<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 2, 2000
REGISTRATION NO. 333-88829
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
POST-EFFECTIVE 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)
<TABLE>
<S> <C> <C>
DELAWARE 7993 42-1483875
(State or other jurisdiction of (Primary standard industrial (I.R.S. Employer
incorporation or organization) classification code number) Identification No.)
</TABLE>
------------------------------
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
------------------------
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 MAXIMUM PROPOSED 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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF OTHER REGISTRANTS
<TABLE>
<CAPTION>
PRIMARY STANDARD
STATE OF INDUSTRIAL
EXACT NAME OF REGISTRANT INCORPORATION I.R.S. EMPLOYER CLASSIFICATION
AS SPECIFIED IN ITS CHARTER OR ORGANIZATION IDENTIFICATION 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 52004-1683
(Address, including zip code, and telephone number, including area 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
------------------------
<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 March 3,
2000, 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 January 28, 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUMMARY.......................................... 1
RISK FACTORS................................................ 11
FORWARD-LOOKING STATEMENTS.................................. 24
THE TRANSACTIONS............................................ 25
USE OF PROCEEDS............................................. 25
CAPITALIZATION.............................................. 26
SELECTED COMBINED FINANCIAL DATA............................ 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 29
BUSINESS.................................................... 37
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK... 43
REGULATORY MATTERS.......................................... 44
MANAGEMENT.................................................. 49
PRINCIPAL SECURITYHOLDERS................................... 52
KEY RELATIONSHIPS AND RELATED TRANSACTIONS.................. 54
THE EXCHANGE OFFER.......................................... 57
DESCRIPTION OF THE NOTES.................................... 68
DESCRIPTION OF INDEBTEDNESS................................. 107
DESCRIPTION OF PENINSULA GAMING COMPANY MEMBERSHIP
INTERESTS................................................. 108
DESCRIPTION OF PENINSULA GAMING PARTNERS MEMBERSHIP
INTERESTS................................................. 109
SPECIFIC FEDERAL INCOME TAX CONSIDERATIONS.................. 116
PLAN OF DISTRIBUTION........................................ 120
LEGAL MATTERS............................................... 120
INDEPENDENT AUDITORS........................................ 120
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, 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. AND HARBOR COMMUNITY INVESTMENT, L.C., 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 AND PENINSULA GAMING CORP. ON A COMBINED BASIS AND DO NOT
REFER TO PENINSULA GAMING PARTNERS, LLC, THE DIRECT PARENT OF PENINSULA GAMING
COMPANY AND THE INDIRECT PARENT OF PENINSULA GAMING CORP. PENINSULA GAMING 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
- keep the exchange offer open for at least 30 days after the date on which
we mail notice of the exchange offer to you.
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 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.
1
<PAGE>
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
March 3, 2000 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.
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.
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
INTEREST..................................... The first interest payment date on your old notes was
January 1, 2000. Interest was paid to holders of
record on December 15, 1999. Interest has accrued on
your old notes since January 1, 2000, 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 January 1, 2000.
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
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
relying upon Rule 144A under the Securities Act of
1933 or any other available exemption under the
Securities Act of 1933;
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
- 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.
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;
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
- you are not a broker-dealer that purchased old
notes from us to resell them relying upon 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.
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.
</TABLE>
5
<PAGE>
TERMS OF THE NEW NOTES
<TABLE>
<S> <C>
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 July 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:
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD BELOW PERCENTAGE
-------------------- ----------
<S> <C>
On or after July 1, 2003........................... 108.00%
On or after July 1, 2004........................... 105.33%
July 1, 2005 and thereafter........................ 102.67%
</TABLE>
<TABLE>
<S> <C>
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 in the event of 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:
- 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.
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
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 our business,
(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>
7
<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, to expand our geographic reach and to comply with
requirements imposed by the gaming commission in connection with the grant of
our gaming license. 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.
8
<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, the
date of inception, to September 30, 1999 have been derived from the unaudited
financial statements of Peninsula Gaming Company 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, the 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 appearing
elsewhere in this prospectus.
IN THE TABLE OF SUMMARY COMBINED FINANCIAL AND OPERATING DATA BELOW, 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 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. NET INTEREST EXPENSE IS DEFINED AS
TOTAL INTEREST EXPENSE LESS INTEREST INCOME AND AMORTIZATION OF DEFERRED
FINANCING COSTS AND ORIGINAL ISSUE DISCOUNT. 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. PENINSULA GAMING
COMPANY ISSUED $7.0 MILLION OF PREFERRED MEMBERSHIP INTERESTS TO GREATER DUBUQUE
RIVERBOAT ENTERTAINMENT COMPANY AND RECEIVED A $9.0 MILLION CAPITAL CONTRIBUTION
FROM PENINSULA GAMING PARTNERS, OF WHICH $6.0 MILLION WAS CONTRIBUTED TO THE
CAPITAL OF PENINSULA GAMING PARTNERS THROUGH THE SALE OF COMMON MEMBERSHIP
INTERESTS AND $3.0 MILLION WAS CONTRIBUTED TO THE CAPITAL OF PENINSULA GAMING
PARTNERS THROUGH THE SALE OF CONVERTIBLE PREFERRED MEMBERSHIP INTERESTS. SEE
"THE TRANSACTIONS," "KEY RELATIONSHIPS AND RELATED TRANSACTIONS-EQUITY
CONTRIBUTION," "DESCRIPTION OF PENINSULA GAMING COMPANY MEMBERSHIP INTERESTS"
AND "DESCRIPTION OF PENINSULA GAMING PARTNERS MEMBERSHIP INTERESTS" FOR A
DETAILED DISCUSSION OF THE CAPITALIZATION OF THE COMPANY AND ITS AFFILIATES.
AS USED IN THE TABLE OF SUMMARY COMBINED FINANCIAL AND OPERATING DATA,
ADJUSTED EBITDA IS CALCULATED AS SET FORTH BELOW. 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 COMPANY.
9
<PAGE>
CALCULATION OF ADJUSTED EBITDA
<TABLE>
<CAPTION>
PENINSULA
GAMING
PREDECESSOR COMPANIES COMPANY
------------------------------------------------------- -------------
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 -- -- -- -- -- --
------- ------- ------- ------- ------ ------- ------
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>
<TABLE>
<CAPTION>
PENINSULA GAMING
PREDECESSOR COMPANIES COMPANY
--------------------------------------------------------------------------- ------------------
PERIOD FROM
SIX MONTHS ENDED TWELVE JULY 15, 1999
FISCAL YEARS ENDED DECEMBER 31, JUNE 30, MONTHS (DATE OF
------------------------------------ ------------------- ENDED INCEPTION) TO
1996 1997 1998 1998 1999 JUNE 30, 1999 SEPTEMBER 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................ $ 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
RATIO OF EBITDA TO NET INTEREST EXPENSE..................................................................... 2.0X
</TABLE>
<TABLE>
<CAPTION>
TWELVE MONTHS
ENDED
SEPTEMBER 30, 1999
-------------------
<S> <C>
RATIO OF NET DEBT TO EBITDA................................. 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.............................. 7,000
Common membership interests................................. 9,000
Retained deficit............................................ (2,069)
</TABLE>
10
<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 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.
11
<PAGE>
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 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 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
12
<PAGE>
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
Dubuque Greyhound Park. The Dubuque Racing Association owns the Dubuque
Greyhound Park, which is located three miles from us. The Dubuque Greyhound Park
offers some amenities which we do not have, including live greyhound racing from
May through October and simulcast greyhound racing all year, as well as
simulcast horse racing on a limited basis. As a not-for-profit organization, the
Dubuque Racing Association distributes a percentage of its cash flow from the
Dubuque 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 Dubuque 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 Dubuque 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 Dubuque
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 Dubuque Greyhound Park to
operate these gaming activities. We may face increased competition from the
Dubuque 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 Dubuque Racing Association, referred to in
this prospectus as the "Dubuque Racing Association operating agreement,"
currently restricts the number of slot machines at the Dubuque Greyhound Park to
600 provided that we do not increase the number of slot machines at the Diamond
Jo to more than 650. Furthermore, under the Dubuque Racing Association operating
agreement, we require that the weighted average theoretical slot payback
percentage at the Dubuque 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 manufacturers' specifications.
If the Dubuque 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 Dubuque 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.
13
<PAGE>
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 in the past. 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 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.
14
<PAGE>
Proposals to amend or supplement Iowa's gaming statutes are frequently
introduced in the Iowa state legislature. In addition, the state legislature
sometimes 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 Company. The gaming commission may also
request that we provide them with a list of persons holding beneficial ownership
interests in Peninsula Gaming Company 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 Company.
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 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
Company--Membership Interests--Peninsula Gaming Company Operating Agreement" and
"Description of Notes--Redemption" for more information about regulatory
redemptions affecting the notes.
DUBUQUE RACING ASSOCIATION OPERATING AGREEMENT--OUR OPERATIONS ARE SUBJECT
TO THE DUBUQUE RACING ASSOCIATION OPERATING AGREEMENT. IF THE DUBUQUE 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
Dubuque Racing Association, which holds the "qualified sponsoring organization"
license for the Diamond Jo. The Dubuque Racing Association owns the Dubuque
Greyhound Park, which is its primary source of revenue. If the Dubuque Racing
Association's revenues from the Dubuque Greyhound Park fall below specified
amounts, we will be required to pay the Dubuque 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 Dubuque Racing Association commenced
casino operations at the Dubuque Greyhound Park in 1995. The amount of any
future payments would depend on the difference between our revenues and those of
the Dubuque Racing Association and could vary greatly from period to period.
These payments, if significant, could materially adversely affect our financial
condition. See "KEY RELATIONSHIPS AND RELATED TRANSACTIONS--Relationship with
Dubuque Racing Association," for a discussion of our obligation to make these
payments to the Dubuque Racing Association. In addition, beginning April 1,
2000, we will be required to pay to the Dubuque Racing Association $0.50 per
patron on the Diamond Jo, without regard to the revenues of the Dubuque
Greyhound Park. The payment for 1998 would have been approximately $571,000.
15
<PAGE>
The Dubuque Racing Association operating agreement expires by its terms on
December 31, 2008. If the Dubuque Racing Association operating agreement is
terminated or not extended, we may not be able to operate the Diamond Jo. Either
we or the Dubuque 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, including the obligation to make the payments discussed in the
preceding paragraph. See "Reauthorization of Gaming in Dubuque County, Iowa".
For additional information concerning the Dubuque 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 AFTERWARD 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 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
Dubuque 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 Dubuque
Racing Association's license is our date of licensure or on or before March 18,
1993, the date the Dubuque 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 Dubuque 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 Dubuque 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 Dubuque 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 Dubuque 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.
16
<PAGE>
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.
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.
17
<PAGE>
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 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 in the past 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
18
<PAGE>
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.
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 GAMING PARTNERS' ABILITY TO MANAGE
AND OPERATE THE DIAMOND JO, WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON
HOLDERS OF THE SECURITIES.
Peninsula Gaming Partners, the parent and sole manager of Peninsula Gaming
Company, is primarily responsible for managing the Diamond Jo. Although
Peninsula Gaming Partners and its affiliates do not currently manage other
gaming operations, neither Peninsula Gaming 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 Dubuque 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 Gaming
Partners' officers and managers. While we believe that any new ventures will not
detract from Peninsula Gaming 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 Company or Peninsula Gaming
Partners.
M. Brent Stevens, a managing director of Jefferies & Company, Inc., the
initial purchaser of the old notes, owns 24.84% of the voting common membership
interests of Peninsula Gaming Partners and exercises sole voting and investment
power with respect to the membership interests of PGP Investors, LLC, a member
of Peninsula Gaming Partners. For these reasons, Mr. Stevens controls us.
Mr. Stevens continues to act in his capacity as a managing director of the
initial purchaser, including with respect to transactions in the gaming
industry. As such, Mr. Stevens is not able to devote his full time and attention
to managing our gaming operations. There can be no assurance that potential
conflicts of interest will not arise in the future. See "Principal
Securityholders" for more information about our equity securityholders.
19
<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 OUR 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 us or our subsidiaries, our
lenders under 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
20
<PAGE>
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 our business,
(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 Gaming Partners Membership
Interests--Convertible Preferred Membership Interests--Repurchase Upon Change of
Control" and "--Peninsula Gaming Partners Operating Agreement" for more
information on required redemptions and potential limitations on our 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 exchange offer, Mayer, Brown & Platt will deliver its opinion, also
delivered in connection with the original issuance of the old notes, to the
effect that, for U.S. federal income tax purposes,
(a) the notes will be treated as indebtedness and
(b) we will not be treated as a publicly traded partnership taxable as a
corporation.
21
<PAGE>
This opinion will be based on factual representations and assumptions. See
"Specific United States Federal Income Tax Considerations--U.S. Federal Tax
Characterization of the Notes and Peninsula Gaming Company" 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, we have not experienced any
material adverse effects on our operations due to the year 2000 problem, and we
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 our 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 under 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--NOTEHOLDERS 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 in 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.
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<PAGE>
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 under 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 in 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.
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<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.
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<PAGE>
THE TRANSACTIONS
On July 15, 1999, we completed the acquisition of
(1) the Diamond Jo, under an asset purchase agreement, dated as of
January 15, 1999, as amended, between Peninsula Gaming Partners and Greater
Dubuque Riverboat Entertainment Company, and
(2) related real property, under a real property purchase agreement, dated
as of January 15, 1999, between Peninsula Gaming Partners and Harbor Community
Investment,
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 Company of $7.0 million of
preferred membership interests to Greater Dubuque Riverboat Entertainment
Company,
(2) a capital contribution of $9.0 million from Peninsula Gaming Partners,
consisting of capital contributions of $6.0 million from common members of
Peninsula Gaming Partners and $3.0 million of proceeds from the issuance and
sale by Peninsula Gaming 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 Gaming Partners assigned the agreements to
Peninsula Gaming Company . See "Key Relationships and Related
Transactions--Equity Contribution," "Description of Peninsula Gaming Company
Membership Interests" and "Description of Peninsula Gaming 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> <C> <C>
Sale of Notes, net of discount................ $70,181 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>
In the acquisition agreements, Greater Dubuque Riverboat Entertainment
Company and Harbor Community Investment 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 Company 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.
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<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 Gaming 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 included elsewhere in this prospectus.
