the calculation of such tax basis; and
(2) the member's initial tax "capital account" attributable to
the member's convertible preferred membership interest (totaling $3.0
million for all convertible preferred membership interests at
issuance), less the excess of (i) the amount of cash previously
distributed to the member and all previous owners of the same
membership interest over (ii) the total net income of Peninsula
Partners previously allocated to the member and to all previous owners
of the same membership interest; PROVIDED HOWEVER, that in the case of
a liquidation of Peninsula Partners, the amount payable under this
clause (2) would be subject to further reduction in the event that
Peninsula Partners is unable to make special allocations of gross
income to holders of convertible preferred membership interests, as
further described in Peninsula Partners' operating agreement.
If the assets of Peninsula Partners available for distribution to the
holders of convertible preferred membership interests are insufficient to pay
each holder its applicable stated liquidation value, the holders of outstanding
convertible preferred membership interests shall share proportionally in such
distribution of assets.
REPURCHASE UPON CHANGE OF CONTROL. Upon a Change of Control, all or part of the
convertible preferred membership interests of Peninsula Partners are redeemable
by Peninsula Partners, at the option of the holders, at a redemption price
equal to the Preferred Liquidation Preference out of funds held by Peninsula
Partners available for redemption purposes. Except as described in this
paragraph, Peninsula Partners is not required to offer to purchase the
convertible preferred membership interests if there is a takeover,
recapitalization or similar event. We cannot assure you that sufficient funds
will be available at the time of any Change of Control to make required
repurchases.
PENINSULA PARTNERS OPERATING AGREEMENT
REQUIREMENTS IMPOSED BY APPLICABLE GAMING LAWS. The operating agreement of
Peninsula Partners provides that the members of Peninsula Partners that are
required to be licensed by the gaming commission in order to own a beneficial
interest in Peninsula Partners or actively engage in the management of Peninsula
Partners are required to timely submit all information and timely perform any
and all acts required to be performed in connection with obtaining a gaming
license issued by the gaming commission. We are required to notify the gaming
commission of the identity of, and may be required to submit background
information regarding, each director, corporate officer and owner, partner,
joint venturer, trustee or any other person who has a "beneficial interest" of
five percent (5%) or more, direct or indirect, in Peninsula Gaming. The gaming
commission may also request that we provide them with a list of persons holding
beneficial ownership interests in Peninsula Gaming of less than five percent
(5%). The gaming commission may determine that holders of Peninsula Partners'
membership interests have a "beneficial interest" in Peninsula Gaming. See
"Regulatory Matters--Regulatory Requirements Applicable to the Owners of the
Securities and Others" for more information about possible regulatory
requirements on holders of the notes.
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If any of the holders do not comply with the terms and provisions of
Peninsula Partners' operating agreement regarding the submission of the
information and performance of the actions, the holder is required to indemnify
Peninsula Partners against and not hold Peninsula Partners responsible for any
loss, liability or damages suffered by Peninsula Partners resulting from the
failure.
If any gaming authority requires a record or beneficial owner of the
Peninsula Partners membership interests to be licensed, qualified or found
suitable, the holder must apply for a license, qualification or finding of
suitability within the time period specified by such gaming authority. The owner
would be required to pay all costs of obtaining such license, qualification or
finding of suitability.
REQUIRED REGULATORY REDEMPTIONS OR REPURCHASES. Under the operating agreement of
Peninsula Partners, all of the membership interests of Peninsula Partners will
be subject to redemption or repurchase if:
(1) the holder of the membership interests is required by
any gaming authority to divest itself of the interests,
(2) the holder's ownership of the membership interests, as
determined by Peninsula Partners in its reasonable good faith
judgement, could reasonably be expected to result in the revocation of
or imposition of burdensome terms or conditions on, interfere with,
threaten, delay the issuance of or otherwise impair, in each case, in
any material respect any of our gaming licenses,
(3) the holder of the membership interests is licensed to hold
the interests and the gaming license is subsequently revoked or the
holder does not have any gaming license required for it to hold the
interest and the failure continues for 30 days in a row,
(4) the holder of the membership interests is found not to be
suitable (or found to be unsuitable) or to qualify under any applicable
gaming laws and Peninsula Partners determines, in its reasonable good
faith judgement, that the unsuitability or inability to be qualified
could reasonably be expected to prevent or impair the acquisition or
retention by us of any gaming license, or
(5) the holder of the membership interests does not comply
with that holder's obligations regarding gaming laws as described in
Peninsula Partners' operating agreement.
After the occurrence of any of the events described in clauses (1)
through (5) above with respect to a holder of common membership interests (an
"Unsuitable Common Member"), Peninsula Partners or its assignee will have the
right to purchase, upon 5 days notice to the Unsuitable Common Member, the
common membership interests for an amount equal to the lesser of (a) the
Unsuitable Common Member's capital contribution for the common membership
interests and (b) the current fair market value of the common membership
interests as determined by the board of managers of Peninsula Partners in its
reasonable good faith judgement. If
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Peninsula Partners elects not to exercise the option, Peninsula Partners will
promptly notify the holders of voting common membership interests (other than
the Unsuitable Common Member), who will each, for a period of ten (10) days
after receipt of such notice, have the right to purchase, on a PRO RATA
basis, all (but not less than all) of the common membership interests of the
Unsuitable Common Member at the fair market value as determined by the board
of managers of Peninsula Partners in its reasonable good faith judgement. If
the other holders of voting common membership interests elect not to exercise
this option, Peninsula Partners must promptly purchase the common membership
interests of the Unsuitable Common Member for an amount equal to the lesser
of (x) the Unsuitable Common Member's capital contribution regarding the
common membership interests and (y) the current fair market value of the
common membership interests as determined by the board of managers of
Peninsula Partners in its reasonable good faith judgement.
If any of the events described in clauses (1) through (5) above occur
with respect to a holder of convertible preferred membership interests (an
"Unsuitable Preferred Member"), Peninsula Partners or its assignee will have the
right to purchase, upon 5 days notice to the Unsuitable Preferred Member, the
convertible preferred membership interests for an amount equal to the lesser of
(a) the Preferred Liquidation Preference and (b) the current fair market value
of such convertible preferred membership interests as determined by the board of
managers of Peninsula Partners in its reasonable good faith judgement. If
Peninsula Partners elects not to exercise this option, Peninsula Partners will
promptly notify the holders of voting common membership interests, who will
each, for a period of ten (10) days following its receipt of the notice, have
the right to purchase, on a PRO RATA basis, all (but not less than all) of the
convertible preferred membership interests of the Unsuitable Preferred Member at
their fair market value thereof as determined by the board of managers of
Peninsula Partners in its reasonable good faith judgement. If the holders of
voting common membership interests elect not to exercise such option, Peninsula
Partners must promptly purchase the convertible preferred membership interests
of the Unsuitable Preferred Member for an amount equal to the lesser of (x) the
Preferred Liquidation Preference and (y) the current fair market value of the
convertible preferred membership interests as determined by the board of
managers of Peninsula Partners in its reasonable good faith judgement.
The purchase price to be paid by Peninsula Partners to an Unsuitable
Common Member or an Unsuitable Preferred Member may be paid, at the option of
Peninsula Partners, in cash or a promissory note with principal and interest
payable annually and amortized over not more than seven years and bearing
interest at an annual rate equal to the prime lending rate plus 2%. No
Unsuitable Common Member or Unsuitable Preferred Member will be entitled to any
compensation from us, Peninsula Partners or any member of Peninsula Partners for
reasons relating to the redemption or repurchase of such member's membership
interests.
For additional information regarding required regulatory redemptions,
see "Risk Factors--Required Regulatory Redemption" and "Regulatory
Matters--Regulatory Requirements Applicable to the Owners of the Securities
and Others."
REDEMPTION UPON TERMINATION. If any officer or employee of Peninsula Partners or
Peninsula Gaming (other than Mr. Stevens or Mr. Luzich) is terminated by or
resigns from Peninsula Partners or Peninsula Gaming for any reason, and the
officer or employee holds common
131
<PAGE>
membership interests, preferred membership interests or other interests of
Peninsula Partners, Peninsula Partners will have the right to purchase all of
these interests from the officer or employee for an amount equal to the
lesser of (a) the capital contribution made or other consideration paid by
such officer or employee in respect of such interests and (b) the current
fair market value of the interests as determined by the board of managers of
Peninsula Partners in its reasonable good faith judgement.
TRANSFER RESTRICTIONS. The Transfer Agent will not register any purchase or
transfer of membership interests of Peninsula Partners, and any purchase or
transfer or purported purchase or transfer and registration of the interests
will be void, unless:
(1) in the determination of the managing member of Peninsula
Partners the transfer follows various "safe harbors" contained in
Peninsula Partners' operating agreement intended to ensure that
Peninsula Partners does not become a "publicly traded partnership"
under the Code, or
(2) prior to the effectiveness of the transfer, the
transferring member delivers to the managing member of Peninsula
Partners an opinion of counsel reasonably satisfactory to the managing
member of Peninsula Partners and a majority of the members of the
Independent Committee stating that the transfer will not result in
Peninsula Partners being treated as a "publicly traded partnership"
under the Code.
The "safe harbors" referred to in clause (1) of the preceding sentence
include:
(1) transfers by a member and certain related persons in one
or more transactions during any 30 calendar day period of, in the
aggregate, more than 2% of the total interests in the capital or
profits of Peninsula Partners;
(2) subject to notice requirements, transfers during any
calendar year of interests aggregating not more than 10% of the total
interests in the capital or profits of Peninsula Partners (x) among
holders of membership interests or (y) between holders of membership
interests and Peninsula Partners, in each case following procedures
established by Peninsula Partners, including procedures for
establishing on the last day of each calendar quarter the price at
which such membership interests may trade; and
(3) transfers during any calendar year not described in
clause (2) of this sentence aggregating not more than 2% of the total
interests in the capital or profits of Peninsula Partners, subject to
designation by the managing member of Peninsula Partners.
If any person that has not been licensed and has not satisfied all
applicable suitability and other requirements imposed by applicable gaming laws
acquires, directly or indirectly, in one or more transactions, five percent or
more of the issued and outstanding membership interests of Peninsula Partners
(such excess amount, a "Disqualified Interest"), these acquisitions shall be
void.
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<PAGE>
Any purchase or transfer or purported purchase or transfer of Peninsula
Partners membership interests will be void if the purchase or transfer would
result in more than 25% of Peninsula Gaming's membership interests being owned,
directly or indirectly, by persons who are not citizens of the United States.
See "Regulatory Matters--The Shipping Act of 1916; The Merchant Marine Act of
1936" for more information about these restrictions.
Transfers of membership interests of Peninsula Partners are subject to
additional conditions contained in Peninsula Partners' operating agreement,
including, but not limited to, (1) delivery by the transferring member of an
opinion of counsel reasonably acceptable to the board of managers of Peninsula
Partners that the transfer does not violate any federal or state securities laws
or any applicable gaming laws and (2) the transferee's written agreement to be
bound to the terms and provisions of Peninsula Partners' operating agreement and
to execute Annex B hereto and any other documents and instruments as the board
of managers of Peninsula Partners decides are necessary or appropriate for
admission of the transferee as a substitute member of Peninsula Partners.
133
<PAGE>
SPECIFIC FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the material federal income tax
considerations of the issuance of the new notes and the exchange offer and of
the ownership of notes by a beneficial owner who holds notes as capital assets
(generally, property held for investment) within the meaning of the Internal
Revenue Code of 1986, as amended (the "Code"). "U.S. holder" means a beneficial
owner of the securities who is a citizen or resident of the United States, a
corporation or partnership created or organized in the United States or under
the law of the United States or of any State or political subdivision of the
foregoing, any estate, the income of which is includable in gross income for
U.S. federal income tax purposes regardless of its source, or a trust if
(1) a court within the United States is able to exercise
primary supervision over the administration of the trust and
(2) one or more U.S. persons have the authority to control
all substantial decisions of the trust.
"Non-U.S. holder" means a beneficial owner of the securities who is not
a U.S. holder. This summary does not discuss all aspects of United States
federal income taxation which may be important to particular holders in light of
their individual investment circumstances, such as investors subject to special
tax rules (e.g., financial institutions, regulated investment companies,
insurance companies, broker-dealers, and tax-exempt organizations) or to persons
that will hold the securities as a part of a straddle, hedge, or synthetic
security transaction for United States federal income tax purposes or that have
a functional currency other than the United States dollar, all of whom may be
subject to tax rules that differ significantly from those summarized below. In
addition, this summary does not discuss the foreign, state or local tax
considerations. The discussion set forth below is based upon the Code, Treasury
Regulations promulgated thereunder, and administrative and judicial
interpretations of the foregoing as of the date hereof. Any of such authorities
may be repealed, revoked or modified so as to result in federal income tax
consequences different from those discussed below, possibly with retroactive
effect. Persons considering the exchange of a new note for an old note pursuant
to the exchange offer should consult their own tax advisors concerning the
federal income tax consequences of the exchange in light of their particular
situations as well as any consequences arising under the laws of any other
taxing jurisdiction.
U.S. FEDERAL TAX CHARACTERIZATION OF THE NOTES AND PENINSULA GAMING
The proper U.S. federal income tax characterization of a particular
instrument as debt or equity is a question of fact, the resolution of which is
based primarily upon the substance of the instrument and the transaction
pursuant to which it is issued, rather than merely upon the form of the
transaction or the manner in which the instrument is labeled. Among the factors
set forth by the Internal Revenue Service and the courts to be taken into
account in determining, for U.S. federal income tax purposes, whether or not an
instrument constitutes indebtedness, is whether the issuer of the instrument is
adequately capitalized such that principal and interest are reasonably expected
to be repaid. If the notes are classified as equity, rather than indebtedness,
for U.S. federal income tax purposes and are deemed to be "publicly traded," we
would be classified as a publicly traded partnership under the Code. In
addition, we would also be classified as a publicly traded partnership
134
<PAGE>
under the Code if our equity interests are deemed to be "publicly traded." As
a publicly traded partnership, we would become subject to U.S. federal income
tax as a corporation which, in turn, may, among other things, materially
adversely affect our ability to make payments on the notes.
In connection with the original issuance of the old notes, Mayer,
Brown & Platt delivered its opinion to the effect that, for U.S. federal
income tax purposes,
(1) the notes will be treated as indebtedness, and
(2) we will not be treated as a publicly traded partnership
subject to U.S. federal income tax as a corporation.
Such opinion was based on factual representations and the assumption
that the terms of our operating agreement will be complied with, including
compliance with restrictions and, in certain circumstances, prohibitions, on
transfers of our membership interests except pursuant to "safe harbors" provided
in Treasury regulations regarding characterization of partnerships as publicly
traded partnerships.
Our operating agreement provides that unless a proposed transfer of our
membership interests is pursuant to such a "safe harbor," we must receive an
opinion of counsel prior to such proposed transfer to the effect that such
transfer will not cause us to become a publicly traded partnership. Our
operating agreement further provides that we may not recognize any transfers of
our membership interests that are not made pursuant to such safe harbors or
without the delivery of such opinion. Notwithstanding the opinion of Mayer,
Brown & Platt, the Internal Revenue Service (the "IRS") may be able to
successfully assert that the notes constitute equity, rather than indebtedness,
for U.S. federal income tax purposes, and are "publicly traded," or that our
equity interests are "publicly traded," and that as a result thereof, we are
subject to U.S. federal income taxation as a publicly traded partnership under
the Code.
The remainder of this discussion assumes, in accordance with counsel's
opinions, that for U.S. federal income tax purposes, the notes will be treated
as indebtedness, and Peninsula Gaming will be treated as a partnership that is
not a publicly traded partnership.
CONSEQUENCES OF THE EXCHANGE OFFER TO EXCHANGING AND NONEXCHANGING HOLDERS
The exchange of a new note for an old note pursuant to the exchange
offer will not be taxable to an exchanging holder for U.S. federal income tax
purposes. As a result, for U.S. federal income tax purposes,
(1) an exchanging holder will not recognize any gain or loss
on the exchange,
(2) an exchanging holder will be required to include interest
on a new note in gross income in the manner described below,
(3) the holding period for the new note will include the
holding period for the old note, and
135
<PAGE>
(4) the holder's tax basis in the new note will be the same
as its basis in the old note.
U.S. FEDERAL INCOME TAX CONSEQUENCES FOR U.S. HOLDERS OF THE NOTES
STATED INTEREST. A U.S. holder will be required to include stated interest
on the notes in its income when received or accrued in accordance with the
holder's method of tax accounting.
DISPOSITION OF NOTES. Upon the sale, exchange or other taxable disposition
of a note, a U.S. holder will recognize gain or loss, if any, generally equal
to the difference between the amount realized on the sale, exchange or
retirement (other than any amount attributable to accrued but unpaid stated
interest, which will be taxable as such) and such holder's adjusted tax basis
in the note. Any such gain or loss would generally be long-term capital gain
or loss if the note has been held for more than one year at the time of the
disposition.
LIQUIDATED DAMAGES. The treatment described above regarding inclusions in gross
income in respect of the notes is based in part upon our determination that, as
of the date of issuance of the notes, the possibility is remote that liquidated
damages would be paid in respect of the old notes in the event of a registration
default as described above under "The Exchange Offer--Purpose and Effect;
Registration Rights." The IRS may take a different position, which could affect
the timing and character of income reported by U.S. holders of the notes. While
not free from doubt, if such liquidated damages are in fact paid, we believe the
liquidated damages would be taxable to a U.S. holder as ordinary income in
accordance with the holder's regular method of tax accounting.
PURCHASERS OF NOTES AT OTHER THAN ORIGINAL ISSUANCE. The above summary does not
discuss special rules that may affect the treatment of U.S. holders that
acquired notes other than at original issuance, including those provisions of
the Code relating to the treatment of "market discount" and "acquisition
premium." Any U.S. holder should consult its tax advisor as to the consequences
to the purchaser of the acquisition, ownership and disposition of notes.
U.S. FEDERAL INCOME TAX CONSEQUENCES FOR NON-U.S. HOLDERS OF THE NOTES
Under present U.S. federal income tax law, and subject to the
discussion below concerning backup withholding:
(a) no withholding of U.S. federal income tax will be
required with respect to the payment by us or any paying agent of
principal or interest on a note owned by a Non-U.S. holder,
provided
(1) that the beneficial owner does not actually or
constructively own 10% or more than a 10% interest in our
capital or profits within the meaning of section 871(h)(3) of
the Code and the regulations thereunder,
(2) the beneficial owner is not a controlled foreign
corporation that is related to us through stock ownership and
136
<PAGE>
(3) the beneficial owner satisfies the statement
requirement (described generally below) set forth in section
871(h) and section 881(c) of the Code and the regulations
thereunder and
(b) no withholding of U.S. federal income tax will be required
with respect to any gain or income realized by a Non-U.S. holder upon
the sale, exchange or retirement of a note.
To satisfy the requirement referred to in (a)(3) above, the
beneficial owner of such note. or a financial institution holding the note on
behalf of such owner, must provide, in accordance with specified procedures,
a paying agent of ours with a statement to the effect that the beneficial
owner is not a U.S. person. Currently these requirements will be met if (1)
the beneficial owner provides his name and address, and certifies, under
penalties of perjury, that he is not a U.S. person (which certification may
be made on an IRS Form W-8BEN) or (2) a financial institution holding the
note on behalf of the beneficial owner certifies, under penalties of perjury,
that such statement has been received by it and furnishes a paying agent with
a copy thereof. Under Treasury regulations, which are anticipated to become
effective for payments of interest made after December 31, 2000 (the "Final
Regulations"), the statement requirement referred to in (a)(iii) above may
also be satisfied with other documentary evidence with respect to an offshore
account or through certain foreign intermediaries.
