<PAGE>
As filed with the Securities and Exchange Commission on March 22, 2000
Registration No. 333-88679
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
--------------
Hollywood Casino Shreveport
(Exact Name of Co-Registrants as Specified in their Charters)
<TABLE>
<S> <C> <C>
Louisiana 7011 72-1225563
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
Incorporation or Organization) Classification Code Number)
</TABLE>
Shreveport Capital Corporation
(Exact Name of Co-Registrants as Specified in their Charters)
<TABLE>
<S> <C> <C>
Louisiana 7011 75-2830167
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
Incorporation or Organization) Classification Code Number)
and the following Guarantors
HWCC-Louisiana, Inc. HCS I, Inc. HCS II, Inc.
(Exact Name of Co-Registrant (Exact Name of Co-Registrant (Exact Name of Co-Registrant
as Specified in its Charter) as Specified in its Charter) as Specified in its Charter)
Louisiana Louisiana Louisiana
(State or Other Jurisdiction of (State or Other Jurisdiction of (State or Other Jurisdiction of
Incorporation or Organization) Incorporation or Organization) Incorporation or Organization)
75-2478868 75-2830161 75-2830163
(I.R.S. Employer Identification (I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.)
No.)
7011 7011 7011
(Primary Standard Industrial (Primary Standard Industrial (Primary Standard Industrial
Classification Code) Classification Code) Classification Code)
</TABLE>
William D. Pratt
Two Galleria Tower, Suite 2200 Executive Vice President, Secretary and
13455 Noel Road General Counsel
Dallas, Texas 75240 Two Galleria Tower, Suite 2200
(972) 392-7777 13455 Noel Road
Dallas, Texas 75240
(Address, Including Zip Code, and (972) 392-7777
Telephone Number, including Area Code,
of Co-Registrants' Principal Executive (Name and Address, Including Zip Code,
Offices) and Telephone Number, Including Area
Code, of Agent For Service)
--------------
With a copy to:
Michael A. Saslaw, Esq.
Weil, Gotshal & Manges LLP
100 Crescent Court, Suite 1300
Dallas, Texas 75201
Telephone: (214) 746-7700
Facsimile: (214) 746-7777
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after this Registration Statement becomes
effective.
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, 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 the Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
The co-registrants hereby amend this registration statement on such date or
dates as may be necessary to delay its effective date until the co-registrants
shall file a further amendment which specifically states that this Registration
Statement thereafter shall become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
Subject to Completion Dated March 22, 2000
[HOLLYWOOD CASINO SHREVEPORT LOGO APPEARS HERE]
Offer to Exchange All Outstanding
Original 13% First Mortgage Notes due 2006
with Contingent Interest
for
Registered 13% First Mortgage Notes due 2006
with Contingent Interest
of
Hollywood Casino Shreveport
and
Shreveport Capital Corporation
. The exchange offer will expire any securities exchange and,
at 5:00 p.m., New York City therefore, no active public
time, on , 2000, unless we market is anticipated.
extend this date.
. If you are a broker-dealer that
. If you decide to participate in receives registered notes for
this exchange offer, the your own account in exchange
registered notes you receive for your original notes
will be the same as your pursuant to the exchange offer,
original notes, except that, where your original notes were
unlike your original notes, you acquired by you as a result of
will be able to offer and sell market-making activities or
the registered notes freely to other trading activities, you
any potential buyer in the must acknowledge that you will
United States. deliver a prospectus in
connection with any resale of
. We will not receive any your registered notes. This
proceeds from the exchange prospectus, as it may be
offer. amended or supplemented from
time to time, may be used by
. If you fail to tender your you in connection with resales
original notes, you will of registered notes received in
continue to hold unregistered exchange for your original
securities and it may be notes where your original notes
difficult for you to transfer were acquired as a result of
them. market-making activities or
other trading activities.
. No public market currently
exists for the notes. We do not
intend to list the notes on
We urge you to read the "Risk Factors" section of this prospectus beginning on
page 10, which describes information you should consider before participating
in the exchange offer.
----------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offense.
----------------
The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with
the Securities and Exchange Commission is effective. This prospectus is not
an offer to buy these securities in any state where the offer or sale is not
permitted.
The date of this prospectus is , 2000.
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
Because it is a summary, it does not contain all information about us and this
offering that should be considered before deciding to exchange your original
notes. We urge you to read the entire prospectus carefully, including the text
under the section entitled "Risk Factors."
We are constructing and will own a themed hotel and casino destination resort
in Shreveport, Louisiana, which is approximately 180 miles east of Dallas,
Texas. Portions of Shreveport are separated from Bossier City by the Red River
and, for convenience, we refer to the Shreveport/Bossier City market as the
"Shreveport market." We have hired a general manager for the resort who has
extensive experience operating casinos in the Shreveport market.
As of December 31, 1999, we have spent approximately $34.8 million of the
$230.0 million budgeted for the project. Construction progress to date includes
substantially all of the site preparation work, the pouring of concrete for the
first fifteen floors of the hotel tower and the first three floors of the
parking garage, the completion of the hull and three floors of the casino barge
and the movement of the barge from its shipyard to a site in Shreveport. In
addition, we have commenced construction of the basin that will hold the casino
barge. These expenditures also include $5.0 million that we paid to the City of
New Orleans in August 1999 as part of an agreement reached with the City of New
Orleans allowing the relocation of the license to the Shreveport market. The
budget includes project costs, the first three payments of fixed interest on
the notes, significant construction contingencies and fees and expenses. We
intend to open the resort in early November 2000, although the actual opening
date may be delayed due to poor weather or the occurrence of other events
discussed under "Risk Factors."
The resort will be operated by Hollywood Casino's subsidiary, HWCC-
Shreveport, Inc. ("HWCC Shreveport") under a management contract and will
feature Hollywood Casino's unique Hollywood theme.
We and Hollywood Casino are substantially leveraged and we have no history of
earnings since becoming a development stage entity on September 22, 1998. Our
earnings were insufficient to cover fixed charges by $5.3 million for the year
ended December 31, 1999 and by $35,000 for the period from September 22, 1998
through December 31, 1998. We will not generate any revenues until the
Shreveport resort is opened.
We were originally formed in 1992 as a Louisiana partnership among previous
owners, including Hilton New Orleans Corporation and New Orleans Paddlewheels
Inc., to own and operate a riverboat casino in New Orleans. Those owners
discontinued the New Orleans operations in October 1997 and sold their
partnership interests in us to HWCC-Louisiana, Inc. and Sodak Louisiana, L.L.C.
in September 1998 for the purpose of developing and operating a new casino
under our gaming license in Shreveport. HWCC-Louisiana subsequently acquired
Sodak Louisiana's interest in us in April 1999 and Hollywood Casino now owns
and controls all of the voting and capital interest in us through its
subsidiaries, HWCC-Louisiana, HCS I, Inc. and HCS II, Inc. We formed Shreveport
Capital Corporation in July 1999 and we own all of its issued and outstanding
capital stock.
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<PAGE>
The following chart sets forth the organizational structure of Hollywood
Casino Corporation, our parent company ("Hollywood Casino"), and its
subsidiaries involved in the ownership, development and operation of the
Shreveport resort:
[ORGANIZATIONAL CHART APPEARS HERE]
- --------
* General partnership interest.
** Upon a sale or other disposition of Hollywood Casino Shreveport, Shreveport
Paddlewheels will be entitled to a residual interest equal to 10% of the net
proceeds of such sale or disposition after the repayment of any outstanding
indebtedness and the return of contributed capital.
Address and Telephone Number
Until completion of the Shreveport resort, our principal executive offices
will be located at Two Galleria Tower, Suite 2200, 13455 Noel Road, Dallas,
Texas 75240, and our telephone number will be (972) 392-7777.
2
<PAGE>
The Exchange Offer
Securities to be On August 10, 1999, we issued $150.0 million
Exchanged............... aggregate principal amount of 13% first mortgage
notes in the original offering in a transaction
exempt from the registration requirements of the
Securities Act of 1933. Based on information
provided by the initial purchasers of those notes,
we understand that the initial purchasers
subsequently resold all of the notes they purchased
in transactions exempt from the registration
requirements of the Securities Act. The terms of the
original notes and the registered notes will be the
same, except that, unlike the original notes, you
will be able to offer and sell the registered notes
freely to any potential buyer in the United States.
For more details, see the section entitled
"Description of the Registered Notes."
The Exchange Offer.......
You must properly tender your original notes in
accordance with the procedures described on page 65
of this prospectus. We will exchange all original
notes that you properly tender and do not withdraw.
If we exchange your original notes, we will issue
registered notes within four business days after the
expiration date of the exchange offer.
Registration Rights In connection with the original sale and issuance of
Agreement................ the notes, the issuers and the guarantors entered
into a registration rights agreement with the
initial purchasers requiring the issuers to make the
exchange offer. The registration rights agreement
further provides that the issuers, together with the
guarantors, must use their reasonable best efforts
to:
. file a registration statement with respect to
the exchange offer on or before October 9,
1999;
. cause the registration statement with respect
to the exchange offer to be declared
effective on or before January 7, 2000;
. consummate the exchange offer within 30
business days after the registration
statement with respect to the exchange offer
becomes effective; and
. file a shelf registration statement for the
resale of the original notes with respect to
any original notes for which we cannot effect
an exchange offer within the above time
period or if any holders of original notes
are legally prohibited from participating in
the exchange offer.
Because the registration statement with respect to
the exchange offer was not declared effective on or
before January 7, 2000, we are paying liquidating
damages in the form of additional interest until
such time as the exchange offer is declared
effective. The liquidating damages are currently
.005% of the outstanding note balance per week
($7,500), subject to increases of .005% every 90
days.
Ability to Resell Based on interpretations by the staff of the SEC set
Registered Notes........ forth in published no-action letters, we believe you
may offer for resale, resell and otherwise freely
transfer the registered notes without further
registering those notes or delivering a prospectus
to a buyer if:
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<PAGE>
. you acquire the registered notes in the
ordinary course of your business;
. you are not participating, do not intend to
participate and have no arrangement or
understanding with any person to participate
in the distribution of registered notes; and
. you are not related to us.
However, the SEC has not specifically considered
this exchange offer in the context of a no-action
letter and we cannot be sure that the staff of the
SEC would make the same determination with respect
to the exchange offer as in other circumstances.
Furthermore, you must, unless you are a broker-
dealer, acknowledge that you are not engaged in, and
do not intend to engage in, a distribution of your
registered notes and have no arrangement or
understanding to participate in a distribution of
registered notes. If you are a broker-dealer that
receives registered notes for your own account
pursuant to the exchange offer you must acknowledge
that you deliver a prospectus in connection with any
resale of your registered notes. If you are a
broker-dealer who acquired original notes directly
from us and not as a result of market-making
activities or other trading activities, you may not
rely on the SEC staff's interpretations discussed
above or participate in the exchange offer and must
deliver a prospectus in order to resell the
registered notes.
The exchange offer is not being made to:
. holders of original notes in any jurisdiction
in which the exchange offer or its acceptance
would not comply with the securities or blue
sky laws of that jurisdiction; and
. holders of original notes who we control.
No Minimum Required...... There is no minimum amount of original notes that
you must tender in the exchange offer.
Procedures for
Exchanging Your If you wish to exchange your original notes for
Original Notes.......... registered notes you must transmit to State Street
Bank and Trust Company, our exchange agent, on or
before the expiration date either:
. a properly completed and executed letter of
transmittal, which we have provided to you
with this prospectus, or a facsimile of the
letter of transmittal, together with your
original notes and any other documentation
requested by the letter of transmittal;
. a computer generated message, in which you
acknowledge and agree to be bound by the
terms of the letter of transmittal,
transmitted by means of the Depository Trust
Company's Automated Tender Offer Program
system; or
. a notice of guaranteed delivery, in
accordance with the procedures described
under the heading "Description of the
Exchange Offer--Guaranteed Delivery
Procedures."
4
<PAGE>
By agreeing to be bound by the terms of the letter
of transmittal, you will be deemed to have made the
representations described on page 65 under the
heading "Description of the Exchange Offer--
Procedures for Tendering Your Notes."
Guaranteed Delivery
Procedures.............. If you wish to exchange your original notes for
registered notes and time will not permit the
documents required by the letter of transmittal to
reach the exchange agent before the expiration date
of the exchange offer, or you cannot complete the
procedure for book-entry transfer on a timely basis,
you must exchange your original notes according to
the guaranteed delivery procedures described on page
67 under the heading "Description of the Exchange
Offer--Guaranteed Delivery Procedures."
Special Procedures for
Beneficial Owners....... If you are a beneficial owner whose original notes
are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and
you wish to exchange your original notes for
registered notes, you should contact the registered
holder promptly and instruct the registered holder
to exchange the original notes for you. If you wish
to exchange your original notes for registered notes
on your own behalf, you must either make appropriate
arrangements to register ownership of the original
notes in your name or obtain a properly completed
bond power from the registered holder.
The transfer of registered ownership may take
considerable time and you may not be able to be
complete the transfer before the expiration date of
the exchange offer.
Expiration Date..........
The exchange offer will expire at 5:00 p.m., New
York City time, on , 2000 or such later date and
time to which it is extended.
Withdrawal Rights........ Unless we extend the date, you may withdraw your
tendered original notes at any time before 5:00
p.m., New York City time, on the expiration date of
the exchange offer.
Interest on the
Registered Notes and Interest on your registered notes will accrue from
the Original Notes...... the date of the original issuance of the original
notes or from the date of the last periodic payment
of interest on the original notes, whichever is
later. Interest will be paid on registered notes
issued in the exchange offer, not on original notes
that are tendered and accepted for exchange.
Exchange Agent........... State Street Bank and Trust Company is serving as
exchange agent in connection with the exchange
offer.
Material Federal Income
Tax Consequences........ Based on an opinion from Weil, Gotshal & Manges LLP,
our tax counsel, the exchange of your original notes
for registered notes in connection with the exchange
offer will not constitute a sale or an exchange for
federal income tax purposes. You will not owe any
5
<PAGE>
additional federal income taxes by reason of the
exchange of your original notes for registered
notes. For more information, see "United States
Federal Income Tax Consequences."
Effect of Not If you fail to tender your original notes, you will
Tendering............... continue to hold unregistered securities and it may
be difficult for you to transfer them.
Please review the information beginning on page 62 under the heading
"Description of the Exchange Offer" for more detailed information concerning
the exchange offer.
The Registered Notes
Securities Offered...... $150.0 million principal amount of 13% first mortgage
notes due 2006 with contingent interest.
The Issuers............. Hollywood Casino Shreveport, a Louisiana general
partnership, and Shreveport Capital Corporation, a
Louisiana corporation and wholly owned subsidiary of
Hollywood Casino Shreveport.
Shreveport Capital serves as co-issuer of the notes
in order to facilitate the offering of the original
notes and resale of the notes as we believe that some
prospective purchasers of the notes may be restricted
by state law or regulations from purchasing debt
securities of partnerships, such as us, unless the
debt securities are jointly issued by a corporation.
Maturity Date........... August 1, 2006.
Interest Payment February 1 and August 1 of each year, beginning on
Dates.................. February 1, 2000.
Fixed Interest.......... Fixed interest will be payable at an annual rate of
13%.
Contingent Interest..... Contingent interest will accrue on the registered
notes after the Shreveport resort begins operating.
Contingent interest will be payable on each interest
payment date after the Shreveport resort begins
operating. The amount of contingent interest will be
equal to 5% of our consolidated cash flow for the
applicable period up to a maximum of $100.0 million
for any four consecutive fiscal quarters. The payment
of any or all of an installment of contingent
interest may be deferred under circumstances
described in the section entitled "Description of the
Registered Notes--Principal, Maturity and Interest."
Guarantors.............. The payment of the registered notes will be jointly
and severally and fully and unconditionally
guaranteed on a senior secured basis by HWCC-
Louisiana, HCS I, HCS II and any material restricted
subsidiaries that Hollywood Casino Shreveport may
form in the future. This means that each guarantee is
secured by a lien on the respective guarantor's
assets that will be senior in right of payment to the
claims of any other creditors of the guarantors.
Ranking................. The registered notes will be senior secured
obligations of the issuers. The registered notes will
rank equal in right of payment with all of the
issuers' existing and future senior indebtedness and
will rank senior in right of payment to all of the
issuers' existing and future subordinated
indebtedness. On the closing date of the original
offering, the issuers had
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<PAGE>
$7.0 million of indebtedness outstanding in addition
to the registered notes, $5.0 million of which was
repaid promptly after the closing of the original
offering and $2.0 million of which will be paid in
installments after we open the Shreveport resort.
Security................ The registered notes will be secured by:
. a first priority security interest in the net
proceeds of the original offering;
. a first priority security interest in
substantially all of the assets that will
comprise the Shreveport resort, other than
assets secured by up to $35.0 million in
furniture, fixtures and equipment financing;
. a first priority security interest in
substantially all of the issuers' other
assets, other than the equity escrow account;
. a collateral assignment of the issuers'
interests in the principal agreements pursuant
to which the Shreveport resort will be
constructed, operated and managed; and
. a collateral assignment of certain licenses
and permits relating to the construction,
operation and management of the Shreveport
resort.
The guarantees will be secured by a first priority
security interest in substantially all of the
guarantors' assets, including a pledge of the capital
stock of HCS I and HCS II and the partnership
interests in Hollywood Casino Shreveport held by HCS
I and HCS II, but excluding $2.5 million being held
to fund HWCC-Louisiana's obligation to Sodak Gaming
in connection with the acquisition of Sodak
Louisiana.
We may incur up to $10.0 million of additional debt
for working capital and general purposes. This debt
may be secured by certain of our existing or future
assets.