IN CONNECTION WITH THE ACQUISITION OF THE DIAMOND JO, WE ACQUIRED $2.0
MILLION OF CASH AND CASH EQUIVALENTS FROM GREATER DUBUQUE RIVERBOAT
ENTERTAINMENT COMPANY. ADDITIONALLY, APPROXIMATELY $2.0 MILLION OF THE NET
PROCEEDS FROM THE OFFERING OF THE NOTES AND THE EQUITY CONTRIBUTION RECEIVED
FROM PENINSULA GAMING PARTNERS, WHICH INCLUDED, AMONG OTHER THINGS, THE PROCEEDS
FROM THE SALE OF PENINSULA GAMING PARTNERS' CONVERTIBLE PREFERRED MEMBERSHIP
INTERESTS, AFTER DEDUCTION FOR CAPITALIZED DEBT ISSUANCE COSTS AND ACQUISITION
AND START-UP COSTS, WILL BE USED FOR GENERAL CORPORATE PURPOSES. THE AMOUNT OF
"SENIOR SECURED NOTES" IN THE TABLE BELOW REFLECTS $71.0 MILLION AGGREGATE
PRINCIPAL AMOUNT OF NOTES LESS ORIGINAL ISSUE DISCOUNT OF APPROXIMATELY $0.8
MILLION. PENINSULA GAMING COMPANY ISSUED $7.0 MILLION OF PREFERRED MEMBERSHIP
INTERESTS TO GREATER DUBUQUE RIVERBOAT ENTERTAINMENT COMPANY AND RECEIVED A $9.0
MILLION EQUITY CONTRIBUTION FROM PENINSULA GAMING PARTNERS, $6.0 MILLION OF
WHICH WAS CONTRIBUTED TO THE CAPITAL OF PENINSULA GAMING PARTNERS BY COMMON
MEMBERS OF PENINSULA GAMING PARTNERS AND $3.0 MILLION OF WHICH WAS CONTRIBUTED
TO THE CAPITAL OF PENINSULA GAMING PARTNERS THROUGH THE SALE OF PENINSULA GAMING
PARTNERS' CONVERTIBLE PREFERRED MEMBERSHIP INTERESTS. SEE "THE TRANSACTIONS,"
"KEY RELATIONSHIPS AND RELATED TRANSACTIONS--EQUITY CONTRIBUTION," "DESCRIPTION
OF PENINSULA GAMING COMPANY MEMBERSHIP INTERESTS" AND "DESCRIPTION OF PENINSULA
GAMING PARTNERS MEMBERSHIP INTERESTS" FOR MORE INFORMATION ABOUT THESE
TRANSACTIONS.
<TABLE>
<CAPTION>
ACTUAL
----------------------
SEPTEMBER 30, 1999
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Cash and cash equivalents................................... $ 8,894
-------
Debt:
Senior Secured Notes........................................ $70,197
Capital lease obligations................................... 476
-------
Total debt................................................ 70,673
Preferred membership interests.............................. 7,000
Common membership interests................................. 9,000
Retained earnings (deficit)................................. (2,069)
-------
Total capitalization...................................... $84,604
=======
</TABLE>
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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 Entertainment Company and Harbor Community Investment,
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 Entertainment Company, 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, the date of inception, to
September 30, 1999 has been derived from the unaudited financial statements of
Peninsula Gaming Company, 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 Company 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, the 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 presentedshould 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 appearing
elsewhere in this prospectus.
AS SET FORTH IN THE TABLE BELOW, THE AMOUNT OF NON-RECURRING EXPENSES
CONSISTS OF NON-RECURRING CHARGES RELATED TO SALE OF BUSINESS AND LITIGATION
INVOLVING THE PRIOR OWNERS OF THE DIAMOND JO AND GREATER DUBUQUE RIVERBOAT
ENTERTAINMENT COMPANY. 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. PENINSULA GAMING COMPANY'S RATIO OF EARNINGS TO FIXED
CHARGES FOR THE PERIOD FROM JULY 15, 1999, THE 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. EBITDA REPRESENTS EARNINGS BEFORE INTEREST,
INCOME TAXES, DEPRECIATION AND AMORTIZATION AND EXCLUDES NON-RECURRING CHARGES,
WHICH INCLUDE 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 GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES 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.
27
<PAGE>
<TABLE>
<CAPTION>
PENINSULA
GAMING
PREDECESSOR COMPANIES COMPANY
-------------------------------------------------------------------------- -------------
PERIOD FROM
SIX MONTHS JULY 15, 1999
ENDED (DATE OF
FISCAL YEAR ENDED DECEMBER 31, JUNE 30, INCEPTION) 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........ 55 101 58 170 928 233 625 3,134
------- ------- -------- -------- -------- ------- ------- --------
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..................... 2.4x 4.6x 1.5x 6.5x 10.8x 9.3x 16.1x 0.1x
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............... $ 3,331 $ 8,113 $ 14,013 $ 14,702 $ 16,107 $ 7,723 $ 7,641 $ 3,868
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, AT JUNE 30, AT
---------------------------------------------------- ------------------- 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>
28
<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 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," 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
Dubuque 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 on
July 14 and 15. The results of operations discussed below have not been adjusted
for this closure. As used below, "Organizational costs" and "selling and
litigation expenses" consist of non-recurring charges related to the write-off
of organizational costs in accordance with generally accepted accounting
principals and sale of business and various litigation costs incurred by the
predecessor company.
29
<PAGE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30
-------------------------
1998 1999
STATEMENT OF OPERATIONS DATA ----------- -----------
<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............................... -- 3,134,095
Selling and litigation expenses.................... 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>
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 Dubuque 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 Dubuque 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 Dubuque 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 Dubuque 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 Dubuque 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
30
<PAGE>
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 Dubuque 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 $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 various
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 various 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 Dubuque 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 Dubuque 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 Dubuque Greyhound Park from 58 to 104 and changes in our game
mix. Admissions to casinos in the Dubuque market decreased
31
<PAGE>
.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 Dubuque 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
Dubuque 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 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
Entertainment Company.
32
<PAGE>
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 Dubuque 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 increased advertising and promotions by the
Diamond Jo and the Dubuque 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 gaming 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 Entertainment
Company.
33
<PAGE>
Depreciation and amortization expense increased 3.8% to $1.9 million in 1998
from $1.8 million in 1997. The increase in depreciation and amortization expense
was primarily due to the purchase of our new electronic player tracking system.
Net interest expense was $1.0 million and $1.5 million in 1998 and 1997,
respectively. The reduction of interest expense was due to a decline in
outstanding debt and more favorable interest rates on outstanding loans. Loss on
disposal of assets, which was primarily related to the replacement/upgrade of
slot machines, was substantially unchanged at $0.1 million.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
In 1997, Dubuque was a three-casino market for the months of January through
June and a two-casino market for the months of July through December. In 1996,
Dubuque was a two-casino market for the months of January through May and a
three-casino market for the months of June through December. After initially
closing in December 1995, the Silver Eagle reopened in May 1996 and then
permanently closed in July 1997. Casino gaming win in the Dubuque market
increased 5.8% to $67.1 million in 1997 from $63.4 million in 1996. We believe
this increase was primarily due to a 1.4% increase in casino admissions in the
Dubuque market to 2.0 million in 1997 from 1.9 million in 1996. Our share of the
Dubuque market casino gaming win and admissions were 60.5% and 56.2%,
respectively, in 1997 and 63.6% and 56.9%, respectively, in 1996. We believe our
market share declined in 1997 compared to 1996 as a result of an increase in the
number of slot machines at the Dubuque 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 Entertainment Company.
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
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riverboat in December 1996. Net interest expense was $1.5 million and
$1.7 million in 1997 and 1996, respectively. The reduction in interest expense
was due to a decline in outstanding debt and more favorable interest rates on
outstanding loans. Loss on disposal of assets was $0.1 million and $6.9 million
in 1997 and 1996, respectively. The loss in 1997 was attributable almost
entirely to the replacement/upgrade of slot machines while the loss in 1996 was
attributable primarily to the sale of our original riverboat.
LIQUIDITY AND CAPITAL RESOURCES
During 1998, we generated $14.6 million in cash flows from operations as
compared to $12.5 million in 1997. The increase in cash flows from operations
was due to an increase in net income of $1.1 million and changes in working
capital of $0.9 million due to increases in accounts payable and accrued
expenses.
Net cash flows used for investing activities were $1.8 million in 1998. The
primary uses of funds were for maintenance capital expenditures. Net cash flows
provided by investing activities were $4.2 million in 1997. The majority of the
proceeds were from the payment of a note receivable from a related party
relating to the sale of our original riverboat in 1996.
Cash flows used by financing activities in 1998 were $12.8 million comprised
primarily of $5.8 million of payments on long-term debt and $7.0 million of
member distributions. Cash flows used by financing activities for 1997 were
$15.1 million comprised primarily of $8.0 million of payments on long-term debt
and $6.6 million of member distributions.
We believe that cash on hand and cash generated from operations will be
sufficient to satisfy our working capital requirements, maintenance capital
expenditures and other cash obligations. However, 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," "--Dubuque 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.
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YEAR 2000 READINESS
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. We have not experienced any payroll disruption resulting from
the year 2000 issue.
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 have not experienced
any electrical disruption resulting from the year 2000 issue.
In accordance with Coast Guard directives, we prepared a detailed
contingency plan for dealing with the year 2000 issues, and submitted it to the
Coast Guard in July of last 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, to expand our geographic reach and to comply with
requirements imposed by the gaming commission in connection with the grant of
our gaming license. 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.
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,
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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, recently put in place, where visitors will learn
about navigation and how the Mississippi River system of locks and dams
works;
- a one-third mile promenade along the perimeter of the Fourth Street
Peninsula with decorative paving, historic lighting, benches, and
landscaping, construction began in October 1999;
- a 500-foot walkway along the Ice Harbor from the River Museum to the
Rivers Edge Plaza, construction to begin in June 2000;
- an eight-mile extension of the existing 18-mile Heritage Trail system with
links to riverfront parks and other attractions, construction to begin in
June 2000;
- a 5,000 square foot landscaped open area to be used as a dock for large
boats and a site for relaxation and river watching, construction to begin
in April 2001;
- a 70,000 square foot museum, construction to begin in 2000;
- an outdoor wetland habitat for wildlife with several large aquariums and a
unique educational center, construction to begin in July 2000; and
- a 7,500 square foot amphitheater with seating for 1,000 people for
festivals, music and drama to be constructed on the levee at the historic
Star Brewery, construction to begin in July 2001.
This redevelopment project is designed to enhance the attractiveness of the
Ice Harbor as a community center and tourist destination, which we believe
should lead to increased foot traffic around the site of, and increased
admissions to, the Diamond Jo. To further capitalize on the Ice Harbor
redevelopment project 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%
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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, 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 Dubuque
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 Dubuque Racing Association.
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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 Dubuque Greyhound Park. The Dubuque 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
Dubuque Greyhound Park also offers, on a limited basis, simulcasts of horse
races. The Dubuque Greyhound Park is owned and operated by the Dubuque Racing
Association. As a not-for-profit organization, the Dubuque Racing Association
distributes a percentage of its cash flow to the City of Dubuque and local
charities. The Dubuque Racing Association operating agreement allows us to
restrict the number of slot machines at the Dubuque 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 Dubuque Racing Association
operating agreement allows us to require that the weighted average theoretical
slot payback percentage at the Dubuque Greyhound Park not exceed ours by more
than 0.5%. We have elected to apply both of these restrictions to the Dubuque
Greyhound Park. Under Iowa law, table games, video poker, video keno and other
electronic games of skill are not permitted at the Dubuque Greyhound Park and,
subject to limited conditions, we may prevent the Dubuque Greyhound Park from
having these games even if they were allowed to operate them under Iowa law. See
"Risk Factors--Dubuque Racing Association Operating Agreement" and "Key
Relationships and Related Transactions--Relationship with Dubuque Racing
Association" for more information concerning our relationship with the Dubuque
Racing Association.
The Diamond Jo competed with the Silver Eagle, which was located five miles
east of us in East Dubuque, Illinois, through substantially all of 1995 and from
May 1996 to July 1997, the date on which the Silver Eagle ceased operations. We
believe the Silver Eagle ceased operations as a result of competitive pressures
from
(1) the Diamond Jo, which commenced operations of a larger riverboat
during 1995,
(2) the Dubuque Greyhound Park, which commenced operations during 1995,
and
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(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. We have not experienced any labor
problems resulting in a work stoppage, and believe we maintain good relations
with our 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 in our acquisition
of the Diamond Jo from Greater Dubuque Riverboat Entertainment Company and of
the real property from Harbor Community Investment. These acquisitions are
referred to in this prospectus 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 Entertainment Company 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 Entertainment Company 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
Riverboat Entertainment Company's claims arising out of the arbitration demand
were resolved, and on July 15, 1999, the arbitration demand was withdrawn by
Greater Dubuque Riverboat Entertainment Company.
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 Investment. 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
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(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 Dubuque Racing Association, which in turn subleases these properties to us.
The sublease requires us to pay one dollar per year as rent. In connection with
the acquisition of the Diamond Jo, we are acquiring Greater Dubuque Riverboat
Entertainment Company's interests in this sublease. The terms of the Dubuque
Racing Association lease with the City of Dubuque and our sublease with the
Dubuque Racing Association have each been extended through December 31, 2008.
The Dubuque Racing Association is also party to a parking agreement by and
among the City of Dubuque, Greater Dubuque Riverboat Entertainment Company and
other parties, which governs the use of the parking spaces we currently sublease
from the Dubuque Racing Association. This parking agreement gives our patrons
the non-exclusive right to use the approximately 445 parking spaces currently
subleased from the Dubuque Racing Association. The 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 Dubuque 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 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 a parcel of real
property on which we plan to construct the hotel, and a parcel of real property
presently used as a patio for the dockside pavilion. These properties are
currently subject to the Dubuque Racing Association sublease described above
and, assuming we enter into the city lease, will be excluded from the Dubuque
Racing Association sublease and instead will be leased by us directly from the
City of Dubuque. Subject to approval of the Dubuque Racing Association and the
gaming commission, we expect that the city lease will provide for
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a minimum lease term of thirty-nine years and annual rent of One Dollar through
December 31, 2004. Afterward, 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 specific real estate to be
deeded by Harbor Community Investment 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 in the past. 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 under that Chapter and the licensing and regulatory
control of the gaming commission.
Under Iowa law, the legal age for gaming is 21, and wagering on a "gambling
game" is legal when conducted by a licensee on an "excursion gambling boat." An
"excursion gambling boat" is a self-propelled excursion boat, and a "gambling
game" is any game of chance authorized by the gaming commission. While dockside
casino gaming is currently authorized by the gaming commission, a licensed
excursion gambling boat is required to conduct at least one two-hour excursion
cruise each day for at least 100 days during the excursion season to operate
during the off-season. The excursion season is from April 1st through
October 31st of each calendar year. The excursions conducted by the Diamond Jo
during the 1998 cruising season satisfied the requirements of Iowa law for the
conduct of off-season operations.
The legislation permitting riverboat gaming in Iowa authorizes the granting
of licenses to "qualified sponsoring organizations." A "qualified sponsoring
organization" is defined as a nonprofit corporation organized under Iowa law,
whether or not exempt from federal taxation, or a person or association that can
show to the satisfaction of the gaming commission that the person or association
is eligible for exemption from federal income taxation under SectionSection
501(c)(3), (4), (5), (6), (7), (8), (10) or (19) of the Internal Revenue Code.
That not-for-profit corporation may operate the riverboat itself, or it may
enter into an agreement with another boat operator to operate the riverboat on
its behalf. A boat operator must be approved and licensed by the gaming
commission. The Dubuque 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 Dubuque Racing Association subsequently entered into the
Dubuque Racing Association operating agreement with Greater Dubuque Riverboat
Entertainment Company, authorizing Greater Dubuque Riverboat Entertainment
Company to operate riverboat gaming operations in Dubuque. The Dubuque Racing
Association operating agreement was approved by the gaming commission on
March 18, 1993. The term of the Dubuque Racing Association operating agreement
currently runs until March 31, 2002, with two three-year renewal options
afterward, subject to the satisfaction of limited conditions. We will assume the
rights and obligations of Greater Dubuque Riverboat Entertainment Company under
the Dubuque Racing Association operating agreement. See "Key Relationships and
Related Transactions--Relationship with Dubuque Racing Association" for more
information about our relationship with the Dubuque Racing Association.