If a Non-U.S. holder cannot satisfy the requirements of the "portfolio
interest" exception described in (a) above, payments of premium, if any, and
interest made to such Non-U.S. holder will be subject to a 30% withholding tax
unless the beneficial owner of the note provides us or our paying agent, as the
case may be, with a properly executed (1) IRS Form 1001 (if delivered on or
prior to December 31, 1999) or IRS Form W-8BEN (or successor form) claiming an
exemption from withholding tax or a reduction in withholding tax under the
benefit of a tax treaty or (2) IRS Form 4224 (if delivered on or prior to
December 31, 1999) or IRS Form W-8ECI (or successor form) stating that interest
paid on the note is not subject to withholding tax because it is effectively
connected with the beneficial owner's conduct of a trade or business in the
United States. Under the Final Regulations, a Non-U.S. holder (or its agent,
where applicable) that files (i) an IRS Form 1001, must file a replacement IRS
Form W-8BEN by or before January 1, 2001, or (ii) an IRS Form 4224, must file a
replacement IRS Form W-8ECI by the expiration of IRS Form 4224 (one calendar
year from the date it was filed). Forms W-8BEN and W-8ECI are effective for the
calendar year in which they are signed and for the succeeding three calendar
years.
If a Non-U.S. holder is engaged in a trade or business in the United
States and interest on the note is effectively connected with the conduct of
such trade or business, the Non-U.S. holder, although exempt from the
withholding tax discussed above, will be subject to U.S. federal income tax on
such interest on a net income basis at applicable graduated rates. In addition,
if such holder is a foreign corporation, it may be subject to a branch profits
tax equal to 30% (or lower treaty rate) of its effectively connected earnings
and profits for the taxable year, subject to adjustments. For this purpose, such
interest on a note will be included in such foreign corporation's effectively
connected earnings and profits.
Any gain or income realized upon the sale, exchange or retirement of a
note generally will not be subject to U.S. federal income tax unless (i) such
gain or income is effectively connected with
137
<PAGE>
a trade or business in the United States of the Non-U.S. holder, or (ii) in
the case of a Non-U.S. holder who is an individual, such individual is
present in the United States for 183 days or more in the taxable year of such
sale, exchange or retirement, and other conditions are met. Any such gain
that is effectively connected with the conduct of a United States trade or
business by a Non-U.S. holder will be subject to United States federal income
tax on a net income basis at applicable graduated rates and, if such Non-U.S.
holder is a corporation, such gain may also be subject to the 30% United
States branch profits tax described above.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements will apply to payments
of principal, any premium or interest paid on a note, the proceeds of the sale
of a note before maturity within the United States and other note amounts, and
"backup withholding" at a rate of 31 percent will apply if a non-exempt
beneficial owner of a note fails to provide the certification described below.
Each beneficial owner of a note (other than an exempt beneficial owner,
such as a corporation, tax-exempt organization, qualified pension and profit-
sharing trust or individual retirement account) will be required to provide,
under penalties of perjury, a certificate containing the beneficial owner's
name, address, correct U.S. federal taxpayer identification number and a
statement that the beneficial owner is not subject to backup withholding. Should
a non-exempt beneficial owner fail to provide the required certification, 31
percent of the amount otherwise payable to the beneficial owner will be withheld
from payment and remitted to the IRS as a credit against the beneficial owner's
federal income tax liability.
Under current law, information reporting and backup withholding will
not apply to payments of principal, premium (if any) and interest made by us or
a paying agent to a Non-U.S. holder on a note; PROVIDED the certification
described under "U.S. Federal Income Tax Consequences for Non-U.S. Holders"
above is received and the payor does not have actual knowledge that the
beneficial owner is a U.S. holder. However, the Final Regulations substantially
revise the procedures that withholding agents and payees must follow to comply
with, or establish an exemption from, these information reporting and backup
withholding provisions. Each beneficial owner of notes should consult such
owner's tax advisor regarding the tax consequences to such owner of the Final
Regulations.
EACH HOLDER OF OLD NOTES SHOULD CONSULT ITS TAX ADVISOR AS TO THE
SPECIFIC TAX CONSEQUENCES TO IT OF THE EXCHANGE OFFER, INCLUDING THE APPLICATION
OF AND EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.
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<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives new notes for its own account as a
result of market-making activities or other trading activities in connection
with the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of new notes. This prospectus, as it may be amended
or supplemented from time to time, may be used by a broker-dealer in connection
with resales of new notes received in exchange for old notes where such old
notes were acquired as a result of market-making activities or other trading
activities.
We will receive no proceeds in connection with the exchange offer or
any sale of new notes by broker-dealers. New notes received by broker-dealers
for their own account pursuant to the exchange offer may be sold from time to
time in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the new notes or a combination
of these methods of resale, at market prices prevailing at the time of resale,
at prices related to prevailing market prices or at negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
that may receive compensation in the form of commissions or concessions from the
broker-dealers or the purchasers of any new notes. Any broker-dealer that
resells new notes that were received by it for its own account pursuant to the
exchange offer and any broker or dealer that participates in a distribution of
new notes may be deemed to be an "underwriter" within the meaning of the
Securities Act of 1933, and any profit on any resale of new notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act of 1933. The letter of
transmittal states that by acknowledging that it will deliver, and by
delivering, a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act of 1933.
LEGAL MATTERS
Mayer, Brown & Platt, New York, will pass on the validity of, and
various legal matters concerning, the new notes.
INDEPENDENT AUDITORS
The combined financial statements of Greater Dubuque Riverboat
Entertainment Company, L.C. and Harbor Community Investment, L.C. as of December
31, 1997 and 1998 and for each of the three years in the period ended December
31, 1998 and the balance sheet of Peninsula Gaming Company, LLC as of July 15,
1999 included in this prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports appearing herein and elsewhere
in the registration statement, and have been so included in reliance upon the
reports of such firm given upon their authority as experts in accounting and
auditing.
Deloitte & Touche
Armstrong Center
Suite 500
222 Third Avenue, S.E.
Cedar Rapids, IA 52401
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<PAGE>
INDEX TO COMBINED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
FINANCIAL STATEMENTS OF PENINSULA GAMING COMPANY, LLC
BALANCE SHEET AT SEPTEMBER 30, 1999 (UNAUDITED)............................................................ F-2
STATEMENT OF OPERATIONS FOR JULY 15 TO SEPTEMBER 30, 1999 (UNAUDITED)...................................... F-3
STATEMENT OF CHANGES IN MEMBERS' EQUITY FOR JULY 15 TO SEPTEMBER 30, 1999 (UNAUDITED)...................... F-4
STATEMENT OF CASH FLOWS FOR JULY 15 TO SEPTEMBER 30, 1999 (UNAUDITED)...................................... F-5
NOTES TO FINANCIAL STATEMENTS.............................................................................. F-6
FINANCIAL STATEMENTS OF GREATER DUBUQUE RIVERBOAT AND HARBOR COMMUNITY
Independent Auditors' Report............................................................................... F-14
Combined Balance Sheets at December 31, 1997 and 1998 and June 30, 1999 (unaudited)........................ F-15
Combined Statements of Income for the years ended December 31, 1996, 1997 and 1998, and for
the six months ended June 30, 1998 (unaudited) and June 30, 1999 (unaudited)............................ F-16
Combined Statements of Changes in Members' Equity for the years ended December 31, 1996,
1997 and 1998 and the six months ended June 30, 1999 (unaudited)........................................ F-17
Combined Statements of Cash Flows for the year ended December 31, 1996, 1997 and 1998 and
the six months ended June 30, 1998 (unaudited) and June 30, 1999 (unaudited)............................ F-18
Notes to Combined Financial Statements..................................................................... F-20
BALANCE SHEET OF PENINSULA GAMING COMPANY LLC
Independent Auditors' Report............................................................................... F-30
Balance Sheet at July 15, 1999............................................................................. F-31
Note to Balance Sheet...................................................................................... F-32
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION OF THE COMPANY
Unaudited Pro Forma Combined Statement of Income for the year ended
December 31, 1998....................................................................................... PF-2
Unaudited Pro Forma Combined Statement of Income for the six months ended
June 30, 1999........................................................................................... PF-4
</TABLE>
F-1
<PAGE>
PENINSULA GAMING COMPANY, LLC
BALANCE SHEET (UNAUDITED)
SEPTEMBER 30, 1999
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 8,893,654
Accounts receivable 32,530
Inventory 75,319
Prepaid expenses 791,909
-------------
Total current assets 9,793,412
-------------
PROPERTY AND EQUIPMENT, NET (Note 3) 18,913,185
-------------
OTHER ASSETS:
Bond issuance costs, net of amortization of $129,937 4,235,967
Goodwill and other intangible assets, net of amortization of $294,581 56,264,900
Deposits 27,473
-------------
Total other assets 60,528,340
-------------
TOTAL $ 89,234,937
=============
LIABILITIES
CURRENT LIABILITIES:
Accounts payable $ 201,729
Accrued payroll and payroll taxes 866,642
Other accrued expenses 3,563,013
Current maturities of long-term liabilities (Note 5) 165,153
-------------
Total current liabilities 4,796,537
-------------
LONG-TERM LIABILITIES:
Senior secured notes, net of discount (Note 4) 70,196,819
Capital lease obligations, net of current maturities (Note 5) 310,628
-------------
Total long-term liabilities 70,507,447
-------------
Total liabilities 75,303,984
-------------
COMMITMENTS AND CONTINGENCIES (Notes 6 and 8)
PREFERRED MEMBER INTEREST, REDEEMABLE (Note 10) 7,000,000
MEMBERS' EQUITY (Note 9):
Common member interest 9,000,000
Retained deficit (2,069,047)
-------------
Total members' equity 6,930,953
-------------
TOTAL $ 89,234,937
=============
</TABLE>
See notes to financial statements.
F-2
<PAGE>
PENINSULA GAMING COMPANY, LLC
STATEMENT OF OPERATIONS (UNAUDITED)
JULY 15, 1999 (DATE OF INCEPTION) TO SEPTEMBER 30, 1999
<TABLE>
<S> <C>
REVENUES:
Casino $ 10,104,788
Food and beverage 503,447
Other 54,823
Less promotional allowances (133,110)
---------------
Total net revenues 10,529,948
---------------
EXPENSES:
Casino 3,808,972
Food and beverage 744,345
Boat operations 423,758
Other 11,202
Selling, general and administrative 1,673,400
Start-up and organization costs 3,134,095
Depreciation and amortization 691,910
---------------
Total expenses 10,487,682
---------------
INCOME FROM OPERATIONS 42,266
---------------
OTHER INCOME (EXPENSE):
Interest income 57,111
Interest expense (1,957,546)
Loss on sale of assets (8,175)
---------------
Total other expense (1,908,610)
---------------
NET LOSS BEFORE PREFERRED DIVIDENDS $ (1,866,344)
Less preferred dividends 131,250
---------------
NET LOSS TO COMMON INTERESTS $ 1,997,594
===============
</TABLE>
See notes to financial statements.
F-3
<PAGE>
PENINSULA GAMING COMPANY, LLC
STATEMENT OF CHANGES IN MEMBERS' EQUITY (UNAUDITED)
JULY 15, 1999 (DATE OF INCEPTION) TO SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
COMMON COMMON
MEMBER RETAINED TOTAL MEMBERS'
INTEREST EARNINGS EQUITY
<S> <C> <C> <C>
BALANCE, JULY 15, 1999 $ 9,000,000 $ 9,000,000
Net loss to common interests $(1,997,594) (1,997,594)
Member distributions (71,453) (71,453)
--------------- ---------------- -----------------
BALANCE, SEPTEMBER 30, 1999 $ 9,000,000 $ (2,069,047) $ 6,930,953
=============== =============== =================
</TABLE>
See notes to financial statements.
F-4
<PAGE>
PENINSULA GAMING COMPANY, LLC
STATEMENT OF CASH FLOWS (UNAUDITED)
JULY 15, 1999 (DATE OF INCEPTION) TO SEPTEMBER 30, 1999
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss to common interests $ (1,997,594)
Adjustments to reconcile net loss to net cash flows
provided by operating activities:
Depreciation and amortization 691,911
Amortization of bond issuance costs and bond discount 145,567
Loss on sale of assets 8,175
Changes in operating assets and liabilities:
Receivables (8,852)
Inventory (2,375)
Deposits (743,083)
Accounts payable 191,750
Accrued expenses 3,883,013
--------------
Net cash provided by operating activities 2,168,512
--------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment 25,000
Purchase of property and equipment (43,690)
Acquisition, net of cash acquired (68,000,000)
--------------
Net cash used by investing activities (68,018,690)
--------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from senior secured notes 70,181,189
Bond issuance costs (4,365,904)
Proceeds from issuance of common membership interest 9,000,000
Member distributions (71,453)
--------------
Net cash provided by financing activities 74,743,832
--------------
NET INCREASE IN CASH 8,893,654
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD -
--------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 8,893,654
==============
SUPPLEMENTAL DISCLOSURES OF NONCASH FINANCING ACTIVITIES:
Issuance of preferred member interest, redeemable (Notes 1 and 10) $ 7,000,000
</TABLE>
See notes to financial statements.
F-5
<PAGE>
PENINSULA GAMING COMPANY, LLC
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- -------------------------------------------------------------------------------
1. ORGANIZATION, BUSINESS PURPOSE AND BASIS OF PRESENTATION
Peninsula Gaming Company, LLC (the "Company") is a wholly-owned
subsidiary of Peninsula Gaming Partners, LLC ("PGP"). The Company is a
Delaware limited liability company formed on January 26, 1999 for the
purpose of purchasing assets comprising the Diamond Jo Casino and
related real property.
The common membership interests of the Company are wholly-owned by PGP.
The Company and PGP completed the sale of $71,000,000 of 12 1/4% Senior
Secured Notes due 2006 and $3,000,000 in convertible preferred
membership interests, respectively, during July 1999. Concurrently with
the sale of the securities, the Company received a $9.0 million capital
contribution from PGP ($6.0 million of which was contributed to the
capital of PGP by common members of PGP and $3.0 million of which was
contributed to the capital of PGP through the sale of PGP of
convertible preferred membership interests as previously described).
The proceeds for the above transactions were used to complete the
purchase of certain assets comprising the Diamond Jo casino and related
real property. On July 15, 1999, the Company acquired substantially all
of the assets of Greater Dubuque Riverboat Entertainment Company, L.C.
("GDREC") and Harbor Community Investment, L.C. ("HCI") for
$77,000,000. The purchase price was $70.0 million cash ($68.0 million
net of casino cash acquired of $2.0 million) and $7.0 million in
redeemable preferred membership interests (see note 10). For financial
statement purposes the acquisition was accounted for as a purchase and,
accordingly, included in the Company's results since the date of the
acquisition. The purchase price has been preliminarily allocated to the
assets purchased and the liabilities assumed based upon the fair values
on the date of the acquisition, as follows:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Property and equipment $ 19,300
Current assets, other than cash acquired 78
Goodwill and other intangibles 56,559
--------------
Total assets 75,937
Liabilities (937)
--------------
Total Purchase Price $ 75,000
==============
</TABLE>
The excess of the total acquisition costs over the fair market value of
net assets acquired has been recorded as goodwill and other intangible
assets and will be amortized on a straight-line basis over forty years.
The following unaudited pro forma information presents a summary of the
consolidated results of operations of the Company, GDREC and HCI as if
the acquisition had occurred January 1, 1997.
Pro Forma Information (Unaudited)
<TABLE>
<CAPTION>
(in thousands)
<S> <C> <C>
Years Ended December 31, 1998 1997
Net Sales $45,849 $42,621
F-6
<PAGE>
Net Income 3,136 3,371
</TABLE>
The pro forma results do not purport to be indicative of results
that would have occurred had the acquisition been in effect for
the periods presented, nor do they purport to be indicative of the
results that will be obtained in the future.
The accompanying unaudited interim financial statements have been
prepared by the Company in accordance with generally accepted
accounting principles for interim financial reporting and the
regulations of the Securities and Exchange Commission for quarterly
reporting. Accordingly, they do not include all information and
footnotes required by generally accepted accounting principles for
complete financial information. The foregoing unaudited interim
financial statements reflect all adjustments, which, in the opinion of
management, are necessary to reflect a fair presentation of the
financial position, the result of the operations and cash flows of the
Company for the interim period presented. All adjustments, in the
opinion of management, are normal and recurring in nature. Operating
results from July 15, 1999 (date of inception) through September 30,
1999 are not necessarily indicative of the results that may be expected
for the period ended December 31,1999.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONCENTRATION OF RISKS - The Company's management estimates that
regular customers are concentrated within 100 miles of the facility
representing approximately 95% of the Company's customer base at
September 30, 1999. The remaining 5% includes groups, tourists and
highway travelers that live beyond 100 miles.
CASH AND CASH EQUIVALENTS - The Company considers all cash on hand and
in banks, certificates of deposit and other highly liquid debt
instruments purchased with original maturities of three months or less
to be cash equivalents.
ALLOWANCE FOR DOUBTFUL ACCOUNTS - The allowance for doubtful accounts
is maintained at a level considered adequate to provide for possible
future losses. The provision for doubtful accounts of $18,994 was
recorded for the period July 15, 1999 through September 30, 1999.
INVENTORIES - Inventories consisting principally of food, beverage,
retail items, and operating supplies are stated at the lower of
first-in, first-out cost or market.
PROPERTY AND EQUIPMENT - Property and equipment are recorded at cost
and capitalized lease assets are recorded at their fair market value at
the inception of the lease. Major renewals and improvements are
capitalized, while maintenance and repairs are expensed as incurred.
Depreciation and amortization are computed on a straight-line basis
over the following estimated useful lives:
<TABLE>
<S> <C>
Land improvements 20-40 years
Building and portside improvements 9-40 years
Riverboat and improvements 5-20 years
Furniture, fixtures and equipment 3-10 years
Computer equipment 3- 5 years
Vehicles 5 years
</TABLE>
BOND ISSUANCE COSTS - Costs associated with the issuance of the bonds
have been deferred and are being amortized over the life of the bonds
using the effective interest method.
GOODWILL AND OTHER INTANGIBLE ASSETS - The excess of total acquisition
costs over the fair market value of net assets acquired is amortized
using the straight-line method over forty years. Management
periodically assesses the recoverability of goodwill and other
intangible assets by comparing its
F-7
<PAGE>
carrying value to the undiscounted cash flows expected to be generated
by the acquired operation during the anticipated period of benefit.
LONG-LIVED ASSETS - Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" requires, among other things, that
an entity review its long-lived assets and certain related intangibles
for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be fully recoverable.
Under the standard, if the sum of the expected future undiscounted cash
flows is less than the carrying amount of the asset, an impairment
loss is recognized. The impairment is measured based on the fair
value of the asset. The Company does not believe that any such
events or changes have occurred.
FINANCIAL INSTRUMENTS - The carrying amount for financial instruments
included among cash and cash equivalents, accounts receivable, accounts
payable and security deposits approximates their fair value based on
the short maturity of those instruments.
INCOME TAXES - The Company is limited liability Company. In lieu of
corporation income taxes, the members of a limited liability company
are taxed on their proportionate share of the Company's taxable income.
Therefore, no provision or liability for federal income taxes has been
included in the financial statements.
GAMING REVENUE - Gaming revenue is the net win from gaming activities,
which is the difference between gaming wins and losses.
PROMOTIONAL ALLOWANCES - Food, beverage, and other items furnished
without charge to customers are included in gross revenues at a value
which approximates retail and then deducted as complimentary services
to arrive at net revenues. The cost of such complimentary services is
charged to operating expenses in the department that provided the
service. Such estimated costs of providing complimentary services from
July 15, 1999 (date of inception) to September 30, 1999 is $61,907 and
$5,981 for food and beverage and other, respectively.
ADVERTISING - The Company's policy is to expense all advertising costs
as incurred.
USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
RECENT ACCOUNTING PRONOUNCEMENTS - The Financial Accounting Standards
Board has issued a new standard, "Reporting Comprehensive Income"
("SFAS 130"). SFAS 130 requires the presentation and disclosure of
comprehensive income, which is defined as the change in a company's
equity resulting from nonowner transactions and events. SFAS 130 became
effective December 15, 1997 and requires the reclassification of all
prior periods presented. The Company has adopted the provisions of SFAS
130; however, the statement provides that an enterprise that has no
items of other comprehensive income for any period presented need only
report net income. The Company has no comprehensive income items for
any period presented; accordingly, the presentation and disclosure
requirements of SFAS 130 are not deemed necessary.
The FASB has also issued Statement 131, "Disclosures about Segments of
an Enterprise and Related Information" ("SFAS 131"). SFAS 131, which
became effective for fiscal years beginning after December 15, 1997,
requires publicly-held companies to report financial and descriptive
information concerning their reportable operating segments. An
operating segment is designed as a component of a business which (i)
earns revenues and incurs expenses, (ii) has its operating results
reviewed on a
F-8
<PAGE>
regular basis by the company's chief operating decision maker to
determine how the company's resources should be allocated and to assess
its performance and (iii) has separate financial information available.