Completion Capital Hollywood Casino will contribute to Hollywood Casino
Agreement.............. Shreveport up to $5.0 million in cash if at any time
there are insufficient funds available to enable the
Shreveport resort to be operating by April 30, 2001.
In addition, if the Shreveport resort is not
operating by April 30, 2001, Hollywood Casino will
contribute $5.0 million in cash less any amounts
previously contributed under the Completion Capital
Agreement.
Optional Redemption..... At any time on or after August 1, 2003, the issuers
may, at their option, redeem some or all of the
registered notes at the prices provided in the
section entitled "Description of the Registered
Notes--Optional Redemption."
In addition, at any time on or before August 1, 2002,
the issuers may redeem up to 35% of the original
aggregate principal amount of the registered notes at
a price equal to 113% of their aggregate principal
amount plus accrued and unpaid interest with the
proceeds of certain equity offerings of Hollywood
Casino yielding at least $20.0 million of the net
proceeds that are contributed to Hollywood Casino
Shreveport;
7
<PAGE>
provided, however, that at least 65% of the original
aggregate principal amount of the registered notes
remains outstanding immediately after any redemption.
Gaming Redemption....... The notes will be subject to mandatory disposition
and redemption requirements following certain
determinations by any gaming authority.
Change of Control....... If a change of control occurs, the issuers must offer
to repurchase the registered notes at a price equal
to 101% of their aggregate principal amount plus
accrued and unpaid interest.
Asset Sales and Events If Hollywood Casino Shreveport sells a significant
of Loss................ amount of assets or experiences events of loss and it
does not apply the proceeds as designated, the
issuers will be required to offer to repurchase the
registered notes at a price equal to 100% of their
aggregate principal amount plus accrued and unpaid
interest.
Basic Covenants of the
Indenture..............
The issuers will issue the registered notes under an
indenture that will, among other things, restrict the
ability of Hollywood Casino Shreveport to:
. borrow money;
. pay distributions on its equity interests or
prepay debt;
. make investments;
. use its assets as security in other
transactions; and
. sell assets or enter into mergers or
consolidations.
In addition, the indenture will restrict the ability
of HWCC-Louisiana, HCS I, HCS II and Shreveport
Capital to acquire additional assets, become liable
for additional obligations or engage in any
significant business activities.
Hollywood Casino Shreveport will be permitted to pay
dividends or distributions with up to 50% of the
funds remaining in the cash collateral accounts at
the time construction of the Shreveport resort is
completed, less amounts paid to holders in connection
with an optional offer to repurchase registered notes
made within nine months of completing construction.
Cash Collateral and
Disbursement
Agreement.............. All of the $145.7 million of the net proceeds of the
original offering has been deposited in one of the
accounts described below. The funds in these accounts
are security for the issuers' obligations under the
registered notes. The funds in the accounts will be
disbursed in accordance with the terms of the Cash
Collateral and Disbursement Agreement.
Construction
Disbursement
Account............
$113.4 million of the net proceeds of the original
offering were deposited in the construction
disbursement account. These funds will be used for
the development, construction, equipping and opening
of the Shreveport resort.
Interest Reserve $27.3 million of the net proceeds of the original
Account............ offering were deposited in the interest reserve
account. These funds will be used to purchase
government securities in an amount sufficient to pay
the first three payments of fixed interest on the
registered notes.
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<PAGE>
Completion Reserve
Account............
$5.0 million of the net proceeds of the original
offering were deposited in the completion reserve
account. These funds will be used to complete the
Shreveport resort if there are insufficient funds in
the construction disbursement account.
Form of Registered The registered notes will be represented by a
Notes.................. permanent global note in definitive, fully registered
form. The global note will be registered in the name
of a nominee of The Depository Trust Company and will
be deposited with State Street Bank and Trust
Company, as custodian for The Depository Trust
Company's nominee.
Use of Proceeds......... We will not receive any cash proceeds from the
issuance of the registered notes in connection with
the exchange offer.
Please review the information beginning on page 70 under the heading
"Description of the Registered Notes" for more detailed information concerning
the notes.
Risk Factors
We urge you to carefully review the risk factors for a discussion of factors
you should consider before exchanging your original notes for registered notes.
9
<PAGE>
RISK FACTORS
We urge you to carefully consider the following factors, as well as the other
matters described in this prospectus, before exchanging your original notes for
registered notes. Additional risks and uncertainties not presently known to us
or that we currently deem immaterial may also impair our business operations.
If any of the following risks materialize, our business could be harmed and the
market price of our notes may decline.
Leverage--We have a substantial amount of debt, which could materially
adversely affect our financial condition, results of operations and prospects
and prevent us from fulfilling our obligations under the notes.
We currently have a large amount of indebtedness. As of December 31, 1999, we
had $151.8 million of indebtedness outstanding compared to $45.7 million of
partners' capital and our earnings were insufficient to cover fixed charges by
$5.3 million.
The indenture governing the notes permits us to incur additional debt based
on our performance, as well as categories of additional debt such as up to
$35.0 million to finance the purchase of furniture, fixtures and equipment and
up to $10.0 million for working capital and general purposes. After we commence
operations at the Shreveport resort, the indenture will permit us to incur
additional indebtedness if our fixed charge coverage ratio under the indenture
for our most recently ended four fiscal quarters would be at least 2.0 to 1
after we incur the additional indebtedness. We do not currently satisfy this
ratio. If new debt is added to our current debt levels, the related risks could
intensify.
This large amount of indebtedness could, for example:
. make it more difficult for us to satisfy our obligations under the
registered notes or other indebtedness and, if we fail to comply
with the requirements of the indebtedness, could result in an event
of default;
. require us to dedicate a substantial portion of our cash flow from
operations to required payments on indebtedness, thereby reducing
the availability of cash flow for working capital, capital
expenditures and other general business activities;
. limit our ability to obtain additional financing in the future for
working capital, capital expenditures and other general corporate
activities;
. limit our flexibility in planning for, or reacting to, changes in
our business and the industry in which we operate;
. detract from our ability to successfully withstand a downturn in our
business or the economy generally; and
. place us at a competitive disadvantage against other less leveraged
competitors.
The occurrence of any one of these events could have a material adverse
effect on our business, financial condition, results of operations, prospects
and ability to satisfy our obligations under the notes. For more information on
the terms of the notes, see the discussion under the section entitled
"Description of the Registered Notes."
Construction Uncertainties--The construction of the Shreveport resort involves
many uncertainties that could affect the final cost and time required to
complete the project.
Construction of the Shreveport resort involves the following material risks,
any of which could affect the final cost and time of completion of the project:
. adverse weather or water conditions, especially during the period
when the components of the riverboat will be transported up the Red
River on barges;
. fire, flood or other natural disasters;
10
<PAGE>
. shortages of materials and skilled labor;
. labor disputes, including work stoppages involving contractors,
subcontractors or others that we will rely on to construct the
Shreveport resort;
. engineering problems;
. delay in obtaining governmental permits and approvals, including
approval of plans, specifications and construction by the U.S. Army
Corps of Engineers, the United States Coast Guard, the Louisiana
Gaming Control Board and other state and local authorities;
. environmental issues; and
. geological, construction, demolition, excavation, regulatory or
equipment problems.
Although we have entered into a guaranteed maximum price contract for the
construction of the land-based resort facilities and have entered into a fixed
price contract for the construction of the riverboat, we cannot guarantee that
the occurrence of one or more of the foregoing events will not affect the
ultimate cost of the project. These contracts are subject to modification based
on the occurrence of a number of events, such as design change orders that we
decide to implement or construction delays not within the contractor's control,
that may cause increased costs in excess of our contingencies. As a result, we
cannot be sure that construction costs will not exceed budgeted amounts. Any
significant cost overruns or delays in completing the Shreveport resort could
have a material adverse effect on our business, financial condition, results of
operations and prospects and our ability to service our obligations under the
notes.
Independent Construction Consultant--The independent construction consultant
may fail to perform its obligations.
We have retained CCM Consulting Group to serve as the independent
construction consultant in accordance with the requirements of the cash
collateral and disbursement agreement governing the release of proceeds from
the original offering. The independent construction consultant will monitor the
construction process and verify that there are sufficient funds to complete the
construction of each component of the project within our budget. However, the
independent construction consultant will not audit or otherwise verify that
either our original schedule or budget are sufficient to complete construction
of the Shreveport resort. Construction could be delayed and additional
construction expenses could be incurred if the independent construction
consultant determines that there are insufficient funds to complete each
component of the project within the budget and decides to delay or prohibit
disbursement of funds. Moreover, if the independent construction consultant
fails to perform its responsibilities as required, funds could be disbursed
from the construction account without having satisfied all applicable
requirements.
Financing Uncertainties--We may be unable to obtain our planned furniture,
fixtures and equipment financing.
We have obtained a binding commitment to finance up to $30.0 million of
furniture, fixtures and equipment for the Shreveport resort; however, we have
not yet entered into a definitive agreement for this financing. The commitment
of funds is conditioned on executing a definitive agreement and we cannot
assure you that we will reach a definitive agreement and that the funds will be
made available to us. If we are not able to obtain these funds, we will have to
find alternative financing. We cannot assure you that we will be able to secure
alternative financing on favorable terms, or at all, or that there will be no
resulting delay in opening the Shreveport resort. Our inability to obtain
additional financing could prevent us from completing and opening the
Shreveport resort, which could have a material adverse effect on our business,
financial condition, results of operations and prospects and our ability to
service our obligations under the notes.
Ability to Service Debt--We may not be able to generate significant cash flow
to meet our debt service obligations.
We cannot assure you that our future cash flow will be sufficient to meet the
payment obligations under the notes remaining after the first three payments of
fixed interest, which will be paid with funds already
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reserved for that purpose. Our ability to generate cash flow from operations to
make scheduled payments on our debt obligations as they become due will depend
on our future financial performance, which will be affected by a range of
economic, competitive and business factors. We cannot control many of these
factors, such as general economic and financial conditions in the gaming
industry and the economy at large or competitive initiatives of our
competitors. If we do not generate sufficient cash flow from operations, we may
have to undertake alternative financing plans, such as refinancing or
restructuring our debt, selling assets, reducing or delaying capital
investments or seeking to raise additional capital. We cannot assure you that
any refinancing would be possible, that any assets could be sold, or, if sold,
of the timing of the sales and the amount of proceeds realized from the sales,
or that additional financing could be obtained on acceptable terms, if at all.
Our inability to generate sufficient cash flow or refinance our indebtedness on
commercially reasonable terms would have a material adverse effect on our
business, financial condition, results of operations and prospects and our
ability to satisfy our obligations under the notes.
Shreveport Capital and Guarantors--None of the guarantors or Shreveport Capital
will contribute to amounts required to be paid on the notes.
Shreveport Capital only served as a co-issuer of the notes in order to
facilitate the original offering. It will not have any material assets and its
only operations will be to serve as co-issuer of the notes. Therefore, you
should not expect Shreveport Capital to contribute to the amounts required to
be paid on the notes. HWCC-Louisiana, HCS I and HCS II are guaranteeing the
notes. HWCC-Louisiana will not have any operations other than serving as
guarantor of the notes and its only material assets will be the common stock of
HCS I and HCS II. HCS I's only asset will be its partnership interest in us and
its only operations will be to serve as our managing general partner and to act
as guarantor of the notes. HCS II's only asset will be its partnership interest
in us and its only operations will be to act as guarantor of the notes. You
should not expect any of these guarantors to contribute to the payments on the
notes.
Limits on Collateral--The trustee's ability to realize on the collateral
securing the notes may be limited and the amount distributed to investors may
not be sufficient to satisfy our obligation under the notes.
Subject to permitted liens, the notes will be secured by substantially all of
our assets and the assets of the guarantors. For more information, see the
discussion under the section entitled "Description of the Registered Notes--
Security." By law, our gaming and liquor licenses may not legally be
transferred or pledged as collateral to secure the notes. In addition, the
indenture will permit us to incur up to $10.0 million of additional debt for
working capital and general purposes that may be secured by any or all of our
existing or future assets, other than the amounts in the cash collateral
accounts. Also, the collateral will not include:
. furniture, fixtures and equipment that will be acquired with up to
$35.0 million of furniture, fixture and equipment financing,
. funds in the equity escrow account or
. the $2.5 million to fund HWCC-Louisiana's obligation to Sodak
Gaming, Inc. in connection with the acquisition of Sodak Louisiana.
The trustee's ability to foreclose on the collateral upon an event of default
and acceleration of the notes will be limited by the Louisiana Riverboat
Economic Development and Gaming Control Act, which generally requires that
persons who own or operate a riverboat casino, receive payments under a casino
management agreement or purchase, possess or sell gaming equipment, hold a
valid riverboat gaming license. No person may hold a riverboat gaming license
in Louisiana unless the person is found qualified or suitable by the Louisiana
Gaming Control Board. In order for the trustee to be found qualified or
suitable, the Louisiana Gaming Control Board would have discretionary authority
to require the trustee and any or all of the holders of the notes to file
applications and be investigated and found qualified or suitable as an owner or
operator of gaming establishments or supplier of gaming equipment. If the
trustee is unable or chooses not to qualify, be found suitable or be licensed
to own, operate or sell the assets, it will have to retain an entity licensed
to own, operate or sell the assets, which will also be subject to approval by
the Louisiana Gaming Control Board. In
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addition, in any foreclosure, public or private sale or subsequent resale by
the trustee, licensing requirements under the Louisiana Riverboat Economic
Development and Gaming Control Act may limit the number of potential bidders
and may delay any sale, which could have an adverse effect on the sale price of
the collateral. Therefore, the economic benefits of realizing on the collateral
may, without appropriate approvals, be limited.
In addition to being subject to gaming law restrictions, the trustee's
ability to foreclose upon and sell collateral will be subject to the procedural
restrictions of state real estate law and the Uniform Commercial Code or, in
the case of the gaming vessel, state ship mortgage and federal admiralty law
statutes. The right of the trustee to repossess and dispose of the collateral
upon an event of default and acceleration of the notes is also likely to be
significantly impaired by applicable bankruptcy law if a bankruptcy proceeding
were to be commenced by or against us before, or possibly even after, the
trustee has repossessed and disposed of the collateral.
We cannot assure you that upon an event of default and acceleration of the
notes that the proceeds of any sale of collateral in whole under the indenture
and the related security documents would be sufficient to satisfy our
obligations under the notes. If the proceeds are insufficient, the deficiency
would represent an unsecured obligation and we cannot assure you that you would
recover the deficiency. The value of the collateral at any time will depend on
market and other economic conditions, including the availability of suitable
buyers for the collateral.
Mechanics' and Maritime Liens--Parties who have provided services or supplies
in connection with the construction of our resort may have a lien on the
project senior to the lien of the mortgage securing the notes.
Louisiana law provides contractors, subcontractors, laborers, architects,
material suppliers and others with a lien on the property improved by their
services or supplies in order to secure their right to be paid. If these
parties are not paid in full, they may seek foreclosure on their liens. In
Louisiana, the priority of all mechanics' liens related to a particular
construction project relates back to the date on which work on the project
first commenced by any contractor. If a mortgage is recorded before the
commencement of work on a construction project, the mortgage lien is superior
to the liens of those providing services or supplies in connection with the
construction project, other than laborers. Further, Louisiana law affords a
mechanism whereby a mortgage holder can confirm and assure itself that its
mortgage will be superior to claims of contractors, subcontractors, suppliers
and others providing goods or services in connection with the project, provided
the mortgage is recorded before work commences. This mechanism was followed by
the holder of the first mortgage on the immovable (real) property forming part
of the construction project, and the mortgage holder has obtained title
insurance insuring the priority of the lien of its mortgage over the lien
rights of those providing services or supplies in connection with the
construction of the resort, including liens of laborers. Based on discussions
with Louisiana counsel, while pre-construction activities for the development
of the Shreveport resort began before the mortgage securing the notes was
recorded, these activities should not constitute work within the meaning of
Louisiana law. If a court were to hold that work on the project "commenced,"
within the meaning of Louisiana law, before the proper recordation of the
mortgage securing the notes, contractors, subcontractors, laborers, architects,
material suppliers and others providing goods or services in connection with
the construction of the Shreveport resort who otherwise comply with the
applicable requirements of Louisiana law might have a lien on the project
senior in priority to the lien on the mortgage securing the notes until they
are paid in full, but in that event the mortgage holder should have recourse
against the issuer of the title insurance policy insuring the priority of the
mortgage if the holder were to suffer losses or damages as a result of any
"mechanic's lien" gaining priority over the mortgage. Nonetheless, neither we
nor the title insurance company believe that work on the project commenced
within the meaning of applicable law before recording the mortgage securing the
notes. We have followed, and continue to follow, these procedures.
The disbursement agreement also requires procedures intended to ensure the
proper payment to these parties. Additionally, as a condition to the
disbursement of funds for the construction of the resort, lien releases are
required from all contractors, subcontractors and suppliers who have provided
work, materials and services. Furthermore, in connection with the consummation
of the original offering, we obtained a title insurance policy
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for the benefit of the holders of the notes to insure the priority of the lien
held by holders of the notes and to insure against any loss occurring as a
result of a mechanic's lien. Nevertheless, if there is a liquidation, proceeds
from the sale of collateral might be used to pay the holders of any mechanic's
liens then in existence before holders of the notes if work on the project was
deemed to have commenced within the meaning of Louisiana law before the record
date of the mortgage. Again, however, the mortgage holder should have recourse
against the issuer of the title policy insuring the priority of the mortgage in
that event.
With respect to any vessel, or any interests in vessels, which serve as
collateral for the notes, parties providing construction related goods and
services, as well as tort and other claimants, could have priority over the
lien of the collateral documents encumbering the vessel, to the extent these
parties remain unpaid.