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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 afterward. 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--Dubuque 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
sometimes 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 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 of the first one million dollars of adjusted gross receipts, ten percent
on the next two million dollars of adjusted gross receipts and twenty percent 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
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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 or more, direct or
indirect, in Peninsula Gaming Company. The gaming commission may also request
that we provide them with a list of persons holding beneficial ownership
interests in Peninsula Gaming Company 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 notes,
Peninsula Gaming Company's common membership interests and preferred membership
interests, and Peninsula Gaming 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 Gaming
Partners or Peninsula Gaming Company 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 under
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
Company Membership Interests--Peninsula Gaming Company Operating Agreement,"
"Description of Notes--Redemption" and "Description of Peninsula Gaming Partners
Membership Interests--Peninsula Gaming 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.
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POTENTIAL CHANGES IN TAX AND REGULATORY REQUIREMENTS
In the past, 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 sometimes consider
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 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
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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, and the Merchant Marine Act of 1936, and
applicable regulations 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
Company's and Peninsula Gaming Partners' respective operating agreements contain
prohibitions against any purchase or transfer of Peninsula Gaming Company's or
Peninsula Gaming Partners' respective membership interests to any person or
entity if, following the purchase or transfer, more than 25% of Peninsula Gaming
Company'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 Company's or Peninsula Gaming Partners' respective
operating agreements is null and void, and Peninsula Gaming Company and
Peninsula Gaming Partners will not recognize the purchaser, transferee or
purported beneficial owner as a direct or indirect holder of an interest in
Peninsula Gaming Company or Peninsula Gaming Partners, respectively, for any
purpose. To the extent required by maritime laws, the managing member, managers
and the officers of Peninsula Gaming Partners and Peninsula Gaming Company must
be citizens of the United States. See "Description of Peninsula Gaming Company
Membership Interests--Peninsula Gaming Company Operating Agreement" and
"Description of Peninsula Gaming Partners Membership Interests--Peninsula Gaming
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 under 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 COMPANY 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 Company
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 Gaming Corp.; Chief Executive
Officer of Peninsula Partners and
Peninsula Gaming Company; President and
Treasurer of Peninsula Gaming Corp.
Natalie A. Schramm........................ 29 Chief Financial Officer and Controller of
Peninsula Gaming Company
Michael S. Luzich......................... 45 Manager of Peninsula Partners; Director of
Peninsula Gaming Corp.; Vice President of
Corporate Development and Secretary of
Peninsula Partners; Vice President and
Secretary of Peninsula Gaming Corp.;
Secretary of Peninsula Gaming Company
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 Company 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 COMPANY; DIRECTOR OF PENINSULA GAMING
CORP.; PRESIDENT AND TREASURER OF PENINSULA GAMING 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 us in
December, 1998.
NATALIE A. SCHRAMM--CHIEF FINANCIAL OFFICER AND CONTROLLER OF PENINSULA
GAMING COMPANY. 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 us in July, 1999.
MICHAEL S. LUZICH--MANAGER, VICE PRESIDENT OF CORPORATE DEVELOPMENT AND
SECRETARY OF PENINSULA PARTNERS; DIRECTOR, VICE PRESIDENT AND SECRETARY OF
PENINSULA GAMING CORP.; SECRETARY OF PENINSULA GAMING
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COMPANY. 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 us 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 us 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 us 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 us in July, 1999.
EMPLOYMENT AND CONSULTING AGREEMENTS
JAMES P. RIX, FORMERLY CHIEF OPERATING OFFICER OF PENINSULA GAMING
COMPANY. Mr. Rix resigned as our Chief Operating Officer, effective
November 20, 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.
While employed, Mr. Rix also was reimbursed for club membership expenses in the
amount of $501.38. Mr. Rix has agreed to restrictions which will limit his
ability to compete with us for a one-year period following the termination of
his employment. In connection with Mr. Rix's resignation, we entered into a
separation and release agreement in December 1999 pursuant to which, among other
things, we agreed to (i) pay Mr. Rix $360,315.95 in full satisfaction of all
amounts due to him upon termination, and (ii) exercise our right under Peninsula
Gaming Partner's operating agreement to repurchase all of Mr. Rix's 46,666.67
common membership interests in Peninsula Gaming Partners for $280,000 (the
amount paid by Mr. Rix for such common membership interests).
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 has agreed to restrictions which will limit her
ability to compete with us for a one-year period following her termination of
employment.
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<PAGE>
MICHAEL S. LUZICH. Peninsula Partners has entered into a consulting
agreement with Mr. Luzich, under which Mr. Luzich, in consideration for
corporate development and consulting services to be rendered, 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. Only Mr. Rix and Ms. Schramm received
compensation in excess of $100,000 during 1999 and, based on existing agreements
with members of our senior management, only they are entitled to receive
compensation in excess of $100,000 during 2000.
Subject to the approval of the holders of at least 85% of the voting common
membership interests of Peninsula Partners, Peninsula Partners' board of
managers may, issue additional incentive based equity interests in Peninsula
Partners at no less than fair market value.
SUMMARY COMPENSATION TABLE
The following table sets forth all compensation awarded to, earned by or
paid to each of our Chief Executive Officer and to each of our executive
officers for all services rendered since the date of consummation of the
acquisition on July 15, 1999 through January 27, 2000.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ------------
------------------------------------ SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
FISCAL SALARY COMPENSATION OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) BONUS ($) ($) (#) ($)
- --------------------------- -------- --------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
M. Brent Stevens............ 1999 -- -- -- -- --
CHIEF EXECUTIVE OFFICER 2000 -- -- -- -- --
Natalie A. Schramm.......... 1999 36,490.42 25,000 -- -- --
CHIEF FINANCIAL OFFICER 2000 6,346.16 20,000
James P. Rix................ 1999 91,346.11 -- 501.38 -- --
FORMERLY, CHIEF OPERATING
OFFICER
</TABLE>
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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PRINCIPAL SECURITYHOLDERS
All of Peninsula Gaming Company's outstanding common membership interests
are owned by Peninsula Gaming Partners, its parent and sole manager. All of
Peninsula Gaming Corp.'s outstanding common stock is owned by Peninsula Gaming
Company.
Greater Dubuque Riverboat Entertainment Company 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 Gaming Partners issued 500,000 convertible preferred
membership interests; each of which is initially convertible into one Peninsula
Gaming Partners non-voting common membership interest, representing 33.33% of
the fully diluted common membership interests of Peninsula Gaming Partners on
such date. Peninsula Gaming Partners does not have outstanding any of its
non-voting common membership interests. See "Description of Peninsula Gaming
Company Membership Interests" and "Description of Peninsula Gaming 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 Gaming Partners is c/o Peninsula Gaming Company,
LLC, 3rd Street Ice Harbor, P.O. Box 1750, Dubuque, IA 52004-1683.
The table below sets forth information regarding the beneficial ownership of
the voting common membership interests of Peninsula Gaming Partners by
(a) each person or entity known by us to own beneficially 5% or more of
the common membership interests of Peninsula Gaming Partners,
(b) each manager and executive officer of Peninsula Gaming Partners and
(c) all managers and executive officers of Peninsula Gaming Partners as
a group.
THE FOLLOWING INFORMATION IS HELPFUL TO AN UNDERSTANDING OF, AND QUALIFIES
THE BENEFICIAL OWNERSHIP DATA CONTAINED IN, THE TABLE SET FORTH BELOW.
MR. STEVENS HOLDS 225,000 PENINSULA GAMING PARTNERS COMMON MEMBERSHIP INTERESTS
DIRECTLY AND 413,333 PENINSULA GAMING PARTNERS COMMON MEMBERSHIP INTERESTS
INDIRECTLY THROUGH PGP INVESTORS, LLC. MR. STEVENS IS THE SOLE MANAGING MEMBER
OF PGP INVESTORS AND EXERCISES VOTING AND INVESTMENT POWER OVER THE PENINSULA
GAMING PARTNERS COMMON MEMBERSHIP INTERESTS OWNED BY PGP INVESTORS. MR. STEVENS
DOES NOT OWN ANY MEMBERSHIP INTERESTS IN PGP INVESTORS. MR. STEVENS AND
MR. WHITTAKER, MANAGERS OF PENINSULA GAMING 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 PGP INVESTORS, LLC. MR. WHITTAKER HOLDS AN ECONOMIC
INTEREST IN 20,000 PENINSULA GAMING PARTNERS COMMON MEMBERSHIP INTERESTS
INDIRECTLY THROUGH HIS MEMBERSHIP IN PGP INVESTORS, BUT DOES NOT EXERCISE VOTING
OR INVESTMENT POWER WITH RESPECT TO, AND DISCLAIMS A BENEFICIAL OWNERSHIP
INTEREST IN, THESE PENINSULA GAMING PARTNERS COMMON MEMBERSHIP INTERESTS. UNDER
THE TERMS OF PENINSULA GAMING PARTNERS' OPERATING AGREEMENT, AS A RESULT OF
MR. RIX'S RESIGNATION FROM HIS POSITION AS CHIEF OPERATING OFFICER OF PENINSULA
GAMING COMPANY, PENINSULA GAMING 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 GAMING PARTNERS' BOARD OF MANAGERS. THE TOTAL HOLDING OF
ALL MANAGERS AND EXECUTIVE OFFICERS AS A GROUP INCLUDES THE 413,333 PENINSULA
GAMING PARTNERS COMMON MEMBERSHIP INTERESTS HELD BY PGP INVESTORS, OVER WHICH
MR. STEVENS EXERCISES VOTING AND INVESTMENT POWER.
52
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<TABLE>
<CAPTION>
VOTING COMMON
MEMBERSHIP INTERESTS PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED CLASS
- ------------------------------------ -------------------- ----------
<S> <C> <C>
M. Brent Stevens............................................ 248,333 24.84%
11100 Santa Monica, 10th Floor
Los Angeles, CA 90071
PGP Investors, LLC.......................................... 413,333 41.33%
11100 Santa Monica, 10th Floor
Los Angeles, CA 90071
Michael S. Luzich........................................... 323,333 32.33%
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 2.00%
11100 Santa Monica, 10th Floor
Los Angeles, CA 90071
All managers and executive officers as a group (6 1,000,000 100.00%
persons)..................................................
</TABLE>
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KEY RELATIONSHIPS AND RELATED TRANSACTIONS
RELATIONSHIP WITH DUBUQUE RACING ASSOCIATION
The Dubuque Racing Association is a not-for-profit corporation organized for
the purpose of operating the Dubuque Greyhound Park, a pari-mutuel greyhound
racing facility in Dubuque, Iowa. On February 22, 1993, the Dubuque Racing
Association entered into the Dubuque Racing Association operating agreement
which authorizes us to operate riverboat gaming operations in Dubuque. The
Dubuque 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 Dubuque Racing Association, without regard to our revenues or
profits. Based on 1998 admissions, this payment would have amounted to
approximately $570,000. Under the Dubuque Racing Association operating
agreement, subject to limited conditions, we are required to pay the Dubuque
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 Dubuque 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 Dubuque Racing Association's
gaming revenues from the Dubuque Greyhound Park. This formula is subject to
change if the Dubuque Racing Association ceases to operate the Dubuque Greyhound
Park or if we operate a riverboat smaller than the current Diamond Jo. We
currently make no payments to the Dubuque Racing Association because the Dubuque
Racing Association's revenues from the Dubuque Greyhound Park are greater than
the specified percentage of our total gaming revenues.
The Dubuque Racing Association operating agreement allows us to restrict the
number of slot machines at the Dubuque 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 Dubuque 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 Dubuque 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 Dubuque 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 Dubuque
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 Dubuque 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 Dubuque Racing Association,
could result in increased competition from the Dubuque Greyhound
Park. Iowa law currently prohibits pari-mutuels, such as the Dubuque
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 Dubuque Racing Association operating agreement, we are
entitled to prohibit the Dubuque Racing Association from operating table games
at the Dubuque Greyhound Park. In this case, our ability to prohibit table games
at the Dubuque 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.
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The above restrictions are subject to the express approval and regulatory
supervision of the gaming commission. Additionally, all of the restrictions
under the Dubuque 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 Dubuque 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 Dubuque Racing Association
operating agreement.
For a discussion of risks relating to the Dubuque Racing Association
operating agreement, see "Risk Factors--Dubuque Racing Association Operating
Agreement."
MANAGING MEMBER INDEMNIFICATION
Under our and Peninsula Gaming Partners' operating agreements, we and
Peninsula Gaming Partners have agreed, subject to few exceptions, to indemnify
and hold harmless our members, Peninsula Gaming Partners and Peninsula Gaming
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 Gaming
Partners, as the case may be.
EQUITY CONTRIBUTION
The common members of Peninsula Gaming Partners have made a capital
contribution of $6.0 million to Peninsula Gaming Partners in exchange for their
common membership interests. Peninsula Gaming 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 Gaming Partners' convertible preferred membership
interests to Peninsula Gaming Company, in exchange for common membership
interests in Peninsula Gaming Company. Peninsula Gaming Company used this
capital contribution from Peninsula Gaming 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 Entertainment
Company in connection with the acquisition of the Diamond Jo. See "Description
of Peninsula Gaming Company Membership Interests" and "Description of Peninsula
Gaming Partners Membership Interests" for more information about those
transactions.
OPERATING AGREEMENT OF PENINSULA GAMING PARTNERS
Under Peninsula Gaming Partners' operating agreement, the management of
Peninsula Gaming Partners is vested in a board of managers composed 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 Gaming
Partners, Mr. Stevens is entitled to designate three of Peninsula Gaming
Partners' managers, including one of the two independent managers. The two
independent managers shall serve as members of the independent committee. Under
Peninsula Gaming Partners' operating agreement, PGP Advisors, LLC, a Delaware
limited liability company, of which Mr. Stevens is the sole managing member, may
render financial advisory and consulting services to Peninsula Gaming 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
Gaming 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 Gaming Partners, Mr. Luzich is entitled to designate two
of Peninsula Gaming Partners' managers, including the other independent manager.
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<PAGE>
Presently, Peninsula Gaming Partners' board of managers is composed 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 COMPANY
Under the terms of Peninsula Gaming Company's operating agreement, if we
repay, redeem or refinance 90% or more of the notes on or prior to July 1, 2003,
particular 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 Company.
ENGAGEMENT OF MANAGEMENT CONSULTANT
Peninsula Gaming 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 Gaming Partners,
is Chairman of the Board of Riviera, Inc., an affiliate of Riviera Gaming
Management, Inc.
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<PAGE>
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 purchaserthen
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 under 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;
- 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 within 180 days of
the date of issuance of the old notes; or
- within six months of the consummation of the exchange offer, any holder of
old notes notifies us that it:
(1) is not entitled to participate in the exchange offer; or
(2) may not resell the new notes acquired by it in the exchange offer to
the public without restriction under applicable state and federal
securities laws.