The Company's operations consist of its casino and related facilities.
The Company is considered a single operating unit due to the dependence
of the food and beverage and other operations on casino patrons. Such
noncasino activities are considered ancillary to the gaming business,
are reviewed as such by management and can not reasonably be presented
as separate operating segments. Accordingly, additional segment
information is not presented herein.
In June 1998, the FASB issued a new statement, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"), effective
for fiscal years beginning after June 15, 2000. SFAS 133 requires,
among other things, that derivatives be recorded on the balance sheet
at fair value. Changes in the fair value of derivatives may, depending
on circumstances, be recognized in earnings or deferred as a component
of shareholders' equity until a hedged transaction occurs. In June
1999, the FASB issued Statement No. 137, Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective Date of
FASB Statement No. 133. Under the new effective date, the Company
currently expects to adopt FASB Statement No. 133, Accounting for
Derivative Instruments and Hedging Activities, in year 2001. The
effect on the Company's financial position and results of operations
is not expected to be material.
REPORTING ON THE COSTS OF START-UP ACTIVITIES - In April 1998, the
American Institute of Certified Public Accountants issued the Statement
of Position 98-5, "Reporting on the Costs of Start-Up Activities, ("SOP
98-5"). SOP 98-5 requires that costs of start-up activities and
organization costs be expenses as incurred and is effective for the
Company in 1999. The Company has expensed organizational costs relating
to acquisition during the period ended September 30, 1999.
3. PROPERTY AND EQUIPMENT
Property and equipment at September 30, 1999 are summarized as follows:
<TABLE>
<S> <C>
Land $ 800,000
Building and portside improvement 5,700,000
Riverboats and improvements 7,725,927
Furniture, fixtures and equipment 4,107,599
Computer equipment 198,111
Vehicles 50,000
Equipment held under capital lease obligations 704,527
------------------
Subtotal 19,286,164
Accumulated depreciation (372,979)
------------------
Property and equipment, net $ 18,913,185
==================
</TABLE>
4. SENIOR SECURED NOTES
Senior Secured Notes is as follows:
<TABLE>
<S> <C>
Senior Secured Notes $ 71,000,000
Less: discount 803,181
------------------
Senior Secured Notes, net of discount $ 70,196,819
==================
</TABLE>
On July 15, 1999, the Company issued $71 million of 12.25% Senior
Secured Notes (the "Notes") due July 1, 2006. Interest on the Notes is
payable semiannually on July 1 and January 1 of each year, commencing
on January 1, 2000. The Notes are collateralized by certain cash
accounts and
F-9
<PAGE>
substantially all fixed assets. The Notes contain various restrictive
covenants, which, among others, restrict the Company from paying
dividends and making restricted investments.
The carrying amount of the notes approximates the estimated fair value
based on the credit, interest rate and the terms of the obligation.
The Notes are not redeemable at the Company's option prior to July 1,
2003. Thereafter, the notes may be redeemed at the option of the
Company, in whole or part, upon not less than 30 nor more than 60 day's
notice, at the redemption prices (expressed as percentages of principal
amount) set forth below, plus accrued and unpaid interest thereon, if
any, to the applicable date of redemption, if redeemed during the
12-month period beginning on July 1 of the years indicated below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2003 108.00%
2004 105.33
2005 102.67
</TABLE>
Notwithstanding for foregoing, at any time or from time to time prior
to July 1, 2002, the Company may redeem, at their option, up to 35% of
the aggregate principal amount of the notes then outstanding at a
redemption price of 112.25% of the principal amount thereof, plus
accrued and unpaid interest thereon, if any, through the applicable
date of redemption, with the net cast proceeds of one or more equity
offerings; provided, the such redemption shall occur within 60 days of
the date of closing of such equity offering and (ii) at least 65% of
the aggregate principal amount of Notes issued on or after the issue
date remains outstanding immediately after giving effect to each such
redemption.
The restrictions on the optional redemption contained in the Notes do
not limit the Company's right to separately make open market, privately
negotiated or other purchases on the Notes from time to time.
5. CAPITAL LEASE OBLIGATION
Capital lease obligation at September 30, 1999 is as follows:
Liability under capital leases, due in monthly installments of $21,356
for 24 months and $9,826 for one month, including interest at a fixed
rate of 9%. Final payment is due 25 months after the initial payment is
made. Payments are anticipated to begin in January 2000 after final
acceptance of the system. The leases are collateralized by equipment
with a net book value of $666,596 at September 30, 1999:
<TABLE>
<S> <C>
1999 $ 475,781
Less current portion (165,153)
-----------------
$ 310,628
=================
</TABLE>
Future minimum lease payments under capital lease for the years ended
December 31 are as follows:
<TABLE>
<S> <C>
1999 $ -
2000 256,272
2001 256,272
F-10
<PAGE>
2002 9,826
-------------
Total minimum lease payments 522,370
Less amounts representing interest (46,589)
--------------
Present value of future minimum lease payments 475,781
Less current portion (165,153)
--------------
Long-term capital lease obligation $ 310,628
==============
</TABLE>
6. LEASING ARRANGEMENTS
The Company leases various equipment under noncancelable operation
leases. The leases require fixed monthly payments to be made ranging
from $523 to $1,131 and certain other gaming machines and tables
require contingent monthly rental payments based on usage of the
equipment. The leases expire on various dates in 2000 and 2002. Rent
expense for the period ended September 30, 1999 was $223,028 including
contingent rentals of $188,988.
The future minimum rental payments required under these leases for the
years ended December 31 are summarized as follows:
<TABLE>
<S> <C>
1999 $ 4,961
2000 16,366
2001 13,569
2002 4,523
-----------
$ 39,419
===========
</TABLE>
7. UNINSURED CASH BALANCES
The Company maintains deposit accounts at a local bank. At September
30, 1999 and various times during the period then ended, the balance at
the bank exceeded the maximum amount insured by the FDIC. Management
believes any credit risk related to the uninsured balance is minimal.
8. COMMITMENTS AND CONTINGENCIES
The Company is involved in various legal actions arising in the normal
course of business. In the opinion of management, such matters will not
have a material effect upon the financial position of the Company.
9. MEMBERS' EQUITY
On July 15, 1999, the Company authorized and issued $9.0 million of
common membership interests. Peninsula Gaming Partners, LLC ("PGP"),
the Company's parent, as the holder of all of the Company's issued and
outstanding common membership interests, is entitled to vote on all
matters to be voted on by holders of common membership interests of the
Company and, subject to certain limitations contained in the Company's
operating agreement and the indenture governing the notes, is entitled
to dividends and other distributions if, as and when declared by the
Company's managers out of funds legally available therefor.
10. PREFERRED MEMBERSHIP INTERESTS - REDEEMABLE
F-11
<PAGE>
On July 15, 1999, the Company authorized and issued $7.0 million of
preferred membership interests. The holders of all of the Company's
preferred membership interests are entitled to receive, subject to
certain restrictions contained in the indenture governing the notes,
out of funds legally available therefor, cumulative preferred
distributions payable semiannually at an annual rate of 9% of the
original face amount thereof. Other than certain limited consent rights
and as required by law, holders of the Company's preferred membership
interests have no voting rights.
Subject to certain limitations contained in the indenture governing the
notes, to the extent not used for any indemnification obligations of
the holders under the acquisition agreements, the Company must redeem
$3.0 million in original face amount of its preferred membership
interests on January 15, 2001 at a redemption price of $3.0 million,
plus any accrued and unpaid preferred distributions through the date of
redemption. Certain managers of PGP, who collectively have the ability
of control have guaranteed the Company's obligation to redeem up to
$3.0 million of such preferred membership interests, plus any accrued
and unpaid preferred distributions through the date of redemption. The
balance of preferred membership interests not required to be redeemed
by the Company on January 15, 2001 must be redeemed by the Company 90
days after the seventh anniversary of the closing date of the
acquisition at a redemption price of $4.0 million, plus any accrued and
unpaid preferred distributions through the date of redemption.
Under the terms of the acquisition agreements, preferred membership
interests in an original face amount of $3.0 million are currently
being held in escrow until January 15, 2001 as security for certain
indemnification obligations of the holders thereunder.
11. DUBUQUE RACING ASSOCIATION, LTD. CONTRACT
Dubuque Racing Association, Ltd. (the "Association"), a qualified
sponsoring organization, presently holds a license to conduct gambling
games under Chapter 99F and other Iowa statutes. The Association owns
Dubuque Greyhound park, a traditional greyhound race track with 600
slot machines and amenities including a gift shop, restaurant and
clubhouse.
The Company entered into a contract (the "Operating Agreement") with
the Association relating to the operation of an excursion gambling
riverboat for three excursion seasons through March 31, 2002, under
gambling licenses held jointly.
Under the terms of the Operating Agreement, subject to certain
conditions, the Association shall receive the greater of the
Association's gaming revenues from the greyhound park for the period,
or a percentage of the total combined gaming revenues of the
Association's from the greyhound park and the Company as follows:
- 32% of the first $30,000,000 of total combined gaming revenues, plus
- 8% of the total combined gaming revenues of $30,000,000, but less
than $42,000,000
- 8% of total combined gaming revenues between $42,000,000 and
$46,000,000 during any period for which no excursion boat
gambling or land based gambling operation is carried on from a
Wisconsin or Illinois gambling operation in Grant County,
Wisconsin, or Jo Davies, County, Illinois.
F-12
<PAGE>
Gaming revenues under this contract means adjusted gross receipts, less
gaming taxes.
Commencing April 1, 2000, and continuing thereafter, the Company shall
additionally pay the Association the sum of $.50 for each patron admitted
on the boat, which, based upon recent annual attendance, would approximate
$500,000 annually.
In the event the Company shall desire to sell or lease the excursion
gambling boat, its furnishings and gambling equipment and/or its interest
in any ticket sale facility or other buildings located in the Dubuque Ice
Harbor used in connection with the operation of an excursion gambling
boat, to a third party that does not agree to operate said asset subject
to the terms and conditions of the Operating Agreement, and obtains an
acceptable offer from said third party for the purchase or lease of the
excursion gambling boat and its furnishings, equipment, and/or its
interest in said building, the Association shall have the option to
purchase or lease the excursion gambling boat, its furnishings, and/or the
Company's interest in the building or its lease of the same for the amount
of the acceptable offer made by a third party and upon the same terms and
conditions as set forth in a third party offer. Gaming revenues for the
period from inception to September 30, 1999 (annualized) for the
Association were higher than the previously described thresholds,
therefore, no payments have been made to the Association for the period
ended September 30, 1999 under the Operating Agreement.
F-13
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Members
Greater Dubuque Riverboat Entertainment Company, L.C.
and Harbor Community Investment, L.C.
Dubuque, Iowa
We have audited the accompanying combined balance sheets of Greater
Dubuque Riverboat Entertainment Company, L.C. and Harbor Community Investment,
L.C., both of which are under common ownership and common management, as of
December 31, 1997 and 1998, and the related combined statements of income,
changes in members' equity, and cash flows for each of the three years in the
period ended December 31, 1998. These financial statements are the
responsibility of the companies' management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above
present fairly, in all material respects, the combined financial position of
Greater Dubuque Riverboat Entertainment Company, L.C. and Harbor Community
Investment, L.C. as of December 31, 1997 and 1998, and the combined results of
their operations and their combined cash flows for each of the three years in
the period ended December 31, 1998 in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
Cedar Rapids, Iowa
March 31, 1999
F-14
<PAGE>
GREATER DUBUQUE RIVERBOAT ENTERTAINMENT COMPANY, L.C.
AND HARBOR COMMUNITY INVESTMENT, L.C.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------------- ------------
1997 1998 1999
----------- ----------- ------------
(NOTE 2)
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......................... $5,782,377 $5,820,717 $5,118,094
Investments available for sale (Note 3)............ 509,363
Accounts receivable................................ 175,837 101,289 123,867
Inventory.......................................... 77,604 80,242 83,329
Prepaid expenses................................... 219,455 255,648 212,310
----------- ----------- -----------
Total current assets.................................. 6,255,273 6,767,259 5,537,600
----------- ----------- -----------
PROPERTY AND EQUIPMENT--Net (Note 4)................... 22,371,993 22,281,527 21,494,458
----------- ----------- -----------
OTHER ASSETS (Note 5)................................. 287,748 203,446 145,276
----------- ----------- -----------
TOTAL................................................. $28,915,014 $29,252,232 $27,177,334
----------- ----------- -----------
----------- ----------- -----------
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................... $248,803 $420,266 $207,062
Accrued payroll and payroll taxes.................. 930,015 935,174 1,532,618
Other accrued expenses............................. 1,123,161 1,377,597 1,171,392
Current maturities of long-term liabilities
(Notes 6 and 7)....................................... 4,527,274 5,399,565 3,708,551
----------- ----------- -----------
Total current liabilities............................. 6,829,253 8,132,602 6,619,623
----------- ----------- -----------
LONG-TERM LIABILITIES:
Notes payable, net of current maturities (Note 6).. 10,572,799 4,056,691 3,204,141
Capital lease obligations, net of current
maturities (Note 7)............................. 365,931 310,804
----------- ----------- -----------
Total long-term liabilities........................... 10,572,799 4,422,622 3,514,945
----------- ----------- -----------
Total liabilities..................................... 17,402,052 12,555,224 10,134,568
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES
(Notes 9 and 11)
MEMBERS' EQUITY (Note 12):
Member interest.................................... 4,100,000 4,100,000 4,100,000
Unrealized gain on investments available for sale.. 1,508
Retained earnings.................................. 7,412,962 12,595,500 12,942,766
----------- ----------- -----------
Total members' equity................................. 11,512,962 16,697,008 17,042,766
----------- ----------- -----------
TOTAL................................................. $28,915,014 $29,252,232 $27,177,334
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See notes to combined financial statements.
F-15
<PAGE>
GREATER DUBUQUE RIVERBOAT ENTERTAINMENT COMPANY, L.C.
AND HARBOR COMMUNITY INVESTMENT, L.C.
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
-------------------------- -------------------------
1996 1997 1998 1998 1999
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Casino.............................. $40,267,077 $40,571,618 $44,166,688 $21,237,844 $21,992,638
Food and beverage................... 2,104,085 2,034,238 1,959,797 927,083 1,060,090
Other............................... 307,517 395,192 276,124 130,641 105,840
Less--promotional allowances......... (426,910) (379,938) (553,123) (229,016) (255,777)
----------- ------------ ----------- ----------- -----------
Net revenues.................. 42,251,769 42,621,110 45,849,486 22,066,552 22,902,791
----------- ------------ ----------- ----------- -----------
EXPENSES:
Casino.............................. 16,013,531 16,334,849 17,272,814 8,371,204 9,007,588
Food and beverage................... 2,980,277 2,556,795 2,830,575 1,342,537 1,572,301
Boat operations..................... 1,996,886 2,005,068 2,056,377 1,008,132 963,999
Other............................... 85,924 75,800 67,907 33,000 26,774
Selling, general and
administrative...................... 9,573,537 6,946,529 7,515,115 3,588,443 3,690,813
Depreciation and amortization....... 2,025,706 1,826,179 1,894,763 897,900 1,065,896
Sale of business expenses
(Note 13)........................... 93,350 716,655 181,474 326,620
Ownership litigation (Note 11)...... 58,318 76,833 211,388 51,104 298,537
----------- ------------ ----------- ----------- -----------
Total expenses...................... 32,734,179 29,915,403 32,565,594 15,473,794 16,952,528
----------- ------------ ----------- ----------- -----------
INCOME FROM
OPERATIONS.......................... 9,517,590 12,705,707 13,283,892 6,592,758 5,950,263
----------- ------------ ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest income..................... 80,510 222,238 141,967 64,212 72,423
Interest expense.................... (1,812,756) (1,772,165) (1,142,122) (664,266) (319,202)
Loss on sale of assets (Note 4)..... (6,877,512) (88,014) (73,726) (48,312) (97,750)
----------- ------------ ----------- ----------- -----------
Total other expense........... (8,609,758) (1,637,941) (1,073,881) (648,366) (344,529)
----------- ------------ ----------- ----------- -----------
NET INCOME.......................... $907,832 $11,067,766 $12,210,011 $5,944,392 $5,605,734
----------- ------------ ----------- ----------- -----------
----------- ------------ ----------- ----------- -----------
</TABLE>
See notes to combined financial statements.
F-16
<PAGE>
GREATER DUBUQUE RIVERBOAT ENTERTAINMENT COMPANY, L.C.
AND HARBOR COMMUNITY INVESTMENT, L.C.
COMBINED STATEMENTS OF CHANGES IN MEMBERS' EQUITY
<TABLE>
<CAPTION>
UNREALIZED
GAIN ON
INVESTMENTS TOTAL
MEMBER MEMBER AVAILABLE RETAINED MEMBERS'
UNITS INTEREST FOR SALE EARNINGS EQUITY
----- -------- -------- -------- ------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996............ 116 $4,600,000 $3,400,250 $8,000,250
Net income....................... 907,832 907,832
Member distributions............. (1,379,986) (1,379,986)
-------- ----------- ------------ -----------
BALANCE, DECEMBER 31,
1996............................. 116 4,600,000 2,928,096 7,528,096
Net income....................... 11,067,766 11,067,766
Member distributions............. (6,582,900) (6,582,900)
Retired units.................... (4) (500,000) (500,000)
-------- ----------- ------------ -----------
BALANCE, DECEMBER 31,
1997............................. 112 4,100,000 7,412,962 11,512,962
Net income....................... 12,210,011 12,210,011
Member distributions............. (7,027,473) (7,027,473)
Unrealized gain on securities
available for sale............ $1,508 1,508
-------- ----------- ---------- ------------ -----------
BALANCE, DECEMBER 31,
1998............................. 112 $4,100,000 $1,508 $12,595,500 $16,697,008
Net income (unaudited)........... 5,605,734 5,605,734
Member distributions
(unaudited)................... (5,258,468) (5,258,468)
Change in unrealized gain on
securities available for sale
(unaudited)................... (1,508) (1,508)
-------- ----------- ---------- ------------ -----------
BALANCE, JUNE 30, 1999
(unaudited)...................... 112 $4,100,000 $-- $12,942,766 $17,042,766
-------- ----------- ---------- ------------ -----------
-------- ----------- ---------- ------------ -----------
</TABLE>
See notes to combined financial statements.
F-17
<PAGE>
GREATER DUBUQUE RIVERBOAT ENTERTAINMENT COMPANY, L.C.