Leverage of Hollywood Casino--Due to its high degree of leverage, Hollywood
Casino may not be able to make the $5.0 million payment required under the
completion capital agreement.
Hollywood Casino is highly leveraged. At December 31, 1999, Hollywood Casino
had total long-term indebtedness, exclusive of our long-term indebtedness, of
$386.7 million and stockholders' deficit of $74.2 million. On a pro forma basis
for financing transactions completed in May 1999, Hollywood Casino's earnings
would have been insufficient to cover fixed charges for the 12 months ended
December 31, 1999, by $45.2 million. For more information regarding
consolidated selected financial information of Hollywood Casino, see page S-1
of this prospectus.
Hollywood Casino will be obligated under the completion capital agreement to
contribute to us up to $5.0 million in cash if at any time there are
insufficient funds available to complete the development, construction,
equipping and opening of the Shreveport resort so that it is operating by April
30, 2001. In addition, the completion capital agreement requires that Hollywood
Casino contribute up to $5.0 million in cash less any amounts previously
contributed under the completion capital agreement if the Shreveport resort is
not operating by April 30, 2001. Hollywood Casino is subject to an indenture
governing $360.0 million of its outstanding indebtedness, which limits
Hollywood Casino's ability to contribute equity or otherwise advance funds to
us. Although Hollywood Casino is currently permitted under that indenture to
directly or indirectly invest in or advance certain funds to us for the
construction of the Shreveport resort, there can be no guarantee that Hollywood
Casino will have the financial resources or otherwise be able to perform its
obligations under the completion capital agreement or otherwise provide
financial support to us if unanticipated events occur.
Bankruptcy of Hollywood Casino--If there is a bankruptcy proceeding against
Hollywood Casino, Hollywood Casino's creditors may seek recourse against our
assets.
Hollywood Casino and certain of its affiliates are involved in activities
that are related to our business and assets. For example, HWCC-Shreveport, a
subsidiary of Hollywood Casino, provides management services to us pursuant to
a management agreement. In addition, we and the guarantors draw upon the gaming
experience of Hollywood Casino. As a result, each of our directors and
executive officers, with the exception of Juris Basens, also holds a comparable
position with Hollywood Casino. In the event that Hollywood Casino or one of
its affiliates is the subject of a proceeding under the United States
Bankruptcy Code, the creditors of that entity or the trustee in bankruptcy may
argue that the assets and liabilities of the various affiliated entities,
including us, should be consolidated and our assets made available for
satisfaction of claims against the entity in bankruptcy. Although we believe we
are separate and distinct legal entities from Hollywood Casino and its
affiliates, we cannot guarantee that if there is a bankruptcy case involving
Hollywood Casino or one of its affiliates involved in activities related to our
business and assets, a bankruptcy court would not order consolidation of our
assets with those of the entity in bankruptcy.
No Recourse Against Hollywood Casino or Shreveport Paddlewheels--Neither
Hollywood Casino nor Shreveport Paddlewheels are obligated to make any payments
on the notes.
The completion capital agreement between Hollywood Casino and us is not a
guarantee of the notes. Furthermore, you should not expect Hollywood Casino,
Shreveport Paddlewheels or any of their respective
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affiliates, other than us and the guarantors, to participate in servicing any
of the payments due on the notes. None of Hollywood Casino, Shreveport
Paddlewheels or any of their respective affiliates, other than us and the
guarantors, has any obligation to make any payments of any kind to the holders
of the notes.
Adverse Tax Treatment--The notes will bear original issue discount, could be
classified as equity for federal income tax purposes and may be subject to
other rules which would result in the interest payments not being deductible
from our income and could affect timing, amounts and character of income
includible by holders of the notes.
The notes provide for the payment of both fixed interest and contingent
interest. Contingent interest will be calculated based on a percentage of our
cash flow. By reason of the application of certain Treasury Regulations
applicable to contingent payment debt obligations, the notes will be
considered to have been issued with original issue discount for federal income
tax purposes. As a result, a holder may be required to include amounts in
income for federal income tax purposes before the receipt of cash payments
attributable to the income. The notes and the indenture will contain terms
typically included in instruments evidencing indebtedness and are intended to
create a debtor-creditor relationship between us and the holders of the notes.
We will treat the notes as our indebtedness for federal income tax purposes.
However, this treatment is not binding on the Internal Revenue Service or any
court and we cannot guarantee that the Internal Revenue Service will not
successfully argue, or that a court will not hold, that the notes should be
treated as equity for federal income tax purposes. If any portion of the notes
is treated for federal income tax purposes as equity rather than indebtedness,
the interest on that portion of the notes would not be deductible for federal
income tax purposes. In addition, if the notes are treated as "applicable high
yield discount obligations" for federal income tax purposes, a portion of the
interest deductions on the notes may be disallowed, and the balance may be
deferred until paid in cash. The disallowance or deferral of interest
deductions for any reason could have a material adverse effect on our after-
tax cash flow and the after-tax cash flow of the guarantors to the extent that
these deductions otherwise would have reduced or eliminated our (and the
guarantors') taxable income and resulting tax liability. In addition,
(1) if any portion of the notes is treated for federal income tax
purposes as equity of a corporate issuer (e.g., equity of us if we are a
"publicly traded partnership" for federal income tax purposes or of a
guarantor), the interest payments made on that portion will be taxable
to the recipient as dividends, rather than interest, to the extent of
the corporation's, or the publicly traded partnership's, current and
accumulated earnings and profits; and
(2) if any portion of the notes is treated as equity of us and we are
not a "publicly traded partnership" for federal income tax purposes,
then, in lieu of recognizing interest income for federal income tax
purposes, the holders of that portion of the notes would be taxable on a
share of our income for federal income tax purposes. This could
adversely affect the timing, character and amounts includible in income
of a holder of notes, and may result in certain holders, such as tax-
exempt holders or non-U.S. holders, having different tax results, or,
possibly greater tax liability, than anticipated.
Land Lease Risks--The termination of the land lease for the Shreveport resort
could have an adverse effect on the notes.
The land on which the Shreveport resort will be built is subject to a lease
with the City of Shreveport that commenced on the date construction began on
the Shreveport resort and ending on the ten-year anniversary of the opening
date of the Shreveport resort, with options to renew the lease for eight
additional successive terms of five years each. The leasehold interest is
collateral for the notes. Our leasehold is subject and subordinate to the
lessor's interest in the real estate subject to the leasehold. The lease may
be terminated by the city as a result of, among other things, a default by us
under the lease, failure to commence construction by November 19, 1999 or
failure to substantially complete construction within 18 months after
commencement, subject to extension by the Louisiana Gaming Control Board. If
the City of Shreveport terminates the lease, we will lose possession of the
land subject to the lease and the improvements on the land, thereby
extinguishing
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the trustee's security interest in the lease and the improvements, as well as
making it impossible for us to operate the Shreveport resort. Moreover, the
termination of the lease for the Shreveport resort would require us to
terminate or attempt to relocate these operations, which would have a material
adverse effect on our business, financial condition, results of operations and
prospects and our ability to satisfy our obligations under the notes because we
will not be able to relocate the hotel facility and will lose any amounts
invested in the facility that are not recoverable from the City of Shreveport
as compensation.
Risk of New Venture--We have no operating history and no history of earnings.
The venture is a start-up development business. We have no history of
operations, no history of earnings and no prior experience in operating in the
Shreveport market. As a new development, the Shreveport resort will be subject
to all of the following material difficulties associated with establishing a
new business enterprise:
. hiring and retaining skilled employees;
. licensing, permitting and operating problems;
. competing with established operators;
. unanticipated structural or engineering problems with the riverboat
casino, the basin or the land-based resort facilities; and
. operating a new venture in a jurisdiction where we have not
previously conducted business.
Under the terms of the management agreement, we will rely on members of
management of HWCC-Shreveport, all of whom, with the exception of Juris Basens,
are currently executive officers of Hollywood Casino, to operate the Shreveport
resort. These individuals, with the exception of Juris Basens, have not
previously managed operations in the Shreveport market or in Louisiana. There
can be no assurance that HWCC-Shreveport will be able to successfully operate
the casino or that our operations will be profitable or generate sufficient
operating cash flow to enable us to satisfy our obligations under the notes.
Any failure to successfully operate the casino could have a material adverse
effect on our business, financial condition, results of operations and
prospects and our ability to satisfy our obligations under the notes.
Dependence Upon Single Gaming Site--Economic and competitive conditions in
Shreveport, among others, could adversely affect the Shreveport resort.
We will be entirely dependent upon the operation of the Shreveport resort to
generate all of our future cash flow. Therefore, we will be subject to the
following material risks not faced by a geographically diversified gaming
company:
. local economic and competitive conditions;
. changes in local and state governmental laws and regulations;
. natural and other disasters;
. a decline in the number of residents near or visitors to the
Shreveport market; or
. a decrease in gaming activities in the Shreveport market.
Any of the factors outlined above as well as other unforeseen factors could
have a material adverse effect on our business, financial condition, results of
operations and prospects and our ability to satisfy our obligations under the
notes.
Completion of Restaurant and Entertainment Promenade--Completion and operation
of the planned restaurant and entertainment promenade is beyond our control and
the failure to complete it or any significant delay in opening it may adversely
affect our operations.
A principal part of the Shreveport resort will be the extensive "New Orleans
style" outdoor restaurant and entertainment promenade that will contain
approximately 42,000 square feet of dining and entertainment space.
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This portion of the Shreveport resort will be adjacent to another 55,000 square
feet of restaurant, retail and entertainment space. Our business plan assumes
that the restaurant and entertainment promenade and the adjacent development
will attract additional customers to the Shreveport resort. However, we will
neither develop the restaurant and entertainment promenade nor will we develop
or own the adjacent development, and the completion of the Shreveport resort is
not contingent on their completion. The developers' ability to develop the
restaurant and entertainment promenade and adjacent development is subject to a
number of contingencies and risks, including the ability to obtain financing.
No financing has been obtained to date.
Although the developers have entered into letters of intent with several bars
and restaurants and various undertakings to effect the development of the
restaurant and entertainment promenade and adjacent development, several of
these agreements and undertakings are conditioned on various matters, including
that the developers obtain funding for the development of the project. The
developers' failure to develop the restaurant and entertainment promenade or
the adjacent development could delay the opening of the restaurant and
entertainment promenade, which could have a material adverse effect on our
business, financial condition, results of operations, and prospects and our
ability to satisfy our obligations under the notes, or require us to seek
alternative developers or develop the promenade ourself.
Competition--The Shreveport resort will compete with several other casinos in
the Shreveport market and other forms of gaming.
Upon completion of the Shreveport resort, we will compete directly with
Binion's Horseshoe, Harrah's, the Isle of Capri and Casino Magic in the
Shreveport market. We believe that these competitors have higher profile brand
names in the Shreveport market and may have greater financial resources than
us. There can be no assurance that we will be able to effectively compete
against these four established casinos, three of which have been in operation
since 1994, or that the Shreveport market is large enough to allow more than
four casinos to operate profitably. Furthermore, the Louisiana Gaming Control
Board has granted 14 of the 15 legislatively approved riverboat gaming licenses
in Louisiana. On July 20, 1999, the Louisiana Gaming Control Board announced
that it will be accepting bid proposals for the fifteenth license. The
remaining riverboat gaming license could ultimately be granted in, or one or
more of the current operators in other parts of Louisiana could relocate to,
the Shreveport market which would directly increase competition in the
Shreveport market.
The Louisiana Riverboat Economic Development and Gaming Control Act provides
that the designated gaming area shall not exceed the lesser of 60% percent of
the total square footage of the passenger access area of the vessel or 30,000
square feet at each casino. The facilities of three of the four competitors in
the Shreveport market arguably contain less than the total amount of gaming
space permitted. If these competitors were to increase the size of their
facilities, they would be able to add more gaming positions, which would
directly increase competition in the Shreveport market.
Also, we cannot assure you that we will be able to effectively compete
against any other future gaming operations that Louisiana or other authorities
may authorize in the gaming market in which the Shreveport resort will operate.
For example, in 1997, the Louisiana legislature adopted legislation permitting
up to 15,000 square feet of slot machine gaming at pari-mutuel wagering
facilities located in parishes in Louisiana that approve slot machine gaming in
a referendum election. Shortly thereafter, a referendum election was held that
approved slot machine gaming at Louisiana Downs, which is located in Bossier
City, approximately nine miles from the site of the Shreveport resort. During
the 1999 regular legislative session, the Louisiana legislature passed
legislation regarding the imposition, collection and disposition of taxes on
slot machines to be located at Louisiana Downs. We believe slot machine gaming
at Louisiana Downs could commence sometime later this year.
Casino gaming is currently prohibited in several jurisdictions adjacent to
Louisiana. As a result, we anticipate that a significant portion of our
customers will be residents of these jurisdictions, primarily Texas. Although
casino gaming is currently not permitted in Texas and the Texas Attorney
General has issued an opinion that gaming in Texas would require an amendment
to the Texas Constitution, the Texas Legislature has considered proposals to
authorize casino gaming in the past. The legalization of casino gaming in
Texas, or in other nearby jurisdictions, would have a material adverse effect
on our business, financial condition, results of operations and prospects and
our ability to satisfy our obligations under the notes.
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We will compete to a lesser extent with gaming operations in other
jurisdictions and with other forms of gaming, including lottery gaming, horse
and dog racing, as well as other forms of entertainment.
Reliance on Services under the Management Agreement and License Agreement and
Personnel of Hollywood Casino--We depend on the key personnel of Hollywood
Casino for our success and the loss of their services or increased demands on
their time could have a negative impact on us.
Hollywood Casino Personnel. HWCC-Shreveport, a wholly owned subsidiary of
Hollywood Casino, will operate the Shreveport resort under the terms of a
management agreement. The success of the Shreveport resort will be largely
dependent upon the efforts and skills of Jack E. Pratt and Edward T. Pratt III,
both of whom are executive officers of HWCC-Shreveport and are also currently
executive officers of Hollywood Casino. We have granted HWCC-Shreveport
significant independence in operating matters, including day-to-day financial
control and authority over hiring and training personnel. The loss of either of
these executives could have a material adverse effect on us. There can be no
assurance that HWCC-Shreveport will be able to hire and retain suitable
replacements if it loses any of their services.
Also, Messrs. J. Pratt and E. Pratt III will be simultaneously operating
Hollywood Casino's other properties in Aurora, Illinois and Tunica County,
Mississippi and the addition of a third property will place considerable
demands on them. Neither Hollywood Casino nor either of Messrs. J. Pratt or E.
Pratt III is required to dedicate any specific amount of time to the
development and operation of the Shreveport resort and they will be
concurrently undertaking other projects, such as potential construction of new
facilities at its Aurora casino. There can be no assurance that the time and
attention of these executives will not be diverted from time to time by the
other operational and managerial demands placed on them by Hollywood Casino.
Termination of Management Agreement and License Agreement. We are only able
to terminate the management agreement under the limited circumstances described
on page 49. As a result, we are dependent on the management of HWCC-Shreveport
for the successful operation of the Shreveport resort. If we are not satisfied
with their performance, we will be unable to terminate the management agreement
unless one of the circumstances that allows us to terminate the agreement
occurs.
If HWCC-Shreveport terminates the management agreement and the cash flow for
the Shreveport resort is in excess of $1 for the immediately preceding fiscal
quarter, we will be obligated to pay HWCC-Shreveport an amount equal to two
times the sum of the basic management fee and incentive fee for the immediately
preceding 12 months, or preceding fiscal year, as the case may be, plus any
other amounts owed to HWCC-Shreveport.
Upon termination of the management agreement for any reason, the license
agreement will also terminate and we will only be permitted to use the
Hollywood Casino trademarks and service marks for six months following the
termination. The termination of the management agreement and the loss of the
right to use the Hollywood Casino trademarks and service marks could have a
material adverse effect on our operations.
Management--Members of our management have operated a hotel and casino that
filed for bankruptcy.
Jack E. Pratt, Edward T. Pratt, Jr., William D. Pratt, Edward T. Pratt, III
and Charles F. LaFrano III, all members of our management, have been involved
in the operation of Greate Bay Hotel and Casino and PRT Funding Corp. PRT
Funding Corp. filed a petition for relief under Chapter 11 of the United States
Bankruptcy Code on May 25, 1999 and Greate Bay Hotel and Casino filed a
petition for relief under Chapter 11 of the United States Bankruptcy Code on
January 5, 1998. Greate Bay Hotel and Casino operates the Sands Hotel and
Casino in Atlantic City and was previously a wholly owned subsidiary of Greate
Bay Casino Corporation. Greate Bay Casino Corporation was previously an
approximately 80% owned subsidiary of Hollywood Casino until its capital stock
was issued as a dividend to Hollywood Casino's stockholders in 1996. The Pratt
family currently owns approximately 36% of Greate Bay Casino Corporation, which
has an indirect 79% ownership interest in, but no operating or management
control of Greate Bay Hotel and Casino. In addition, Jack E. Pratt,
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Edward T. Pratt, Jr. and William D. Pratt currently own another entity which
holds the remaining 21% indirect ownership interest in Greate Bay Hotel and
Casino.
Difficulty in Attracting and Retaining Qualified Employees--We will face
difficulties in attracting and retaining qualified employees for the casino.
The operation of the Shreveport resort will require qualified executives,
managers and a number of skilled employees with gaming industry experience and
qualifications to obtain the requisite riverboat gaming licenses. Currently,
there is a shortage of skilled labor in the gaming industry in general. We
believe this shortage will make it increasingly difficult and expensive to
attract and retain qualified employees, a situation which will be more acute in
the Shreveport market where four other casinos are currently operating.