If we have not yet filed an exchange offer registration statement and we are
required to file a shelf registration statement, we must file the shelf
registration statement prior to October 13, 1999. If we have filed an exchange
offer registration statement and we are required to file a shelf registration
statement, we must use our commercially reasonable efforts to file the shelf
registration statement
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<PAGE>
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 it is filed.
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 under 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 under 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 afterward,
during the period for which we are required to maintain the effectiveness
of the shelf registration statement, it ceases to be effective or usable
in connection with the resale of the new notes covered by the shelf
registration statement, and we fail to file and have declared effective a
subsequent shelf registration statement.
If a registration default exists, we 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. Subsequently,
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
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<PAGE>
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 of the exchange offer is March 3, 2000 at 5:00 p.m., New
York City time. We may extend the exchange offer in our sole discretion. If we
extend the exchange offer, the expiration date will be the latest date and time
to which the exchange offer is extended. We will notify the exchange agent of
any extension by oral or written notice and will make a public announcement of
the extension no later than 9:00 a.m., New York City time, on the next business
day after the previously scheduled expiration date.
We expressly reserve the right, in our sole and absolute discretion:
- to delay accepting any old notes;
- to extend the exchange offer;
- if any of the conditions under "--Conditions of the Exchange Offer" have
not been satisfied, to terminate the exchange offer; and
- to waive any condition or otherwise amend the terms of the exchange offer
in any manner.
If the exchange offer is amended in a manner we deem to constitute a
material change, we will promptly disclose the amendment by means of a
prospectus supplement that will be distributed to the registered holders of the
old notes. Any delay in acceptance, extension, termination or amendment will be
followed promptly by an oral or written notice of the event to the exchange
agent. We will also make a public announcement of the event. Without limiting
the manner in which we may choose to make any pubic announcement and subject to
applicable law, we have no obligation to publish, advertise or otherwise
communicate any 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
under 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 January 24, 2000 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-fact, whose ownership is reflected
in the records of Firstar Bank, N.A., as
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<PAGE>
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, following the instructions in
the letter of transmittal, transfer taxes with respect to the exchange of old
notes under 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 UNDER THE EXCHANGE
OFFER. IN ADDITION, NO ONE HAS 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
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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.
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.
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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. If the letter of transmittal is signed
by a person other than the registered holder of the old notes, the old notes
surrendered for exchange must be endorsed by the registered holder, with the
signature guaranteed by a medallion signature guarantor. If any letter of
transmittal, endorsement, bond power, power of attorney or any other document
required by the letter of transmittal is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or other
person acting in a fiduciary or representative capacity, 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 in reliance on Rule 144A of 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
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- you are not participating, do not intend to participate and have no
arrangement or understanding with any person to participate in the
distribution of the new notes.
In connection with a book-entry transfer, each participant will confirm that
it makes the representations and warranties contained in the letter of
transmittal.
GUARANTEED DELIVERY PROCEDURES
If you wish to tender your old notes and:
- your old notes are not immediately available;
- you are unable to deliver on time your old notes or any other document
that you are required to deliver to the exchange agent; or
- you cannot complete the procedures for delivery by book-entry transfer on
time;
you may tender your old notes according to the guaranteed delivery procedures
described in the letter of transmittal. Those procedures require that:
- tender must be made by or through an eligible institution and a notice of
guaranteed delivery must be signed by the holder;
- on or before the expiration date, the exchange agent must receive from the
holder and the eligible institution a properly completed and executed
notice of guaranteed delivery by mail or hand delivery setting forth the
name and address of the holder, the certificate number or numbers of the
tendered old notes and the principal amount of tendered old notes; and
- properly completed and executed documents required by the letter of
transmittal and the tendered old notes in proper form for transfer or
confirmation of a book-entry transfer of 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 under 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;
- 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;
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- 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 following 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:
<TABLE>
<S> <C>
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
</TABLE>
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.
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 under the exchange offer. If, however, a transfer tax is imposed for any
reason other than the exchange of old notes under 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.
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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 purchasersor
holders of old notes who are not eligible to participate in the exchange offer
or who do not receive freely transferrable new notes under 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 under 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 us 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;
- in reliance on the exemption from registration provided by Rule 144 under
the Securities Act of 1933, if available; or
- under 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
purchaserswill 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
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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
under Rule 144A of 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 under an exemption from such
requirements.
In addition, if you are a broker-dealer holding old notes acquired for your
own account, then you may be deemed a statutory "underwriter" within the meaning
of the Securities Act of 1933 and must deliver a prospectus meeting the
requirements of the Securities Act of 1933 in connection with any resales of
your new notes. Each broker-dealer that receives new notes for its own account
pursuant to the exchange offer must acknowledge that it acquired the old notes
for its own account as a result of market-making activities or other trading
activities and must agree that it will deliver a prospectus meeting the
requirements of the Securities Act of 1933 in connection with any resale of
those new notes. The letter of transmittal states that, by making the above
acknowledgment and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act of 1933.
Based on the position taken by the staff of the Securities and Exchange
Commission in the interpretive letters referred to above, we believe that
"participating broker-dealers," or broker-dealers that acquired old notes for
their own accounts, as a result of market-making or other trading activities,
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
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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 in
this prospectus, 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.;
- We note that Peninsula Gaming Corp., Peninsula Gaming Company's only
wholly-owned subsidiary, 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 Gaming Corp. does not have any operations or assets
and does not have any revenues. Investors should not expect Peninsula
Gaming 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 Gaming Corp." for more information about the limitations on the
activities of Peninsula Gaming Corp.; and
- you can find definitions of various 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 between
us 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. 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 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, Peninsula Gaming 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.
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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. 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 our office or agency maintained for this purpose within the
City of New York or, at our option, 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 us, our 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. We may change the
Paying Agent or Registrar without prior notice to holders and, subject to
limited exceptions, we or any of our respective Subsidiaries may act as Paying
Agent or Registrar.
REDEMPTION
AT THE OPTION OF PENINSULA GAMING COMPANY. Except as described below, we
may not elect to redeem the notes prior to July 1, 2003. After that date, we may
elect to redeem the notes, in whole or in part, upon 30 to 60 days' notice, at
the redemption prices listed 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, we may redeem up to 35% of the aggregate
principal amount of the outstanding notes at a redemption price of 112.25% of
their principal 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 Peninsula Gaming Company's right to
separately make open market, privately negotiated or other purchases of the
notes.
REQUIRED REGULATORY REDEMPTION. Notes are redeemable by us 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,
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(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.
We 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 we 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,
Peninsula Gaming Company had no Subsidiaries other than Peninsula Gaming Corp.,
which is a co-issuer and co-obligor of the notes. So long as any notes remain
outstanding, any future Restricted Subsidiary will enter into a Subsidiary
Guaranty.
If Peninsula Gaming Company sells all of the Capital Stock of any Subsidiary
Guarantor to a Person other than Peninsula Gaming 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
Peninsula Gaming Company will pledge as collateral (the "Collateral") to the
Trustee, as security for our 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) Peninsula Gaming Company's cash that is deposited in particular
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.
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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
Peninsula Gaming 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 Peninsula Gaming 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.
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 Peninsula Gaming
Company or Peninsula Gaming Corp. Under the Bankruptcy Code, a secured creditor
is prohibited from repossessing its security from a debtor in a bankruptcy case,
or from
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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 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 we become the
subject of a bankruptcy case, the bankruptcy court may void some kinds of
transfers made by us, 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, we 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, we 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, we will
comply with the applicable securities laws and regulations
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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, we will, to the extent lawful,
(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 us
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. We 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, we 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.
We 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 us, 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 we 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 Peninsula Gaming Company has no present intention to engage in
a Change of Control, although Peninsula Gaming Company could do so in the
future. Subject to the limitations discussed below, Peninsula Gaming 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 Peninsula Gaming Company's capital structure or
credit ratings. The covenant described under "--Limitation on Incurrence of
Indebtedness" contains restrictions on the ability of Peninsula Gaming 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, the indenture will
not contain any covenants or protections for the holders in the event of a
highly leveraged transaction.
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EXCESS CASH FLOW OFFER
Within 120 days after the end of each Hotel Operating Year, we 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, we 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. We 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, Peninsula
Gaming 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, we will
comply with the applicable securities laws and regulations and shall not be
deemed to have breached our obligations under the Excess Cash Flow Offer
provisions of the indenture by doing so.
Peninsula Gaming Company and its Restricted Subsidiaries will not create or
permit any restriction on our ability 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. Peninsula Gaming 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 Peninsula Gaming 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
Peninsula Gaming Company, and amounts payable to Peninsula Gaming Company or
any Restricted Subsidiary;
(2) purchase, redeem or otherwise pay for any Equity Interest of
Peninsula Gaming Company, any Subsidiary or any other Affiliate of Peninsula
Gaming Company, other than Equity Interests already owned by Peninsula
Gaming Company or any Restricted Subsidiary;
(3) make any principal payment on, or purchase, redeem, defease or
otherwise acquire or pay off any Indebtedness of Peninsula Gaming 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
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(b) after giving effect to the Restricted Payment on a PRO FORMA basis,
Peninsula Gaming 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 Peninsula Gaming 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 Peninsula Gaming 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 Peninsula Gaming Company from the issuance or sale, other
than to a Subsidiary, of Equity Interests of Peninsula Gaming 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 Peninsula Gaming Company from the issuance or sale, other
than to a Subsidiary, of any convertible or exchangeable debt security of
Peninsula Gaming Company that has been converted or exchanged into Equity
Interests of Peninsula Gaming Company, other than Disqualified Capital
Stock, pursuant to the terms thereof after the Issue Date and on or prior
to the time of the Restricted Payment, including any additional net
proceeds received by Peninsula Gaming 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 Peninsula Gaming Company or Indebtedness of Peninsula Gaming
Company or any Restricted Subsidiary in exchange for, or from the proceeds of,
the substantially concurrent sale of other Equity Interests of Peninsula Gaming
Company, other than Disqualified Capital Stock;
(3) with respect to each tax year that Peninsula Gaming 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 Peninsula Gaming Company provides an Officers' Certificate and Opinion of
Counsel to the effect that Peninsula Gaming 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 Peninsula Gaming Company provided to
the Trustee pursuant to the covenant described under the caption "--Reports,"
provide that Peninsula Gaming Company and each such Subsidiary were treated as
Flow Through Entities for the period of the financial statements;
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(4) the redemption, repurchase or payoff of any Indebtedness of Peninsula
Gaming 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 Gaming Partners for (A) reasonable tax
preparation, accounting, legal and administrative fees and expenses incurred on
our behalf or in connection with Peninsula Gaming Partners' ownership of us,
consistent with industry practice and (B) compensation to Peninsula Gaming
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 Gaming Partners and Peninsula Gaming
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 Gaming Partners, including Mr. Luzich and Mr. Stevens, in the
aggregate amount of $1.5 million, 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, Peninsula Gaming 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. Peninsula Gaming 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 Peninsula Gaming 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 Peninsula Gaming 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 afterward.
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
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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;"
(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 Peninsula Gaming Company or any Subsidiary Guarantor
owed to a Subsidiary Guarantor or Peninsula Gaming 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
Peninsula Gaming Company or a Subsidiary Guarantor, shall be deemed, in each
case, to constitute the incurrence of the Indebtedness by Peninsula Gaming
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. Peninsula Gaming Company will not, and will not
permit any Restricted Subsidiary to, make any Asset Sale unless
(1) Peninsula Gaming 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 Peninsula Gaming 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 Peninsula Gaming Company or its Restricted Subsidiaries with
respect to the liabilities; and
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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 Peninsula Gaming
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
Peninsula Gaming 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, Peninsula Gaming 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 Peninsula Gaming Company
elects, or becomes obligated to make an Excess Proceeds Offer, we 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. We 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, Peninsula Gaming 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 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, we 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. We 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, we 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.
Peninsula Gaming Company will not create or permit any restriction that
would impair our ability 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.
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LIMITATION ON LIENS. Peninsula Gaming Company will not permit any Lien on any
asset of Peninsula Gaming 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. Peninsula Gaming 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 Peninsula Gaming
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 Peninsula Gaming Company or any of its
Restricted Subsidiaries, or
(3) make loans or advances to Peninsula Gaming Company or any of its
Restricted Subsidiaries, or
(4) transfer any of its assets to Peninsula Gaming 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:
(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 of us may consolidate or merge
with or into, sell, assign, transfer, lease, convey or otherwise dispose of all
or substantially all of our properties or assets in one or more related
transactions to, any other Person, unless:
(1) the relevant company 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
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all the Obligations of the relevant company, 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;
(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 relevant company, 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 relevant company 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 relevant company 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 relevant company, and the relevant company 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 in those documents.
LIMITATION ON TRANSACTIONS WITH AFFILIATES. Peninsula Gaming 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 Peninsula Gaming Company or the relevant
Restricted Subsidiary than those that would have been obtained in a
comparable transaction at such time by Peninsula Gaming Company or such
Restricted Subsidiary on an arm's-length basis from a non-Affiliate of
Peninsula Gaming 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 Peninsula
Gaming Company or, if none, a disinterested committee appointed by the
Managers of Peninsula Gaming Company for such purpose, determine that such
transactions are conducted in good faith and on terms that are no less
favorable to Peninsula Gaming Company or the relevant Restricted Subsidiary
than those that would have been obtained in a comparable transaction at such
time by Peninsula Gaming Company or such Restricted Subsidiary on an
arm's-length basis from a non-Affiliate of Peninsula Gaming Company or such
Restricted Subsidiary and (2) prior to entering into such transaction
Peninsula Gaming Company shall have delivered to the Trustee an Officers'
Certificate certifying to such effect; or
(3) Affiliate Transactions for which Peninsula Gaming Company delivers
to the Trustee an opinion that the transaction is fair to Peninsula Gaming
Company or such Restricted Subsidiary from a financial point of view, issued
by an accounting, appraisal or investment banking firm of national standing.
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However, the following will be deemed not to be Affiliate Transactions:
(a) transactions between us 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 Gaming Partners, Peninsula Gaming Company or any
Restricted Subsidiary, in each case for services provided to Peninsula
Gaming Company or any Restricted Subsidiary, as determined in good faith by
the Managers or senior executives of Peninsula Gaming Company.
RESTRICTION ON SALE AND ISSUANCE OF SUBSIDIARY STOCK. Peninsula Gaming
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 Peninsula Gaming Company or a
Wholly Owned Subsidiary of Peninsula Gaming Company; PROVIDED, that Peninsula
Gaming Company and its Restricted Subsidiaries may sell all of the Capital Stock
of a Restricted Subsidiary owned by Peninsula Gaming 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. We 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 we 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. We 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 our 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. Subsequently, such Restricted Subsidiary will be a Subsidiary
Guarantor for all purposes of the indenture.