AND HARBOR COMMUNITY INVESTMENT, L.C.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------ --------
1996 1997 1998 1998 1999
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING
ACTIVITIES:
Net income....................... $907,832 $11,067,766 $12,210,011 $5,944,392 $5,605,734
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization.... 2,025,706 1,826,179 1,894,763 897,900 1,065,897
Loss on sale of assets........... 6,877,512 88,014 73,726 48,312 97,750
Changes in assets and
liabilities:
Accounts receivable.............. (102,540) 41,587 74,548 24,414 (22,578)
Inventory........................ (22,371) 1,135 (2,638) (3,576) (3,085)
Prepaid expenses................. 209,194 (23,760) (36,193) (96,578) 43,338
Other assets..................... 58,896 (454) (7,483) (29,983)
Accounts payable................. (579,381) (51,077) 171,463 166,130 (213,204)
Accrued expenses................. 764,740 (427,731) 259,595 362,790 391,240
------------ ------------ ------------ ----------- -----------
Net cash provided by operating
activities.................... 10,139,588 12,521,659 14,637,792 7,313,801 6,965,092
------------ ------------ ------------ ----------- -----------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Proceeds from sale of property
and equipment................. 92,798 107,510 76,552 35,455
Purchase of property and
equipment..................... (17,811,668) (918,496) (1,392,968) (594,329) (358,011)
Payment on notes receivable...... 149,959 4,522,041
Proceeds from sale of available
for sale securities........... 512,000
Purchase of securities available
for sale...................... (507,855)
Purchase of certificate of
deposit....................... (500,000)
Proceeds from maturity of
certificate of deposit........ 500,000
------------ ------------ ------------ ----------- -----------
Net cash provided (used) by
investing activities.......... (18,161,709) 4,196,343 (1,793,313) (517,777) 189,444
------------ ------------ ------------ ----------- -----------
F-18
<PAGE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------ --------
1996 1997 1998 1998 1999
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
FINANCING
ACTIVITIES:
Payments on long-term
liabilities................... (5,409,711) (8,031,439) (5,753,666) (2,260,996) (2,598,691)
Proceeds from long-term
liabilities................... 17,423,595
Payments for debt refinancing
costs......................... (385,000) (25,000)
Member units retired............. (500,000)
Member distributions............. (1,379,986) (6,582,900) (7,027,473) (4,601,577) (5,258,468)
------------ ------------ ------------ ----------- -----------
Net cash provided (used) by
financing activities.......... 10,248,898 (15,114,339) (12,806,139) (6,862,573) (7,857,159)
------------ ------------ ------------ ----------- -----------
NET INCREASE IN CASH............. 2,226,777 1,603,663 38,340 (66,549) (702,623)
CASH AND CASH
EQUIVALENTS AT
BEGINNING OF YEAR............. 1,951,937 4,178,714 5,782,377 5,782,377 5,820,717
------------ ------------ ------------ ----------- -----------
CASH AND CASH
EQUIVALENTS AT END
OF YEAR....................... $4,178,714 $5,782,377 $5,820,717 $5,715,828 $5,118,094
------------ ------------ ------------ ----------- -----------
------------ ------------ ------------ ----------- -----------
SUPPLEMENTAL
DISCLOSURES OF CASH
FLOW
INFORMATION--Cash
paid during the year for
interest...................... $1,673,052 $1,854,368 $1,148,868 $682,880 $340,164
SUPPLEMENTAL
DISCLOSURES OF
NONCASH INVESTING
AND FINANCING
ACTIVITIES:
Unrealized gain on sale of
securities available for sale. 1,508
Change in unrealized gain on
securities available for sale. 1508
Capital lease obligation
incurred to acquire
equipment..................... 475,780
Notes receivable obtained as a
result of sale of fixed asset. 4,672,000
</TABLE>
See notes to combined financial statements.
F-19
<PAGE>
GREATER DUBUQUE RIVERBOAT ENTERTAINMENT COMPANY, L.C.
AND HARBOR COMMUNITY INVESTMENT, L.C. NOTES TO
COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS
Greater Dubuque Riverboat Entertainment Company, L.C. ("Greater
Dubuque Riverboat"), which is licensed by the Iowa Racing and Gaming Commission
("IRGC"), is an Iowa limited liability company with 52 members (who collectively
own 112 units). Greater Dubuque Riverboat was organized and incorporated during
May 1994 for the purpose of developing and holding the ownership interest in a
riverboat gaming operation located in Dubuque, Iowa (the "Diamond Jo Casino").
The same members own Harbor Community Investment, L.C. ("Harbor
Community") which was formed April 8, 1996 to own and lease land and buildings
in an area of Dubuque, Iowa known as the Ice Harbor.
The combined financial statements, therefore, include the accounts and
operations of Greater Dubuque Riverboat and Harbor Community. These two entities
are collectively referred to as the Company. All material intercompany balances
and transactions have been eliminated in the combined financial statements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONCENTRATION OF RISKS--The Company's management estimates that regular
customers are concentrated within 100 miles of the facility representing
approximately 95% of the Company's customer base at December 31, 1996, 1997 and
1998. The remaining 5% includes groups, tourists and highway travelers that live
beyond 100 miles.
CASH AND CASH EQUIVALENTS--The Company considers all cash on hand and
in banks, certificates of deposit and other highly liquid debt instruments
purchased with original maturities of three months or less to be cash
equivalents.
INVESTMENTS AVAILABLE FOR SALE--The Company accounts for its
investments using Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" ("SFAS No.
115"). This standard requires that certain debt and equity securities be
adjusted to market value at the end of each accounting period. Unrealized market
value gains and losses are charged to earnings if the securities are traded for
short-term profit. Otherwise, such unrealized gains and losses are charged or
credited to a separate component of members' equity.
Gains and losses on the sale of available for sale securities are
determined using the specific identification method. The amortization of
premiums and the accretion of discounts are recognized in interest income using
the interest method over the period to maturity.
ACCOUNTS RECEIVABLE--Bad debts are charged to operations in the year in
which the account is determined uncollectible.
INVENTORIES--Inventories consisting principally of food, beverages, and
operating supplies are stated at the lower of cost (first-in, first-out method)
or market.
PROPERTY AND EQUIPMENT--Property and equipment is carried at cost and
capitalized lease assets are stated at their fair value at the inception of the
lease. Major renewals are capitalized, while maintenance and repairs are
expensed when incurred. Depreciation and amortization are computed by the
straight-line method over the following estimated useful lives:
F-20
<PAGE>
GREATER DUBUQUE RIVERBOAT ENTERTAINMENT COMPANY, L.C.
AND HARBOR COMMUNITY INVESTMENT, L.C. NOTES TO
COMBINED FINANCIAL STATEMENTS
(Continued)
<TABLE>
<S> <C>
Land improvements............................. 20-40 years
Building...................................... 40 years
Riverboat and improvements.................... 18-20 years
Leasehold improvements........................ 20-40 years
Furniture, fixtures and equipment............. 3-10 years
Computer equipment............................ 5 years
Vehicles...................................... 5 years
</TABLE>
INTANGIBLE ASSETS--Intangible assets subject to amortization include
loan commitment fees and organization costs. Loan commitment fees are being
amortized straight-line over the life of the related loan. Organization costs
are being amortized straight-line over a period of 60 months.
LONG-LIVED ASSETS--Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" requires, among other things, that an entity review its
long-lived assets and certain related intangibles for impairment whenever event
or changes in circumstances indicate that the carrying amount of an asset may
not be fully recoverable. Under the standard, if the sum of the expected future
undiscounted cash flows is less than the carrying amount of the asset, an
impairment loss is recognized. The impairment is measured based on the estimated
fair value of the asset. The Company does not believe that any such events or
changes have occurred.
FINANCIAL INSTRUMENTS--The carrying amount for financial instruments
included among cash and cash equivalents, accounts receivable, accounts payable
and security deposits approximates their fair value based on the short maturity
of those instruments. The carrying amount of notes payable approximates their
estimated fair value based on the credit, interest rate and terms of the
obligations.
INCOME TAXES--The Company is a limited liability Company. In lieu of
corporation income taxes, the members of a limited liability company are taxed
on their proportionate share of the Company's taxable income. Therefore, no
provision or liability for federal income taxes has been included in the
financial statements.
GAMING REVENUE--Gaming revenue is the net win from gaming activities,
which is the difference between gaming wins and losses.
PROMOTIONAL ALLOWANCES--Food, beverage, and other items furnished
without charge to customers are included in gross revenues at a value which
approximates retail and then deducted as complimentary services to arrive at net
revenues. The cost of such complimentary services is charged to operating
expenses in the department that provided the service. Such estimated costs of
providing complimentary services for the years ending December 31, 1996, 1997
and 1998 is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------- --------
1996 1997 1998 1998 1999
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Food and beverage........................ $214,928 $198,194 $255,354 $119,029 $118,247
F-21
<PAGE>
GREATER DUBUQUE RIVERBOAT ENTERTAINMENT COMPANY, L.C.
AND HARBOR COMMUNITY INVESTMENT, L.C. NOTES TO
COMBINED FINANCIAL STATEMENTS
(Continued)
Other.................................... 21,607 10,530 14,264 6,773 7,801
</TABLE>
ADVERTISING--The Company's policy is to expense all advertising costs
as incurred.
USE OF ESTIMATES--The preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates.
RECENT ACCOUNTING PRONOUNCEMENTS--The Financial Accounting Standards
Board has issued a new standard, "Reporting Comprehensive Income" ("SFAS
130"). SFAS 130 requires the presentation and disclosure of comprehensive
income, which is defined as the change in a company's equity resulting from
nonowner transactions and events. SFAS 130 became effective December 15, 1997
and requires the reclassification of all prior periods presented. The Company
has adopted the provisions of SFAS 130; however, the statement provides that
an enterprise that has no items of other comprehensive income for any period
presented need only report net income. The Company has no significant
comprehensive income items for any period presented; accordingly, the
presentation and disclosure requirements of SFAS 130 are not deemed necessary.
The FASB has also issued Statement 131, "Disclosures about Segments
of an Enterprise and Related Information" ("SFAS 131"). SFAS 131, which
became effective for fiscal years beginning after December 15, 1997, requires
publicly-held companies to report financial and descriptive information
concerning their reportable operating segments. An operating segment is
designed as a component of a business which (i) earns revenues and incurs
expenses, (ii) has its operating results reviewed on a regular basis by the
company's chief operating decision maker to determine how the company's
resources should be allocated and to assess its performance and (iii) has
separate financial information available. The Company's operations consist of
its casino and related facilities. The Company is considered a single
operating unit due to the dependence of the food and beverage and other
operations on casino patrons. Such noncasino activities are considered
ancillary to the gaming business, are reviewed as such by management and can
not reasonably be presented as separate operating segments. Accordingly,
additional segment information is not presented herein.
In June 1998, the FASB issued a new statement, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"), effective for
fiscal years beginning after June 15, 2000. SFAS 133 requires, among other
things, that derivatives be recorded on the balance sheet at fair value.
Changes in the fair value of derivatives may, depending on circumstances, be
recognized in earnings or deferred as a component of shareholders' equity
until a hedged transaction occurs. In June 1999, the FASB issued Statement
No. 137, Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133. Under
the new effective date, the Company currently expects to adopt FASB Statement
No. 133, Accounting for Derivative Instruments and Hedging Activities, in
year 2001. The effect on the Company's financial position and results of
operations is not expected to be material.
REPORTING ON THE COSTS OF START-UP ACTIVITIES--In April 1998, the
American Institute of Certified Public Accountants issued the Statement of
Position 98-5, "Reporting on the Costs of Start-Up Activities" ("SOP 98-5").
SOP 98-5 requires that costs of start-up activities and organization costs be
expensed as incurred and is effective for the Company in 1999. The Company
does not have significant deferred start-up costs as of December 31, 1998,
therefore the adoption of SOP 98-5, will not have a material impact on the
Company's combined results of operation or financial Position.
F-22
<PAGE>
GREATER DUBUQUE RIVERBOAT ENTERTAINMENT COMPANY, L.C.
AND HARBOR COMMUNITY INVESTMENT, L.C. NOTES TO
COMBINED FINANCIAL STATEMENTS
(Continued)
UNAUDITED INTERIM FINANCIAL STATEMENTS--The interim financial statements
and the related information in the notes as of June 30, 1999 and for the six
months ended June 30, 1998 and 1999 are unaudited. Such interim financial
statements have been prepared on the same basis as the audited financial
statements and, in the opinion of management, reflect all adjustments
(consisting only of normal recurring accruals) necessary for a fair presentation
of the financial position, the results of operations and cash flows for the
interim periods presented. The results of operations for the interim periods
presented are not necessarily indicative of the results to be expected for the
full year.
3. INVESTMENTS AVAILABLE FOR SALE
Investments available for sale consist of shares of a bond fund. These
shares have an original cost of $507,855 and a fair market value of $509,363 as
of December 31, 1998. The unrealized gain for these securities was $1,508 as of
December 31, 1998. These securities are being accounted for in accordance with
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities".
4. PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
JUNE 30, 1999
DECEMBER 31, (NOTE 2)
1997 1998 (UNAUDITED)
---------- ---------- -------------
<S> <C> <C> <C>
Land................................................. $1,457,649 $1,461,943 $1,461,943
Building............................................. 3,696,371 3,818,613 3,795,675
Riverboats and improvements.......................... 13,990,129 14,018,301 14,076,310
Furniture, fixtures and equipment.................... 5,766,823 6,274,535 6,394,099
Computer equipment................................... 290,847 426,738 411,764
Vehicles............................................. 29,609 66,127 66,127
Equipment held under capital lease obligations....... 775,780 775,780
----------- -----------
Subtotal............................................. 25,231,428 26,842,037 26,981,698
Accumulated depreciation............................. (2,859,435) (4,560,510) (5,487,240)
----------- ----------- -----------
Property and equipment, net.......................... $22,371,993 $22,281,527 $21,494,458
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
During 1996, the Company sold its original casino riverboat to a third
party for a note receivable with a face value of $4,672,000 resulting in a loss
of approximately $6,884,000. Losses on sale of assets in 1997 and 1998 relate
primarily to the sale of slot machines.
F-23
<PAGE>
GREATER DUBUQUE RIVERBOAT ENTERTAINMENT COMPANY, L.C.
AND HARBOR COMMUNITY INVESTMENT, L.C. NOTES TO
COMBINED FINANCIAL STATEMENTS
(Continued)
5. OTHER ASSETS
Other assets are summarized as follows:
<TABLE>
<CAPTION>
JUNE 30, 1999
DECEMBER 31, (NOTE 2)
1997 1998 (UNAUDITED)
--------- --------- -------------
<S> <C> <C> <C>
Loan fees................................................. $385,000 $410,000 $410,000
Deposits and other........................................ 84,415 91,898 91,898
--------- --------- ---------
Subtotal.................................................. 469,415 501,898 501,898
Accumulated amortization.................................. (181,667) (298,452) (356,622)
--------- --------- ---------
Other assets, net......................................... $287,748 $203,446 $145,276
--------- --------- ---------
--------- --------- ---------
</TABLE>
6. NOTES PAYABLE
Notes payable is as follows:
<TABLE>
<CAPTION>
JUNE 30, 1999
DECEMBER 31, (NOTE 2)
1997 1998 (UNAUDITED)
---------- ---------- -------------
<S> <C> <C> <C>
Note payable to bank, due in monthly installments of
$355,000, including interest at a variable rate of
2% above the 90-day LIBOR index rate (current
effective rate of 7.2% at December 31, 1998).
Final payment is due August 1, 2000................ $9,946,402 $5,376,689 $3,409,144
Note payable to bank, due in monthly installments of
$26,630, including interest at a fixed rate of 8.9%
for the first 60 months, then .75% above the prime
interest rate as noted in the money section of the
Wall Street Journal. The note matures September
18, 2006. The note payable is secured by a real
estate mortgage dated September 18, 1996........... 1,930,430 1,776,394 1,695,048
Note payable due in monthly installments of
$90,652, including interest at a fixed rate of
11.75% through December 1, 1999. The note
payable is secured by slot machines financed by
the note agreement................................. 1,930,542 1,021,641 525,748
F-24
<PAGE>
GREATER DUBUQUE RIVERBOAT ENTERTAINMENT COMPANY, L.C.
AND HARBOR COMMUNITY INVESTMENT, L.C. NOTES TO
COMBINED FINANCIAL STATEMENTS
(Continued)
<CAPTION>
JUNE 30, 1999
DECEMBER 31, (NOTE 2)
1997 1998 (UNAUDITED)
---------- ---------- -------------
<S> <C> <C> <C>
Note payable, interest only payments due monthly at
a fixed rate of 8.5% for the first six years and for
the last four years 1% over prime or 8.5%,
whichever is greater through May 1, 2006, at
which time the remaining balance becomes due.
The note payable is secured by the real estate
purchased.......................................... 1,044,130 968,563 938,707
Note payable, due in monthly installments of $5,634,
including interest at a fixed rate of 10.5% through
September 1, 1999.................................. 248,569 203,120 179,069
----------- ---------- ----------
15,100,073 9,346,407 6,747,716
Less current maturities............................... 4,527,274 5,289,716 3,543,575
----------- ---------- ----------
Long-term debt........................................ $10,572,799 $4,056,691 $3,204,141
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
During April 1998, the Company refinanced the note payable due August 1,
2000 to revise the previously stated fixed interest rate of 10% to a variable
interest rate of 2% above the 90-day LIBOR index rate. The note is
collateralized by the Diamond Jo Casino riverboat. The note agreement contains
various restrictive and financial covenants, which, among others, requires the
Company to maintain a tangible net worth of not less than $7.5 million,
restricts the Company's total debt service coverage ratio and facility debt
service coverage ratios to not be greater than 1.5 to 1.0. The Company was in
compliance with these covenants at December 31, 1998.
Principal payments on long-term debt for the years ended December 31 are
due as follows:
<TABLE>
<S> <C>
1999............................................................ $5,289,716
2000............................................................ 1,663,448
2001............................................................ 203,667
2002............................................................ 213,723
2003............................................................ 239,242
Thereafter...................................................... 1,736,611
----------
$9,346,407
----------
----------
</TABLE>
F-25
<PAGE>
GREATER DUBUQUE RIVERBOAT ENTERTAINMENT COMPANY, L.C.
AND HARBOR COMMUNITY INVESTMENT, L.C. NOTES TO
COMBINED FINANCIAL STATEMENTS
(Continued)
7. CAPITAL LEASE OBLIGATION
Capital lease obligation at December 31, 1998 is as follows:
<TABLE>
<S> <C>
Liability under capital leases, due in monthly installments of $21,356 for 24 months and
$5,267 for one month, including interest at a fixed rate of 9%. Final payment is due 25
months after the initial payment is made. Payments are anticipated to begin in August
1999 after final acceptance of the system. The leases are collateralized by equipment
with a net book value of $736,990 at December 31, 1998................................... $475,780
Less current portion........................................................................ (109,849)
--------
$365,931
--------
--------
Future minimum lease payments under capital lease at December 31, 1998 were as follows:
1999........................................................................................ $129,217
2000........................................................................................ 258,435
2001........................................................................................ 134,485
--------
Total minimum lease payments................................................................ 522,137
Less amounts representing interest.......................................................... (46,357)
--------
Present value of future minimum lease payments.............................................. 475,780
Less current portion........................................................................ (109,849)
--------
Long-term capital lease obligation.......................................................... $365,931
--------
--------
</TABLE>
8. EMPLOYEE BENEFIT PLAN
The Company started a qualified defined contribution plan under section
401(k) of the Internal Revenue Code during 1996. Under the plan, eligible
employees may elect to defer up to 15% of their salary, subject to Internal
Revenue Service limits. The Company may make a matching contribution to each
participant based upon a percentage set by the Company, prior to the end of each
plan year. Company matching contributions to the plan were $57,981, $191,100 and
$240,459 for the years ended December 31, 1996, 1997 and 1998, respectively.
Company matching contributions to the plan for the periods ended June 30, 1998
and 1999 were $112,111 (unaudited) and $106,249 (unaudited), respectively.
9. LEASING ARRANGEMENTS
The Company leases various equipment under noncancelable operating leases.
The equipment leases require fixed monthly payments to be made ranging from $351
to $4,155 and certain other gaming machines and tables require contingent
monthly rental payments based on usage of the equipment. The leases expire on
various dates in 1999 and 2000. Rent expense was $153,790, $262,536 and $403,148
for the years ended December 31, 1996, 1997 and 1998, respectively, including
contingent rentals of $73,011, $103,506 and $226,374, respectively. Rent expense
for the periods ended June 30, 1998 and 1999 were $132,418 (unaudited) and
$542,068 (unaudited), respectively, including contingent rentals of $42,115
(unaudited) and $452,004 (unaudited), respectively.
F-26
<PAGE>
GREATER DUBUQUE RIVERBOAT ENTERTAINMENT COMPANY, L.C.
AND HARBOR COMMUNITY INVESTMENT, L.C. NOTES TO
COMBINED FINANCIAL STATEMENTS
(Continued)
The future minimum rental payments required under these leases during the
years ended December 31, 1998 are summarized as follows:
<TABLE>
<S> <C>
1999................................ $21,590
2000................................ 5,478
2001................................ 415
2002................................ 415
2003................................ 415
Thereafter.......................... 3,735
-------
$32,048
-------
-------
</TABLE>
10. UNINSURED CASH BALANCES
The Company maintains deposit accounts at several local banks. At various
times during the fiscal year and at December 31, 1998, the balances at
individual banks exceeded the maximum amount insured by the FDIC. Management
believes credit risk related to the uninsured balances is minimal.
11. COMMITMENTS AND CONTINGENCIES
During the 1997 fiscal year, the Company underwent a sales and use tax
audit by the Iowa Department of Revenue. At December 31, 1997, a liability of
approximately $178,000 was assessed, including total tax, penalty and interest
due. This amount was paid during 1998, however, the Company is vigorously
contesting the assessment.