Moreover, in connection with obtaining Harrah's consent and agreement to
operating adjacent to its facility, we agreed that we would not hire any
Harrah's employees for 180 days after commencing casino operations.
Consequently, we may incur higher labor costs to attract a sufficient number of
qualified gaming employees from existing gaming operations in the Shreveport
market. When we are operating at full capacity, we expect to employ
approximately 1,700 persons.
Regulatory Compliance--We and our affiliates must adhere to various
regulations.
We and the guarantors are subject to a variety of regulations in Louisiana.
If current interpretations of gaming laws and regulations are modified, or if
additional gaming regulations are adopted, operational requirements, costs and
other restrictions could be imposed on us and the guarantors, any one or more
of which could have a material adverse effect on us. From time to time, various
proposals have been introduced in the Louisiana legislature that, if enacted,
would affect the tax, regulatory, operational or other aspects of the gaming
industry. There can be no assurance that any proposed legislation will not be
enacted and, if enacted, the effect that the legislation would have on our
business, financial condition, results of operations and prospects and our
ability to satisfy our obligations under the notes.
Licenses--We and our affiliates must maintain licenses to continue casino
operations.
Hollywood Casino, HWCC-Shreveport, HWCC-Louisiana, HCS I, HCS II, Shreveport
Paddlewheels and Hollywood Casino Shreveport, as well as some of their
respective key employees and other parties engaging in activities related to
the casino, including the disbursement agent, are required to obtain and hold
various licenses, permits and approvals in Louisiana. The failure to obtain or
retain any of these licenses, permits or approvals in Louisiana, such as the
riverboat gaming license, could have a material adverse effect on our ability
to operate the Shreveport resort. Generally, regulatory authorities have broad
discretion in granting, conditioning, renewing, suspending and revoking
licenses, permits and approvals.
In some circumstances, the suspension or revocation of a gaming license in
one jurisdiction may trigger the suspension or revocation of a license or
affect eligibility for a license in another jurisdiction and we could
accordingly be adversely affected by regulatory actions in other jurisdictions
directed principally at Hollywood Casino or its subsidiaries or its employees.
Gaming Taxes--Any increase in federal, Louisiana or Shreveport taxes could have
a negative impact on us.
From time to time, various legislators have proposed the imposition of a
federal tax on gross gaming revenues. In March 1996, tax legislation was
introduced in Congress which included a proposal to impose a 15% federal tax on
taxable gaming services, defined as gross gaming receipts less total gaming
payoffs. Although no action has been taken on this legislation, we cannot
assure you that this tax or any similar tax will not be imposed in the future.
In addition, we will be subject to an 18.5% tax on net gaming proceeds and
other fees in Louisiana, as well as normal federal and state income taxes, and
these taxes and fees are subject to increase at any time. The introduction of
new taxes or the increase in the rates of existing taxes could have a material
adverse effect on our business, financial condition, results of operations and
prospects and our ability to satisfy our obligations under the notes.
19
<PAGE>
Anti-Gaming Initiatives--Anti-gaming initiatives have been proposed in
Louisiana in the past.
The regulatory environment in Louisiana may change in the future and any
change could have a material adverse effect on our results of operations. In
1996, the State of Louisiana adopted a statute in connection with which votes
were held locally where gaming operations were conducted and which, had the
continuation of gaming been rejected by the voters, might have resulted in the
termination of operations at the end of their current license terms. All
parishes where riverboat gaming operations are currently conducted voted to
continue gaming, but there can be no guarantee that similar referenda might not
produce unfavorable results in the future. Proposals to amend or supplement the
Louisiana Riverboat Economic Development and Gaming Control Act are frequently
introduced in the Louisiana State legislature. In addition, the State
legislature, from time to time, considers proposals to repeal the act. If these
proposals were approved or if legislation were enacted prohibiting gaming in
Louisiana, it would have a material adverse effect on our business, financial
condition, results of operations and prospects and our ability to satisfy our
obligations under the notes.
Business Interruptions--We may temporarily lose the service of the casino.
Our profitability is dependent upon the continued operations of the riverboat
casino. Any temporary closure of the riverboat casino would negatively impact
our profitability. The riverboat casino could be lost from service for a number
of reasons, including casualty, forces of nature or extended or extraordinary
maintenance or inspection. The vessel will be subject to U.S. Coast Guard
regulations requiring periodic hull inspections every three to five years,
which could result in a temporary loss from service of the vessel. Also, a
flood or severe weather conditions could adversely affect gaming operations.
Moreover, floods or severe weather could cause substantial damage to the area
surrounding our facility which could temporarily reduce access to the casino.
Upon completion of the Shreveport resort, we will maintain business
interruption insurance on our operations in amounts we consider adequate, but
there an be no assurance that we will be able to maintain this insurance in the
future in sufficient amounts on commercially reasonable terms, or at all. An
extended loss of service of the casino would have a material adverse effect on
our business, financial condition, results of operations and prospects and our
ability to meet our obligations under the notes.
Gaming Redemptions--You may be required to dispose of your notes or redeem your
notes if any gaming authority finds you unsuitable to hold them.
If any gaming authority requires that a person who is a holder or the
beneficial owner of a note be licensed, qualified or found suitable under any
applicable gaming law, the holder or beneficial owner, as the case may be, will
be required to apply for a license, qualification or finding of suitability
within the time period required by the gaming authority. If the holder or
beneficial owner fails to apply for the license, qualification or finding of
suitability within the required time period, the holder or beneficial owner, as
the case may be, will be required to dispose of its notes within the time
specified by the gaming authority and we will have the right to redeem the
notes of the holder or beneficial owner, subject to approval of any applicable
gaming authority, at the least of:
(1) the principal amount of the notes;
(2) the amount that the holder or beneficial owner paid for the notes; or
(3) the fair market value of the notes.
Immediately upon the imposition of a requirement to dispose of notes by a
gaming authority, the holder or beneficial owner of the notes will, to the
extent required by applicable law, have no further right:
(1) to exercise, directly or indirectly, through any trustee or nominee
or any other person or entity, any right conferred by the notes; or
(2) to receive any interest, dividends, economic interests or any other
distributions or payments with respect to the notes or any remuneration in
any form with respect to the notes from us or the trustee.
20
<PAGE>
Any holder or beneficial owner of notes that is required to apply for a
license, qualification or finding of suitability must pay all fees and costs of
any investigation by the applicable gaming authorities. We will notify the
trustee in writing of any redemption as soon as is practicable. The trustee
will be required to report the names of the record holders of the notes to any
gaming authority when required by law.
Change of Control--We may not have the ability to raise the funds necessary to
finance the change of control offer required by the indenture.
If a change of control were to occur, we may be required to make an offer to
purchase all of the outstanding registered notes at a price equal to 101% of
their principal amount, plus accrued and unpaid interest and liquidated
damages, if any, to the date of purchase. There can be no assurance that we
would have enough funds to pay for all of the notes that are tendered under the
offer to purchase. If we were required to purchase the notes, we would in all
likelihood require third party financing. However, we cannot assure you that we
would be able to obtain financing on acceptable terms, if at all. The failure
to comply with the indenture's requirements with respect to change of control
events will constitute an event of default under the indenture. If a default
under the indenture occurs, the indebtedness under the notes could be
accelerated and we would likely be forced to seek protection under the United
States bankruptcy laws. The specific events of defaults and related remedies
are described under "Description of the Registered Notes--Events of Default and
Remedies."
Fraudulent Conveyance--Federal and state statutes allow courts, under specific
circumstances, to void guarantees or other debt and require noteholders to
return payments received from guarantors or debtors.
Under applicable provisions of the United States Bankruptcy Code or
comparable provisions of state fraudulent transfer laws, guarantees or other
debt obligations could be voided, or claims in respect of guarantees or debt
obligations could be subordinated to all other debts of that guarantor or
debtor if, among other things, the guarantor or debtor, at the time it incurred
the indebtedness evidenced by its guarantees or debt obligations, incurred the
indebtedness with the intent to hinder, delay or defraud creditors or received
less than reasonably equivalent value or fair consideration for the incurrence
of the guarantees or debt and:
. was insolvent;
. was rendered insolvent by reason of the incurrence;
. was engaged in a business or transaction for which the guarantor's or
debtor's remaining assets constituted unreasonably small capital; or
. intended to incur, or believed that it would incur, debts beyond its
ability to pay as they mature.
In this event, any payment by a guarantor or debtor in connection with the
guarantees or debt obligations could be voided and required to be returned to
the guarantor or debtor or to a fund for the benefit of the creditors of that
guarantor or debtor.
The measures of insolvency for purposes of these fraudulent transfer laws
vary depending upon the law applied to determine whether a fraudulent transfer
has occurred. Generally, however, a guarantor or debtor would be considered
insolvent if:
. the sum of its debts, including contingent liabilities, were greater
than the fair saleable value of all of its assets;
. the present fair saleable value of its assets were less than the
amount that would be required to pay the probable liability on its
existing debts, including contingent liabilities, as they become
absolute and mature; or
. it could not pay its debts as they came due.
On the basis of our and HWCC-Louisiana's historical information, ours and the
guarantors' equity capitalizations and other factors, we and the guarantors
believe that we will not be insolvent, will not have
21
<PAGE>
unreasonably small capital for the business in which we are engaged and will
not have incurred debts beyond our ability to pay as our debts mature. We
cannot assure you what standard a court would apply in making its determination
or that a court would agree with our and the guarantors' conclusions.
Lack of Public Market--You cannot be sure that an active trading market will
develop for the registered notes.
The registered notes are a new issue of securities for which there is no
established market. The registered notes will not be listed on any securities
exchange, although the registered notes initially will be eligible for trading
in the PORTAL Market. If the registered notes are traded after their initial
issuance, they may trade at a discount from their initial offering price,
depending upon prevailing interest rates, the market for similar securities,
our performance and other factors. The initial purchasers have advised us that
they intend to make a market in the registered notes, as permitted by
applicable laws and regulations; however, the initial purchasers are not
obligated to make a market in the registered notes, and they may discontinue
their market making activities at any time without notice. Therefore, we cannot
assure you that an active market for the registered notes will develop or, if
developed, that it will continue.
Failure to Exchange Original Notes--You may suffer adverse consequences if you
fail to exchange your original notes.
If you do not exchange your original notes for registered notes in connection
with the exchange offer, you will continue to be subject to the provisions of
the indenture regarding transfer and exchange of the original notes and the
restrictions on transfer of the original notes. In general, the original notes
may not be offered or sold, unless registered under the Securities Act and
applicable state securities laws. We do not currently intend to register the
original notes.
22
<PAGE>
USE OF PROCEEDS
We will not receive any cash proceeds from the exchange of the original notes
for registered notes. In consideration for issuing the registered notes as
contemplated in this prospectus, we will receive in exchange original notes in
like principal amount, which will be cancelled and as such will not result in
any increase in our indebtedness.
The net proceeds from the offering of the original notes were $145.7 million.
The net proceeds were deposited in the cash collateral accounts as follows: (1)
$113.4 million was deposited into a construction disbursement account and will
be used to partially fund the development, construction and opening of the
Shreveport resort; (2) $27.3 million was deposited into an interest reserve
account and will be used to purchase an amount of government securities
sufficient to pay the first three payments of fixed interest on the notes; and
(3) $5.0 million was deposited into a completion reserve account to be held as
a reserve in case there are insufficient funds in the construction disbursement
account to complete the Shreveport resort.
Hollywood Casino previously contributed an aggregate of $50.0 million in
equity to HWCC-Louisiana, which in turn contributed it indirectly to us for the
development and construction of the Shreveport resort. Approximately $5.3
million was spent on the project before the offering of the original notes and
the remaining $44.7 million was deposited in an equity escrow account. The
disbursement of funds from the construction disbursement account will be
subject to the satisfaction of other conditions contained in the disbursement
agreement. Pending their disbursement, the proceeds in the cash collateral
accounts will be invested in government securities. See the section entitled
"Description of the Registered Notes--Cash Collateral and Disbursement
Agreement" for more information.
We have a binding commitment from Bank of America NT&SA and BA Leasing &
Capital Corporation to obtain $30.0 million in financing for furniture,
fixtures and equipment.
In August 1999 we made a $5.0 million payment to the City of New Orleans in
connection with the settlement of tax claims.
The following table shows the sources and uses of the proceeds from the
offering of the original notes (in millions):
<TABLE>
<CAPTION>
Sources
-------
<S> <C>
First Mortgage Notes.............. $150.0
Financing for furniture, fixtures
and equipment.................... 30.0
Equity contribution............... 50.0
------
TOTAL........................... $230.0
======
</TABLE>
<TABLE>
<CAPTION>
Uses
----
<S> <C>
Construction costs............... $104.1
Furniture, fixtures and
equipment....................... 42.4
Design, engineering and project
management ..................... 9.1
Contingency/completion reserve
account......................... 26.4
Working capital and preopening
expenses(1)..................... 11.0
Net interest expense(2).......... 24.9
License payment.................. 5.0
Estimated financing fees and
expenses........................ 7.1
------
TOTAL.......................... $230.0
======
</TABLE>
- --------
(1) Includes preopening costs, opening bankroll and general working capital.
(2) Includes pre-funding of three payments of fixed interest on the registered
notes and one quarterly interest payment on the furniture, fixtures and
equipment financing and is net of estimated interest income to be earned on
cash deposited in the cash collateral accounts.
23
<PAGE>
CAPITALIZATION
The following table shows our cash position and capitalization as of December
31, 1999. The information regarding long-term debt does not give effect to
approximately $30 million of furniture, fixtures and equipment financing that
we will incur during the construction of the Shreveport resort. HWCC-Louisiana
has loaned Shreveport Paddlewheels $1.0 million, which Shreveport Paddlewheels
contributed as $1.0 million in equity to us. Shreveport Paddlewheels received
credit for an additional $1.0 million capital contribution in return for
guarantees provided by New Orleans Paddlewheels. See the discussion under the
section entitled "Material Contracts--Joint Venture Agreement of Hollywood
Casino Shreveport". The information provided below should be read in
conjunction with our financial statements, together with the related notes to
the financial statements, included elsewhere in this prospectus.
<TABLE>
<CAPTION>
As of December 31, 1999
-----------------------
(in thousands)
<S> <C>
Cash and cash equivalents
(including restricted cash).. $166,324
========
Long-term debt
First Mortgage Notes........ $150,000
Other(1).................... 1,759
--------
Total long-term debt........ 151,759
--------
Partners' capital--
Partners' capital
contributions.............. 50,000
Accumulated deficit during
the development stage...... (4,330)
--------
Total partners' capital... 45,670
--------
Total capitalization.... $197,429
========
</TABLE>
- --------
(1) Consists of what was originally a $2.0 million contingent obligation to
Hilton New Orleans incurred in connection with the relocation of our
license from New Orleans to Shreveport, net of a discount of $241,000. This
obligation will be paid upon the earlier of the termination of construction
of the Shreveport resort or in monthly installments of $200,000 commencing
with the opening of the Shreveport resort.
24
<PAGE>
SELECTED FINANCIAL INFORMATION
The following selected financial information of Hollywood Casino Shreveport
for the year ended December 31, 1999, for the period from September 22, 1998
through December 31, 1998, for the period from January 1, 1998 through
September 21, 1998 and for the year ended December 31, 1997 and of HWCC-
Louisiana, Inc. for each of the three years in the period ended December 31,
1999 are derived from the audited financial statements. The following selected
financial information of Hollywood Casino Shreveport and of HWCC-Louisiana,
Inc. for the years 1996 and 1995, are derived from their unaudited financial
statements and, in our opinion, include the normal recurring entries necessary
for a fair presentation of the information. Selected financial information for
Sodak Louisiana is not presented below as its only significant operating
activity was its equity in the losses of what was then QNOV and its only
significant asset was its investment in what was then QNOV. On April 23, 1999,
HWCC-Louisiana acquired Sodak Louisiana and its interest in what was then QNOV.
Accordingly, for periods after April 23, 1999, HWCC-Louisiana's balance sheet
and statement of operations data is presented on a consolidated basis including
Sodak Louisiana and Hollywood Casino Shreveport.
The ownership of Hollywood Casino Shreveport was transferred on September
22, 1998, and since then it has been in the development stage with respect to
the Shreveport resort. Under its previous owners, Hollywood Casino Shreveport
(then known as QNOV) operated a riverboat casino in New Orleans until October
1997. From October 1997 until September 21, 1998, QNOV had no operations and
was seeking new owners. HWCC-Louisiana was formed in April 1993 and its
operations have related solely to acquiring a gaming license to develop and own
a riverboat casino in Louisiana. HWCC-Louisiana incurred costs associated with
its unsuccessful efforts to obtain licenses in Lake Charles and Bossier City,
Louisiana. Costs relating to the proposed Bossier City project amounted to
$25,000 during the first half of 1998 and $12,000 (net of a $15,000 gaming
license application refund) during 1998, $558,000 during 1997, $47,000 during
1996 and $384,000 during 1995. HWCC-Louisiana's principal activities are to act
as a holding company.
The following financial information should be read in conjunction with the
text under the heading "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and HWCC-Louisiana's and Sodak Louisiana's
financial statements and unaudited quarterly financial statements and the notes
relating to those financial statements included in this prospectus.