ADDITIONAL COLLATERAL. Peninsula Gaming 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 GAMING CORP. Peninsula Gaming Corp.
may not hold any assets, become liable for any obligations or engage in any
business activities; PROVIDED, that Peninsula Gaming Corp. may 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. Peninsula Gaming 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, Peninsula Gaming Company will furnish to the Trustee and holders,
within 15 days after Peninsula Gaming 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 Peninsula Gaming Company were required to file such Forms,
including for each a
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"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report by
Peninsula Gaming 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 Peninsula Gaming Company were required to file such
reports. Once Peninsula Gaming Company files a registration statement with the
Commission with respect to the notes, Peninsula Gaming 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 us 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 us 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 us or any Subsidiary to pay final judgments, other than
to the extent of any judgment as to which a reputable insurance company has
accepted liability, aggregating in excess of $5.0 million, which judgments
are not discharged, bonded or stayed within 60 days after their entry;
(7) the cessation of substantially all gaming operations of Peninsula
Gaming 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 Peninsula Gaming
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 us or
any of the Subsidiary Guarantors.
If an Event of Default exists, the Trustee may declare by written notice to
us, or the holders of at least 25% in principal amount of the outstanding notes
may declare by written notice to the Trustee and us, 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.
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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.
We 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 we are taking or propose to take with respect to it.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator, stockholder, member or
controlling person of either of us or any Subsidiary Guarantor will have any
liability for any obligations of either of us 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.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
We may elect to have all of our 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) our 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 Subsidiary Guarantors' and our obligations in connection therewith,
and
(4) the Legal Defeasance provisions of the indenture.
In addition, we may elect to have our 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 these obligations
will not constitute a Default or Event of Default under the notes. In the event
Covenant Defeasance occurs, particular 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) we 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
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redemption date, as the case may be, and we must specify whether the notes
are being defeased to maturity or to a particular redemption date;
(2) in the case of Legal Defeasance, we must deliver to the Trustee an
Opinion of Counsel confirming that (a) we 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, we 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 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 deposit;
(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 we or any of the
Subsidiaries are a party or by which we or any of the Subsidiaries are
bound;
(6) we must deliver to the Trustee an Officers' Certificate stating that
the deposit was not made by us with the intent of preferring the holders
over our other creditors with the intent of defeating, hindering, delaying
or defrauding our creditors or others; and
(7) each of us 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 each of us 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 we may require a
holder to pay any taxes and fees required by law or permitted by the indenture.
We will not be required to transfer or exchange any note selected for
redemption. We 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.
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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;
(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, we, 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 Subsidiary Guarantors' or our 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 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.
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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 Peninsula Gaming 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
Peninsula Gaming Company or a Restricted Subsidiary or becoming a Restricted
Subsidiary.
"ACQUISITION" means Peninsula Gaming Company's acquisition, on July 15,
1999, of the Diamond Jo from Greater Dubuque Riverboat Entertainment Company,
L.C., pursuant to the Asset Purchase Agreement, dated as of January 15, 1999, as
amended, between Peninsula Gaming Partners (formerly AB Capital, LLC) and
Greater Dubuque Riverboat Entertainment Company, and related real property from
Harbor Community Investment, L.C., pursuant to Real Property Purchase Agreement,
dated as of January 15, 1999, between Peninsula Gaming Partners (formerly AB
Capital, LLC) and Harbor Community Investment.
"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 Gaming
Partners, Peninsula Gaming 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.
"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
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(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 Peninsula Gaming 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
Peninsula Gaming 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. Section101-1330, as amended.
"BUSINESS DAY" means any day other than a Legal Holiday.
"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.
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"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 Peninsula Gaming Company or Peninsula
Gaming 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 Peninsula Gaming Company or Peninsula Gaming 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,
(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 Peninsula Gaming Company or Peninsula
Gaming Partners,
(3) after any bona fide underwritten registered public offering of
Capital Stock of Peninsula Gaming 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 Peninsula Gaming
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 Peninsula
Gaming 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
Peninsula Gaming Company then in office,
(4) Peninsula Gaming Company adopts a plan of liquidation, or
(5) the first day on which Peninsula Gaming Company fails to own 99% of
the issued and outstanding Equity Interests of Peninsula Gaming 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,
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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
(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 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.
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"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.
"EQUITY OFFERING" means (i) an underwritten offering of Qualified Capital
Stock of Peninsula Gaming 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 Peninsula Gaming 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 that property or asset or
(2) any condemnation, seizure or taking, by exercise of the power of
eminent domain or otherwise, of that 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 Peninsula Gaming Company for that Hotel Operating Year,
less the sum of
(1) Consolidated Interest Expense of Peninsula Gaming Company that is
paid in cash during that Hotel Operating Year,
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(2) up to $4.0 million in capital expenditures of Peninsula Gaming
Company and its Subsidiaries that are actually paid during that Hotel
Operating Year,
(3) principal payments made during that Hotel Operating Year on
Indebtedness permitted to be incurred under 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 that 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 Peninsula Gaming 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
(1) M. Brent Stevens, Michael S. Luzich and any Affiliate or Manager of
Peninsula Gaming 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.
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"GAAP" means generally accepted accounting principles, as in effect and as
set forth in the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession, and in the rules and regulations of the Commission.
"GAAP" means gaap as in effect on the Issue Date.
"GAMING AUTHORITIES" means any agency, authority, board, bureau, commission,
department, office or instrumentality of any nature whatsoever of the United
States or foreign government, any state, province or city or other political
subdivision, whether now or hereafter existing, or any officer or official
thereof, including, without limitation, the gaming commission and any other
agency with authority to regulate any gaming operation or proposed gaming
operation owned, managed or operated by Peninsula Gaming 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 Peninsula Gaming Company or any of its Restricted
Subsidiaries conducts business, including, without limitation, all such licenses
granted by the gaming commission under Chapter 99F of the Iowa Code, and the
rules and regulations promulgated under it, 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 Peninsula Gaming Company or a
Subsidiary of Peninsula Gaming 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 Peninsula Gaming 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,
(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;
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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 Peninsula Gaming Company for such period, to
(2) Consolidated Interest Expense of Peninsula Gaming 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 Peninsula Gaming 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 Peninsula Gaming 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 Peninsula Gaming Company with respect to any portion of
such period that falls before the Issue Date will 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
(1) payroll commission, travel and similar advances to officers and
employees of such Person made in the ordinary course of business and
(2) 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).
"ISSUE DATE" means the date upon which the notes are first issued.
"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.
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"MANAGERS" means, with respect to any Person
(1) 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
(2) 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 Peninsula Gaming
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 Peninsula Gaming Company,
(2) taxes required to be paid by Peninsula Gaming Company, any of its
Subsidiaries, or any Equity Holder of the Company, or, in the case of any
Company Equity Holder that is a Flow Through Entity, the Upper Tier Equity
Holder of such Flow Through Entity, in connection with such Asset Sale in
the taxable year that such sale is consummated or in the immediately
succeeding taxable year, the computation of which shall take into account
the reduction in tax liability resulting from any available operating losses
and net operating loss carryovers, tax credits and tax credit carry
forwards, and similar tax attributes,
(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 Peninsula Gaming
Company or any Restricted Subsidiary, in accordance with GAAP, against any
liabilities associated with such Asset Sale and retained by Peninsula Gaming
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.
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"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 us, any Subsidiary of either of us or the Trustee.
"PERMITTED C-CORP CONVERSION" means a transaction resulting in Peninsula
Gaming 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 Peninsula Gaming 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
Peninsula Gaming Company immediately preceding the transaction;
(2) Peninsula Gaming 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, Peninsula Gaming 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 Peninsula Gaming 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,
Peninsula Gaming Company or a Wholly Owned Subsidiary;
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(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";
(6) Investments existing on the Issue Date;
(7) Investments paid for solely with Capital Stock of Peninsula Gaming
Company other than Disqualified Capital Stock;
(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 Peninsula Gaming
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 Peninsula Gaming 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 to it, 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 to them are maintained on the books of Peninsula Gaming 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
(b) such Liens are being contested in good faith and by appropriate
proceedings and adequate reserves with respect to them are maintained on
the books of Peninsula Gaming 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
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the value of the property, as such property is used by Peninsula Gaming
Company or a Subsidiary, or interfere with the ordinary conduct of the
business of Peninsula Gaming 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 Peninsula Gaming 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 that Person is merged into or consolidated with, or
such property was acquired by, Peninsula Gaming 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; PROVIDEDthat 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 Peninsula Gaming Company or any of
its Subsidiaries incurred pursuant to clause (1) under the caption
"--Limitation on Incurrence of Indebtedness";
(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 Peninsula Gaming
Company or any of the Restricted Subsidiaries;
(14) Liens arising from precautionary Uniform Commercial Code financing
statement filings regarding operating leases entered into by Peninsula
Gaming 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
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(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 Peninsula Gaming 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 Peninsula Gaming 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 Peninsula Gaming Company to
Equity Holders for such year and
(b) the Applicable Capital Gain Tax Rate, plus
(3) the product of
(a) the net short-term capital gain, i.e., net short-term capital
gain in excess of net long-term capital loss, if any, allocated by
Peninsula Gaming Company to Equity Holders for such year and
(b) the Applicable Income Tax Rate, minus
(4) the aggregate Tax Loss Benefit Amount for Peninsula Gaming 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 Peninsula Gaming 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
(1) the filing by Peninsula Gaming Company and each Subsidiary that is
treated as a Flow Through Entity of their respective annual income tax
returns and
(2) an appropriate federal or state taxing authority finally determines
that the amount of the items of taxable income, gain, deduction, or loss of
Peninsula Gaming Company or any Subsidiary
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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 Peninsula Gaming
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, Peninsula Gaming 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 Peninsula Gaming Company to the extent of any remaining
Tax Distribution Overage.
"PERSON" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint stock company, trust,
unincorporated organization, government or any agency or political subdivision
thereof, or any other entity.
"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 us; 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) the Indebtedness is, or the Indebtedness being Refinanced was,
incurred, and any Liens with respect to it are granted, within 180 days
of the acquisition or commencement of construction or build-out of the
property or asset.
"QUALIFIED CAPITAL STOCK" means, with respect to any Person, Capital Stock
of the Person other than Disqualified Capital Stock.
"RELATED BUSINESS" means the gaming, entertainment and hotel businesses
conducted or proposed to be conducted by Peninsula Gaming 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 Peninsula Gaming 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.
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"REQUIRED REGULATORY REDEMPTION" means a redemption by us 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 Peninsula Gaming Company to prevent the loss, failure to obtain
or material impairment or to secure the reinstatement of, any Gaming License,
where such redemption or acquisition is required because the holder or
beneficial owner of notes is required to be found suitable or to otherwise
qualify under any gaming or similar laws and is not found suitable or so
qualified within 30 days after being requested to do so, or such lesser period
that may be required by any Governmental Authority.
"RESTRICTED INVESTMENT" means an Investment other than a Permitted
Investment.
"RESTRICTED SUBSIDIARY" means a Subsidiary other than an Unrestricted
Subsidiary.
"RETURN FROM UNRESTRICTED SUBSIDIARIES" means
(1) 50% of any dividends or distributions received by Peninsula Gaming
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 Peninsula Gaming Company, plus
(2) to the extent not otherwise included in Consolidated Net Income of
Peninsula Gaming 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 Peninsula Gaming 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 Peninsula Gaming
Company is designated to be a Restricted Subsidiary, the fair market value
of Peninsula Gaming Company's Investment in such Subsidiary on the date of
such designation.
"SELLER PREFERRED" means $7.0 million face amount of Peninsula Gaming
Company's redeemable preferred membership interests to be issued to Greater
Dubuque Riverboat Entertainment Company on the Issue Date under 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 Peninsula
Gaming 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 connected agreements and, in
each case, as amended, renewed, refunded, replaced or refinanced; PROVIDED, that
these 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 Peninsula Gaming Company, and
(y) do not permit Peninsula Gaming Company to incur Indebtedness in
an aggregate principal amount at any time outstanding in excess of
$10.0 million.
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"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 its total voting power of shares of Voting Stock 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 Peninsula Gaming Company.
"SUBSIDIARY GUARANTY" means an unconditional and irrevocable guaranty by a
Subsidiary Guarantor of our Obligations under the notes and the indenture, on a
senior unsecured basis, as set forth in the indenture, as amended in accordance
with its terms.
"SUBSIDIARY GUARANTOR" means any Subsidiary that has executed and delivered
in accordance with the indenture a Subsidiary Guaranty, and that 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 Peninsula Gaming Company
ending subsequent to the Issue Date carried forward to the applicable taxable
year; PROVIDED, that for this purpose the amount of any net operating loss or
net capital loss will be used only once and in each case will be carried forward
to the next succeeding taxable year until 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 the Subsidiary ending subsequent
to the Issue Date will be included in determining the amount of net operating
loss or net capital loss of Peninsula Gaming Company.
"UNRESTRICTED SUBSIDIARY" means any Subsidiary that, at or prior to the time
of determination, will have been designated by the Managers of Peninsula Gaming
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,
Peninsula Gaming Company or any Restricted Subsidiary. If, at any time, any
Unrestricted Subsidiary would fail to meet these requirements as an Unrestricted
Subsidiary, it will then cease to be an Unrestricted Subsidiary for purposes of
the indenture and any Indebtedness of such Subsidiary will be deemed to be
incurred by a Restricted Subsidiary as of this date.
The Managers of Peninsula Gaming Company may at any time designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; PROVIDED, that the
designation will be deemed to be an incurrence of Indebtedness by a Restricted
Subsidiary of any outstanding Indebtedness of the Unrestricted Subsidiary and
the designation will only be permitted if
(1) the Indebtedness is permitted under the Interest Coverage Ratio test
listed in the covenant described under the caption "--Limitation on
Incurrence of Indebtedness" calculated on a pro forma basis as if the
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 the
designation. Peninsula Gaming Company will 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 the
Subsidiary and its subsidiaries immediately prior to the designation. Any
such designation by the Managers of Peninsula Gaming Company will be
evidenced to the Trustee by filing with the Trustee a certified copy of the
resolution of the Managers giving effect to the designation and an Officers'
Certificate certifying that the designation complies with these conditions
and is permitted by the covenant described above under the caption
"--Limitation on Incurrence of Indebtedness."
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"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 Peninsula Gaming Company and its Subsidiaries that
are Flow Through Entities.
"VOTING STOCK" means, with respect to any Person,
(1) one or more classes of the Capital Stock of that Person having
general voting power to elect at least a majority of the Board of Directors,
managers or trustees of that 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 that Person convertible or exchangeable without
restriction at the option of its holder into Capital Stock of the 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 the 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, with respect to it, by
(b) the number of years, calculated to the nearest one-twelfth, that
will elapse between that date and the making of the payment.
"WHOLLY OWNED SUBSIDIARY" of any Person means a subsidiary of that Person
all the Capital Stock of which, other than directors' qualifying shares, is
owned directly or indirectly by that Person; provided, that with respect to
Peninsula Gaming Company, the term Wholly Owned Subsidiary will 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 described 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.
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 us that DTC is a limited-purpose trust company created to
hold securities for its participating organizations (collectively, the
"Participants") and to facilitate the clearance and settlement of transactions
in those securities between Participants through electronic book-entry changes
in accounts of 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 in them 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, we and
the Trustee will treat the persons in whose names the notes, including the
global notes, are registered as the owners thereof for the purpose of receiving
such payments and for any and all other purposes whatsoever. Consequently, none
of us, the Trustee or any agent of ours 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.