A lawsuit has also been filed by one of the three original "active"
unit-holders (see Note 12) regarding a number of claims, some of which have been
narrowed by the court. The primary claim is in regards to quantum merit for the
value of the services rendered to the Company. The court has narrowed that claim
to those services rendered up to and including the licensure of the Company in
the Spring of 1993. An estimate of potential liability, if any, as a result of
the lawsuit was not possible as of the date of this report.
The Company has incurred various legal expenses related to this lawsuit of
$58,318, $76,833 and $211,388 for the years ended December 31, 1996, 1997 and
1998, respectively. Legal expenses related to this lawsuit for the 6-month
periods ended June 30, 1998 and 1999 were $51,104 (unaudited) and $298,537
(unaudited), respectively.
The Company is involved in various other legal actions arising in the
normal course of business. In the opinion of management, such matters will not
have a material effect upon the financial position of the Company.
12. MEMBERS' EQUITY
Transfers of member interests are limited in that, in accordance with
Greater Dubuque Riverboat Entertainment Co., L.C.'s operating agreement, any
sale, exchange or transfer of a member's interest in the Company shall not be
effective unless the transaction is approved by:
F-27
<PAGE>
GREATER DUBUQUE RIVERBOAT ENTERTAINMENT COMPANY, L.C.
AND HARBOR COMMUNITY INVESTMENT, L.C. NOTES TO
COMBINED FINANCIAL STATEMENTS
(Continued)
1. The Manager, in writing, and
2. By a vote of the members holding a majority of the remaining units
and by a majority vote of the remaining members at a meeting of the
members.
This limitation does not include the granting of a security interest,
pledge, lien, or encumbrance against any membership interest.
The profits, losses, and distributions of the Company are allocated among
the members in proportion to each member's respective percentage of Units of
Ownership when compared with total Units of Ownership issued. An exception to
this is that there is an initial unequal division of distributions in that 95%
of distributions are paid to non-developer "passive" members, and 5% to
developer "active" members until such time as said non-developer members have
received an amount equal to their original purchase price for Units of Ownership
purchased, plus 10%. Thereafter, any and all distributions are to be
proportionate to Units owned.
13. SALE OF BUSINESS EXPENSES
During 1997, the Company's ownership made a decision to pursue the sale of
Greater Dubuque Riverboat and Harbor Community. The sales process has resulted
in the Company incurring various expenses related to a valuation of the
business, retaining the services of an investment banker, environmental and
market studies, legal and travel.
Sale of business expenses were $93,350 and $716,655 for the years ended
December 31, 1997 and 1998, respectively. Sale of business expenses for the six
month periods ended June 30, 1998 and 1999 were $181,474 (unaudited) and
$326,620 (unaudited).
14. DUBUQUE RACING ASSOCIATION, LTD. CONTRACT
Dubuque Racing Association, Ltd. (the "Association"), a qualified
sponsoring organization, presently holds a license to conduct gambling games
under Chapter 99F and other Iowa statutes.
The Association owns Dubuque Greyhound Park, a traditional greyhound race
track with 600 slot machines and amenities including a gift shop, restaurant and
clubhouse.
In February of 1993, the Company entered into a contract (the "Operating
Agreement") with the Association relating to the operation of an excursion
gambling riverboat for three excursion seasons commencing April 1, 1993, under
gambling licenses held jointly.
In July of 1995, the Operating Agreement with the Association was amended.
Certain provisions of the amendment are as follows:
1. The Company shall have the option to renew and extend the Operating
Agreement for three consecutive three year terms. The option has been
exercised and the Operating Agreement has been extended to March 31, 2002.
F-28
<PAGE>
GREATER DUBUQUE RIVERBOAT ENTERTAINMENT COMPANY, L.C.
AND HARBOR COMMUNITY INVESTMENT, L.C. NOTES TO
COMBINED FINANCIAL STATEMENTS
(Continued)
2. Under the terms of the Operating Agreement, subject to certain
conditions, the Association shall receive the greater of the Association's
gaming revenues from the greyhound park for the period, or a percentage of
the total combined gaming revenues of the Association's from the greyhound
park and the Greater Dubuque Riverboat Entertainment Company, L.C., as
follows:
a. 32% of the first $30,000,000 of total combined gaming
revenues, plus
b. 8% of the total combined gaming revenues over $30,000,000, but
less than $42,000,000.
c. 8% of total combined gaming revenues between $42,000,000 and
$46,000,000 during any period for which no excursion boat gambling or
land based gambling operation is carried on from a Wisconsin or
Illinois gambling operation in Grant County, Wisconsin, or Jo Davies
County, Illinois.
Gaming revenues under this contract means adjusted gross receipts, less
gaming taxes.
3. Commencing April 1, 2000, and continuing thereafter, the Company
shall additionally pay the Association the sum of $.50 for each patron
admitted on the boat, which, based upon recent annual attendance, would
approximate $500,000 annually.
4. In the event the Company shall desire to sell or lease the
excursion gambling boat, its furnishings and gambling equipment and/or its
interest in any ticket sale facility or other buildings located in the
Dubuque Ice Harbor used in connection with the operation of an excursion
gambling boat, to a third party that does not agree to operate said asset
subject to the terms and conditions of the Operating Agreement, and obtains
an acceptable offer from said third party for the purchase or lease of the
excursion gambling boat and its furnishings, equipment, and/or its interest
in said building, the Association shall have the option to purchase or
lease the excursion gambling boat, its furnishings, equipment, and/or the
Company's interest in the building or its lease of the same for the amount
of the acceptable offer made by a third party and upon the same terms and
conditions as set forth in a third party offer.
Gaming revenues for the Association were $20,605,290, $25,840,009 and
$29,379,820 for December 31, 1996, 1997 and 1998, respectively, and therefore
payments made to the Association for the years ended December 31, 1996, 1997 and
1998 under the Operating Agreement were $0.
15. SUBSEQUENT EVENT (UNAUDITED)
In January 1999, the membership of the Company approved an agreement to
sell all of the Company's operating assets used in connection with the gaming
excursion riverboat business to Peninsula Gaming Partners, LLC or its designee
("Peninsula Partners") for approximately $77,000,000. Pursuant to the terms of
the acquisition documents, Peninsula Partners deposited $2,500,000 in an escrow
account at a bank in Dubuque, Iowa, to be applied against the total purchase
price upon final closing of the sale. On May 20, 1999, Peninsula Partners'
application for a gaming license to operate the Diamond Jo was approved by the
Iowa Racing and Gaming Commission, effective upon the transfer of ownership of
the Diamond Jo. Peninsula Partners' gaming license is valid for a period of nine
years from July 15, 1999, the date of Peninsula Partners' licensure under Iowa
law. The acquisition was consummated on July 15, 1999.
F-29
<PAGE>
GREATER DUBUQUE RIVERBOAT ENTERTAINMENT COMPANY, L.C.
AND HARBOR COMMUNITY INVESTMENT, L.C. NOTES TO
COMBINED FINANCIAL STATEMENTS
(Continued)
F-30
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Peninsula Gaming Company, LLC
We have audited the accompanying balance sheet of Peninsula Gaming Company,
LLC as of July 15, 1999. This balance sheet is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such balance sheet presents fairly, in all material
respects, the financial position of Peninsula Gaming Company, LLC at July 15,
1999 in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Cedar Rapids, Iowa
September 23, 1999
F-31
<PAGE>
PENINSULA GAMING COMPANY, LLC BALANCE SHEET JULY 15, 1999
<TABLE>
<S> <C>
ASSETS--Receivable from Peninsula Gaming Partners, LLC......................... $9,000,000
----------
----------
STOCKHOLDER'S EQUITY--Common membership interests.............................. $9,000,000
----------
----------
</TABLE>
See note to balance sheet
F-32
<PAGE>
PENINSULA GAMING COMPANY, LLC
NOTE TO BALANCE SHEET JULY 15, 1999
1. ORGANIZATION AND BUSINESS PURPOSE
Peninsula Gaming Company, LLC (the "Company") is a wholly-owned subsidiary
of Peninsula Gaming Partners, LLC ("Peninsula Partners"). The company is a
Delaware limited liability company formed on January 26, 1999 for the purpose of
purchasing assets comprising the Diamond Jo Casino and related real property. To
date, the Company has had no significant activities.
The common membership interests of the Company are wholly-owned by
Peninsula Partners. The Company and Peninsula Partners completed the sale of
$71,000,000 of 12 1/4% Senior Secured Notes due 2006 and $3,000,000 in
convertible preferred membership interests, respectively, during July 1999.
Concurrently with the sale of the securities, the Company received a $9.0
million capital contribution from Peninsula Partners ($6.0 million of which was
contributed to the capital of Peninsula Partners by common members of Peninsula
Partners and $3.0 million of which was contributed to the capital of Peninsula
Partners through the sale by Peninsula Partners of convertible preferred
membership interests as previously described). The $9.0 million receivable from
Peninsula Partners was classified as an asset due to the subsequent payment of
the receivable by Peninsula Partners and collected at the opening of business on
July 15, 1999. The proceeds from the above transactions were used to complete
the purchase of certain assets comprising the Diamond Jo casino and related real
property.
* * * * *
F-33
<PAGE>
GREATER DUBUQUE RIVERBOAT ENTERTAINMENT COMPANY, L.C.
AND HARBOR COMMUNITY INVESTMENT, L.C.
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma combined financial information (the
"Unaudited Pro Forma Combined Financial Information") of Peninsula Gaming
Company, LLC (the "Company") has been derived from the application of pro forma
adjustments to the combined historical financial statements of Greater Dubuque
Riverboat Entertainment Company, L.C. ("Greater Dubuque Riverboat") and Harbor
Community Investment, L.C. ("Harbor Community") included elsewhere herein,
after giving effect to our acquisition of the Diamond Jo casino from Greater
Dubuque Riverboat and related real property from Harbor Community. The Unaudited
Pro Forma Combined Financial Information gives effect to the acquisition as if
such event had occurred on January 1, 1998 and January 1, 1999, for purposes of
the unaudited pro forma combined statements of income for the year ended
December 31, 1998 and the six months ended June 30, 1999, respectively. The pro
forma adjustments are described in the accompanying notes. A pro forma balance
sheet is not included due to the inclusion herein of the Company's September 30,
1999 unaudited financial statements.
The Unaudited Pro Forma Combined Financial Information is presented for
informational purposes only and does not purport to (i) represent what the
results of operations for the Company would actually have been if the
acquisition had occurred on the dates specified or (ii) project the financial
position or results of operations for the Company at any future date or for
any future periods. The foregoing constitute forward-looking statements which
involve risks and uncertainties. See "Forward-Looking Statements." The
Unaudited Pro Forma Combined Financial Information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the combined historical financial statements
of Greater Dubuque Riverboat and Harbor Community, and the notes thereto,
included elsewhere herein.
The acquisition was accounted for under the purchase method of accounting.
The purchase price for the acquisition, including the related fees and expenses,
has been allocated to the tangible and identifiable intangible assets or
liabilities of the acquired businesses based upon the Company's estimates of
their fair value with the remainder allocated to goodwill. Management does not
believe that any necessary adjustments would cause the pro forma information to
differ materially from the current presentation. The pro forma adjustments
directly attributable to the acquisition include adjustments to interest expense
related to the issuance of the notes, estimated transaction fees and expenses,
and changes in amortization of intangible assets relating to the allocation of
the purchase price. These amounts are assumed solely for the purpose of
presenting the Unaudited Pro Forma Combined Financial Information set forth
below and actual amounts may differ from assumptions set forth below.
PF-1
<PAGE>
PENINSULA GAMING COMPANY, LLC
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL(1) ADJUSTMENTS PRO FORMA
------------- ----------- ---------
YEAR ENDED DECEMBER 31, 1998
----------------------------
<S> <C> <C> <C>
REVENUES:
Casino................................... $44,166,688 $44,166,688
Food and beverage........................ 1,959,797 1,959,797
Other.................................... 276,124 276,124
Less--promotional allowances.............. (553,123) (553,123)
----------- ----------
Net revenues........................ 45,849,486 45,849,486
EXPENSES:
Casino................................... 17,272,814 17,272,814
Food and beverage........................ 2,830,575 2,830,575
Boat operations.......................... 2,056,377 2,056,377
Other.................................... 67,907 67,907
Selling, general and administrative...... 7,515,115 $200,000 (2) 7,715,115
Depreciation and amortization............ 1,894,763 (116,785)(3) 1,777,978
Goodwill amortization.................... 1,413,987 (4) 1,413,987
Sale of business expenses................ 716,655 (716,655)(5) --
Ownership litigation (6)................. 211,388 211,388
----------- ----------- ----------
Total expenses...................... 32,565,594 780,547 33,346,141
----------- ----------- ----------
INCOME FROM OPERATIONS...................... 13,283,892 (780,547) 12,503,345
----------- ----------- ----------
OTHER INCOME (EXPENSE):
Interest income.......................... 141,967 141,967
Interest expense......................... (1,142,122) (8,293,819)(7) (9,435,941)
Loss on sale of assets................... (73,726) (73,726)
----------- ----------- ----------
Total other expense................. (1,073,881) (8,293,819) (9,367,700)
----------- ----------- ----------
NET INCOME............................... $12,210,011 $(9,074,366) $3,135,645
----------- ----------- ----------
</TABLE>
- -----------
(1) Represents the combined historical financial statements of Greater Dubuque
Riverboat and Harbor Community. See the combined financial statements and
notes thereto included elsewhere herein.
(2) Represents increased executive compensation expenses that will be incurred
annually from the consummation date of the acquisition.
(3) Represents the elimination of amortization expense related to intangible
assets not purchased.
(4) Represents the amortization of goodwill related to the acquisition
agreements over a forty year period.
(5) Represents the elimination of non-recurring expenses.
(6) Represents ownership litigation expenses for the predecessor companies that
will be non-recurring but are unrelated to the transaction, therefore, the
expense is not presented as a pro forma adjustment.
PF-2
<PAGE>
(7) Represents (a) the elimination of interest expense of $1.1 million, (b) an
increase in interest expense of $8.7 million on the notes calculated at an
assumed 12.25% interest rate per annum, and (c) the amortization of $4.4
million of deferred financing costs and original issue discount of
approximately $0.8 million over a period of seven years.
PF-3
<PAGE>
PENINSULA GAMING COMPANY, LLC
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL(1) ADJUSTMENTS PRO FORMA
------------- ----------- ---------
YEAR ENDED JUNE 30, 1998
----------------------------
<S> <C> <C> <C>
REVENUES:
Casino................................... $21,992,638 $21,992,638
Food and beverage........................ 1,060,090 1,060,090
Other.................................... 105,840 105,840
Less--promotional allowances.............. (255,777) (255,777)
---------- ---------
Net revenues..................... 22,902,791 22,902,791
EXPENSES:
Casino................................... 9,007,588 9,007,588
Food and beverage........................ 1,572,301 1,572,301
Boat operations.......................... 963,999 963,999
Other.................................... 26,774 26,774
Selling, general and administrative...... 3,690,813 100,000 (2) 3,790,813
Depreciation and amortization............ 1,065,896 (58,393)(3) 1,007,503
Goodwill amortization.................... 706,994 (4) 706,994
Sale of business expenses................ 326,620 (326,620)(5) --
Ownership litigation (6)................. 298,537 298,537
---------- ----------- ---------
Total expenses................... 16,952,528 421,981 17,374,509
---------- ----------- ---------
INCOME FROM OPERATIONS................... 5,950,263 (421,981) 5,528,282
---------- ----------- ---------
OTHER INCOME (EXPENSE):
Interest income.......................... 72,423 72,423
Interest expense......................... (319,202) (4,399,884)(7) (4,719,086)
Loss on sale of assets................... (97,750) (97,750)
---------- ----------- ---------
Total other expense.............. (344,529) (4,399,884) (4,744,413)
---------- ----------- ---------
NET INCOME............................... $5,605,734 $(4,821,865) $783,869
---------- ----------- ---------
---------- ----------- ---------
</TABLE>
- -----------
(1) Represents the combined historical financial statements of Greater Dubuque
Riverboat and Harbor Community. See the combined financial statements and
notes thereto included elsewhere herein.
(2) Represents increased executive compensation expenses that will be incurred
annually from the consummation date of the acquisition.
(3) Represents the elimination of amortization expense related to intangible
assets not purchased.
(4) Represents the amortization of goodwill related to the acquisition
agreements over a forty year period.
(5) Represents the elimination of non-recurring expenses.
PF-4
<PAGE>
(6) Represents ownership litigation expenses for the predecessor companies that
will be non-recurring but are unrelated to the transaction, therefore, the
expense is not presented as a pro forma adjustment.
(7) Represents (a) the elimination of interest expense of $0.3 million, (b) an
increase in interest expense of $4.3 million on the notes calculated at an
assumed 12.25% interest rate per annum, and (c) the amortization of $4.4
million of deferred financing costs and original issue discount of
approximately $0.8 million over a period of seven years.
PF-5
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF MEMBERS AND MANAGERS
Peninsula Gaming Company, LLC ("Peninsula Gaming") is a limited liability
company organized under the laws of the state of Delaware. Section 18-108 of the
Delaware Limited Liability Company Act (the "Act") provides that, subject to
such standards and restrictions, if any, as are set forth in its limited
liability company agreement, a limited liability company may, and shall have the
power to, indemnify and hold harmless any member or manager or other person from
and against any and all califs and demands whatsoever.
Section 4.3 of the Amended and Restated Operating Agreement of Peninsula
Gaming Company LLC (the "Operating Agreement") provides that, to the fullest
extent permitted under applicable law, no member or managing member of Peninsula
Gaming shall be deemed to violate the Operating Agreement or be liable,
responsible or accountable in damages or otherwise to any other member or
managing member or Peninsula Gaming for any action or failure to act, unless
such violation or liability is attributable to such member's or managing
member's gross negligence, willful misconduct, bad faith or a continuing
material breach of the Operating Agreement. Without limiting the generality of
the foregoing, each such member or managing member shall, in the performance of
its duties, be fully protected in relying in good faith upon the records of
Peninsula Gaming and upon information, opinions, reports or statements presented
to such member or managing member by any other person as to matters such member
or managing member reasonably believes are within such other person's
professional or expert competence and that has been selected with reasonable
care by or on behalf of Peninsula Gaming.
Section 4.4 of the Operating Agreement provides that, to the fullest extent
permitted under applicable law, Peninsula Gaming shall severally indemnify and
hold harmless any person (an "INDEMNIFIED PARTY") who was or is a party, or is
threatened to be made a party, to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(including any action by or in the right of Peninsula Gaming) by reason of or
arising from any acts or omissions (or alleged acts or omissions) on behalf of
Peninsula Gaming or in furtherance of the interests of Peninsula Gaming arising
out of the Indemnified Party's activities as a member, managing member, officer,
employee, trustee or agent of Peninsula Gaming against losses, damages or
expenses (including attorneys' fees, judgments, fines and amounts paid in
settlement) actually and reasonably incurred by such Indemnified Party in
connection with such action, suit or proceeding and for which such Indemnified
Party has not otherwise been reimbursed, so long as such Indemnified Party did
not act in bad faith or in a manner constituting gross negligence or willful
misconduct. The termination of any action, suit or proceeding by judgment,
order, settlement or upon a plea of NOLO CONTENDERE or its equivalent shall not
of itself (except insofar as such judgment, order, settlement or plea shall
itself specifically provide) create a presumption that the Indemnified Party
acted in bad faith or in a manner constituting gross negligence or willful
misconduct.
Section 5.4 of the Operating Agreement provides that no officer of
Peninsula Gaming shall be liable to Peninsula Gaming or to the members of
Peninsula Gaming for acts or omissions of such
II-1
<PAGE>
officer in connection with the business or affairs of Peninsula Gaming,
including, without limitation, any breach of fiduciary duty of such officer as
an officer of Peninsula Gaming, any mistake of judgment of such officer as an
officer of Peninsula Gaming and any business decision of such officer as an
officer of Peninsula Gaming, except for acts or omissions of such officer of
Peninsula Gaming that a final adjudication establishes involved breach of such
officer's duty of loyalty to Peninsula Gaming or its members, intentional
misconduct, fraud or a knowing violation of the law that was material to the
cause of action subject to such final adjudication.