25
<PAGE>
HOLLYWOOD CASINO SHREVEPORT AND SUBSIDIARY
<TABLE>
<CAPTION>
Period from Period from
September 22, January 1,
Year Ended 1998 through 1998 through Year Ended December 31,
December 31, December 31, September 21, --------------------------------------
1999 1998 1998 1997 1996 1995
------------ ------------- ------------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues:
Casino.................. $ -- $ -- $ -- $45,803,000 $ 65,941,000 $69,059,000
Beverage................ -- -- -- 2,904,000 4,103,000 4,368,000
Other................... -- -- 89,000 1,664,000 2,920,000 2,569,000
------------ ----------- ---------- ----------- ------------ -----------
-- -- 89,000 50,371,000 72,964,000 75,996,000
Less promotional
allowances............. -- -- -- (2,916,000) (4,111,000) (4,301,000)
------------ ----------- ---------- ----------- ------------ -----------
Net revenues............ -- -- 89,000 47,455,000 68,853,000 71,695,000
------------ ----------- ---------- ----------- ------------ -----------
Expenses:
Departmental............ -- -- 76,000 22,888,000 33,360,000 35,478,000
Admission fees.......... -- -- -- 6,432,000 9,323,000 9,787,000
Property operations..... -- -- 155,000 6,989,000 11,029,000 10,496,000
Vessel rent............. -- -- (21,000) 2,827,000 4,516,000 --
General and
administrative......... -- -- 986,000 2,468,000 3,699,000 3,207,000
Management fees......... -- -- -- 2,519,000 3,622,000 3,774,000
Development and
preopening............. 991,000 90,000 -- -- -- --
Write down of assets.... -- -- -- -- 12,200,000 --
License transfer costs.. -- -- -- -- 10,500,000 --
Depreciation and
amortization........... 295,000 -- -- 1,547,000 2,866,000 5,347,000
------------ ----------- ---------- ----------- ------------ -----------
Total expenses......... 1,286,000 90,000 1,196,000 45,670,000 91,115,000 68,089,000
------------ ----------- ---------- ----------- ------------ -----------
(Loss) income from
operations............. (1,286,000) (90,000) (1,107,000) 1,785,000 (22,262,000) 3,606,000
------------ ----------- ---------- ----------- ------------ -----------
Nonoperating (expense)
income:
Interest income......... 3,644,000 55,000 241,000 583,000 -- --
Interest expense, net of
capitalized interest of
$1,052,000 in 1999..... (6,653,000) -- (50,000) (88,000) (687,000) (3,378,000)
Gain on sale of vessel.. -- -- -- -- 8,524,000 --
------------ ----------- ---------- ----------- ------------ -----------
Total nonoperating
(expense) income....... (3,009,000) 55,000 191,000 495,000 7,837,000 (3,378,000)
------------ ----------- ---------- ----------- ------------ -----------
Net (loss) income before
extraordinary item..... (4,295,000) (35,000) (916,000) 2,280,000 (14,425,000) 228,000
Extraordinary item-loss
from early
extinguishment of
debt................... -- -- -- -- (1,005,000) --
------------ ----------- ---------- ----------- ------------ -----------
Net (loss) income....... $ (4,295,000) $ (35,000) $ (916,000) $ 2,280,000 $(15,430,000) $ 228,000
============ =========== ========== =========== ============ ===========
Ratio of earnings to
fixed charges (1)...... -- -- -- 2.22 X -- 1.04 X
<CAPTION>
1999 1998 1997 1996 1995
------------ ------------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets............ $216,979,000 $10,691,000 $6,438,000 $22,572,000 $ 64,324,000
Long-term debt.......... 151,759,000 - - - 36,944,000
Partners' capital
(deficiency)........... 45,670,000 4,965,000 (6,218,000) (4,534,000) 16,896,000
</TABLE>
- --------
(1) For the purposes of computing the ratio, "earnings" represents losses
before taxes plus fixed charges exclusive of capitalized interest, and
"fixed charges" consists of interest, whether expensed or capitalized,
amortization of debt expense and, where applicable, an estimated portion of
rentals representing interest costs. Earnings were not sufficient to cover
fixed charges by $5,347,000 for the year ended December 31, 1999, by
$35,000 for the period from September 22, 1998 through December 31, 1998,
by $916,000 for the period from January 1, 1998 through September 21, 1998
and by $14,425,000 for the year ended December 31, 1996.
26
<PAGE>
HWCC-LOUISIANA, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------
1999 (1) 1998 1997 1996 1995
----------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Development expenses......... $(1,024,000) $(39,000) $(644,000) $(47,000) $(384,000)
General and administrative
expenses.................... (10,000) -- -- -- --
Amortization expense......... (295,000) -- -- -- --
Interest expense, net of
capitalized interest of
$1,052,000 in 1999.......... (6,653,000) -- -- -- --
Interest income.............. 3,701,000 -- -- -- --
----------- -------- --------- -------- ---------
Loss before taxes and other
items....................... (4,281,000) (39,000) (644,000) (47,000) (384,000)
Provision for taxes.......... -- -- -- -- --
Pre-acquisition losses....... 12,000 -- -- -- --
Equity in losses of Hollywood
Shreveport Casino........... -- (17,000) -- -- --
----------- -------- --------- -------- ---------
Net loss..................... $(4,269,000) $(56,000) $(644,000) $(47,000) $(384,000)
=========== ======== ========= ======== =========
Ratio of earnings to fixed
charges(2).................. -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
---------------------------------------------------------
1999 (1) 1998 1997 1996 1995
------------ ---------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets............ $219,428,000 $2,705,000 $ 42,000 $ 47,000 $ 1,000
Long-term debt.......... 151,359,000 -- -- -- --
Shareholder's equity
(deficit).............. 46,000,000 1,369,000 (1,075,000) (431,000) (384,000)
</TABLE>
- --------
(1) Consolidated to include the results of operations and balance sheet data of
Hollywood Casino Shreveport. Losses of Sodak Louisiana, L.L.C. from its
equity interest in Hollywood Casino Shreveport for the period prior to its
April 23, 1999 acquisition by HWCC-Louisiana, Inc. are presented as pre-
acquisition losses and reduce the consolidated net loss of HWCC-Louisiana,
Inc.
(2) Earnings were not sufficient to cover fixed charges by $5,321,000 $39,000
$644,000, $47,000 and $384,000 for the years ended December 31, 1999,1998,
1997, 1996 and 1995, respectively.
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following should be read in conjunction with our financial statements and
the notes relating to those statements included in this prospectus.
Forward Looking Statements
This discussion and analysis, as well as portions of this prospectus that
describe our future business plans and construction schedule, contain forward-
looking statements about our financial condition, results of operations and
business. You can find many of these statements by looking for words like
"believes," "expects," "anticipates," "estimates," "intends," "may," "will,"
"could," "pro forma," or similar expressions used in this prospectus. These
forward-looking statements are subject to numerous assumptions, risks and
uncertainties, including, among other things, those discussed above.
All forward-looking statements speak only as of the date of this prospectus.
Because these statements are subject to risks and uncertainties, actual results
may differ materially from those expressed or implied by the forward-looking
statements. You are cautioned to consider these statements accordingly, which
speak only as of the date of this prospectus.
We do not undertake any responsibility to release publicly any revisions to
these forward-looking statements to take into account events or circumstances
that occur after the date of this prospectus. Additionally, we do not undertake
any responsibility to update you on the occurrence of any unanticipated events
which may cause actual results to differ from those expressed or implied by the
forward-looking statements contained in this prospectus.
History and Development Activities
A predecessor to Hilton New Orleans Corporation and New Orleans Paddlewheels
Inc. formed a joint venture in 1992 under the name "Queen of New Orleans at the
Hilton Joint Venture" which operated a riverboat casino in downtown New Orleans
until October 1997, when it discontinued all gaming operations. Before
discontinuing operations, the joint venture obtained approval from the
Louisiana Gaming Control Board in October 1996 to relocate the riverboat
license to downtown Shreveport.
Subsequent to receiving approval to relocate the license, the joint venture
made the decision not to conduct gaming operations in Shreveport. The partners
of the joint venture sought to transfer the license to operate in Shreveport to
another interested party. Under Louisiana gaming regulations, the license to
operate a riverboat gaming operation is not transferable; however, the
ownership of an entity holding such a license is transferable, subject to the
approval of the Louisiana Gaming Control Board. Accordingly, the acquisition by
HWCC-Louisiana, Sodak Louisiana and Shreveport Paddlewheels, L.L.C. of the
license to operate in Shreveport was structured as an acquisition of the
interests of the joint venture's partners. The joint venture discontinued its
riverboat casino operations in New Orleans in October 1997 while it continued
negotiations to transfer its interests to a new group of partners. The joint
venture liquidated its assets other than its license to operate and satisfied
all but one of its obligations so that when its partners withdrew on September
22, 1998 transferring their interests to our new partners, its only remaining
asset was the license to operate in Shreveport, its only liability was a $5.0
million obligation to the City of New Orleans (see below) and all equity
accounts of the existing partners were reduced to a zero balance.
When the former joint venture partners proposed moving to Shreveport, they
negotiated a settlement with the City of New Orleans to pay $10.0 million with
respect to claims asserted by the City in connection with the relocation. This
settlement was expensed by the joint venture in 1997 and was to be paid after
opening in Shreveport. When the former joint venture partners decided not to
relocate to Shreveport, the status of the obligation became uncertain. During
September 1998, our new partners entered into a Compromise Agreement with the
former joint venture partners and the City of New Orleans under which it was
agreed that Hilton New Orleans
28
<PAGE>
would pay $5.0 million to the City with the joint venture being released from
any further relocation claims. Hilton New Orleans' payment was reflected as a
capital contribution prior to the withdrawal of the former joint venture
partners. As part of the Compromise Agreement, we agreed to pay the City of New
Orleans $5.0 million upon securing financing for our new riverboat casino in
Shreveport. In the event financing was not obtained, we would not be required
to make any payment. We also contingently agreed to reimburse $2.0 million of
the amount Hilton New Orleans paid to the City of New Orleans commencing with
the opening of the Shreveport resort or if construction of the Shreveport
resort were to be terminated.
Upon obtaining their ownership interests, each of HWCC-Louisiana and Sodak
Louisiana made capital contributions to us of $2.5 million consisting of a
combination of cash and deemed contributions of capital expenditures made in
connection with the Shreveport resort prior to September 1998. Since September
1998, we have been in a development stage, initially engaged in and arranging
for the design, preliminary site work, construction and financing of and, since
August 1999, constructing our new riverboat casino resort to operate in
Shreveport.
HWCC-Louisiana was formed in April 1993 and its operations have related
solely to acquiring a gaming license to develop and own a riverboat casino in
Louisiana. Hollywood Casino and certain of its subsidiaries historically
provided services to HWCC-Louisiana and paid direct costs on behalf of HWCC-
Louisiana, primarily related to the unsuccessful efforts to obtain licenses in
Lake Charles and Bossier City, Louisiana. Since the last quarter of 1997, HWCC-
Louisiana's operations have related primarily to the design, preliminary site
work, construction and financing of the Shreveport resort. Until September
1998, when HWCC-Louisiana acquired the partnership interest in QNOV, HWCC-
Louisiana either expensed or capitalized its historical development costs as
appropriate and recorded an intercompany liability to Hollywood Casino. In
April 1999, Hollywood Casino made a capital contribution to HWCC-Louisiana of
$1.4 million, the proceeds of which were used by HWCC-Louisiana to repay the
$1.4 million of accumulated intercompany liabilities.
On March 31, 1999, HWCC-Louisiana entered into an agreement with Sodak Gaming
to acquire Sodak Louisiana and its partnership interest in QNOV for the $2.5
million Sodak Louisiana had previously contributed to QNOV. HWCC-Louisiana paid
$1,000 on April 23, 1999 at the closing of the acquisition, with the remainder
to be paid on a contingent basis six months after the opening of the Shreveport
resort. The acquisition was accounted for under the purchase method of
accounting. Until such time as the opening of the Shreveport resort becomes
more certain, the contingent portion of the purchase price has not been
recorded as a liability. This $2,499,000 represents the difference between the
amount Sodak Louisiana spent on the Shreveport resort ($2.5 million) and the
amount HWCC-Louisiana paid to obtain their joint venture interest ($1,000). By
not recording the liability, HWCC-Louisiana is treating this difference as a
reduction to reflect its costs to date in the Shreveport resort. Effective as
of the April 23, 1999 closing, Sodak Louisiana became a consolidated subsidiary
of HWCC-Louisiana. In July 1999, Sodak Louisiana was merged into HWCC-Louisiana
and the name of QNOV was changed to Hollywood Casino Shreveport.
Also, in July 1999, HWCC-Louisiana formed two subsidiaries, HCS I and HCS II,
and contributed $1,000 of capital to each entity, along with 99% of its
interest in us to HCS I and its remaining 1% interest in us to HCS II.
Collectively, HCS I and HCS II will be allocated 100% of our profits and
losses. HCS I is our managing general partner. Shreveport Paddlewheels is our
third partner and its interest in us is a residual interest entitling it to 10%
of the net proceeds of a sale or disposition of us by HCS I and HCS II after
payment of outstanding debt and the return of contributed capital. As a result
of our September 1998 reconstitution, Shreveport Paddlewheels is entitled to
receive a payment equal to approximately 1% of our net revenues which
terminates upon the occurrence of an event giving rise to an obligation to pay
Shreveport Paddlewheels' 10% residual interest. In addition, under a marine
services agreement, Shreveport Paddlewheels will be entitled to receive a fee
equal to $360,000 per year for so long as Shreveport Paddlewheels or its
affiliate has a joint venture interest in us. In addition, Shreveport
Paddlewheels is entitled to receive an amount equal to the appraised value of
its future fees under the marine services agreement if an event occurs that
gives rise to payment of Shreveport Paddlewheels' 10% residual interest. Upon
payment of the appraised value and residual interest, Shreveport Paddlewheels
will no longer be entitled to any future amounts.
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Additionally, in July 1999, we formed a new, wholly owned subsidiary,
Shreveport Capital. We contributed $1,000 of capital to Shreveport Capital.
Shreveport Capital was formed for the sole purpose of being a co-issuer with
respect to the original notes.
Through December 31, 1999, Hollywood Casino Shreveport has expended
approximately $34.8 million in connection with the development of the
Shreveport resort.
Results of Operations
Our previous owners were, until October 1997, engaged in the operation of a
riverboat casino in New Orleans. From that time until September 21, 1998, they
were completing negotiations to transfer their ownership interests in us to new
partners. Since September 22, 1998, our new partners have been engaged in
designing, securing financing for and constructing the Shreveport resort.
Because the New Orleans operations were in a different geographic market, with
different management, utilizing a different theme and with only limited
ancillary facilities, the results of operations prior to September 22, 1998 are
not relevant to and have the potential to materially mislead investors with
respect to future operations to be conducted in Shreveport. Accordingly,
management's discussion of the results of operations will be divided into two
sections: (1) Hollywood Casino Shreveport/HWCC-Louisiana for the development
period subsequent to September 22, 1998 and (2) New Orleans operations with
respect to the period prior to September 22, 1998.
Hollywood Casino Shreveport. We have incurred a total of $1.1 million of
development and preopening costs in connection with the Shreveport resort,
including $991,000 during 1999 and $90,000 during 1998. During 1999, such costs
consisted primarily of salaries, legal and professional fees and licensing
costs. During 1998, such costs primarily related to community relations
activities and organizational costs. In August 1999, we issued the original
notes. As a result, we incurred $6.7 million of interest expense, net of
capitalized interest of $1.1 million, during the year ended December 31, 1999.
Deferred financing costs of $5.2 million were incurred in connection with the
debt offering resulting in $293,000 of amortization expense during 1999.
Unexpended proceeds from the debt offering and from $45.0 million in capital
contributions by HWCC-Louisiana and Shreveport Paddlewheels during 1999
generated interest income of $3.6 million during 1999 compared with $55,000
during the period from September 22, 1998 through December 31, 1998.
HWCC-Louisiana. HWCC-Louisiana is a guarantor of the notes. Before October
1997, HWCC-Louisiana engaged in development activities related to obtaining
gaming licenses in Lake Charles and Bossier City, Louisiana. Since October
1997, HWCC-Louisiana's operations have related primarily to the acquisition of
the partnership interests in Hollywood Casino Shreveport and winding up its
efforts in Bossier City, and in the future it will act solely as a holding
company. Therefore, a comparison of the results of operations for HWCC-
Louisiana with respect to development activities in connection with the
abandoned projects is not meaningful and is not presented. HWCC-Louisiana's
total expenses with respect to the abandoned projects were approximately $1.0
million through December 31, 1998.
Costs incurred by HWCC-Louisiana in connection with the Shreveport resort
amounted to $49,000 during 1999, $27,000 during 1998 and $86,000 during 1997.
The 1999 costs are exclusive of those we incurred which are now included in
HWCC-Louisiana's consolidated results of operations. These costs consist
primarily of professional fees, travel and reimbursements to Hollywood Casino
and its subsidiaries for the use of their personnel. HWCC-Louisiana also
incurred general and administrative expenses of $10,000 during 1999. The
preopening and general and administrative costs were more than offset by
interest income earned on advances and temporary cash investments amounting to
$74,000 during 1999.
During the year ended December 31, 1998, HWCC-Louisiana recorded a loss of
$17,000 with respect to its equity interest in Hollywood Casino Shreveport,
representing one-half of the total losses experienced by Hollywood Casino
Shreveport for that period. As previously discussed, HWCC-Louisiana acquired
Sodak Louisiana's interest in us on April 23, 1999 and is now reflecting our
earnings and losses on a consolidated basis.
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New Orleans Operations. During the period from January 1, 1998 through
September 21, 1998, our previous owners were in the process of negotiating the
sale of their interests in us to HWCC-Louisiana and Sodak Louisiana. Operating
costs during this 1998 period consisted primarily of general and administrative
costs of $986,000 including salaries and legal and professional fees associated
with the efforts to transfer the ownership interests in us. Property operations
costs during the 1998 period amounted to $155,000 and included costs associated
with leased office space, utilities and maintenance for the leased vessel.