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DTC has advised us 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 us. None of the Issuers or the Trustee or us will be liable for
any delay by DTC or its Participants in identifying the beneficial owners of the
notes, and we and the Trustee may conclusively rely on and will be protected in
relying on instructions from DTC or its nominee 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 us 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 we take no
responsibility for its accuracy.
Although DTC has agreed to the foregoing procedures to facilitate transfers
of interests in the global notes among Participants in DTC, it is under no
obligation to perform or to continue to perform such procedures, and such
procedures may be discontinued at any time. Neither the Initial Purchaser nor
the Trustee will have any responsibility for the performance by DTC or its
Participants or Indirect Participants of their respective obligations under the
rules and procedures governing their operations.
EXCHANGE OF BOOK-ENTRY NOTES FOR CERTIFICATED NOTES
A global note is exchangeable for definitive notes in registered
certificated form if
(1) DTC
(a) notifies us that it is unwilling or unable to continue as
depositary for the global note and we 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) we, at our option, notify the Trustee in writing that we 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 in them 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 we determine
otherwise in compliance with applicable law.
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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 in this prospectus under "Notice to Investors." In addition, if
(1) we notify the Trustee in writing that DTC
(a) is no longer willing or able to act as a depositary and we 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) we, at our option, notify the Trustee in writing that they elect to
cause the issuance of notes in the form of Certificated Notes under the
indenture,
then, upon surrender by the global note holder of its global note, notes in such
form will be issued to each person that the global note holder and the DTC
identify as being the beneficial owner of the related notes.
None of us 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, we 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. We 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
particular 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 COMPANY MEMBERSHIP INTERESTS
All of Peninsula Gaming Company's outstanding common membership interests
are owned by its parent, Peninsula Gaming Partners, and all of Peninsula Gaming
Company's outstanding preferred membership interests are owned by Greater
Dubuque Riverboat Entertainment Company. All of Peninsula Gaming Corp.'s
outstanding common stock is owned by Peninsula Gaming Company. 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 Company is qualified in its entirety by reference
to the operating agreement of Peninsula Gaming Company, copies of which are
available upon request.
COMMON MEMBERSHIP INTERESTS OF PENINSULA GAMING COMPANY
Peninsula Gaming Partners, as the holder of all of Peninsula Gaming
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
Peninsula Gaming Company and, subject to limitations contained in Peninsula
Gaming Company's operating agreement and the indenture, is entitled to dividends
and other distributions if and when declared by Peninsula Gaming Company's
managers.
PREFERRED MEMBERSHIP INTERESTS OF PENINSULA GAMING COMPANY
Greater Dubuque Riverboat Entertainment Company, as the holder of all of
Peninsula Gaming Company'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 Company'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 Investment and Greater
Dubuque Riverboat Entertainment Company under the acquisition agreements,
Peninsula Gaming 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. Particular managers of Peninsula Gaming 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 Entertainment Company and Harbor Community Investment.
See "The Transactions" for more information about this escrow.
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DESCRIPTION OF PENINSULA GAMING PARTNERS MEMBERSHIP INTERESTS
The following summary of the material terms and provisions of the membership
interests of Peninsula Gaming Partners is qualified in its entirety by reference
to the operating agreement of Peninsula Gaming Partners, copies of which are
available upon request to Peninsula Gaming 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 Gaming Partners' operating
agreement.
COMMON MEMBERSHIP INTERESTS
Peninsula Gaming 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 Gaming 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
Gaming 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 Gaming Partners, after any required payments to
the holders of preferred membership interests of Peninsula Gaming Partners or
other senior securities, and after payment of all of Peninsula Gaming Partners'
liabilities.
ALLOCATION OF INCOME. Profits and losses of Peninsula Gaming 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 Gaming Partners,
subject to the restrictions imposed by any indebtedness of Peninsula Gaming
Partners. Under the indenture, we may make permitted tax distributions to
Peninsula Gaming Partners to enable Peninsula Gaming 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 Gaming Partners in excess of Permitted Tax
Distributions. Peninsula Gaming 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 Gaming 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.
VOTING. Each holder of voting common membership interests is entitled to
vote on all matters to be voted on by the members of Peninsula Gaming Partners,
in proportion to 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 Gaming Partners' operating agreement, the management
of Peninsula Gaming 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 Gaming Partners, Mr. Stevens is entitled to designate three of
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Peninsula Gaming 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 Gaming Partners, Mr. Luzich is
entitled to designate two of Peninsula Gaming Partners' managers, including the
other independent manager.
RIGHTS OF FIRST REFUSAL AND CO-SALE RIGHTS. Peninsula Gaming Partners'
operating agreement limits the transfer of common membership interests owned by
its members. Some of these restrictions grant Mr. Stevens, Mr. Luzich, Peninsula
Gaming 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 Gaming
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 of 1933, Peninsula Gaming Partners will notify each holder of
non-voting common membership interests of the proposed filing and, if requested
by the holders, Peninsula Gaming Partners will use its good faith efforts to
register non-voting common membership interests under the Securities Act of
1933.
CONVERTIBLE PREFERRED MEMBERSHIP INTERESTS
In connection with the acquisition of the Diamond Jo, Peninsula Gaming
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 Gaming Partners, subject to adjustment. For a description
of the non-voting common membership interests of Peninsula Gaming Partners into
which the convertible preferred membership interests are convertible, see
"--Common Membership Interests."
ALLOCATION OF INCOME. Profits and losses of Peninsula Gaming Partners will
be divided between each holder of membership interests, whether common or
preferred, in proportion 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 may make permitted tax
distributions to Peninsula Gaming Partners to enable Peninsula Gaming Partners
to distribute to holders of Peninsula Gaming Partners membership interests funds
sufficient to pay tax liabilities on their interests.
In addition, subject to the terms of the indenture and Peninsula Gaming
Partners' indebtedness, if any, we may make distributions to Peninsula Gaming
Partners in excess of permitted tax distributions. Peninsula Gaming Partners
generally may, in turn, distribute to holders of its common membership interests
amounts in excess of the permitted tax distribution amounts to which such
holders would proportionately be entitled to receive. Holders of convertible
preferred membership interests are not entitled to receive any distributions in
excess of the amounts to which such holders would proportionally be entitled to
receive, but their rights to share in the assets of Peninsula Gaming 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.
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The operating agreement of Peninsula Gaming Partners provides that Peninsula
Gaming 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 under it 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 Gaming 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 Gaming
Partners is the surviving entity, or the successor entity that acquires all or
substantially all of the assets of Peninsula Gaming Partners expressly assumes
all obligations of Peninsula Gaming Partners with respect to the convertible
preferred membership interests.
REDEMPTION. Except as described below under "--Peninsula Gaming 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 Gaming 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 Gaming
Partners available for distribution to its members an amount, the "preferred
liquidation preference," equal to 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 Income Tax Consequences For U.S. Holders of
Convertible Preferred Membership Interests and Non-Voting Common Membership
Interests of Peninsula Gaming Partners--Basis in Membership Interests," less
the liabilities of Peninsula Gaming 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
(a) the amount of cash previously distributed to the member and all
previous owners of the same membership interest over
(b) the total net income of Peninsula Gaming 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 Gaming
Partners, the amount payable under this clause (2) would be subject to
further reduction in the event that Peninsula Gaming Partners is unable to
make special allocations of gross income to holders of convertible preferred
membership interests, as further described in Peninsula Gaming Partners'
operating agreement.
If the assets of Peninsula Gaming 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.
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REPURCHASE UPON CHANGE OF CONTROL. Upon a change of control, all or part of
the convertible preferred membership interests of Peninsula Gaming Partners are
redeemable by Peninsula Gaming Partners, at the option of the holders, at a
redemption price equal to the preferred liquidation preference out of funds held
by Peninsula Gaming Partners available for redemption purposes. Except as
described in this paragraph, Peninsula Gaming 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 GAMING PARTNERS OPERATING AGREEMENT
REQUIREMENTS IMPOSED BY APPLICABLE GAMING LAWS. The operating agreement of
Peninsula Gaming Partners provides that the members of Peninsula Gaming Partners
that are required to be licensed by the gaming commission in order to own a
beneficial interest in Peninsula Gaming Partners or actively engage in the
management of Peninsula Gaming 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 or more, direct or indirect, in
Peninsula Gaming Company. The gaming commission may also request that we provide
them with a list of persons holding beneficial ownership interests in Peninsula
Gaming Company of less than five percent. The gaming commission may determine
that holders of Peninsula Gaming Partners' membership interests have a
"beneficial interest" in Peninsula Gaming Company. 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.
If any of the holders do not comply with the terms and provisions of
Peninsula Gaming Partners' operating agreement regarding the submission of the
information and performance of the actions, the holder is required to indemnify
Peninsula Gaming Partners against and not hold Peninsula Gaming Partners
responsible for any loss, liability or damages suffered by Peninsula Gaming
Partners resulting from the failure.
If any gaming authority requires a record or beneficial owner of the
Peninsula Gaming 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 Gaming Partners, all of the membership interests of
Peninsula Gaming 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 Gaming 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,
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(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 Gaming 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 Gaming
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, Peninsula
Gaming 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 Gaming Partners in its reasonable good faith judgement. If
Peninsula Gaming Partners elects not to exercise the option, Peninsula Gaming
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 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 Gaming Partners in its reasonable good faith judgement. If the other
holders of voting common membership interests elect not to exercise this option,
Peninsula Gaming 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 Gaming 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 Gaming 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 Gaming Partners in its reasonable good faith
judgement. If Peninsula Gaming Partners elects not to exercise this option,
Peninsula Gaming Partners will promptly notify the holders of voting common
membership interests, who will each, for a period of ten 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 Gaming Partners in its reasonable good faith
judgement. If the holders of voting common membership interests elect not to
exercise such option, Peninsula Gaming 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 Gaming Partners in
its reasonable good faith judgement.
The purchase price to be paid by Peninsula Gaming Partners to an Unsuitable
Common Member or an Unsuitable Preferred Member may be paid, at the option of
Peninsula Gaming 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 Gaming Partners or any member of Peninsula
Gaming Partners for reasons relating to the redemption or repurchase of such
member's membership interests.
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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 Gaming
Partners or Peninsula Gaming Company, other than Mr. Stevens or Mr. Luzich, is
terminated by or resigns from Peninsula Gaming Partners or Peninsula Gaming
Company for any reason, and the officer or employee holds common membership
interests, preferred membership interests or other interests of Peninsula Gaming
Partners, Peninsula Gaming 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 Gaming
Partners in its reasonable good faith judgement.
TRANSFER RESTRICTIONS. The Transfer Agent will not register any purchase or
transfer of membership interests of Peninsula Gaming 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 Gaming
Partners the transfer follows various "safe harbors" contained in Peninsula
Gaming Partners' operating agreement intended to ensure that Peninsula
Gaming 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 Gaming Partners an opinion of
counsel reasonably satisfactory to the managing member of Peninsula Gaming
Partners and a majority of the members of the independent committee stating
that the transfer will not result in Peninsula Gaming 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 particular 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 Gaming
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 Gaming Partners (x) among holders of
membership interests or (y) between holders of membership interests and
Peninsula Gaming Partners, in each case following procedures established by
Peninsula Gaming 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 Gaming Partners, subject to designation by
the managing member of Peninsula Gaming 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 Gaming
Partners, this excess amount is a "Disqualified Interest" and these acquisitions
shall be void.
Any purchase or transfer or purported purchase or transfer of Peninsula
Gaming 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.
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Transfers of membership interests of Peninsula Gaming Partners are subject
to additional conditions contained in Peninsula Gaming 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 Gaming 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 Gaming
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.
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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 under it, and administrative and judicial
interpretations of the foregoing as of this date. 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 COMPANY
The proper U.S. federal income tax characterization of a particular
instrument as debt or equity is a question of fact, the resolution of which is
based primarily upon the substance of the instrument and the transaction
pursuant to which it is issued, rather than merely upon the form of the
transaction or the manner in which the instrument is labeled. Among the factors
set forth by the Internal Revenue Service and the courts to be taken into
account in determining, for U.S. federal income tax purposes, whether or not an
instrument constitutes indebtedness, is whether the issuer of the instrument is
adequately capitalized such that principal and interest are reasonably expected
to be repaid. If the notes are classified as equity, rather than indebtedness,
for U.S. federal income tax purposes and are deemed to be "publicly traded," we
would be classified as a publicly traded partnership under the Code. In
addition, we would also be classified as a publicly traded partnership under the
Code if our equity interests are deemed to be "publicly traded." As a publicly
traded partnership, we would become subject to U.S. federal income tax as a
corporation which, in turn, may, among other things, materially adversely affect
our ability to make payments on the notes.
In connection with the exchange offer, Mayer, Brown & Platt will deliver its
opinion, also delivered in connection with the issuance of the old notes, to the
effect that, for U.S. federal income tax purposes,
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(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 will be based on factual representations and the assumption
that the terms of our operating agreement will be complied with, including
compliance with restrictions and, in particular 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 Company 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
(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;
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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,
(2) the beneficial owner is not a controlled foreign corporation that
is related to us through stock ownership and
(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 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 particular
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
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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 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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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, 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. Until April 27,
2000 (90 days after the date of this prospectus), all dealers effecting
transactions in the new notes may be required to deliver a prospectus.
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 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. See "The Exchange Offer--Resales of the
New Notes" for additional information on resales of the new notes.
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 in this document 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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INDEX TO COMBINED FINANCIAL STATEMENTS
NO FINANCIAL STATEMENTS ARE PRESENTED FOR PENINSULA GAMING CORP., SINCE IT
WAS FORMED SOLELY FOR THE PURPOSE OF FACILITATING THE OFFERING OF THE OLD NOTES
AND HAS NO ASSETS OR OPERATIONS.
<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
ENTERTAINMENT COMPANY AND HARBOR COMMUNITY INVESTMENT
(PREDECESSOR COMPANIES)
Independent Auditors' Report................................ F-15
Combined Balance Sheets at December 31, 1997 and 1998 and
June 30, 1999 (unaudited)................................. F-16
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-17
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-18
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-19
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-3
</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..................................................... 14,202
Selling, general and administrative....................... 1,670,400
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.................................................... $(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.
<TABLE>
<CAPTION>
PRO FORMA
INFORMATION
-------------------
YEARS ENDED DECEMBER 31, 1998 1997
- ------------------------ -------- --------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Net Sales................................................. $45,849 $42,621
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.
F-6
<PAGE>
PENINSULA GAMING COMPANY, LLC
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. ORGANIZATION, BUSINESS PURPOSE AND BASIS OF PRESENTATION (CONTINUED)
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 carrying
value to the undiscounted cash flows expected to be generated by the acquired
operation during the anticipated period of benefit.
F-7
<PAGE>
PENINSULA GAMING COMPANY, LLC
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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
F-8
<PAGE>
PENINSULA GAMING COMPANY, LLC
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 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>
F-9
<PAGE>
PENINSULA GAMING COMPANY, LLC
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
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 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 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.
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
F-10
<PAGE>
PENINSULA GAMING COMPANY, LLC
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
5. CAPITAL LEASE OBLIGATION (CONTINUED)
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
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.