Section 5.4 of the Operating Agreement provides further that,
notwithstanding any other term or provision thereof, Peninsula Gaming and/or its
successor, trustee or receiver may indemnify, defend and hold harmless each of
its officers and every individual who at any time was but ceased to be an
officer of Peninsula Gaming, and the heirs and personal representative of every
officer of Peninsula Gaming and of every such individual, against all claims,
demands, actions, losses, liabilities, damages, costs and expenses, which after
the date of Operating Agreement arise out of Peninsula Gaming or its business or
affairs, including reasonable attorneys' fees incurred in defending all such
matters.
Section 5.4 of the Operating Agreement provides further that, the
satisfaction of the indemnification obligations of Peninsula Gaming under
SECTION 5.4 thereof shall be from and limited to the assets of Peninsula Gaming,
and no member shall have any personal liability for the satisfaction of any such
indemnification obligation.
Section 5.4 of the Operating Agreement provides further that, no amendment
or repeal of any term or provision of SECTION 5.4 thereof that otherwise would
restrict or limit any right or protection of an officer of Peninsula Gaming or
other individuals thereunder shall apply to or have any effect on any such right
or protection of any officer of Peninsula Gaming existing at the time of such
amendment or repeal or of any individual who at any time before such amendment
or repeal was but ceased to be an officer of Peninsula Gaming, or of the heirs
and personal representative of any such officer of Peninsula Gaming or other
individual.
Peninsula Gaming's managers and officers are insured by insurance policies
obtained by Peninsula Gaming against certain liabilities for actions taken in
such capacities, including liabilities sunder the Securities Act of 1933.
Peninsula Gaming Corp. ("Peninsula Corp.") is a corporation organized
under the laws of the State of Delaware. Section 145 of the Delaware General
Corporation Law ("DGCL") provides that a corporation may indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
corporation) by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interest of the corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful; and further that a corporation may indemnify such person
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the
II-2
<PAGE>
defense or settlement of such action or suit if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper. To the extent that a director, officer, employee or agent of
a corporation has been successful on the merits or otherwise in defense of any
such action, suit or proceeding, or in defense of any claim, issue or matter
therein, he shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith.
Article Sixth, Section 2 of the Certificate of Incorporation of Peninsula
Corp. (the "Certificate of Incorporation") provides that DGCL shall indemnify,
in accordance with its by-laws, to the fullest extent permitted from time to
time by the Peninsula Gaming or any other applicable laws as presently or
hereafter in effect, any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, including, without
limitation, an action by or in the right of Peninsula Corp., by reason of his
acting as a director or officer of Peninsula Corp. (and Peninsula Corp., in the
discretion of the board of directors of Peninsula Corp., may so indemnify a
person by reason of the fact that he is or was an employee or agent of Peninsula
Corp. or is or was serving at the request of Peninsula Corp. in any other
capacity for or on behalf of Peninsula Corp.) against any liability or expense
actually and reasonably incurred by such person in respect thereof; PROVIDED,
HOWEVER, the Corporation shall be required to indemnify an officer or director
in connection with an action, suit or proceeding (or part thereof) initiated by
such person only if such action, suit or proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation. Such indemnification is
not exclusive of any other right to indemnification provided by law or
otherwise. The right to indemnification conferred by this Section (2) shall be
deemed to be a contract between the Corporation and each person referred to
herein.
Section 6.1 of the by-laws of Peninsula Corp. (the "By-laws") provides
that, subject to Section 6.3 of Article VI thereof, Peninsula Corp. shall
indemnify, to the fullest extent permitted by applicable law, now or hereafter
in effect, any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of Peninsula Corp.) by reason of the fact that he is or was a director
or executive officer of Peninsula Corp., or is or was a director or executive
officer of Peninsula Corp. serving at the request of Peninsula Corp. as a
director or executive officer of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of Peninsula Corp., and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful; provided, however, Peninsula Corp. shall be required to
indemnify an officer or director in connection with an action, suit or
proceeding initiated by such person only if (i) such action, suit or proceeding
was authorized by the board of directors of Peninsula Corp. or (ii) the
indemnification does not relate to any liability arising under Section 16(b) of
the Securities Exchange Act of 1934, as amended, or any of the rules or
regulations promulgated thereunder. The
II-3
<PAGE>
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of NOLO CONTENDERE or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of Peninsula Corp., and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
Section 6.2 of the By-laws provides that, subject to Section 6.3 of Article
VI thereof, Peninsula Corp. shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of Peninsula Corp. to procure a judgment in its favor
by reason of the fact that he is or was a director or executive officer of
Peninsula Corp., or is or was a director or executive officer of Peninsula Corp.
serving at the request of Peninsula Corp. as a director or executive officer of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise against expenses (including attorneys' fees) actually
reasonably incurred by him in connection with the defense or settlement of such
action or suit if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of Peninsula Corp.; except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to Peninsula Corp.
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
Section 6.3 of the By-laws provides that any indemnification under Article
VI thereof (unless ordered by a court) shall be made by Peninsula Corp. only as
authorized in the specific case upon a determination that indemnification of the
director or executive officer is proper in the circumstances because he has met
the applicable standard of conduct set forth in Section 6.1 or Section 6.2 of
Article VI thereof, as the case may be. Such determination shall be made (i) by
the board of directors of Peninsula Corp. by a majority vote of directors who
were not parties to such action, suit or proceeding (even if such majority vote
constitutes less than a quorum), or (ii) if the majority vote of disinterested
directors so directs (even if such majority vote constitutes less than a
quorum), by independent legal counsel in a written opinion, or (iii) by the
stockholders. To the extent, however, that a director or executive officer of
Peninsula Corp. has been successful on the merits or otherwise in defense of any
action, suit or proceeding described above, or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith, without
the necessity of authorization in the specific case.
Section 102 of the DGCL allows a corporation to eliminate or limit the
personal liability of a director of a corporation to the corporation or to any
of its stockholders for monetary damage for a breach of fiduciary duty as a
director, except in the case where the director (i) breaches his duty of loyalty
to the corporation or its stockholders, (ii) fails to act in good faith, engages
in intentional misconduct or knowingly violates a law, (iii) authorizes the
payment of a dividend or approves a stock purchase or redemption in violation of
Section 174 of the DGCL or (iv) obtains an improper personal benefit.
Article Sixth, Section 1 of the Certificate of Incorporation provides that
directors of Peninsula Corp. shall have no personal liability to Peninsula Corp.
or its stockholders for monetary damages for breach of fiduciary duty as a
director; PROVIDED that nothing contained in Article Sixth thereof shall
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<PAGE>
eliminate or limit the liability of a director (i) for any breach of a
director's duty of loyalty to Peninsula Corp. or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or
knowing violations of law, (iii) under Section 174 of the DGCL, or (iv) for any
transaction from which a director derived an improper personal benefit. If the
DGCL is amended to authorize corporate action further eliminating or limiting
the personal liability of directors, then by virtue of Article Sixth thereof the
liability of a director of Peninsula Corp. shall be eliminated or limited to the
fullest extent permitted by the DGCL, as so amended.
Section 145 of the DGCL provides that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation) by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interest of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful; and further that a
corporation may indemnify such person against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper. To the extent that a director, officer, employee or agent of
a corporation has been successful on the merits or otherwise in defense of an
such action, suit or proceeding, or in defense of any claim, issue or matter
therein, he shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith.
Article Sixth, Section 2 of the Certificate of Incorporation provides that,
directors of Peninsula Corp. shall have no personal liability to Peninsula Corp.
or its stockholders for monetary damages for breach of fiduciary duty as a
director; PROVIDED that nothing contained in this Article Sixth thereof shall
eliminate or limit the liability of a director (i) for any breach of a
director's duty of loyalty to Peninsula Corp. or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or
knowing violations of law, (iii) under Section 174 of the DGCL, or (iv) for any
transaction from which a director derived an improper personal benefit. If the
DGCL is amended to authorize corporate action further eliminating or limiting
the personal liability of directors, then by virtue of Article Sixth of the
Certificate of Incorporation of Peninsula Corp. the liability of a director of
the Corporation shall be eliminated or limited to the fullest extent permitted
by the General Corporation Law of the State of Delaware, as so amended.
Section 145 of the DGCL further provides that a corporation shall have
power to purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or
II-5
<PAGE>
agent of another corporation or enterprise, against any liability asserted
against such person and incurred by such person in such capacity, arising out of
such person's status as such, whether or not the corporation would otherwise
have the power to indemnify such person under Section 145.
Article Sixth, Section 6 of the Certificate of Incorporation provides that
Peninsula Corp. may purchase and maintain insurance on behalf of any person who
is or was a director, officer, employee or agent of Peninsula Corp., or is or
was serving at the request of Peninsula Corp. as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him and incurred by him in any
such capacity, or arising out of his status as such, whether or not Peninsula
Corp. would have the power to indemnify him against such liability under the
provisions of Article Sixth thereof, the DGCL, or otherwise.
Section 6.8 of the By-laws provides that Peninsula Corp. may purchase and
maintain insurance on behalf of any person who is or was a director or executive
officer of Peninsula Corp., or is or was a director or executive officer of
Peninsula Corp. serving at the request of Peninsula Corp. as a director or
executive officer of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
such, whether or not Peninsula Corp. would have the power or the obligation to
indemnify him against such liability under the provisions of Article VI thereof.
All of Peninsula Corp.'s directors and officers are insured by insurance
policies obtained by Peninsula Corp. against certain liabilities for actions
taken in such capacities, including liabilities sunder the Securities Act of
1933.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
See index to exhibits, which is incorporated by reference.
ITEM 22. UNDERTAKINGS
Each of the undersigned registrants hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) that, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Securities and Exchange Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the
II-6
<PAGE>
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered that remain unsold at the
termination of the offering.
(4) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the provisions described
in Item 20 or otherwise, the registrant has been advised that, in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of
expenses incurred or paid by a director, officer or controlling person of
the registrant in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in connection
with the securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed in
the Securities Act of 1933 and will be governed by the final adjudication
of such issue.
(5) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this
form within one business day of receipt of such request and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of this registration statement through the date of
responding to the request.
(6) 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-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each of the
registrants has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
State of New York on November 29, 1999.
PENINSULA GAMING COMPANY, LLC
By:
M. Brent Stevens
CHIEF EXECUTIVE OFFICER
By:
Natalie A. Schramm
CHIEF FINANCIAL OFFICER
PENINSULA GAMING CORP.
By:
M. Brent Stevens
PRESIDENT AND TREASURER
By:
Michael S. Luzich
VICE PRESIDENT
II-8
<PAGE>
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Ronald
S. Brody the true and lawful attorney-in-fact and agent of the undersigned, with
full power of substitution and resubstitution, for and in the name, place and
stead of the undersigned, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this registration statement
and to file the same, with all exhibits thereto, and any and all documents in
connection therewith, with the Securities and Exchange Commission, and hereby
grants unto said attorney-in-fact and agent, full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as the undersigned might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ M. Brent Stevens Chief Executive Officer of Peninsula Gaming and October 11, 1999
Peninsula Gaming Partners, LLC ("Peninsula
Partners")
Manager of Peninsula Partners, the Managing
Member of Peninsula Gaming
President, Treasurer and Director of Peninsula Corp.
/s/ Natalie A. Schramm Chief Financial Officer of Peninsula Gaming October 11, 1999
/s/ Michael S. Luzich Vice President of Corporate Development, Secretary October 11, 1999
and Manager of Peninsula Partners
Vice President, Secretary and Director of Peninsula
Corp.
Secretary of Peninsula Gaming
/s/ Terrance W. Oliver Manager of Peninsula Partners October 11, 1999
/s/ William L. Westerman Manager of Peninsula Partners October 11, 1999
/s/ Andrew R. Whittaker Manager of Peninsula Partners October 11, 1999
</TABLE>
II-9
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
*1 Purchase Agreement, dated July 8, 1999, by and among Peninsula
Gaming Company, LLC, Peninsula Gaming Corp., Peninsula Gaming
Partners, LLC, and Jefferies & Company, Inc.
*3.1A Certificate of Formation of Peninsula Gaming Company, LLC
*3.1B Amendment to Certificate of Formation of Peninsula Gaming Company,
LLC
*3.2 Operating Agreement of Peninsula Gaming Company, LLC
*3.3 Articles of Incorporation of Peninsula Gaming Corp.
*3.4 By-laws of Peninsula Gaming Corp.
*4.1 Specimen Certificate of Common Stock
*4.2 Indenture, dated July 15, 1999, by and among Peninsula Gaming
Company, LLC, Peninsula Gaming Corp. and Firstar Bank of Minnesota,
N.A., as trustee
*4.5 Registration Rights Agreement, dated July 15, 1999, by and among
Peninsula Gaming Company, LLC, Peninsula Gaming Corp. and Jefferies
& Company, Inc.
5.1 Opinion of Mayer, Brown & Platt as to the legality of the securities
being registered
5.2 Opinion of Mayer, Brown & Platt as to certain tax matters
*10.1A Asset Purchase Agreement, dated January 15, 1999, by and among
Greater Dubuque Riverboat Entertainment Company, L.C. and AB
Capital, L.L.C.
*10.1B Amendment to Asset Purchase Agreement, dated February 1, 1999, by
and among Greater Dubuque Riverboat Entertainment Company, L.C. and
AB Capital, L.L.C.
*10.2A Real Property Purchase Agreement, dated January 15, 1999, by and
among Harbor Community Investment, L.C. and AB Capital, L.L.C.
*10.2B First Amendment to Real Property Purchase Agreement, dated July 15,
1999, by and among Harbor Community Investment, L.C. and AB Capital,
L.L.C.
*10.3 Assignment Agreement, dated July 1, 1999, by and among Peninsula
Gaming Partners, LLC (formerly AB Capital, LLC) and Peninsula Gaming
Company, LLC
*10.4 Employment Agreement, dated April 15, 1999, by and among James P.
Rix, AB Capital, L.L.C. and Peninsula Gaming Company, LLC
*10.5 Employment Agreement, dated July 15, 1999, by and among Natalie
Schramm and AB Capital, L.L.C.
*10.6 Indemnification Agreement, dated June 7, 1999, by and among James P.
Rix, AB Capital, L.L.C. and Peninsula Gaming Company, LLC
*10.7 Indemnification Agreement, dated June 7, 1999, by and among Natalie
Schramm and AB Capital, L.L.C. and Peninsula Gaming Company, LLC
*10.8 Bill of Sale, dated July 15, 1999, by and among Greater Dubuque
Riverboat Entertainment Company, L.C. and Peninsula Gaming Company,
LLC
*10.9A Operating Agreement, dated February 22, 1993, by and among Dubuque
Racing Association, Ltd. and Greater Dubuque Riverboat Entertainment
Company, L.C.
*10.9B Amendment to Operating Agreement, dated February 22, 1993, by and
among Dubuque Racing Association, Ltd. and Greater Dubuque Riverboat
Entertainment Company, L.C.
*10.9C Amendment to Operating Agreement, dated March 4, 1993, by and among
Dubuque Racing Association, Ltd. and Greater Dubuque Riverboat
Entertainment Company, L.C.
</TABLE>
II-10
<PAGE>
<TABLE>
<S> <C>
*10.9D Third Amendment to Operating Agreement, dated March 11, 1993, by and
among Dubuque Racing Association, Ltd. and Greater Dubuque Riverboat
Entertainment Company, L.C.
*10.9E Fourth Amendment to Operating Agreement, dated March 11, 1993, by
and among Dubuque Racing Association, Ltd. and Greater Dubuque
Riverboat Entertainment Company, L.C.
*10.9F Fifth Amendment to Operating Agreement, dated April 9, 1993, by and
among Dubuque Racing Association, Ltd. and Greater Dubuque Riverboat
Entertainment Company, L.C.
*10.9G Sixth Amendment to Operating Agreement, dated November 29, 1993, by
and among Dubuque Racing Association, Ltd. and Greater Dubuque
Riverboat Entertainment Company, L.C.
*10.9H Seventh Amendment to Operating Agreement, dated April 6, 1994, by
and among Dubuque Racing Association, Ltd. and Greater Dubuque
Riverboat Entertainment Company, L.C.
*10.9I Eighth Amendment to Operating Agreement, dated April 29, 1994, by
and among Dubuque Racing Association, Ltd. and Greater Dubuque
Riverboat Entertainment Company, L.C.
*10.9J Ninth Amendment to Operating Agreement, dated July 11, 1995, by and
among Dubuque Racing Association, Ltd. and Greater Dubuque Riverboat
Entertainment Company, L.C.
*10.9K Tenth Amendment to Operating Agreement, dated July 15, 1999, by and
among Dubuque Racing Association, Ltd. and Greater Dubuque Riverboat
Entertainment Company, L.C.
*10.10 Operating Agreement Assignment, dated July 15, 1999, by and among
Greater Dubuque Riverboat Entertainment Company, L.C. and Peninsula
Gaming Company, LLC
*10.11 First Preferred Ship Mortgage, dated July 15, 1999, by Peninsula
Gaming Company, LLC in favor of Firstar Bank of Minnesota, N.A., as
trustee
*10.12 Mortgage, Leasehold Mortgage, Assignment of Rents, Security
Agreement and Fixture Financing Statement dated July 15, 1999, by
Peninsula Gaming Company, LLC in favor of Firstar Bank of Minnesota,
N.A., as trustee
*10.13 Ice Harbor Parking Agreement Assignment, dated July 15, 1999, by and
among Greater Dubuque Riverboat Entertainment Company, L.C. and
Peninsula Gaming Company, LLC
*10.14 First Amendment to Sublease Agreement, dated July 15, 1999, by and
among Dubuque Racing Association, Ltd. and Greater Dubuque Riverboat
Entertainment Company, L.C.
*10.15 Sublease Assignment, dated July 15, 1999, by and among Greater
Dubuque Entertainment Company, L.C. and Peninsula Gaming Company,
LLC
*10.16 Iowa Racing and Gaming Commission Gaming License, dated July 15,
1999
*10.17 Assignment of Iowa IGT Declaration and Agreement of Trust, dated
July 15, 1999 by and among Greater Dubuque Riverboat Entertainment
Company, L.C. and Peninsula Gaming Company, LLC
12.1 Computation of ratio of earnings to fixed charges
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Mayer, Brown & Platt (contained in Exhibit 5.1)
23.3 Consent of Mayer, Brown & Platt
</TABLE>
II-11
<PAGE>
<TABLE>
<S> <C>
*24.1 Powers of attorney (contained on the signature page to this
registration statement)
* 25.1 Form T-1 Statement of eligibility under the Trust Indenture Act of
1939 of Firstar Bank, N.A.
*27.1 Financial Data Schedule
*99.1 Form of Letter of Transmittal
*99.2 Form of Notice of Guaranteed Delivery
</TABLE>
*Previously filed as an exhibit to the registration statement on Form S-4
(Registration Number 333-88829) of Peninsula Gaming Company, LLC and Peninsula
Gaming Corp. on October 13, 1999.
II-12
<PAGE>
EXHIBIT 5.1
[MAYER, BROWN & PLATT LETTERHEAD]
____________, 1999
Peninsula Gaming Company, LLC
3rd Street Ice Harbor
P.O. Box 1750
Dubuque, Iowa 52004-1683
Re: Registration Statement on Form S-4 Relating to
Series B 12 1/4 Senior Secured Notes Due 2006
-----------------------------------------------
Ladies and Gentlemen:
We have acted as counsel to Peninsula Gaming Company, LLC, a
Delaware limited liability company and Peninsula Gaming Corp., a Delaware
corporation (collectively, the "Company"), in connection with the preparation
and filing with the Securities and Exchange Commission under the Securities
Act of 1933, as amended, of a registration statement on Form S-4 (as amended,
the "Registration Statement") relating to the Company's Series B 12 1/4
Senior Secured Notes due 2006 (the "New Notes"). The New Notes will be
offered in exchange for any and all of the Company's outstanding Series A
12 1/4 Senior Secured Notes due 2006 (the "Old Notes"). The Old Notes were
issued, and the New Notes will be issued, under an indenture, dated as of
July 15, 1999 (the "Indenture"), among the Company and Firstar Bank, N.A.
(formerly known as Firstar Bank of Minnesota, N.A.), as trustee.