Interest income amounting to $241,000 was earned primarily on funds escrowed
toward the joint venture's payment of obligations to the City of New Orleans.
The interest income was partially offset by interest expense of $50,000 owing
to a joint venture partner in connection with termination costs of the joint
venture's docking site lease.
The joint venture operated its riverboat casino in New Orleans until October
1997. For the fiscal year 1997, the joint venture earned net revenues of $47.5
million and incurred operating expenses of $45.7 million, resulting in income
from operations of $1.8 million. Net interest income of $495,000 primarily
earned on temporary cash investments also contributed toward a net income
during 1997 of $2.3 million.
Liquidity and Capital Resources
As currently planned, the Shreveport resort will consist of a riverboat
casino with approximately 1,370 slot machines and 75 table games, a 405-room,
all suite, art deco style hotel, and approximately 42,000 square feet of
restaurant and entertainment facilities. Construction of the Shreveport resort
is expected to be completed in early November 2000. We are using the $150.0
million in proceeds from the August 1999 original offering of the original
notes, together with the $50.0 million of capital contributions to us and $30.0
million in furniture, fixture and equipment financing to provide the estimated
$230.0 million needed to develop, construct, equip and open the Shreveport
resort. The $230.0 million estimated cost includes financing costs and the $5.0
million payment made in August 1999 to the City of New Orleans related to
moving the license to Shreveport. On July 16, 1999, we entered into a binding
commitment with Bank of America NT&SA and BA Leasing & Capital Corporation to
obtain the $30.0 million in financing for furniture, fixtures and equipment.
The funds provided by these sources are expected to be sufficient to develop
and commence operations of the Shreveport resort and to provide a reserve for
the first three scheduled payments of fixed interest on the notes, including
the interest payment made on February 1, 2000. The net proceeds of the original
offering were deposited into a construction disbursement account, an interest
reserve account and a completion reserve account. The proceeds in the interest
reserve account were invested in U.S. government securities that mature just
before each payment date and the remaining proceeds were invested in U.S.
government securities. In addition, Hollywood Casino has entered into a
completion capital agreement providing for the contribution of up to an
additional $5.0 million in cash if at any time there are insufficient funds
available to enable the Shreveport resort to be operating by April 30, 2001. In
addition, if the Shreveport resort is not operating by April 30, 2001,
Hollywood Casino will contribute to us on that date $5.0 million in additional
equity less any amounts previously contributed under the completion capital
agreement. In the absence of construction overruns, we believe that once the
Shreveport resort is opened, cash flow from operations will be sufficient to
meet the liquidity and capital resource needs of the resort for the next 24
months.
We have entered into a ground lease with the city of Shreveport for the land
on which the Shreveport resort will be built which contains an initial term of
10 years with subsequent renewals for up to an additional 40 years. Base rental
payments under the lease began when construction commenced and will be $10,000
per month during the construction period increasing to $450,000 per year upon
opening and continuing at that amount for the remainder of the initial ten-year
lease term. During the first five-year renewal term, the base rent will be
$402,500. The annual base rental payment will be $462,875 for the second five-
year renewal term, $532,306 for the third five-year renewal term, $612,152 for
the fourth five-year renewal term and $703,975 for the fifth five-year renewal
term with no further increases. In addition to the base rent, we will pay
monthly percentage rent equal to the greater of (1) $500,000 per year or (2)
the sum of 1% of adjusted gross revenues of the Shreveport resort and the
amount by which 50% of the net income from the parking facilities exceeds a
specified parking income credit.
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In connection with the Compromise Agreement as discussed above, we agreed to
make a $5.0 million payment to the City of New Orleans upon issuing the
original notes. This payment was made in August 1999. HWCC-Louisiana and Sodak
Louisiana also agreed to contingently reimburse Hilton New Orleans $2.0 million
of the amount it paid to the City of New Orleans. The reimbursement is to be
paid upon the earlier of the termination of the construction of the Shreveport
resort or in monthly installments of $200,000, without interest, commencing
with the opening of the Shreveport resort. The $2.0 million liability, net of a
discount in the original amount of $308,000, and the associated project costs
were recorded upon the issuance of the original notes.
The operations of the Shreveport resort will be managed by HWCC-Shreveport
under the terms of a management agreement. Under the terms of the management
agreement, we will pay HWCC-Shreveport basic and incentive management fees for
its services. The basic fee will equal approximately 2% of the Shreveport
resort's net revenues and the incentive fee will equal the sum of (1) 5% of the
Shreveport resort's earnings before interest, taxes, depreciation and
amortization as defined in the agreement ("EBITDA") between $25.0 million and
$35.0 million, (2) 7% of the Shreveport resort's EBITDA between $35.0 million
and $40.0 million, and (3) 10% of the Shreveport resort's EBITDA over $40.0
million. In addition, we will reimburse HWCC-Shreveport for expenses incurred
in connection with services provided under the management agreement.
HCS I and HCS II have assumed an obligation of HWCC-Louisiana to cause us to
pay Shreveport Paddlewheels an amount equal to approximately 1% of our net
revenues in exchange for the assignment by Shreveport Paddlewheels of its joint
venture interest in us to HWCC-Louisiana and Sodak Louisiana in connection with
the September 1998 reconstitution. We will also be obligated to pay Shreveport
Paddlewheels a $30,000 monthly fee for marine services and to reimburse
Shreveport Paddlewheels for its direct expenses, if any, incurred with respect
to those services. The payments to Shreveport Paddlewheels are to be made for
so long as they remain our joint venture partner.
Third parties could assert obligations against us for liabilities that have
arisen or that might arise against our predecessors or the partners of our
predecessors with respect to any period prior to September 22, 1998. Management
believes that if such a claim arises, it would be adequately covered under
either existing indemnification agreements with the former partners or
insurance policies maintained by the predecessors or their partners.
We have also entered into an agreement to sub-lease the retail portion of the
Shreveport resort to Red River Entertainment. We expect to receive rental
payments under the sub-lease of approximately $250,000 annually, plus an amount
equal to the sum of (1) 50% of the retail facility's first $550,000 of net cash
flow, (2) 25% of the next $65,000 of the retail facility's net cash flow and
(3) 40% of the retail facility's annual net cash flow above $615,000.
Market Risk
The only financing arrangement that we currently contemplate that will be
subject to fluctuating market interest rates is the $30.0 million Bank of
America commitment to finance the lease of our furniture, fixtures and
equipment. The interest we will pay under this arrangement will be variable and
will reset quarterly. If the interest rate increases by 100 basis points, or
1%, then interest expense will increase by $300,000. Management believes that
all other market risks are immaterial.
Seasonality
We have no operating history. We anticipate that activity at the Shreveport
resort may be modestly seasonal, with stronger results expected during the
third fiscal quarter. In addition, our operations may be impacted by adverse
weather conditions. Accordingly, our results of operations may fluctuate from
quarter to quarter and the results for any fiscal quarter may not be indicative
of results for future fiscal quarters.
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Year 2000 Issues
At the beginning of the year 2000, computer programs that had date sensitive
software might have recognized a date using "00" as the year 1900 rather than
2000. This type of error could have resulted in a system failure or
miscalculations causing disruptions of operations including, among other
things, a temporary inability to process transactions or engage in similar
normal business activities.
We continue to depend on the computer systems of Hollywood Casino for our
administrative, financial and construction management operations. Management of
Hollywood Casino conducted a program to prepare its computer systems and
applications as well as its non-information technology, embedded microchip,
systems for the Year 2000. The initial stage of the program consisted of
identifying those systems which might be at risk. All identified systems were
categorized as:
. those necessary for regulatory compliance purposes;
. essential systems; and
. non-essential systems.
Within the essential systems group, an additional rating factor of one to
five was assigned to each system with a factor of one indicating the greatest
significance. Readiness of information technology and non-information
technology systems for the Year 2000 was investigated or determined by means of
vendor certification or internal testing. The essential and regulatory systems
were determined to be Year 2000 compliant and the two major information
technology systems identified as not Year 2000-compliant were replaced.
Both we and Hollywood Casino also initiated formal communication with all of
our material third party suppliers with which we continue to do business to
determine the extent to which our operating and information systems could have
been vulnerable to those third parties' failure to resolve their Year 2000
compliance issues. These suppliers notified us that they were Year 2000
compliant.
As a result of these planning and implementation efforts, we experienced no
significant disruptions to any of our computer systems and non-information
technology systems and believe that all such systems have successfully
responded to the Year 2000 change. We also encountered no significant Year 2000
problems with our vendors or suppliers. We and Hollywood Casino are continuing
to monitor our systems and communicate with our suppliers and vendors to ensure
that any latent Year 2000 problems that might arise are promptly addressed.
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BUSINESS
General
Hollywood Casino Shreveport is a Louisiana general partnership which is
currently constructing a highly themed hotel and casino destination resort in
Shreveport, Louisiana, approximately 180 miles east of Dallas, Texas. The
resort will feature the largest riverboat in the Shreveport market, an
extensive land-based pavilion and an all-suite hotel. Our Shreveport resort
will also feature a newly constructed restaurant and entertainment promenade
and three parking facilities containing approximately 2,000 parking spaces.
Based on management's extensive gaming experience and the experience of our
General Manager in the Shreveport market, we believe we have designed a premier
facility that surpasses the scope and quality of all of the Shreveport market's
existing riverboat facilities. Our resort will be located adjacent to Harrah's
casino and will form the only casino "cluster" in the Shreveport market,
allowing patrons to park once and easily walk between the two facilities. Our
resort will enjoy high visibility and convenient access from Interstate 20, the
highway that connects Shreveport/Bossier City to the attractive feeder markets
of Dallas/Fort Worth and East Texas. Construction of the Shreveport resort
began in August 1999 and we intend to open the resort in early November 2000.
Hollywood Casino will operate the Shreveport resort, which will feature the
unique Hollywood theme that has been successfully implemented at Hollywood
Casino's other properties. The Hollywood theme incorporates the excitement and
glamour of the motion picture industry by incorporating designs inspired by
famous movies, displays of motion picture memorabilia and movie-themed gaming,
entertainment and dining areas. Hollywood Casino, through its wholly owned
subsidiaries, develops, owns and operates themed casino entertainment
facilities under the service mark Hollywood Casino(R). Hollywood Casino
currently owns and operates two highly successful casinos, one in Aurora,
Illinois and another in Tunica County, Mississippi. We believe that both of
these casinos have been highly successful as evidenced by the market share they
have historically captured in their respective gaming markets. Prior to 1999,
both of Hollywood Casino's facilities generated gaming revenues in excess of
their "fair share" of the gaming revenues in their respective markets. Based on
information contained in published reports for the year ended December 31,
1999, management believes its Aurora casino generated 117.5% of its fair share
in the Chicago market and, despite intensified competition and a hold
percentage for table games significantly below historical averages, its Tunica
casino generated just under 100% of its fair share in the Tunica market. "Fair
share" for a particular casino is calculated by dividing the relative share of
its gaming revenues in its market area by its relative share of the total
gaming positions in that market. Industry convention defines each slot machine
in a casino as having one gaming position and each table game in a casino as
having six gaming positions. For example, a casino with 10% of the total gaming
revenues in its market and 10% of the gaming positions is said to have its
"fair share" of the market. If instead the same casino had 12% of the gaming
revenues in its market with only 10% of the total gaming positions, it would
have a "fair share" of 120%.
The Shreveport Resort
The Pavilion
Our approximately 170,000 square foot pavilion will be the centerpiece of our
integrated resort, providing easy access to the hotel, casino and numerous
entertainment amenities. Patrons will enter our resort either through an
elegant porte cochere or a movie-themed walkway connecting our land-based
pavilion to our parking garage. Our elaborate pavilion will feature a dramatic
60-foot high atrium, will be lavishly appointed with marble, chandeliers and
columns and will enable our patrons to see the casino floor from almost
anywhere in the pavilion. Escalators located in the center of the atrium will
provide convenient access to all three levels of the casino.
Our facility will provide patrons with a wide range of restaurant and
entertainment alternatives. Our pavilion will house three restaurants, a highly
themed entertainment lounge and a premium players' club. The Fairbanks
steakhouse will feature a Mediterranean style dining room with vaulted ceilings
and will seat approximately 150 people. The "Gold Room," an elegant and private
dining room within Fairbanks, will offer
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the ultimate in guest service for our premium players. The Hollywood Epic
Buffet, which will seat approximately 340 people, will be modeled after
memorable Hollywood movie sets, which we intend to change frequently in order
to maintain an exciting and original dining environment for our patrons. The
Hollywood DinerSM, which will seat approximately 225 people, will feature a
stained wood and ceramic tile setting surrounded by movie memorabilia from the
1940s, 1950s and 1960s. The entertainment lounge, which will seat approximately
160 people, will feature a tropical themed entertainment showroom complete with
palm trees and decorative painted ceilings. Our premium players' club, the
Director's ClubSM, will seat approximately 50 people in an intimate art deco
setting among walls lined with autographed photographs of movie stars.
In addition to the restaurants and lounges, the pavilion will include a deli
and ice cream shop, VIP check-in, premium quality bar, several meeting rooms
and the Hollywood Casino Studio Store(R), a highly themed retail shopping
facility that will sell movies on video tape and other media, soundtracks and
logo merchandise from major motion picture studios.
The Riverboat Casino
Our resort will feature the largest riverboat in the market with
approximately 1,370 slot machines and 75 table games on three levels. Our
riverboat casino will be attached to our pavilion by 85-foot wide seamless
entrances and will feature up to 20-foot high ceilings on all three levels,
enabling us to provide our patrons with the feel of a "land-based" casino. The
interior of our casino will blend the Hollywood theme with the exciting
atmosphere of a modern casino, complete with memorable movie props, distinctive
signage, state-of-the-art gaming equipment and Las Vegas style gaming displays.
Our riverboat casino will float in a concrete and steel basin that will raise
the riverboat nearly 20 feet above the river. The basin will virtually
eliminate variation in the water height surrounding the riverboat and will
allow the casino to be permanently moored to our land-based pavilion. Our
computerized pumping system is designed to regulate the water level of the
basin to a variance of no more than three inches.
Art Deco Style Hotel
Our all suite, art deco style hotel will offer luxurious suites through its
approximately 380 single room suites and 25 multiple room suites. The single
room suites will be elegantly furnished and will be approximately 510 square
feet in size, containing a spacious living area, a writing desk and an
oversized marble bath, with a separate bathtub and shower. Master suites will
be approximately 1,000 square feet in size and will include all of the
amenities of our single room suites, plus a living room, wet bar, powder room
and separate his and her bathrooms. The two presidential suites will be
approximately 2,000 square feet in size and will include all of the amenities
of the master suites, plus a second bedroom, a dining room and separate his and
her closets.
The Restaurant and Entertainment Promenade
Our resort will feature an extensive restaurant and entertainment development
that will be designed as a "New Orleans style" outdoor walking promenade. The
development will be located across the street from our pavilion, adjacent to
our parking garage. It will contain approximately 42,000 square feet of dining
and live entertainment space and will feature nationally and regionally
renowned establishments. Our restaurant and entertainment promenade will be
developed by Red River Entertainment, which includes the principal developer of
Beale Street in Memphis, Tennessee. Additionally, an affiliate of Red River
Entertainment has announced plans to develop approximately 55,000 square feet
of additional restaurant, retail and entertainment space adjacent to the
promenade. We believe the overall restaurant, retail and entertainment
development, which will total nearly 100,000 square feet, will attract
additional visitors to our casino.
Parking
We will offer a choice of three parking facilities, which will include two
parking lots and an eight-story parking garage connected directly to our land-
based pavilion. The three parking facilities together will provide parking
spaces for approximately 2,000 cars, including valet parking for approximately
420 cars. All of our parking facilities will be located within one block of our
facility, providing customers with convenient access to our resort.
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Marketing Strategy
We and Hollywood Casino will use the same marketing strategy for the
Shreveport resort that Hollywood Casino has effectively utilized to open and
operate its existing facilities in Aurora, Illinois and Tunica County,
Mississippi. The successful implementation of Hollywood Casino's marketing
strategies has been an important factor in both the Aurora and the Tunica
casinos historically capturing gaming revenues in excess of their "fair share"
of the gaming revenues in each of their respective markets. Based on
information contained in published reports for the year ended December 31,
1999, management believes its Aurora casino generated 117.5% of its fair share
in the Chicago market and, despite intensified competition and a hold
percentage for table games significantly below historical averages, its Tunica
casino generated just under 100% of its fair share in the Tunica market.
One of the principal elements of our strategy is to develop the premier
gaming and entertainment facility in the Shreveport market. In order to fully
capitalize on the potential of the Shreveport market, we intend to develop a
resort that:
. incorporates the largest riverboat in the market;
. has the greatest number of slot machines and table games in the
market;
. has a seamless entry from the land-based pavilion to the gaming
vessel giving our riverboat casino a "land-based" feel;
. utilizes Hollywood Casino's unique and proven theme;
. delivers superior dining and entertainment amenities; and
. generates additional appeal through our restaurant and entertainment
facilities.
We believe that the combination of our superior quality facility and the
execution of Hollywood Casino's proven marketing strategies will enable the
Shreveport resort to become one of the leading riverboat casinos in the
Shreveport market. Our marketing programs will consist of a variety of highly
targeted advertising, direct mail and promotional programs designed to attract
both initial and repeat customers to our Shreveport resort. Principal elements
of our marketing strategy include the following:
Maximizing the Number of Initial Visitors to our Resort. We will be
conducting an extensive preopening campaign to market our facility to potential
customers. We will advertise through a variety of media, including television
commercials, print advertising and billboards. The goal of this advertising
program is to increase the awareness of residents in the Dallas/Fort Worth and
East Texas markets of our high quality Shreveport resort. As part of this
advertising campaign, we will begin aggressively soliciting hotel reservations
approximately six months in advance of the opening of our facility. We will
also conduct a highly targeted direct mail program by sending promotional
material regarding our Shreveport resort to potential customers. Our market
research will identify residents in the Dallas/Fort Worth and East Texas
markets who have the demographic profile to become valuable customers. We will
have a casino-marketing representative in Dallas dedicated to generating high-
end business for our Shreveport casino. We have already identified several
experienced potential candidates for this position.