F-11
<PAGE>
PENINSULA GAMING COMPANY, LLC
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
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
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 Peninsula Gaming Company on January 15, 2001 must be redeemed by
Peninsula Gaming 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.
F-12
<PAGE>
PENINSULA GAMING COMPANY, LLC
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
11. DUBUQUE RACING ASSOCIATION, LTD. CONTRACT (CONTINUED)
Peninsula Gaming 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 Dubuque Greyhound Park for the period, or a percentage of the total
combined gaming revenues of the Association's from the Dubuque Greyhound Park
and Peninsula Gaming 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.
Gaming revenues under this contract means adjusted gross receipts, less
gaming taxes.
Commencing April 1, 2000, and continuing thereafter, Peninsula Gaming
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 Peninsula Gaming 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 Peninsula Gaming 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,
--------------------------------------- ------------------------- PERIOD FROM
JULY 1, 1999
TO
1996 1997 1998 1998 1999 JULY 15, 1999
----------- ----------- ----------- ----------- ----------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Casino..................... $40,267,077 $40,571,618 $44,166,688 $21,237,844 $21,992,638 $1,770,804
Food and beverage.......... 2,104,085 2,034,238 1,959,797 927,083 1,060,090 90,188
Other...................... 307,517 395,192 276,124 130,641 105,840 7,109
Less--promotional
allowances............... (426,910) (379,938) (553,123) (229,016) (255,777) (21,303)
----------- ----------- ----------- ----------- ----------- ----------
Net revenues......... 42,251,769 42,621,110 45,849,486 22,066,552 22,902,791 1,846,798
----------- ----------- ----------- ----------- ----------- ----------
EXPENSES:
Casino..................... 16,013,531 16,334,849 17,272,814 8,371,204 9,007,588 489,723
Food and beverage.......... 2,980,277 2,556,795 2,830,575 1,342,537 1,572,301 144,493
Boat operations............ 1,996,886 2,005,068 2,056,377 1,008,132 963,999 90,540
Other...................... 85,924 75,800 67,907 33,000 26,774 2,349
Selling, general and
administrative........... 9,573,537 6,946,529 7,515,115 3,588,443 3,690,813 435,747
Depreciation and
amortization............. 2,025,706 1,826,179 1,894,763 897,900 1,065,896 90,926
Sale of business expenses
(Note 13)................ 93,350 716,655 181,474 326,620 1,240,141
Ownership litigation
(Note 11)................ 58,318 76,833 211,388 51,104 298,537 6,205
----------- ----------- ----------- ----------- ----------- ----------
Total expenses............. 32,734,179 29,915,403 32,565,594 15,473,794 16,952,528 2,500,124
----------- ----------- ----------- ----------- ----------- ----------
INCOME (LOSS) FROM
OPERATIONS............... 9,517,590 12,705,707 13,283,892 6,592,758 5,950,263 (653,326)
----------- ----------- ----------- ----------- ----------- ----------
OTHER INCOME (EXPENSE):
Interest income............ 80,510 222,238 141,967 64,212 72,423 3,696
Interest expense........... (1,812,756) (1,772,165) (1,142,122) (664,266) (319,202) (11,899)
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) (8,203)
----------- ----------- ----------- ----------- ----------- ----------
NET INCOME (LOSS).......... $ 907,832 $11,067,766 $12,210,011 $ 5,944,392 $ 5,605,734 $ (661,529)
=========== =========== =========== =========== =========== ==========
</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
Net loss (unaudited).......... (661,529) (661,529)
--- ---------- ------ ----------- -----------
BALANCE, JULY 15, 1999
(unaudited)................... 112 $4,100,000 $ -- $12,281,237 $16,381,237
=== ========== ====== =========== ===========
</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 PERIOD FROM
YEAR ENDED DECEMBER 31, JUNE 30, JULY 1, 1999
------------------------------------------ ------------------------- TO
1996 1997 1998 1998 1999 JULY 15, 1999
------------ ------------ ------------ ----------- ----------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................ $ 907,832 $ 11,067,766 $ 12,210,011 $ 5,944,392 $ 5,605,734 $ (661,529)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization............ 2,025,706 1,826,179 1,894,763 897,900 1,065,897 90,926
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) (50,349)
Inventory................................ (22,371) 1,135 (2,638) (3,576) (3,085) 10,385
Prepaid expenses......................... 209,194 (23,760) (36,193) (96,578) 43,338 46,588
Other assets............................. 58,896 (454) (7,483) (29,983) 1,526
Accounts payable......................... (579,381) (51,077) 171,463 166,130 (213,204) (195,280)
Accrued expenses......................... 764,740 (427,731) 259,595 362,790 391,240 (73,640)
------------ ------------ ------------ ----------- ----------- -----------
Net cash provided by operating
activities............................. 10,139,588 12,521,659 14,637,792 7,313,801 6,965,092 (831,373)
------------ ------------ ------------ ----------- ----------- -----------
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) (109,947)
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 (109,947)
------------ ------------ ------------ ----------- ----------- -----------
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) (420,230)
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) (420,230)
------------ ------------ ------------ ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH.......... 2,226,777 1,603,663 38,340 (66,549) (702,623) (1,361,550)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD................................. 1,951,937 4,178,714 5,782,377 5,782,377 5,820,717 5,118,094
------------ ------------ ------------ ----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD................................. $ 4,178,714 $ 5,782,377 $ 5,820,717 $ 5,715,828 $ 5,118,094 $ 3,756,544
============ ============ ============ =========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION--Cash paid during the
period for interest.................... $ 1,673,052 $ 1,854,368 $ 1,148,868 $ 682,880 $ 340,164 $ 25,423
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..................... 1,508
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-18
<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 Entertainment Company 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 Entertainment Company and Harbor
Community Investment. These two entities are collectively referred to as the
Company. All material intercompany balances and transactions have been
eliminated in the combined financial statements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONCENTRATION OF RISKS--The Company's management estimates that regular
customers are concentrated within 100 miles of the facility representing
approximately 95% of the Company's customer base at December 31, 1996, 1997 and
1998. The remaining 5% includes groups, tourists and highway travelers that live
beyond 100 miles.
CASH AND CASH EQUIVALENTS--The Company considers all cash on hand and in
banks, certificates of deposit and other highly liquid debt instruments
purchased with original maturities of three months or less to be cash
equivalents.
INVESTMENTS AVAILABLE FOR SALE--The Company accounts for its investments
using Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" ("SFAS No. 115"). This
standard requires that certain debt and equity securities be adjusted to market
value at the end of each accounting period. Unrealized market value gains and
losses are charged to earnings if the securities are traded for short-term
profit. Otherwise, such unrealized gains and losses are charged or credited to a
separate component of members' equity.
Gains and losses on the sale of available for sale securities are determined
using the specific identification method. The amortization of premiums and the
accretion of discounts are recognized in interest income using the interest
method over the period to maturity.
ACCOUNTS RECEIVABLE--Bad debts are charged to operations in the year in
which the account is determined uncollectible.
INVENTORIES--Inventories consisting principally of food, beverages, and
operating supplies are stated at the lower of cost (first-in, first-out method)
or market.
PROPERTY AND EQUIPMENT--Property and equipment is carried at cost and
capitalized lease assets are stated at their fair value at the inception of the
lease. Major renewals are capitalized, while
F-19
<PAGE>
GREATER DUBUQUE RIVERBOAT ENTERTAINMENT COMPANY, L.C.
AND HARBOR COMMUNITY INVESTMENT, L.C.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
maintenance and repairs are expensed when incurred. Depreciation and
amortization are computed by the straight-line method over the following
estimated useful lives:
<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
F-20
<PAGE>
GREATER DUBUQUE RIVERBOAT ENTERTAINMENT COMPANY, L.C.
AND HARBOR COMMUNITY INVESTMENT, L.C.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
operating expenses in the department that provided the service. Such estimated
costs of providing complimentary services for the years ending December 31,
1996, 1997 and 1998 is as follows:
<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
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
F-21
<PAGE>
GREATER DUBUQUE RIVERBOAT ENTERTAINMENT COMPANY, L.C.
AND HARBOR COMMUNITY INVESTMENT, L.C.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the Effective Date of FASB Statement No. 133. Under the new effective date, the
Company currently expects to adopt FASB Statement No. 133, Accounting for
Derivative Instruments and Hedging Activities, in year 2001. The effect on the
Company's financial position and results of operations is not expected to be
material.
REPORTING ON THE COSTS OF START-UP ACTIVITIES--In April 1998, the American
Institute of Certified Public Accountants issued the Statement of Position 98-5,
"Reporting on the Costs of Start-Up Activities" ("SOP 98-5"). SOP 98-5 requires
that costs of start-up activities and organization costs be expensed as incurred
and is effective for the Company in 1999. The Company does not have significant
deferred start-up costs as of December 31, 1998, therefore the adoption of SOP
98-5, will not have a material impact on the Company's combined results of
operation or financial Position.
UNAUDITED INTERIM FINANCIAL STATEMENTS--The interim financial statements and
the related information in the notes as of June 30, 1999 and for the six months
ended June 30, 1998 and 1999 are unaudited. Such interim financial statements
have been prepared on the same basis as the audited financial statements and, in
the opinion of management, reflect all adjustments (consisting only of normal
recurring accruals) necessary for a fair presentation of the financial position,
the results of operations and cash flows for the interim periods presented. The
results of operations for the interim periods presented are not necessarily
indicative of the results to be expected for the full year.
3. INVESTMENTS AVAILABLE FOR SALE
Investments available for sale consist of shares of a bond fund. These
shares have an original cost of $507,855 and a fair market value of $509,363 as
of December 31, 1998. The unrealized gain for these securities was $1,508 as of
December 31, 1998. These securities are being accounted for in accordance with
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities".
4. PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- JUNE 30, 1999
1997 1998 (NOTE 2)
----------- ----------- -------------
(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>
F-22
<PAGE>
GREATER DUBUQUE RIVERBOAT ENTERTAINMENT COMPANY, L.C.
AND HARBOR COMMUNITY INVESTMENT, L.C.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
4. PROPERTY AND EQUIPMENT (CONTINUED)
During 1996, the Company sold its original casino riverboat to a third party
for a note receivable with a face value of $4,672,000 resulting in a loss of
approximately $6,884,000. Losses on sale of assets in 1997 and 1998 relate
primarily to the sale of slot machines.
5. OTHER ASSETS
Other assets are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30, 1999
1997 1998 (NOTE 2)
-------- -------- -------------
(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>
DECEMBER 31,
------------------------ JUNE 30, 1999
1997 1998 (NOTE 2)
----------- ---------- -------------
(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
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>
F-23
<PAGE>
GREATER DUBUQUE RIVERBOAT ENTERTAINMENT COMPANY, L.C.
AND HARBOR COMMUNITY INVESTMENT, L.C.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
6. NOTES PAYABLE (CONTINUED)
During April 1998, the Company refinanced the note payable due August 1,
2000 to revise the previously stated fixed interest rate of 10% to a variable
interest rate of 2% above the 90-day LIBOR index rate. The note is
collateralized by the Diamond Jo Casino riverboat. The note agreement contains
various restrictive and financial covenants, which, among others, requires the
Company to maintain a tangible net worth of not less than $7.5 million,
restricts the Company's total debt service coverage ratio and facility debt
service coverage ratios to not be greater than 1.5 to 1.0. The Company was in
compliance with these covenants at December 31, 1998.
Principal payments on long-term debt for the years ended December 31 are due
as follows:
<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>
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
=========
</TABLE>
Future minimum lease payments under capital lease at December 31, 1998 were
as follows:
<TABLE>
<S> <C>
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>
F-24
<PAGE>
GREATER DUBUQUE RIVERBOAT ENTERTAINMENT COMPANY, L.C.
AND HARBOR COMMUNITY INVESTMENT, L.C.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
8. EMPLOYEE BENEFIT PLAN
The Company started a qualified defined contribution plan under
section 401(k) of the Internal Revenue Code during 1996. Under the plan,
eligible employees may elect to defer up to 15% of their salary, subject to
Internal Revenue Service limits. The Company may make a matching contribution to
each participant based upon a percentage set by the Company, prior to the end of
each plan year. Company matching contributions to the plan were $57,981,
$191,100 and $240,459 for the years ended December 31, 1996, 1997 and 1998,
respectively. Company matching contributions to the plan for the periods ended
June 30, 1998 and 1999 were $112,111 (unaudited) and $106,249 (unaudited),
respectively.
9. LEASING ARRANGEMENTS
The Company leases various equipment under noncancelable operating leases.
The equipment leases require fixed monthly payments to be made ranging from $351
to $4,155 and certain other gaming machines and tables require contingent
monthly rental payments based on usage of the equipment. The leases expire on
various dates in 1999 and 2000. Rent expense was $153,790, $262,536 and $403,148
for the years ended December 31, 1996, 1997 and 1998, respectively, including
contingent rentals of $73,011, $103,506 and $226,374, respectively. Rent expense
for the periods ended June 30, 1998 and 1999 were $132,418 (unaudited) and
$542,068 (unaudited), respectively, including contingent rentals of $42,115
(unaudited) and $452,004 (unaudited), respectively.
The future minimum rental payments required under these leases during the
years ended December 31, 1998 are summarized as follows:
<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.
F-25
<PAGE>
GREATER DUBUQUE RIVERBOAT ENTERTAINMENT COMPANY, L.C.
AND HARBOR COMMUNITY INVESTMENT, L.C.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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:
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 Entertainment Company and Harbor Community Investment.
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
F-26
<PAGE>
GREATER DUBUQUE RIVERBOAT ENTERTAINMENT COMPANY, L.C.
AND HARBOR COMMUNITY INVESTMENT, L.C.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
13. SALE OF BUSINESS EXPENSES (CONTINUED)
were $181,474 (unaudited) and $326,620 (unaudited). Sale of business expenses
for the period from July 1, 1999 to July 15, 1999 were $1,246,346 (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.
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
F-27
<PAGE>
GREATER DUBUQUE RIVERBOAT ENTERTAINMENT COMPANY, L.C.
AND HARBOR COMMUNITY INVESTMENT, L.C.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
14. DUBUQUE RACING ASSOCIATION, LTD. CONTRACT (CONTINUED)
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 Gaming Partners") for approximately $77,000,000. Pursuant to the
terms of the acquisition documents, Peninsula Gaming 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 Gaming 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 Gaming Partners' gaming
license is valid for a period of nine years from July 15, 1999, the date of
Peninsula Gaming Partners' licensure under Iowa law. The acquisition was
consummated on July 15, 1999.
F-28
<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-29
<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-30
<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 Gaming 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 Gaming 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 Gaming Partners ($6.0 million
of which was contributed to the capital of Peninsula Gaming Partners by common
members of Peninsula Gaming Partners and $3.0 million of which was contributed
to the capital of Peninsula Gaming Partners through the sale by Peninsula Gaming
Partners of convertible preferred membership interests as previously described).