In rendering the opinions set forth below, we have examined and
relied upon such documents, corporate records, certificates of public
officials and certificates as to factual matters executed by officers of the
Company as we have deemed necessary or appropriate. We have assumed the
authenticity, accuracy and completeness of all documents, records and
certificates submitted to us as originals, the conformity to the originals of
all documents, records and certificates submitted to us as copies and the
authenticity, accuracy and completeness of the originals of all documents,
records and certificates submitted to us as copies. We have also assumed the
legal capacity and genuineness of the signatures of persons signing all
documents in connection with the opinions set forth below. We express no
opinion as to, or the effect or applicability of, any laws other than the
laws of the State of New York, the State of Delaware and the Federal laws of
the United States of America. We assume no responsibility with respect to the
application to the subject transactions, or the effect thereon, of the laws
of any other jurisdiction.
<PAGE>
Based upon the foregoing, we are of the opinion that the New Notes
have been duly authorized for issuance by the Company and, upon the due
execution, authentication, issuance and delivery thereof in accordance with
the terms of the Indenture, the New Notes will constitute valid and legally
binding obligations of the Company, subject to applicable bankruptcy,
insolvency, reorganization, moratorium and other laws affecting the
enforceability of creditors' rights generally and to court decisions with
respect thereto and to general principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity or at law).
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the Registration Statement.
Very truly yours,
MAYER, BROWN & PLATT
<PAGE>
Exhibit 5.2
[Mayer, Brown & Platt letterhead]
July 15, 1999
To the Persons Listed on
Schedule A Attached Hereto
Re: Peninsula Gaming Company, LLC
Peninsula Gaming Partners, LLC
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
Ladies and Gentlemen:
I. INTRODUCTION.
Peninsula Gaming Company, LLC ("PGCL") and its wholly-owned subsidiary,
Peninsula Gaming Corp. ("PGC", and together with PGCL, the "Note Issuers")
intend to issue and to offer, pursuant to an offering circular dated July 15,
1999 (the "Offering Circular"), $71,000,000 aggregate principal amount of 12
1/4% Senior Secured Notes, due 2006 (the "Notes"). In addition, Peninsula Gaming
Partners, LLC ("PGP") intends to issue and to offer pursuant to the Offering
Circular 500,000 convertible preferred membership interests (the "Preferred
Membership Interests"). The Notes and the Preferred Membership Interests will be
issued as component parts of 71,000 units (the "Units"), each consisting of (a)
Notes having a $1,000 aggregate principal amount, and (b) 7.042 Preferred
Membership Interests. In connection with the issuance of the Units, you have
requested our opinions as to whether, for U.S. federal income tax purposes, (i)
the Notes will be classified as indebtedness, (ii) neither PGCL nor PGP will be
classified as an association or publicly traded partnership taxable as a
corporation, and (iii) each of PGCL and PGP will be classified as a partnership.
In connection with rendering our opinions herein, we have examined
originals or copies, certified or otherwise identified to our satisfaction, of
the following documents:
(a) the Offering Circular;
<PAGE>
The Persons Listed on
Schedule A Attached Hereto
July 15, 1999
Page 2
(b) the Amended and Restated Operating Agreement of PGCL (the
"PGCL Operating Agreement"), made as of July 15, 1999, among [PGCL and]
the persons identified as Members on Exhibit A attached thereto and
such other persons as may from time to time be admitted as members of
PGCL (the "PGCL Members");
(c) the Amended and Restated Operating Agreement of PGP (the
"PGP Operating Agreement"), made as of July 15, 1999, among PGP and the
persons identified as Members on Exhibit A attached thereto and such
other persons as may from time to time be admitted as members of PGP
(the "PGP Members"); and
(d) the Indenture governing the Notes (the "Indenture"), dated
as of July 15, 1999, among the Note Issuers, any future subsidiaries of
PGCL required to be guarantors of the Notes (the "Subsidiary
Guarantors") and Firstar Bank, N.A. , as trustee (the "Trustee").
In addition, we have examined originals or copies, identified to our
satisfaction, of such other documents as in our discretion we have deemed
necessary, appropriate or relevant as a basis for the opinions set forth below.
In such examination, we have assumed the genuineness of all signatures, the
legal capacity of all natural persons, the authenticity of all documents
submitted to us as originals, the conformity with originals of all documents
submitted to us as copies thereof, and the authenticity of the originals of such
copies. We have not made an independent investigation of the facts set forth
either in the Offering Circular or the other documents that we have examined. We
have consequently assumed in rendering this opinion that the information
presented in such documents or otherwise furnished to us accurately and
completely describes, in all material respects, all facts relevant to PGP, the
Note Issuers and their respective activities. We have further assumed that all
representations and warranties made by all parties in and pursuant to the
agreements enumerated above are and will continue to be accurate (including
representations made by purchasers and transferees, if any, of the Preferred
Membership Interests and other membership interests in PGP), that all parties to
such agreements will perform in accordance with the terms of such agreements
(including such purchasers and transferees), and that there are no agreements or
understandings other than those of which we have been informed that would affect
our opinions set forth herein.
<PAGE>
The Persons Listed on
Schedule A Attached Hereto
July 15, 1999
Page 3
Our opinions set forth herein are based upon applicable provisions of
the Code,(1/) the Treasury regulations promulgated and proposed thereunder,
current positions of the Internal Revenue Service contained in published Revenue
Rulings and Revenue Procedures, current administrative positions of the Internal
Revenue Service, and existing judicial decisions, all of the foregoing of which
are subject to change or revocation, possibly with retroactive effect. We
express no opinion as to the laws of any jurisdiction other than the federal
laws of the United States of America. No rulings will be sought from the
Internal Revenue Service with respect to any of the matters discussed herein.
Any change occurring after the date hereof in, or a variation from, any of the
foregoing bases for our opinions could affect the conclusions expressed below.
II. BACKGROUND
GENERAL. PGP and PGCL are limited liability companies organized under
Delaware law. PGCL was formed for the purpose of acquiring the assets comprising
the "Diamond Jo" riverboat casino (the "Diamond Jo") in Dubuque, Iowa, and
related real property (the "Acquisition") from Greater Dubuque Riverboat
Entertainment Company, L.C. ("GDREC") which, prior to the consummation of the
Acquisition, owned and operated the Diamond Jo and its casino business. All of
the outstanding common membership interests of PGCL are held by PGP. PGC, a
Delaware corporation, is a wholly-owned subsidiary of PGCL. PGC was incorporated
solely for the purpose of serving as a co-issuer of the Notes and will have no
operations, assets or revenues.
PGP will raise $3 million contributed through sale of the Preferred
Membership Interests comprising a part of the Units. In addition, concurrently
with the issuance of the Preferred Membership Interests, PGP will receive a $6
million capital contribution from the common members of PGP, bringing PGP's
total equity capitalization to $9 million. PGP will contribute such $9 million
to the capital of PGCL concurrently with the sale of the Units.
PGCL, which is expected to raise approximately $70 million from
issuance of the Notes comprising a part of the Units, will effect the
Acquisition immediately following issuance of the Units for $70 million of cash
consideration and the issuance to GDREC of $7 million face amount of PGCL's
- --------
(1/) All capitalized terms not defined herein have the same meanings
ascribed to them in the Offering Circular.
<PAGE>
The Persons Listed on
Schedule A Attached Hereto
July 15, 1999
Page 4
redeemable preferred membership interests. A substantial portion of the
remaining proceeds of sale of the Units will be used by PGCL for working capital
and other similar purposes.
SEVERABILITY OF THE UNITS. The Notes and the Preferred Membership
Interests will be separately transferable immediately upon their issuance. The
membership interests of PGP (including the Preferred Membership Interests and
the non-voting common membership interests of PGP receivable upon conversion
thereof) will be subject to certain contractual restrictions on transfer,
including transfers described below intended to prevent PGP from being treated
as a "publicly traded partnership" under the Code.
THE NOTES. The Notes will mature on July 1, 2006 and will be senior
secured obligations of the Note Issuers ranking senior in right of payment to
all existing and future subordinated indebtedness of the Note Issuers and PARI
PASSU in right of payment with all existing and future senior indebtedness of
the Note Issuers. However, subsequent to the issuance of the Notes, PGCL is
expected to enter into a $10 million credit facility for working capital and
construction financing for a hotel to be constructed by PGCL adjacent to the
Diamond Jo. Under a provision of the Indenture customary for issues of senior
secured debt such as the Notes, PGCL will be permitted to enter into an
intercreditor agreement (the "Intercreditor Agreement") granting the lender
under such facility a lien senior to that of the Trustee. PGCL will assign as
collateral (the "Collateral") to the Trustee, for the benefit of the Trustee and
the holders, as security for the Note Issuers' obligations with respect to the
Notes, all of its interest in (i) the riverboat and land-based facility
comprising the Diamond Jo, including all leased property; (ii) all real property
and any additions or improvements thereon and (iii) substantially all of its
furniture, fixtures and equipment, inventory, accounts, contract rights and
other general intangibles, trademarks and trade names. Subject to certain
exceptions, the repayment of the Notes will be unconditionally and irrevocably
guaranteed, jointly and severally, by all future subsidiaries of PGCL. On the
Issue Date, PGCL will have no subsidiaries other than PGC.
Interest on the Notes will be payable semiannually on July 1 and
January 1 of each year, commencing on January 1, 2000, to Holders of record on
the immediately preceding June 15 and December 15, respectively. The Notes will
bear interest at 12 1/4% per annum from the date of original issuance. The Notes
are expected to be issued at an issue price of 98.847% to produce a
yield-to-maturity on the Notes of 12.5%. Interest will be computed on the basis
of a 360-day year comprised of twelve 30-day months.
<PAGE>
The Persons Listed on
Schedule A Attached Hereto
July 15, 1999
Page 5
Prior to July 1, 2002, the Note Issuers may redeem, at their option, up
to 35% of the aggregate principal amount of the Notes then outstanding at a
redemption price of 112.25% of the principal amount thereof, plus accrued and
unpaid interest thereon, if any, through the applicable date of redemption, with
the net cash proceeds of one or more equity offerings; PROVIDED, that (i) such
redemption shall occur within 60 days of the date of closing of such equity
offering and (ii) at least 65% of the aggregate principal amount of Notes issued
on or after the Issue Date remains outstanding immediately after giving effect
to each such redemption. The Notes are not otherwise redeemable at the Issuers'
option prior to July 1, 2003. Thereafter, the Notes will be subject to
redemption at the option of the Issuers, in whole or in part, at specified
percentages of principal amount thereof (108.00%, 105.33% and 100% during each
12-month period beginning on July 1, 2003, July 1, 2004, and July 1, 2005,
respectively), plus accrued and unpaid interest thereon, if any, to the
applicable date of redemption. The Notes may also be redeemed pursuant to
certain required regulatory redemptions. In addition, upon a Change of Control
with respect to PGP or PGCL, the Holders will be given the opportunity to sell
to the Note Issuers all or part of their Notes at 101% of their Notes' face
amount, plus interest. The Issuers will also be required to make an offer to all
Holders to purchase the maximum principal amount of Notes that is an integral
multiple of $1,000 that may be purchased with 50% of the Excess Cash Flow for
each Hotel Operating Year (essentially, each successive four consecutive
quarterly period commencing immediately after the date that a hotel to be
constructed by PGCL or a Subsidiary of PGCL and which is expected to be
contiguous to the Diamond Jo first becomes Operating), at a purchase price equal
to 101% of the principal amount of the Notes to be purchased, plus accrued and
unpaid interest to the date fixed for the closing of the offer.
The Indenture governing the Notes contains customary limitations on the
ability of PGCL to (i) incur indebtedness, (ii) pay dividends, redeem stock, or
make other distributions to equity holders, (iii) incur liens, or (iv) sell
assets.
Events of Default under the Indenture include (i) a default for 30 days
in the payment of interest on the Notes when due; (ii) a default in the payment
of principal (or premium, if any) on the Notes when due at maturity, redemption,
by acceleration or otherwise; (iii) a default in the performance or breach of
certain covenants in the Indenture (including covenants prohibiting certain
dividend payments or other restricted payments and certain asset sales); (iv)
failure by the Issuers or any Subsidiary Guarantor for 60 days after notice to
comply with any other agreements in the Indenture or the Notes, (v) cross
default, (vi) the cessation of substantially all gaming operations of the
Company for more than 60 days, except as a result of an Event of Loss, (vii) any
revocation, suspension, expiration (without
<PAGE>
The Persons Listed on
Schedule A Attached Hereto
July 15, 1999
Page 6
previous or concurrent renewal or loss of any Gaming License of the Company for
more than 90 days, and (viii) certain events of bankruptcy or insolvency with
respect to the Note Issuers or any of the Subsidiary Guarantors. If an Event of
Default occurs and is continuing, the Trustee or the Holders of at least 25% in
principal amount of the then outstanding Notes may declare all the Notes to be
due and payable immediately. Upon the occurrence of an Event of Default arising
from certain events of bankruptcy or insolvency, all Notes shall be
automatically due and payable without further action or notice. Subject to
certain limitations, Holders of a majority in principal amount of the then
outstanding Notes may direct the Trustee in its exercise of any trust or power.
If an Event of Default occurs and is continuing, subject to the terms of the
Intercreditor Agreement described above, the Trustee may take such action as it
deems advisable to protect and enforce its rights in the Collateral, including
the institution of sale or foreclosure proceedings.
THE PGP MEMBERSHIP INTERESTS. In addition to the non-voting Preferred
Membership Interests, PGP has two classes of common equity interests (voting and
non-voting). Preferred Membership Interests will initially be convertible at any
time at the option of the holder thereof into one non-voting common membership
interest of PGP, subject to certain adjustments. Voting and non-voting common
membership interests of PGP are entitled to identical rights and privileges,
except with respect to voting and certain required regulatory redemptions. Upon
issuance of the Units, holders of voting common membership interests will
contribute $6 million to the capital of PGP in exchange for such interests,
while the portion of the purchase price of Units allocated to the Preferred
Membership Interests, and thus contributed to the capital of PGP by holders of
Preferred Membership Interests, will be $3 million. No non-voting common
membership interests will be outstanding until any conversion of Preferred
Membership Interests.
Profits and losses of PGP will be allocated for U.S. federal income tax
purposes to each holder of membership interests, whether common or preferred,
PRO RATA according to the percentage of membership interests held by such
holder. The common membership interests of PGP will be allocated two thirds of
the profits and losses of PGP, and the Preferred Membership Interests will be
allocated one third of the profits and losses of PGP (subject to ratable
adjustment thereafter for conversions of Preferred Membership Interests into
non-voting common membership interests of PGP). Therefore, the common membership
interests of PGP will represent essentially two thirds of the total interest in
the capital and profits of PGP, and the Preferred Membership Interests will
represent one third of the total interest in capital and profits of PGP. Thus,
it is reasonable to assume that on issuance a unit of
<PAGE>
The Persons Listed on
Schedule A Attached Hereto
July 15, 1999
Page 7
Preferred Membership Interests will have approximately the same value as a unit
of common membership interests of PGP having the same percentage of membership
interests.
III. ANALYSIS AND OPINIONS.
1. CHARACTERIZATION OF THE NOTES AS DEBT.
Whether an instrument represents indebtedness or an equity investment
for U.S. federal income tax purposes is a question of fact, the resolution of
which is based primarily upon the substance of the instrument and the
transaction pursuant to which it is issued, rather than merely upon the form of
the transaction or the manner in which the instrument is labeled; all of the
facts and circumstances of the particular situation must be considered in the
determination and no one factor is determinative. SEE JOHN KELLEY CO. V.
COMMISSIONER, 326 U.S. 521 (1943); Rev. Rul. 68-54, 1968-1 C.B. 69. The
following 13 factors have been identified in relevant case law as factors to be
analyzed in the determination of whether an instrument is properly classified as
indebtedness or equity for U.S. federal income tax purposes:
(1) the name given to the certificate evidencing the indebtedness; (2)
the presence or absence of a maturity date; (3) the source of the
payments; (4) the right to enforce payment of principal and interest;
(5) participation in management flowing as a result; (6) the status of
the contribution in relation to regular corporate creditors; (7) the
intent of the parties; (8) "thin" or adequate capitalization; (9)
identity of interest between creditor and stockholder; (10) source of
interest payments; (11) the ability of the corporation to obtain loans
from outside lending institutions; (12) the extent to which the advance
was used to acquire capital assets; and (13) the failure of the debtor
to repay on the due date or to seek a postponement.
SEE, E.G., ESTATE OF MIXON V. UNITED STATES, 464 F.2d 394 (5th Cir. 1972). The
analysis of these factors serves to determine in effect whether the economic
reality of the holder's investment in the instrument is consistent with risk
capital subject solely to the performance of the corporation's business, or is a
bona fide loan, repayment of which is expected, and may be compelled, to be made
in full.
An analysis of these factors demonstrates that the Notes are debt for
U.S. federal income tax purposes. The Notes are denominated as debt, have a
fixed maturity date of less than seven years and, thus, must be repaid within a
reasonable period of time, and the parties intend that the Notes will be
<PAGE>
The Persons Listed on
Schedule A Attached Hereto
July 15, 1999
Page 8
treated as debt. The Notes have stated interest rates that are not contingent on
the profits or cash flow of the Note Issuers. The Notes have covenants
consistent with indebtedness, including restrictions on payment of dividends,
creation of liens, and sales of assets. The Notes also have Events of Default
that are customary for debt instruments (including default upon insolvency of
the Note Issuers, on the non-payment of interest when due for 30 days, on the
non-payment of principal on the stated maturity date of the instrument, or in
the performance or breach of the covenants in the Indenture), as well as usual
creditors rights on the occurrence of such Events of Default, including the
acceleration of principal and related remedies and the right to foreclose on the
Collateral. In addition, the Trustee, on behalf of Holders of the Notes, has a
perfected security interest in substantial assets of the Issuers (subject to the
lien that may be created under the Intercreditor Agreement), and will rank
senior in right of payment to all existing and future subordinated indebtedness
of the Note Issuers and to any equity interests in the Note Issuers. The Holders
have no right to participate in the success of the business operations of PGCL,
as any earnings of PGCL will inure to the benefit of the holders of the
membership interests of PGCL, nor are the Holders entitled to vote or otherwise
participate in the management of the Note Issuers.
We recognize, however, that certain features of the Notes and of PGCL
are not entirely consistent with debt characterization. For example, PGCL might
be viewed as thinly capitalized given its relatively high debt-to-equity ratio.
Thin capitalization has been viewed as evidence that a instrument that was debt
in form constituted a contribution to the debtor's capital where (1) the
debt-to-equity ratio was high at on time the debt was incurred, (2) the parties
understood that it would likely go higher, and (3) substantial portions of the
funds borrowed were used for the purchase of capital assets and for meeting
expenses needed to commence operations. SEE TYLER V. TOMLINSON, 414 F.2d 844
(5th Cir. 1969). However, the concept of adequate capitalization has been more
"coolly and modestly applied("2/) in recent years, and courts have expressly
stated that thin capitalization alone will not control the character of the
transaction.(3/) For example, notwithstanding a debt-to-equity ratio of
225 to 1,
- --------
(2/) SEE TYLER, SUPRA, at 848.
(3/) SEE, E.G., BAKER COMMODITIES, INC. V. COMMISSIONER, 48 T.C. 374 (1967)
(the existence of thin capitalization alone will not transform an
otherwise valid indebtedness into equity capital). A high debt-equity
ratio is considered more significant in cases where there are other
equity characteristics, such as subordination to other indebtedness.
SEE ROWAN V. U.S., 219 F.2d 51,
(continued...)
<PAGE>
The Persons Listed on
Schedule A Attached Hereto
July 15, 1999
Page 9
advances to a debtor were not recharacterized as capital contributions where no
other significant characteristics indicating equity listed above were present.
PIEDMONT MINERALS CO., INC. V. UNITED STATES, 294 F. Supp. 1040 (M.D.N. Car.
1969).
We recognize, however, that a high debt-to-equity ratio has been
considered more indicative of equity when there is an identity of interest
between equity owners and creditors,(4/) and that the Holders, who will
purchase proportionate interests in the Preferred Membership Interests, may
be viewed, at least indirectly, as equity owners of PGCL. The Holders will
not, however, hold proportionate interests in Notes and the equity of PGCL.