During the year ended December 31, 1999, approximately 12 million people
visited the Shreveport market. We believe that the superior quality of our
gaming and entertainment product, combined with our extensive preopening
marketing campaign, will draw a significant number of these potential customers
to our Shreveport facility.
Turn Initial Visitors into High Value Customers. Once patrons visit our
facility, we intend to provide them with a superior gaming, lodging and
entertainment experience in order to transform these visitors into repeat
customers. In addition to providing our customers with a superior gaming
experience, we intend to utilize a player's card program and casino information
technology to create highly focused marketing programs for our customers.
Hollywood Casino has extensive experience utilizing sophisticated casino
information technology, and we will be utilizing the same proprietary system
that Hollywood Casino successfully employs at its existing properties.
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We intend to implement an aggressive program to solicit visitors to join our
player's card program. All of our hotel guests will be immediately entered into
our player's card program, and promotional booths located throughout the resort
will offer promotional rewards for patrons that sign up for our player's card.
The computer technology we will utilize will also include a "hot player's
system," whereby the computer system will immediately send a casino host to an
active customer who is not a member of our player's card program. The casino
hosts will provide these active customers with various complementaries based
upon their level of play and will enroll these customers in our player's card
program. Once a customer joins our player's card program, they will be entered
into our computer data base system.
We will use a sophisticated casino technology system to create extensive
player incentive, promotion and reward programs for members of our player's
card program who have been identified as high value customers. This computer
technology will include table game and slot machine monitoring systems that
will enable our casino to track and rate patron play through the use of our
player's card. When patrons use the casino player's card at slot machines or
table games, the information will be immediately available to our management,
allowing us to implement marketing programs that recognize and reward patrons
during their visits to the casino. These promotions and complementaries will
include free or discounted food and beverages, hotel accommodations, special
player events, admissions to headliner entertainment, retail merchandise and
sweepstake giveaways.
The online nature of the computer monitoring system will provide management
with the unique opportunity to immediately reward our active customers with
promotions and complementaries during that customer's "same-visit" to our
facility. We will also utilize our extensive data base system to monitor an
ongoing direct mail program to encourage repeat visitations by our high value
customers. The sophisticated computer technology will enable us to target
specific direct mail promotions to each of our customers based upon their level
of play.
The Shreveport Market
The Shreveport market is currently the eighth largest gaming market in the
United States and the largest in Louisiana. Since the commencement of riverboat
gaming in the Shreveport market in 1994, gaming revenues have experienced
steady and significant growth. In 1999, gaming revenues in the Shreveport
market increased 7.1% to approximately $641 million. The Shreveport market is
the only riverboat gaming market in Louisiana that currently permits continuous
dockside gaming without requiring cruising or simulated cruising schedules,
which will allow our casino to operate 24 hours a day with uninterrupted
access. Louisiana is a limited riverboat license jurisdiction and currently
only four riverboat casinos operate in the Shreveport market.
There are approximately 7.1 million adults residing within an approximately
200-mile radius of Shreveport. The interstate highway system connecting
Shreveport with Dallas/Fort Worth and East Texas provides the Shreveport market
with the ability to draw customers from an extended area. Dallas is located
approximately 180 miles west of Shreveport and can be reached by car in less
than three hours. In addition, the Shreveport Regional Airport currently has 41
in-bound flights per day from various locations, including 16 from Dallas and
seven from Houston with flight times under 60 minutes. The Shreveport Regional
Airport has recently completed an approximately $25 million expansion and
renovation project including a new terminal and additional parking facilities.
Based on our experience in the industry and the historical experience of the
Shreveport market, we believe that the Shreveport market has not reached its
full potential due to its limited supply of gaming capacity and high quality
amenities. We believe the Shreveport market has the potential to grow
significantly as additional gaming capacity, high quality hotel accommodations
and entertainment amenities are added. We believe these additions will enable
the Shreveport market to increase its penetration of its principal feeder
markets and will broaden the appeal of the Shreveport market to higher income
customers and patrons desiring overnight accommodations. All of the existing
four operators in the Shreveport market have completed or are in the process of
completing improvements to their facilities, including adding hotel rooms. We
believe that by opening the premier hotel, gaming and entertainment facility in
the market, we will further accelerate the
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development of the Shreveport market. In comparison to the other gaming markets
listed in the chart below, the Shreveport market has the second highest win per
gaming position but the fewest gaming positions relative to its adult
population. Accordingly, we believe that the Shreveport market is capacity
constrained and that the existing operators have penetrated only a limited
portion of the large adult population surrounding the Shreveport market.
<TABLE>
<CAPTION>
Principal Market Total 1999 Total Population Win Per
Population Gaming Win Gaming Per Gaming Gaming
Gaming Market (1) (in millions)(2) (in millions) Positions Position Position
------------------ ---------------- ------------- --------- ---------- --------
<S> <C> <C> <C> <C> <C>
Connecticut(3).... 11.2 $1,649 11,896 939 $138,615
Chicago........... 8.5 1,771 14,583 581 121,443
Shreveport........ 7.2 641 5,751 1,255 111,540
Pro Forma(4)..... 7.2 -- 7,566 954 --
Cincinnati........ 5.3 453 4,432 1,188 102,146
Tunica............ 4.9 1,164 20,494 238 56,783
St. Louis......... 2.8 622 10,015 276 62,060
Kansas City....... 1.9 497 9,287 202 53,480
</TABLE>
- --------
Sources: Urban Systems, Inc., state gaming records and SEC filings by operators
in the listed markets. Population statistics and gaming positions are
as of December 31, 1999.
(1) These markets were chosen because management believes that they are the
most comparable gaming markets for which public information is available
and which draw a majority of their customers from major metropolitan areas.
The Lake Charles market was excluded because sufficient market data was not
publicly available.
(2) Represents the adult population located within a specific distance from
each gaming market. The distances vary based upon the proximity of a
particular gaming market to its principal customer base. We have defined
the principal customer base for the Connecticut, Chicago, Cincinnati, St.
Louis and Kansas City markets to be within a 100 mile radius, and the
principal customer base for the Shreveport and Tunica markets to be within
a 200 mile radius.
(3) Includes estimates for table game revenues and the number of table games
for one of the two Connecticut casinos.
(4) Gives pro forma effect to the anticipated gaming positions of our
Shreveport resort as if it had been open as of December 31, 1999.
Competition
Upon opening our Shreveport resort, we will compete directly with Binion's
Horseshoe, Harrah's, the Isle of Capri and Casino Magic in the Shreveport
market.
We believe that the casinos in the Shreveport market compete primarily based
upon the following factors:
. Location;
. Ease of access to customers;
. Comfort and spaciousness of the facility;
. Extent and quality of non-gaming amenities;
. Theming of the facility; and
. Marketing and promotional programs
We believe that we have designed the Shreveport resort to be one of the
leading facilities in the Shreveport market. We believe that the principal
factors that will make the Shreveport resort a strong competitor are the
following:
. The location of our facility, which will be easily accessible from
the interstate highway and will be located next door to Harrah's
thus forming the first casino "cluster" in the market;
. We will operate the largest riverboat in the market;
. The unique design of our facility that will enable our dockside
casino to be directly connected to our land-based pavilion;
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. Our 405-room art-deco style hotel;
. Our unique Hollywood theme; and
. Numerous restaurant, entertainment and dining amenities that we will
provide our customers
Our principal competitive disadvantage is that we are the last entrant into
the Shreveport market and therefore do not currently have our own customer
base. This is in contrast to our competitors who have all operated in the
Shreveport market for several years and have developed their own customer base.
We believe that we will be able to overcome this disadvantage for the following
three reasons:
. We believe that the opening of the Shreveport resort will further
accelerate the development of the Shreveport market;
. We are developing what we believe is the premier gaming and
entertainment facility in the market; and
. We will be utilizing the same marketing strategies that Hollywood
Casino has utilized to successfully open and operate its existing
facilities in Aurora, Illinois and Tunica Country, Mississippi.
The Louisiana Gaming Control Board has granted approval to applicants for 14
of the 15 legislatively approved riverboat gaming licenses. On July 20, 1999,
the Louisiana Gaming Control Board announced that it will be accepting bid
proposals for the fifteenth license. If the fifteenth and final riverboat
gaming license is granted, it may be located in the Shreveport market, which
will increase competition in the market and could negatively impact the
Shreveport resort. Also, while we do not believe we face significant
competition from casinos outside of the Shreveport market, the Shreveport
resort will compete indirectly with four existing riverboats in the Lake
Charles, Louisiana area, a land-based casino owned by the Coushatta Native
American tribe between Lafayette and Baton Rouge, Louisiana and two riverboats
in Baton Rouge.
The Louisiana Riverboat Economic Development and Gaming Control Act provides
that the designated gaming area shall not exceed the lesser of 60% of the total
square footage of the passenger access area of the vessel or 30,000 square feet
at each casino. The total amount of gaming space in a casino is determined by
measuring the area inside the interior walls of the riverboat and excluding any
space in which gaming activities may not be conducted, such as bathrooms,
stairwells, cage and beverage areas and emergency evacuation routes. The
facilities of three of our four competitors in the Shreveport market arguably
contain less than the total amount of gaming space permitted. If these
competitors were to increase the size of their facilities, they would be able
to add more gaming positions, which would directly increase competition in our
market.
Also, we cannot be sure that we will be able to effectively compete against
any other future gaming operations that Louisiana or other authorities may
authorize in the gaming market in which our Shreveport resort will operate. For
example, in 1997, the Louisiana legislature adopted legislation permitting up
to 15,000 square feet of slot machine gaming at pari-mutuel wagering facilities
located in parishes in Louisiana that approve slot machine gaming in a
referendum election. Shortly thereafter, a referendum election was held that
approved slot machine gaming at Louisiana Downs, which is located in Bossier
City, approximately nine miles from the site of the Shreveport resort. During
the 1999 regular legislative session, the Louisiana legislature passed
legislation regarding the imposition, collection and disposition of taxes on
slot machines to be located at Louisiana Downs. We believe slot machine gaming
at Louisiana Downs could commence sometime later this year.
Casino gaming is currently prohibited in several jurisdictions adjacent to
Louisiana. As a result, we anticipate that a significant portion of our
customers will be residents of these jurisdictions, primarily Texas. Although
casino gaming is currently not permitted in Texas and the Texas Attorney
General has issued an opinion that gaming in Texas would require an amendment
to the Texas Constitution, the Texas Legislature has considered proposals to
authorize casino gaming in the past. The legalization of casino gaming in
Texas, or in other nearby jurisdictions, would have a material adverse effect
on our business, financial condition, results of operations and prospects and
the Issuers' ability to satisfy their obligations under the notes.
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We will compete to a lesser extent with gaming operations in other
jurisdictions and with other forms of gaming, including lottery gaming, horse
and dog racing, as well as other forms of entertainment.
The Design Process
We have been planning the Shreveport resort since 1997. Hollywood Casino's
experienced design, development and construction staff, together with a number
of outside construction, design and architectural firms, have completed
extensive and detailed engineering and architectural plans for the development
of the Shreveport resort.
Our extensive design and engineering team includes:
. Pre-construction design and architectural services by Broadmoor
Design. Broadmoor Design Group, a division of Broadmoor, is based in
New Orleans, Louisiana. Broadmoor has provided construction
services, architectural design, and design/build services since
1973. Broadmoor has been involved in the design and construction of
eight notable riverboat casino projects. Based on information
supplied by Broadmoor, the following is a list of representative
projects: Hilton's New Orleans Flamingo riverboat, Hilton's Kansas
City Flamingo riverboat, Hyatt's Grand Victoria riverboat casino and
Hilton's Queen of New Orleans riverboat.
. Riverboat casino design by Rodney E. Lay & Associates. Rodney Lay is
located in Jacksonville, Florida, and has provided full service ship
designs since 1959. Rodney Lay has designed 24 notable riverboat and
dockside casinos. Based on information supplied by Rodney Lay, the
following is a list of representative projects: Hollywood Tunica,
Empress I, II and III, Trump Casino, Showboat Mardi Gras, Alton
Belle Casino II, Argosy III and IV and Players I and II.
. Riverboat basin design by Brown Cunningham Gannuch. BCG is located
in Louisiana, and has over 20 years of experience in providing
professional engineering, architectural, design, surveying and
construction management services primarily on municipal
infrastructure projects. BCG has extensive experience in the
inspection of U.S. Army Corps of Engineers navigation and flood
protection projects.
. Interior design by Wilson & Associates, Inc. Wilson & Associates is
an international interior architectural design firm specializing in
commercial projects such as hotels, restaurants, casinos and
executive offices. Over the past 20 years, Wilson has completed
hundreds of design projects. Based on information supplied by
Wilson, the following is a list of representative projects: the
Atlantis Hotel & Casino, Beau Rivage Hotel & Casino, Caesars Palace
Las Vegas, Caesars Atlantic City and The Palace of the Lost City.
. Parking design by International Parking Design. IPD is an
experienced architectural firm specializing in parking design and
engineering and parking consulting services. IPD has been the prime
architect for over 200 parking structures and parking consultant on
an additional 3,000 projects.
We engaged Broadmoor in October 1997 to perform pre-construction services.
Broadmoor has worked closely with our design team to ensure that the design
concepts can be built in accordance with our construction budget and
anticipated schedule. We have invested approximately $5.3 million in this
thorough design process, and have substantially completed detailed plans for
the construction of every significant element of the Shreveport resort.
The Construction Process
We have entered into a guaranteed maximum price contract with Broadmoor
Anderson for $68.7 million for the construction of the land-based facilities at
our Shreveport resort. Broadmoor Anderson is a joint venture between Broadmoor
and Roy Anderson Corp., both of which have extensive construction experience
and have
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collectively completed more than 60 gaming and hospitality projects. As
required by the contract, Broadmoor Anderson provided to us a payment and
performance bond for the entire contract price. In addition, we have signed a
fixed price contract with Leevac Shipyards, Inc. for $34.4 million for the
construction of the riverboat casino. As required by the contract, Leevac
provided to us a payment and performance bond for the entire contract price.
Since 1991, Leevac has constructed 12 riverboat casinos.
We have retained First American Title Insurance Company to act as a
disbursement agent to ensure that the funds contributed to construct our resort
are disbursed in accordance with the terms of the disbursement agreement. In
addition, we have engaged CCM Consulting Group to serve as independent
construction consultant on behalf of the holders of the notes. The disbursement
agreement contains conditions for and sequencing of funding construction costs
and procedures for approving construction change orders and amendments to the
construction budget and schedule. The conditions under the disbursement
agreement generally provide that funds will be disbursed to us only if we and
CCM certify to the disbursement agent that there are sufficient available funds
to complete the resort in accordance with our budget.
Gaming Regulation
Louisiana
The ownership and operation of a riverboat gaming vessel is governed by the
Louisiana Riverboat Economic Development and Gaming Control Act. As of May 1,
1996, gaming activities are regulated by the Louisiana Gaming Control Board.
The Louisiana Gaming Control Board is responsible for issuing the riverboat
gaming license and enforcing the laws, rules and regulations relative to
riverboat gaming activities. The Louisiana Gaming Control Board is empowered to
issue up to 15 riverboat gaming licenses to conduct gaming activities on a
riverboat of new construction in accordance with applicable law. However, no
more than six riverboat gaming licenses may be granted to riverboats operating
from any one parish. Shreveport and Bossier City are located in two adjacent
parishes, portions of which are separated by the Red River. On July 20, 1999,
the Louisiana Gaming Control Board announced that it will be accepting bid
proposals for the fifteenth license.
The laws and regulations of Louisiana seek to:
. prevent unsavory or unsuitable persons from having any direct or
indirect involvement with gaming at any time or in any capacity;
. establish and maintain responsible accounting practices and
procedures;
. maintain effective control over the financial practices of riverboat
gaming licensees, including establishing procedures for reliable
record keeping and making periodic reports to the Louisiana Gaming
Control Board;
. prevent cheating and fraudulent practices;
. provide a source of state and local revenues through fees; and
. ensure that riverboat gaming licensees, to the extent practicable,
employ and contract with Louisiana residents, women and minorities.
The Louisiana Riverboat Economic Development and Gaming Control Act specifies
certain restrictions and conditions relating to the operation of riverboat
gaming, including but not limited to the following:
. in parishes bordering the Red River, such as our property in
Shreveport, gaming may be conducted dockside; however, in all other
authorized locations gaming is not permitted while a riverboat is
docked, other than for forty-five minutes between excursions, unless
dangerous weather or water conditions exist as certified by the
riverboat's master;
. each round trip riverboat cruise may not be less than three nor more
than eight hours in duration, subject to specified exceptions;
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. agents of the Louisiana Gaming Control Board are permitted on board
at any time during gaming operations;
. gaming devices, equipment and supplies may be purchased or leased
only from permitted suppliers;
. gaming may only take place in the designated gaming area while the
riverboat is upon a designated river or waterway;
. gaming equipment may not be possessed, maintained, or exhibited by
any person on a riverboat except in the specifically designated
gaming area, or a secure area used for inspection, repair, or
storage of such equipment;
. wagers may be received only from a person present on a licensed
riverboat;
. persons under 21 are not permitted on gaming vessels;
. except for slot machine play, wagers may be made only with tokens,
chips, or electronic cards purchased from the licensee aboard a
riverboat;
. licensees may only use docking facilities and routes for which they
are licensed and may only board and discharge passengers at the
riverboat's licensed berth;
. licensees must have adequate protection and indemnity insurance as
determined by the Louisiana Gaming Control Board;
. licensees must have all necessary federal and state licenses,
certificates and other regulatory approvals prior to operating a
riverboat; and
. gaming may only be conducted in accordance with the terms of the
riverboat gaming license, the Louisiana Riverboat Economic
Development and Gaming Control Act and the rules and regulations
adopted by the Louisiana Gaming Control Board.