The $9.0 million receivable from Peninsula Gaming Partners was classified as an
asset due to the subsequent payment of the receivable by Peninsula Gaming
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-31
<PAGE>
PENINSULA GAMING COMPANY, LLC
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 Entertainment
Company") and Harbor Community Investment, L.C. ("Harbor Community Investment")
included elsewhere herein, after giving effect to our acquisition of the Diamond
Jo casino from Greater Dubuque Riverboat Entertainment Company 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 Entertainment Company and Harbor Community Investment, 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>
YEAR ENDED DECEMBER 31, 1998
-----------------------------------------------------
PRO FORMA
HISTORICAL(1) ADJUSTMENTS PRO FORMA
------------- ----------- -----------
<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
=========== =========== ===========
Preferred dividend.............................. -- 630,000 (8) 630,000
----------- ----------- -----------
NET INCOME TO COMMON INTEREST................... $12,210,011 $(9,704,366) $ 2,505,645
=========== =========== ===========
</TABLE>
- ------------------------------
(1) Represents the combined historical financial statements of Greater Dubuque
Riverboat Entertainment Company and Harbor Community Investment. 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.
(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.
(8) Represents accrued preferred dividends at a rate of 9% per annum on
$7.0 million of preferred membership interests of Peninsula Gaming Company.
PF-2
<PAGE>
PENINSULA GAMING COMPANY, LLC
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
<TABLE>
<CAPTION>
PGC PRO FORMA
PERIOD FROM ADJUSTMENTS
JULY 15, 1999 NINE MONTHS
TO ENDED
SEPTEMBER 30, SEPTEMBER 30,
HISTORICAL(1) 1999 TOTAL 1999 PRO FORMA
------------- ------------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES:
Casino......................... $23,763,442 $10,104,788 $33,868,230 $33,868,230
Food and beverage.............. 1,150,278 503,447 1,653,725 1,653,725
Other.......................... 112,949 54,823 167,772 167,772
Less--promotional allowances... (277,080) (133,110) (410,190) (410,190)
----------- ----------- ----------- -----------
Net revenues............. 24,749,589 10,529,948 35,279,537 35,279,537
EXPENSES:
Casino......................... 9,497,311 3,808,972 13,306,283 13,306,283
Food and beverage.............. 1,716,794 744,345 2,461,139 2,461,139
Boat operations................ 1,054,539 423,758 1,478,297 1,478,297
Other.......................... 29,123 14,202 43,325 43,325
Selling, general and
administrative............... 4,126,560 1,670,400 5,796,960 $ 150,000 (2) 5,946,960
Start-up and organization costs
(3).......................... 3,134,095 3,134,095 3,134,095
Depreciation and
amortization................. 1,156,822 691,910 1,848,732 (62,627)(4) 1,786,105
Goodwill amortization.......... 1,060,490 (5) 1,060,490
Sale of business expenses...... 1,566,761 1,566,761 (1,566,761)(6) --
Ownership litigation (7)....... 304,742 304,742 304,742
----------- ----------- ----------- ----------- -----------
Total expenses........... 19,452,652 10,487,682 29,940,334 (418,898) 29,521,436
----------- ----------- ----------- ----------- -----------
INCOME FROM OPERATIONS......... 5,296,937 42,266 5,339,203 418,898 5,758,101
----------- ----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest income................ 76,119 57,111 133,230 133,230
Interest expense............... (331,101) (1,957,546) (2,288,647) (4,781,242)(8) (7,069,889)
Loss on sale of assets......... (97,750) (8,175) (105,925) (105,925)
----------- ----------- ----------- ----------- -----------
Total other expense...... (352,732) (1,908,610) (2,261,342) (4,781,242) (7,042,584)
----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS).............. $ 4,944,205 (1,866,344) 3,077,861 $(4,362,344) $(1,284,483)
PREFERRED DIVIDEND............. 131,250 131,250 341,250 (9) 472,500
----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS) TO COMMON
INTERESTS:................... 4,944,205 $(1,997,594) $ 2,946,611 $(4,703,594) $(1,756,983)
=========== =========== =========== =========== ===========
</TABLE>
- ------------------------------
(1) Represents the combined historical financial statements of Greater Dubuque
Riverboat Entertainment Company and Harbor Community Investment for the
period from January 1, 1999 to July 15, 1999. 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 non-recurring expenses related to the write-off of organizational
costs in accordance with generally accepted accounting principles.
(4) Represents the elimination of amortization expense related to intangible
assets not purchased.
(5) Represents the amortization of goodwill related to the acquisition
agreements over a forty year period.
(6) Represents the elimination of non-recurring expenses.
(7) 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.
(8) Represents (a) the elimination of interest expense of $0.3 million, (b) an
increase in interest expense of $4.7 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.
(9) Represents accrued preferred dividends at a rate of 9% per annum on
$7.0 million of preferred membership interests of Peninsula Gaming Company.
PF-3
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF MEMBERS AND MANAGERS
Peninsula Gaming Company, LLC 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 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
Company 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 Company 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 Company.
Section 4.4 of the operating agreement provides that, to the fullest extent
permitted under applicable law, Peninsula Gaming Company shall severally
indemnify and hold harmless 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
any action by or in the right of Peninsula Gaming Company, by reason of or
arising from any acts or omissions, or alleged acts or omissions, on behalf of
Peninsula Gaming Company or in furtherance of the interests of Peninsula Gaming
Company 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 Company shall be liable to Peninsula Gaming Company or to the members of
Peninsula Gaming Company for acts or omissions of such officer in connection
with the business or affairs of Peninsula Gaming Company, including, without
limitation, any breach of fiduciary duty of such officer as an officer of
Peninsula Gaming Company, any mistake of judgment of such officer as an officer
of Peninsula Gaming Company and any business decision of such officer as an
officer of Peninsula Gaming, except for acts or omissions of such officer of
Peninsula Gaming Company 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.
II-1
<PAGE>
Section 5.4 of the operating agreement provides further that,
notwithstanding any other term or provision in the operating agreement,
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 Company, and the heirs and
personal representative of every officer of Peninsula Gaming Company 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 Company 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 Company
under SECTION 5.4 thereof shall be from and limited to the assets of Peninsula
Gaming Company, 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
Company or other individuals thereunder shall apply to or have any effect on any
such right or protection of any officer of Peninsula Gaming Company 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
Company, or of the heirs and personal representative of any such officer of
Peninsula Gaming Company or other individual.
Peninsula Gaming Company's managers and officers are insured by insurance
policies obtained by Peninsula Gaming Company against certain liabilities for
actions taken in such capacities, including liabilities sunder the Securities
Act of 1933.
Peninsula Gaming Corp. is a corporation organized under the laws of the
State of Delaware. Section 145 of the Delaware General Corporation Law provides
that a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative,
other than an action by or in the right of the corporation, by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses, including attorneys' fees,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interest of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful; and
further that a corporation may indemnify such person against expenses, including
attorneys' fees, actually and reasonably incurred by him in connection with the
defense or settlement of such action or suit if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper. To the extent that a director, officer, employee or agent of
a corporation has been successful on the merits or otherwise in defense of any
such action, suit or proceeding, or in defense of any claim, issue or matter
therein, he shall be indemnified against expenses, including attorneys' fees,
actually and reasonably incurred by him in connection with the issue or matter.
Article Sixth, Section 2 of the Certificate of Incorporation of Peninsula
Corp. provides that Peninsula Gaming Corp. will indemnify, in accordance with
its by-laws, to the fullest extent permitted by Delaware corporate law or any
other applicable laws as presently or hereafter in effect, any person
II-2
<PAGE>
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 Gaming Corp., by reason of his acting as a director or
officer of Peninsula Gaming Corp., and Peninsula Gaming Corp., in the discretion
of the board of directors of Peninsula Gaming 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 Gaming Corp. in any other
capacity for or on behalf of Peninsula Gaming 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 Gaming Corp. provides that, subject
to Section 6.3 of Article VI thereof, Peninsula Gaming 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 Gaming Corp., by reason of the fact that he is or was a
director or executive officer of Peninsula Gaming Corp., or is or was a director
or executive officer of Peninsula Gaming Corp. serving at the request of
Peninsula Gaming 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 Gaming 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 Gaming Corp. or (ii) the indemnification does not relate to any
liability arising under Section 16(b) of the Securities Exchange Act of 1934 or
any of the rules or regulations promulgated under it. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of NOLO CONTENDERE or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of 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 Gaming 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 Gaming 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 Gaming Corp., or is or was a director or
executive officer of Peninsula Gaming Corp. serving at the request of Peninsula
Gaming 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 Gaming 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 Gaming 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
II-3
<PAGE>
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
(1) 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
(2) 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
(3) by the stockholders.
To the extent, however, that a director or executive officer of Peninsula Gaming
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 Delaware General Corporation Law 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 Delaware General
Corporation Law or (iv) obtains an improper personal benefit.
Article Sixth, Section 1 of the Certificate of Incorporation provides that
directors of Peninsula Gaming Corp. shall have no personal liability to
Peninsula Gaming Corp. or its stockholders for monetary damages for breach of
fiduciary duty as a director; PROVIDED that nothing contained in Article Sixth
thereof shall eliminate or limit the liability of a director
(1) for any breach of a director's duty of loyalty to Peninsula Gaming
Corp. or its stockholders,
(2) for acts or omissions not in good faith or which involve intentional
misconduct or knowing violations of law,
(3) under Section 174 of the Delaware General Corporation Law, or
(4) for any transaction from which a director derived an improper
personal benefit.
If the Delaware General Corporation Law 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 Gaming
Corp. shall be eliminated or limited to the fullest extent permitted by the
DGCL, as so amended.
Section 145 of the Delaware General Corporation Law 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
II-4
<PAGE>
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 Gaming 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
(1) for any breach of a director's duty of loyalty to Peninsula Gaming
Corp. or its stockholders,
(2) for acts or omissions not in good faith or which involve intentional
misconduct or knowing violations of law,
(3) under Section 174 of the Delaware General Corporation Law, or
(4) for any transaction from which a director derived an improper
personal benefit.
If the Delaware General Corporation Law 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 Gaming
Corp. the liability of a director of the Corporation shall be eliminated or
limited to the fullest extent permitted by the Delaware General Corporation Law,
as so amended.
Section 145 of the Delaware General Corporation Law further provides that a
corporation shall have power to purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation or enterprise, against any liability
asserted against such person and incurred by such person in such capacity,
arising out of such person's status as such, whether or not the corporation
would otherwise have the power to indemnify such person under Section 145.
Article Sixth, Section 6 of the Certificate of Incorporation provides that
Peninsula Gaming Corp. may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of Peninsula Gaming
Corp., or is or was serving at the request of Peninsula Gaming 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 Delaware
General Corporation Law, or otherwise.
II-5
<PAGE>
Section 6.8 of the by-laws provides that Peninsula Gaming Corp. may purchase
and maintain insurance on behalf of any person who is or was a director or
executive officer of Peninsula Gaming Corp., or is or was a director or
executive officer of Peninsula Gaming Corp. serving at the request of Peninsula
Gaming 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 Gaming
Corp. would have the power or the obligation to indemnify him against such
liability under the provisions of Article VI thereof.
All of Peninsula Gaming Corp.'s directors and officers are insured by
insurance policies obtained by Peninsula Gaming 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 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
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<PAGE>
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.
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<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 February 2, 2000.
<TABLE>
<S> <C> <C>
PENINSULA GAMING COMPANY, LLC
BY: /S/ RONALD S. BRODY
-----------------------------------------
Ronald S. Brody
Attorney-In-Fact for
M. Brent Stevens
CHIEF EXECUTIVE OFFICER
By: /s/ RONALD S. BRODY
-----------------------------------------
Ronald S. Brody
Attorney-In-Fact for
Natalie A. Schramm
PRINCIPAL FINANCIAL OFFICER AND PRINCIPAL
ACCOUNTING OFFICER
PENINSULA GAMING CORP.
BY: /S/ RONALD S. BRODY
-----------------------------------------
Ronald S. Brody
Attorney-In-Fact for
M. Brent Stevens
PRINCIPAL EXECUTIVE OFFICER, PRINCIPAL
FINANCIAL OFFICER AND PRINCIPAL ACCOUNTING
OFFICER
By: /s/ RONALD S. BRODY
-----------------------------------------
Ronald S. Brody
Attorney-In-Fact for
Michael S. Luzich
VICE PRESIDENT
</TABLE>
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<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
--------- ----- ----
<C> <S> <C>
/s/ M. BRENT STEVENS Chief Executive Officer of December 14, 1999
------------------------------------------- Peninsula Gaming Company
M. Brent Stevens and Peninsula Gaming
Company October 11, 1999
Partners, LLC ("Peninsula
Gaming Partners")
Manager of Peninsula Gaming
Partners, the Managing
Member of Peninsula
Gaming
Principal executive
officer, principal
financial officer and
principal accounting
officer of Peninsula
Gaming Corp.
/s/ NATALIE A. SCHRAMM Principal financial officer December 14, 1999
------------------------------------------- and principal accounting
Natalie A. Schramm officer of Peninsula
Gaming Company
/s/ MICHAEL S. LUZICH Vice President of Corporate December 14, 1999
------------------------------------------- Development, Secretary
Michael S. Luzich and Manager of Peninsula
Gaming Partners
Vice President, Secretary
and Director of Peninsula
Gaming Corp.
Secretary of Peninsula
Gaming Company
/s/ TERRANCE W. OLIVER Manager of Peninsula Gaming December 14, 1999
------------------------------------------- Partners
Terrance W. Oliver
</TABLE>
II-9
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ WILLIAM L. WESTERMAN Manager of Peninsula Gaming December 14, 1999
------------------------------------------- Partners
William L. Westerman
/s/ ANDREW R. WHITTAKER Manager of Peninsula Gaming December 14, 1999
------------------------------------------- Partners
Andrew R. Whittaker
</TABLE>
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<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- -----------
<C> <S>
*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, dated July 15, 1999, as to
certain tax matters
***5.3 Form of 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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- -----------
<C> <S>
*10.9B Amendment to Operating Agreement, dated February 22, 1993,
by and among Dubuque Racing Association, Ltd. and Greater
Dubuque Riverboat Entertainment Company, L.C.
*10.9C Amendment to Operating Agreement, dated March 4, 1993, by
and among Dubuque Racing Association, Ltd. and Greater
Dubuque Riverboat Entertainment Company, L.C.
*10.9D Third Amendment to Operating Agreement, dated March 11,
1993, by and among Dubuque Racing Association, Ltd. and
Greater Dubuque Riverboat Entertainment Company, L.C.
*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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- -----------
<C> <S>
**12.1 Computations of ratio of indebtedness to net capital,
earnings to fixed charges, and EBITDA to net interest
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 (relating to Exhibit 5.2)
***23.4 Consent of Mayer, Brown & Platt (contained in Exhibit 5.3)
*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
***99.3 Form of Letter to Brokers, Dealers and other Nominees
***99.4 Form of Letter to clients
</TABLE>
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* 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 12, 1999.
** Previously filed as an exhibit to Amendment No. 1 to registration statement
on Form S-4 (Registration Number 333-88829) of Peninsula Gaming Company, LLC
and Peninsula Gaming Corp. on November 29, 1999.
*** Previously filed as an exhibit to Amendment No. 2 to registration statement
on Form S-4 (Registration Number 333-88829) of Peninsula Gaming Company, LLC
and Peninsula Gaming Corp. on December 13, 1999.
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective 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
February 2, 2000