Rather, holders of Preferred Membership Interests will hold an indirect
interest in approximately 33% of the entire equity interest in the Note
Issuers. It is not reasonable to presume that a Holder having such a minority
interest would forbear from exercising its creditor remedies to any greater
degree than a creditor who did not own any equity interest.(5/) Accordingly,
the cases have typically required a high level of proportionality to call
into question the true debt characterization of a debt instrument based on
the status of the creditor as a shareholder.(6/)
- --------
(3/) (...continued)
55 (5th Cir. 1955); Tyler, SUPRA, at 848; and LEACH CORP. V. COMMISSIONER,
30 T.C. 563 (1958). The Notes, however, rank senior to all existing and
future subordinated indebtedness of the Note Issuers (other than the $10
million working capital facility, an exception customary for senior secured
debt issuances such as the Notes) and PARI PASSU with all existing and
future senior indebtedness of the Note Issuers.
(4/) SEE LAIDLAW TRANSPORTATION, INC. V. COMM'R, T.C. Memo 1998-232 (1998).
(5/) SEE GENERALLY BORIS I. BITTKER & JAMES S. EUSTICE, FEDERAL INCOME TAXATION
OF CORPORATIONS AND SHAREHOLDERS, PARA. 4.04[2] (6th ed. 1998) and the
authorities cited therein.
(6/) SEE LEACH, SUPRA note 3, at 579 ("The sharply disproportionate ratio
between ownership of stock and bonds goes far to overcome the high
debt-to-equity ratio. The bondholders owned only 48% of the stock. The
situation would have been different had all the stock and bonds been owned
by the same interests in substantially the same proportion."). CF. RIALTO
REALTY CO., INC. V. U.S., 366 F. Supp. 253 (E.D. Pa. 1973) (unlike in
LEACH, the bondholders
(continued...)
<PAGE>
The Persons Listed on
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July 15, 1999
Page 10
Moreover, where creditors are also shareholders of the debtor, courts
have generally considered the deciding factor whether a third-party investor
would have advanced funds on terms similar to those agreed to by the
shareholder. SEE SCRIPTOMATIC, INC. V. U.S., 555 F.2d. 364 (3d Cir. 1977). The
Preferred Membership Interests, which represent one-third of the capital and
profits interests of PGP, will be purchased for $3,000,000, or the same price
per unit of membership interest as the price paid by holders of common
membership interests of PGP per unit of membership interest. Thus, the Preferred
Membership Interests are being purchased for a price substantially equivalent to
fair market value. Accordingly, it is a reasonable economic presumption that a
typical unrelated creditor would be willing to purchase Notes on substantially
the same terms as the purchasers of Units even if the purchaser were not also
purchasing Preferred Membership Interests.
On balance, we believe the Notes exhibit characteristics that are
consistent with bona fide debt which is expected or may be compelled to be
repaid in full. Accordingly, we are of the opinion that the Notes will be
classified as debt for U.S. federal income tax purposes.
2. TREATMENT AS AN ASSOCIATION OR PUBLICLY TRADED PARTNERSHIP
TAXABLE AS A CORPORATION.
THE ENTITY CLASSIFICATION REGULATIONS. Treasury regulations sections
301.7701-2 through 301.7701-4 classify organizations based on their
characteristics and the rights and obligations of their owners. Treasury
regulations sections 301.7701-2 and 301.7701-3 provide for the classification of
"business entities" for federal tax purposes. Treasury regulations section
301.7701-2 provides generally that "a BUSINESS ENTITY is any entity recognized
for U.S. federal tax purposes . . . that is not properly classified as a trust
under [the entity classification regulations] or otherwise subject to special
treatment under the Internal Revenue Code." (italics in original).
- --------
(6/) (...continued)
owned 75% of the stock rendering the high debt-to-equity ratio
determinative to the conclusion that the bonds represented equity).
Moreover, here, the Units are immediately separable and thus no Holder will
be required to hold Notes and equity interests of PGP (or, indirectly,
PGCL), and thus there is no requirement that Holders are also indirect
equity owners of the Note Issuers.
<PAGE>
The Persons Listed on
Schedule A Attached Hereto
July 15, 1999
Page 11
Certain types of business entities are treated as corporations for U.S.
federal income tax purposes. Under Treasury regulations section 301.7701-2(b),
those entities include business entities organized under a Federal or State
statute that refers to the entity as incorporated or as a corporation, body
corporate or body politic. PGCL and PGP would not constitute business entities
that are required to be treated as a corporation under Treasury regulations
section 301.7701-2(b).
If a business entity is not treated as a corporation under Treasury
regulations section 301.7701-2(b), the business entity is treated as an
"eligible entity" within the meaning of Treasury regulations section
301.7701-3(a). An eligible entity that is created or organized in the United
States or under the law of the United States or any State will be treated as a
partnership if it has more than one member, or will be disregarded as an entity
separate from its owner if it has a single owner, but will not be treated as a
separate corporation unless an affirmative election is made pursuant to Treasury
regulations section 301.7701-3(c). Under section 10.2 of the PGCL Operating
Agreement, the "tax matters partner" of PGCL may not make an election under
Treasury regulations section 301.7701-3(c) to treat PGCL as an association
taxable as a corporation without the consent of all of the members of PGCL and
the approval of a majority of the members of a committee of independent managers
of PGP (the "Independent Committee). Under section 16.2 of the PGP Operating
Agreement, the "tax matters partner" of PGP may not make an election under
Treasury regulations section 301.7701-3(c) to treat PGP as an association
taxable as a corporation for U.S. federal income tax purposes without the
consent of all the members of PGP. In addition, section 10.6 of the PGCL
Operating Agreement and section 16.6 of the PGP Operating Agreement provide that
no officer or manager of either PGCL or PGP, respectively, and not less than all
members of PGCL or PGP, respectively, shall have the power to make such
election. For purposes of this opinion, we have assumed that neither the members
of PGCL nor the members of PGP will make such election.
Based on the foregoing, neither PGCL nor PGP will be treated as an
association taxable as a corporation for U.S. federal income tax purposes.
PUBLICLY TRADED PARTNERSHIPS. If a business entity is classified as a
partnership under Treasury regulations section 301.7701-3(b), the business
entity will nonetheless be treated as a corporation for U.S. federal income tax
purposes if it is a "publicly traded partnership" within the meaning of section
7704 of the Code (unless it qualifies for an exception for partnerships with
specified amounts of gross income from certain passive sources). Section 7704(b)
of the Code defines a "publicly traded partnership" as any partnership if
interests in such partnership are (i) traded on an
<PAGE>
The Persons Listed on
Schedule A Attached Hereto
July 15, 1999
Page 12
established securities market or (ii) readily tradable on a secondary market (or
the substantial equivalent thereof). Treasury regulations section 1.7704-1(d)
provides that, for purposes of Section 7704(b) of the Code and the regulations
thereunder, interests in a partnership are not traded on an established
securities market or on a secondary market or the substantial equivalent thereof
unless (i) the partnership participates in the establishment of the market or
the inclusion of its interests thereon, or (ii) the partnership recognizes any
transfers made on the market by (x) redeeming the transferor partner or (y)
admitting the transferee as a partner or otherwise recognizing any rights of the
transferee, such as a right of the transferee to receive partnership
distributions or to acquire an interest in the capital or profits of the
partnership.
Pursuant to section 12.7 of the PGCL Operating Agreement, neither PGCL
nor the members of PGCL may participate in the establishment of an "established
securities market" or a "secondary market or the substantial equivalent thereof"
within the meaning of section 7704 of the Code for the transfer of any
membership interest in PGCL or recognize any transfers made thereon, and any
transfer or purported transfer thereon shall be null and void AB INITIO and of
no effect. In addition, pursuant to section 11.16 of the PGP Operating
Agreement, neither PGP nor the members of PGP may participate in the
establishment of an "established securities market" or a "secondary market or
the substantial equivalent thereof" within the meaning of section 7704 of the
Code for the transfer of any membership interest in PGP or recognize any
transfers made thereon, and any transfer or purported transfer thereon shall be
null and void AB INITIO and of no effect.
In addition, under section 10.5 of the PGCL Operating Agreement and
section 16.5 of the PGP Operating Agreement, each PGCL Member and PGP Member
represents and warrants that such member has not acquired nor will such member
transfer any membership interest in PGCL or PGP, as the case may be, or cause
any membership interest in PGCL or PGP, to be marketed on or through an
"established securities market" or a "secondary market (or the substantial
equivalent thereof)" within the meaning of section 7704(b) of the Code or the
regulations thereunder, including, without limitation, an over-the-counter
market or an interdealer quotation system that regularly disseminates firm buy
or sell quotations. Purchasers of PGP membership interests have also made such
representations in representation letters delivered to the Transfer Agent, and
any transfers of membership interests of PGP will be void AB INITIO and of no
effect unless, prior to the effectiveness of such transfer, the transferee
delivers to the Transfer Agent a representation letter containing such
representations.
<PAGE>
The Persons Listed on
Schedule A Attached Hereto
July 15, 1999
Page 13
Treasury regulations section 1.7704-1(e) provides "safe harbors" for
certain private transfers ("Paragraph (e) Transfers") which are disregarded in
determining whether interests in a partnership are readily tradable on a
secondary market or the substantial equivalent thereof. These transfers include
(i) transfers in which the basis of the partnership interest in the hands of the
transferee is determined, in whole or in part, by reference to its basis in the
hands of the transferor or is determined under section 732 of the Code; (ii)
transfers at death; (iii) transfers between members of a family as described in
section 267(c)(4) of the Code; (iv) transfers involving the issuance of
interests by (or on behalf of) the partnership in exchange for cash, property or
services; (v) transfers involving distributions from a retirement plan qualified
under section 401(a) of the Code or an individual retirement account; (vi) block
transfers whereby a partner and any related persons in one or more transactions
during any 30 calendar day period transfers partnership interests representing
in the aggregate more than 2% of the total interests in partnership capital or
profits; (vii) transfers pursuant to a redemption or repurchase agreement
described in Treasury regulations section 1.7704-1(e)(1)(vii) exercisable only
upon the death, disability or mental incompetence of a partner or upon the
retirement or termination of services of an individual who actively participated
in the management of, or performed services on a full-time basis for, the
partnership; (viii) transfers by one or more partners of interests representing
in the aggregate 50% or more of the total interests in the partnership capital
and profits in one transaction or a series of related transactions. Treasury
regulations section 1.7704-1(f) provides that a transfer of an interest pursuant
to a redemption and repurchase agreement described in Treasury regulations
section 1.7704-1(e)(3) and meeting the requirements of Treasury regulations
section 1.7704-1(f) ("Paragraph (f) Transfers") will be disregarded in
determining whether interests in the partnership are readily tradable on a
secondary market or the substantial equivalent thereof. In addition, Treasury
regulations section 1.7704-1(g) provides that the transfer of an interest in a
"qualified matching service" as defined in such section (a "Paragraph (g)
Transfer") will also be disregarded in determining whether interests in the
partnership are readily tradable on a secondary market or the substantial
equivalent thereof. Finally, Treasury regulations section 1.7704-1(j) provides
that interests in a partnership are not readily tradable on a secondary market
or the substantial equivalent thereof if the sum of the percentage interests in
partnership capital or profits transferred during the taxable year of the
partnership, other than in transfers constituting Paragraph (e) Transfers,
Paragraph (f) Transfers or Paragraph (g) Transfers, does not exceed 2 percent of
the total interests in the partnership capital or profits (such transfers,
"Paragraph (j) Transfers").
Section 12.7 of the PGCL Operating Agreement provides that any
transfers of membership interests by members of PGCL will be null and void AB
INITIO and of no effect, and PGCL shall not
<PAGE>
The Persons Listed on
Schedule A Attached Hereto
July 15, 1999
Page 14
recognize the transferee as a direct or indirect holder or owner of a membership
interest in PGCL, unless prior to the effectiveness of such transfer, the member
provides the managing member with an opinion of counsel reasonably satisfactory
to the managing member and a majority of the members of an independent committee
to the effect that such transfer will not result in PGCL being treated as a
"publicly traded partnership" under section 7704 of the Code, the regulations
thereunder and any administrative rulings or notices with respect thereto.
However, the PGCL Operating Agreement further provides that such opinion
delivery requirement will not apply to any transfers of PGCL membership
interests which, in the determination of the managing member of PGCL, and
subject to a concurring determination by a majority of the members of the
Independent Committee, constitute Paragraph (e) Transfers listed in the
preceding paragraph or to Paragraph (g) Transfers. PGP, as managing member of
PGCL, has represented to us that PGP will not make any determination as to
whether any particular transfer of interests in PGCL constitutes a Paragraph (e)
Transfer or Paragraph (g) Transfer without first consulting with independent tax
counsel nationally recognized in such matters as to whether such transfer so
qualifies. For purposes of this opinion, we have assumed that PGP will so
consult with tax counsel and that, on that basis, any transfers of PGCL
membership interests made without delivery of the opinion referred to in this
paragraph will in fact constitute Paragraph (e) Transfers or Paragraph (g)
Transfers.(7/)
Section 11.16 of the PGP Operating Agreement provides that any
transfers of membership interests by members of PGP will be null and void AB
INITIO and of no effect, and PGP shall not recognize the transferee as a direct
or indirect holder or owner of a membership interest in PGCL, and the Transfer
Agent may not register the transfer of any membership interest in PGP, if the
member has not first delivered to the managing member of PGP an opinion of
counsel reasonably satisfactory to such managing member and a majority of the
members of the Independent Committee to the effect that such transfer will not
result in PGP being treated as a "publicly traded partnership" under Section
7704 of the Code, the regulations thereunder and any administrative rulings or
notices with respect thereto, provided, however, that the member will not be
required to deliver such opinion if, in the determination of the managing member
of PGP, and subject to a concurring determination by a majority of the members
of the Independent Committee, the proposed Transfer constitutes a Paragraph (e)
Transfer, a
- --------
(7/) Transfers of interests in PGP will not be treated as indirect transfers
of interests in PGCL, and thus would not be required to be taken into
account for purposes of determining whether interests in PGCL are
traded on an established securities market or a secondary market or the
substantial equivalent thereof. Treasury regulation section
1.7704-1(a)(2)(iii).
<PAGE>
The Persons Listed on
Schedule A Attached Hereto
July 15, 1999
Page 15
Paragraph (f) Transfer, a Paragraph (g) Transfer, or a Paragraph (j) Transfer.
M. Brent Stevens (who effectively controls the Board of Managers of PGP) has
represented to us that the Board of Managers of PGP will not make any
determination as to whether any particular transfer of interests in PGP
constitutes a Paragraph (e) Transfer, Paragraph (f) Transfer, Paragraph (g)
Transfer, or Paragraph (j) Transfer without first consulting with independent
tax counsel nationally recognized in such matters as to whether such transfer so
qualifies. For purposes of this opinion, we have assumed that the Board of
Managers of PGP will so consult with tax counsel and that, on that basis, any
transfers of PGP membership interests made without delivery of the opinion
referred to in this paragraph will in fact constitute Paragraph (e) Transfers,
Paragraph (f) Transfers, Paragraph (g) Transfers or Paragraph (j) Transfers.
Based on the foregoing, no membership interest in either PGCL or PGP
will be considered traded on an established securities market, or readily
tradable on a secondary market or the substantial equivalent thereof. Therefore,
neither PGCL nor PGP will be treated as a publicly traded partnership (taxable
as a corporation) within the meaning of section 7704(b) of the Code for U.S.
federal income tax purposes.
3. OPINIONS.
Based on the foregoing, we are of the opinion that, for U.S. federal
income tax purposes, (i) the Notes will be classified as indebtedness, (ii)
neither PGCL nor PGP will be treated as an association or publicly traded
partnership taxable as corporation, and (iii) each of PGCL and PGP is and will
be classified as a partnership (until such time as it no longer has at least two
members).
We further confirm that the statements made in the sections of the
Offering Circular under the headings "CERTAIN UNITED STATES FEDERAL INCOME TAX
CONSIDERATIONS" and "RISK FACTORS--Publicly Traded Partnership Classification",
to the extent that they describe matters of law or legal conclusions, are
correct in all material respects.
Except as set forth above, we express no other opinion as to any U.S.
federal, state, local or foreign tax consequences of the transactions described
herein. We are furnishing this opinion to the persons listed on Schedule A
hereto solely in connection with the issuance of the Units upon the
understanding that we are not hereby assuming professional responsibility to any
other person whatsoever. This opinion is not to be used, circulated, quoted, in
whole or in part, relied upon, or
<PAGE>
The Persons Listed on
Schedule A Attached Hereto
July 15, 1999
Page 16
otherwise referred to or used by you or any other person for any purpose without
our prior written approval in each instance.
Very truly yours,
/s/ Mayer, Brown & Platt
<PAGE>
Schedule A
Jeffries & Company, Inc.
11100 Santa Monica Boulevard
10th Floor
Los Angeles, CA 90025
Peninsula Gaming Company, LLC
Peninsula Gaming Partners, LLC
<PAGE>
Exhibit 12.1
<TABLE>
<CAPTION>
INDEBTEDNESS TO NET CAPITAL
- ---------------------------
Sept 30,
(in thousands) 1999
--------------
<S> <C>
Net Debt 71,476
Total equity 7,062
indebtedness to total capital 10.1
--------------
</TABLE>
<TABLE>
<CAPTION>
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
- -------------------------------------------------
ANNUALIZED
Three
months ended
(in thousands) 7/15 - 9/30/99
<S> <C>
Earnings:
Total earnings (1,866)
Fixed charges;
Interest charges 1,958
Amortization of bond discount 16
Amortization of deferred financing costs 130
-----------------
Total fixed charges 2,104
-----------------
Earnings as adjusted 238
-----------------
Ratio of earnings to fixed charges 0.1
-----------------
</TABLE>
<TABLE>
RATIO OF EBITDA TO
NET INTEREST EXPENSE
- --------------------- 3 MONTHS 3 MONTHS ANNUALIZED
(ANNUALIZED) ENDED 9/30/99
------------------
<S> <C> <C> <C>
EBITDA 3,868,182 Int. Exp. 1,957,546
Exec. Comp. (50,000) Int. Inc. (57,111)
------------------- ------------------
3,818,182 1,900,435
3 MONTHS RATIO: 2.0
</TABLE>
<TABLE>
<CAPTION>
7/15 - 9/30 RATIO OF
NET DEBT TO EBITDA (ANNUALIZED)
- -------------------------------
<S> <C>
EBITDA 15,909,704
Exec. Comp. (200,000)
-------------------
15,709,704
Actual Debt 71,476,000
Cash & CE 8,893,654
-------------------
Net Debt 62,582,346
3 MONTHS RATIO: 4.0
</TABLE>
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to the Registration Statement of
Peninsula Gaming Co. LLC on Form S-4 of our report dated March 31, 1999 with
respect to Greater Dubuque Riverboat Entertainment Company, L.C. and Harbor
Community Investment, L.C. and our report dated September 23, 1999, with respect
to Peninsula Gaming Company, LLC both appearing in the Prospectus, which is part
of this Registration Statement and to the reference to us under the headings
"Summary Combined Financial and Operating Data", "Selected Combined Financial
Data", and "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Cedar Rapids, Iowa
November 26, 1999
<PAGE>
Exhibit 23.3
[Letterhead of Mayer, Brown & Platt]
November 29, 1999
Peninsula Gaming Company, LLC
Peninsula Gaming Corp.
3rd Street Ice Harbor
P.O. Box 1750
Dubuque, Iowa 52004-1683
Re: PENINSULA GAMING COMPANY, LLC
PENINSULA GAMING CORP.
12 1/4% Senior Secured Notes Due 2006
-------------------------------------
Ladies and Gentlemen:
Reference is hereby made to our legal opinion, dated July 15, 1999,
delivered to the Company and Jefferies & Co., Inc., as initial purchaser, in
connection with the Company's issuance of $71,000,000 aggregate principle
amount of its 12 1/4% Senior Secured Notes due 2006 (the "Notes").
We hereby consent to the filing of such opinion as an exhibit to the
Company's Registration Statement (No. 333-88829) on Form S-4, as amended, in
connection with the Company's exchange offer relating to the Notes and to the
use of our name under the heading "SPECIFIC FEDERAL INCOME TAX CONSIDERATIONS
- -- U.S. Federal Tax Characterization of the Notes and PGCL" in the prospectus
contained therein.
Very truly yours,
/s/ Mayer, Brown & Platt