No person may receive any percentage of the profits from our operations in
Louisiana without first being found suitable. In September 1998, we, our
officers, key personnel, partners and persons holding a 5% or greater interest
in us were found suitable by the Louisiana Gaming Control Board and our license
was renewed in September 1999. A riverboat gaming license is deemed to be a
privilege under Louisiana law and as such may be denied, revoked, suspended,
conditioned or limited at any time by the Louisiana Gaming Control Board. In
issuing a riverboat gaming license, the Louisiana Gaming Control Board must
find that the applicant is a person of good character, honesty and integrity
and that the applicant is a person whose prior activities, criminal record, if
any, reputation, habits and associations do not pose a threat to the public
interest of the State of Louisiana or to the effective regulation and control
of gaming, or create or enhance the dangers of unsuitable, unfair or illegal
practices, methods, and activities in the conduct of gaming or the carrying on
of business and financial arrangements in connection therewith. The Louisiana
Gaming Control Board will not grant any riverboat gaming licenses unless it
finds that:
. the applicant is capable of conducting gaming operations, which
means that the applicant can demonstrate the capability, either
through training, education, business experience, or a combination
of the above, to operate a gaming casino;
. the proposed financing of the riverboat and the gaming operations is
adequate for the nature of the proposed operation and from a source
suitable and acceptable to the Louisiana Gaming Control Board;
. the applicant demonstrates a proven ability to operate a vessel of
comparable size, capacity and complexity to a riverboat in its
application for a riverboat gaming license so as to ensure the
safety of its passengers;
. the applicant designates the docking facilities to be used by the
riverboat;
. the applicant shows adequate financial ability to construct and
maintain a riverboat;
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. the applicant submits a detailed plan of design of the riverboat in
its application for a riverboat gaming license;
. the applicant has a good faith plan to recruit, train and upgrade
minorities in all employment classifications; and
. the applicant is of good moral character.
The Louisiana Gaming Control Board may not award a riverboat gaming license
to any applicant who fails to provide information and documentation to reveal
any fact material to qualifications or who supplies information which is untrue
or misleading as to a material fact pertaining to the qualification criteria;
who has been convicted of or pled nolo contendere to an offense punishable by
imprisonment of more than one year; who is currently being prosecuted for or
regarding whom charges are pending in any jurisdiction of an offense punishable
by more than one year imprisonment; or if any holder of 5% or more in the
profits and losses of the applicant has been convicted of or pled guilty or
nolo contendere to an offense which at the time of conviction is punishable as
a felony.
The transfer of a riverboat gaming license is prohibited. The sale,
assignment, transfer, pledge, or disposition of securities which represent 5%
or more of the total outstanding shares issued by a holder of a riverboat
gaming license is subject to prior Louisiana Gaming Control Board approval. A
security issued by a holder of a riverboat gaming license must generally
disclose these restrictions.
Section 2501 of the regulations enacted by the Louisiana State Police
Riverboat Gaming Division under the Louisiana Riverboat Economic Development
and Gaming Control Act requires prior written approval of the Louisiana Gaming
Control Board of all persons involved in the sale, purchase, assignment, lease,
grant or foreclosure of a security interest, hypothecation, transfer,
conveyance or acquisition of an ownership interest, other than in a
corporation, or economic interest of 5% or more in any licensee.
Section 2523 of the regulations requires notification to and prior approval
from the Louisiana Gaming Control Board of the application for, receipt,
acceptance or modification of a loan; use of any cash, property, credit, loan
or line of credit, or guarantee or granting of other forms of security for a
loan by a licensee or person acting on a licensee's behalf.
Exceptions to prior written approval apply to, among others, any transaction
for less than $2.5 million in which all of the lending institutions are
federally regulated, or if the transaction involves publicly registered debt
and securities sold pursuant to a firm underwriting agreement.
The failure of a licensee to comply with the requirements listed above may
result in the suspension or revocation of that licensee's riverboat gaming
license. Additionally, if the Louisiana Gaming Control Board finds that the
individual owner or holder of a security of a corporate licensee or
intermediary company or any person with an economic interest in a licensee is
not qualified under the Louisiana Riverboat Economic Development and Gaming
Control Act, the Louisiana Gaming Control Board may require, under penalty of
suspension or revocation of the riverboat gaming license, that the person not
receive dividends or interest on securities of the corporation; exercise
directly or indirectly a right conferred by securities of the corporation;
receive remuneration or economic benefit from the licensee; or continue in an
ownership or economic interest in the licensee.
A licensee must periodically report the following information to the
Louisiana Gaming Control Board, which is not confidential and is to be
available for public inspection: the licensee's net gaming proceeds from all
authorized games; the amount of net gaming proceeds tax paid; and all quarterly
and annual financial statements presenting historical data that are submitted
to the Louisiana Gaming Control Board, including annual financial statements
that have been audited by an independent certified public accountant.
The Louisiana Gaming Control Board has adopted rules governing the method for
approval of the area of operations and the rules and odds of authorized games
and devices permitted, and prescribing grounds and procedures for the
revocation, limitation or suspension of licenses and permits.
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On April 19, 1996, the Louisiana legislature adopted legislation requiring
statewide local elections on a parish-by-parish basis to determine whether to
prohibit or continue to permit licensed riverboat gaming, licensed video poker
gaming, and licensed land-based gaming in Louisiana parishes. The applicable
local election took place on November 5, 1996, and the voters in the parishes
in which riverboats are currently located voted to continue licensed riverboat
gaming. However, it is noteworthy that the current legislation does not provide
for any moratorium on future local elections on gaming.
As a result of the Justice Department's November 1998 indictment of former
Louisiana Governor Edwin Edwards and certain other persons, on charges relating
to, among other things, riverboat gaming licenses in Louisiana, the Louisiana
regulators are applying greater scrutiny to the suitability and business
practices of the licensee.
Federal
In 1997, the U.S. Congress created the National Gambling Impact Study
Commission to conduct a comprehensive study of all matters relating to the
economic and social impact of gaming in the United States. In accordance with
the legislation creating the commission, the commission recently released a
report on its findings and issued its recommendations for the future of gaming
in the United States. Overall, the commission determined that, with only a few
exceptions such as Internet gambling, gaming is an issue to be settled at state
and local levels rather than by the federal government. Over the course of its
two year study, the commission discovered a lack of information regarding the
costs and benefits of gaming. Consequently, the commission recommended a pause
in the expansion of gaming operations to provide time to develop impartial,
objective research on the impact of gaming.
Non-Gaming Regulation
We are subject to federal, state and local safety and health laws,
regulations and ordinances that apply to non-gaming businesses generally, such
as the Clean Air Act, Clean Water Act, Occupational Safety and Health Act,
Resource Conservation Recovery Act and the Comprehensive Environmental
Response, Compensation and Liability Act. We have not made, and do not
anticipate making, material expenditures with respect to the environmental laws
and regulations. However, the coverage and attendant compliance costs
associated with the laws, regulations and ordinances may result in future
additional costs to our operations. For example, in 1990 the U.S. Congress
enacted the Oil Pollution Act to consolidate and rationalize mechanisms under
various oil spill response laws. The Department of Transportation has proposed
regulations requiring owners and operators of certain vessels, including us, to
establish through the U.S. Coast Guard evidence of financial responsibility in
the amount of $5.5 million for clean-up of oil pollution. This requirement
would be satisfied by either proof of adequate insurance, including self-
insurance, or the posting of a surety bond or guaranty.
The riverboats operated by us must comply with U.S. Coast Guard requirements
as to boat design, on-board facilities, equipment, personnel and safety. Each
of them must hold a Certificate of Inspection or must be approved by the
American Bureau of Shipping for stabilization and flotation, and may also be
subject to local zoning and building codes. The U.S. Coast Guard requirements
establish design standards, set limits on the operation of the vessels and
require individual licensing of all personnel involved with the operation of
the vessels. Loss of a vessel's Certificate of Inspection or American Bureau of
Shipping approval would preclude its use as a floating casino.
All of our shipboard employees, even those who have nothing to do with the
marine operations of the vessel, like dealers, waiters and security personnel,
may be subject to the Jones Act which, among other things, exempts those
employees from state limits on workers' compensation awards.
We will also be required to obtain normal and customary permits needed to
construct and open the resort.
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History and Corporate Organization
In 1992, a predecessor to Hilton New Orleans and New Orleans Paddlewheels
formed the Queen of New Orleans at the Hilton Joint Venture, or QNOV. QNOV
owned and operated a riverboat casino adjacent to the Hilton Hotel in downtown
New Orleans. In October 1996, QNOV sought and obtained approval from the
Louisiana Gaming Control Board to relocate its riverboat gaming license to
Shreveport. In October 1997, the owners of QNOV ceased operations in New
Orleans. Other than holding its riverboat gaming license, QNOV had no business
operations and remained a dormant entity until September 1998, when Hilton New
Orleans and New Orleans Paddlewheels withdrew as partners and Shreveport
Paddlewheels, Sodak Louisiana and HWCC-Louisiana obtained the gaming license to
operate in Shreveport by acquiring the ownership interests in QNOV. In April
1999, HWCC-Louisiana acquired Sodak Louisiana for $2.5 million, which will be
payable six months after the Shreveport resort opens. In July 1999, Sodak
Louisiana was merged into HWCC-Louisiana and the name of QNOV was changed to
Hollywood Casino Shreveport.
Also, in July 1999, HWCC-Louisiana formed two subsidiaries, HCS I and HCS II,
and contributed 99% of its interest in us to HCS I and its remaining 1%
interest in us to HCS II. Collectively, HCS I and HCS II will be allocated 100%
of our profits and losses. HCS I is our managing general partner. Shreveport
Paddlewheels is our third partner and its interest in us is a residual interest
entitling it to 10% of the net proceeds of a sale or disposition of us by HCS I
and HCS II after payment of outstanding debt and the return of contributed
capital. As a result of agreements between our new partners, Shreveport
Paddlewheels is entitled to receive an amount equal to approximately 1% of our
net revenues. In addition, under a marine services agreement, Shreveport
Paddlewheels is entitled to receive a fee equal to $360,000 per year.
Concurrently with the closing of the offering of the original notes, Hollywood
Casino contributed $44.7 million of capital to HWCC-Louisiana of which $43.7
million was indirectly contributed to us and $1.0 million was loaned to
Shreveport Paddlewheels to finance its $1.0 million contribution to us. That
loan is secured by a pledge of Shreveport Paddlewheels' interests in us and a
collateral assignment of the agreement providing for the payment to Shreveport
Paddlewheels of approximately 1% of our net revenues. The loan is non-interest
bearing until the opening of the resort and then will bear interest at the
prime rate. As of the closing of the original offering, Shreveport Paddlewheels
contributed $2.0 million of capital to us, of which $1.0 million was loaned by
HWCC-Louisiana to Shreveport Paddlewheels and the other $1.0 million
represented a credit to capital in consideration of a guarantee provided by New
Orleans Paddlewheels on behalf of Shreveport Paddlewheels. This guarantee was a
promise to pay $1.5 million of the $2.0 million that we agreed to pay to Hilton
New Orleans in connection with payments Hilton New Orleans made to the City of
New Orleans until we received our financing for the Shreveport resort. Once we
received financing for the Shreveport resort, the guarantee made by New Orleans
Paddlewheels terminated and was replaced by our obligation to repay Hilton New
Orleans $2.0 million. No payments were made to New Orleans Paddlewheels in
return for their guarantee.
The Shreveport resort will be operated by Hollywood Casino, through its
wholly owned subsidiary HWCC-Shreveport, in connection with a management
agreement we entered into with HWCC-Shreveport. The management agreement
provides that we will pay a management fee to HWCC-Shreveport of 2% of net
revenues plus an increasing percentage (5-10%) of the Shreveport resort's
EBITDA above $25.0 million. For a more detailed description of the management
agreement, see the discussion under the section entitled "Material Contracts--
Management Agreement."
Trademarks
Under a trademark license agreement, we will use the service mark "Hollywood
Casino," which is registered by Hollywood Casino with the United States Patent
and Trademark Office, and other "Hollywood-formative" marks, which are either
registered or are the subject of pending registration applications with the
United States Patent and Trademark Office. The terms of this agreement are
described under the section entitled "Material Contracts--Trademark License
Agreement." Hollywood Casino considers its rights to the "Hollywood Casino"
service mark to be well established and to have significant competitive value
to its business. The loss of its right to use the "Hollywood Casino" service
mark or to prevent others from using the same or a deceptively similar mark
could have a material adverse effect on us and Hollywood Casino.
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Planet Hollywood International, Inc. and Planet Hollywood (Region IV), Inc.
filed in 1996 a complaint in the United State District Court for the Northern
District of Illinois, Eastern Division, against Hollywood Casino and certain of
its subsidiaries and affiliates seeking a declaratory judgment that it is
entitled to use the name "Planet Hollywood" for a casino and damages. In its
complaint, Planet Hollywood alleged, among other things, that Hollywood Casino
had, in operating the Hollywood Casino concept, infringed on their trademark,
service mark and trade dress and had engaged in unfair competition and
deceptive trade practices. Hollywood Casino filed counterclaims seeking a
declaratory judgment that Planet Hollywood is not entitled to use the name
"Planet Hollywood" for a casino and damages. The counterclaims alleged, among
other things, that Planet Hollywood had, through its planned use of its mark in
connection with casino services, infringed on Hollywood Casino's service marks
and trade dress and had engaged in unfair competition. The trial commenced on
July 19, 1999 and was completed on July 26, 1999. On August 25, 1999, Hollywood
Casino and the other defendants filed a motion to dismiss the declaratory
judgment claims of all parties asserting, among other things, that as a result
of Planet Hollywood's reported deteriorating financial condition and perceived
inability to enter into the casino business, there was no longer any actual
case or controversy. On October 12, 1999, Planet Hollywood (Region IV), Inc.
filed a petition for reorganization under Chapter 11 of the United States
Bankruptcy Code. On December 3, 1999 the judge entered a judgment in favor of
Hollywood Casino with respect to the damage claims brought by Planet Hollywood
and granted Hollywood Casino's motion to dismiss the declaratory judgment
claims of all parties. Planet Hollywood has filed a notice of appeal of the
judgement with the Seventh Circuit Court of Appeals.
Property
We lease the land on which our Shreveport resort will be located from the
City of Shreveport under a ground lease initially ending on the tenth
anniversary of the opening date of our resort, with options to renew the lease
for eight additional successive terms of five years each. Rent due under the
ground lease will become payable on the date construction commences. The terms
of the lease are described under the section entitled "Material Contracts--
Lease with the City of Shreveport."
Employees
At February 29, 2000, we had nine employees, including Juris Basens. Upon the
opening of our Shreveport resort, we expect to employ approximately 1,700
persons.
Legal Proceedings
The issuers are not involved in any material litigation. However, claims and
legal actions may arise in connection with the construction of the Shreveport
resort and in the ordinary course of business.
Third parties could assert obligations against us for liabilities that have
arisen or that might arise against our predecessors or the partners of our
predecessors with respect to any period before September 22, 1998. Management
believes that in the event such a claim arises, it would be adequately covered
under either existing indemnification agreements with the former partners or
insurance policies maintained by our predecessors or their partners.
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MATERIAL CONTRACTS
Land-Based Facilities Construction Contract
We have entered into a guaranteed maximum price contract with Broadmoor
Anderson for $68.7 million for the construction of the land-based facilities at
our Shreveport resort. The guaranteed maximum price may be adjusted if we
request certain changes to the construction plans or specifications that
qualify as a "change order." Changes that will result in a change order, and
therefore, will require adjustment of the guaranteed maximum price, include
changes in scope, systems, kind and quality of materials, finishes or
equipment. Broadmoor Anderson is a joint venture between Broadmoor and Roy
Anderson Corp., both of which have extensive construction experience and have
completed numerous gaming projects. As required by the contract, Broadmoor
Anderson provided a payment and performance bond for the entire contract price.
Subject to change orders and events outside its control, if Broadmoor Anderson
fails to substantially complete construction of the land-based facilities by
October 9, 2000, Broadmoor Anderson will be obligated to pay us $35,000 for
each and every day that substantial completion of construction is not achieved,
up to a maximum amount of $1.0 million. Substantial completion is defined under
the contract as the stage in the progress of the work when the work or any
designated portion of the work is sufficiently complete so that we can occupy
or utilize the work for our intended use. We may terminate the contract at any
time, without cause. If we do so, we will pay Broadmoor Anderson for all work
completed before our termination of the contract, costs incurred by reason of
the termination and reasonable overhead and profit on the work not completed.
Vessel Construction Contract
We have entered into a vessel construction contract with Leevac Shipyards,
Inc., under which Leevac will construct the vessel that will be used at our
Shreveport resort. We will pay Leevac $34.4 million, subject to adjustment for
any construction modifications or delays caused by natural forces, fire,
explosion, or persons not under the control of Leevac and not caused or
contributed to by Leevac or any of its subcontractors as well as other delays
not within Leevac's control, payable in an initial down payment of 10% of the
contract price and in subsequent installments upon completion of various stages
of work on the vessel. As required by the contract, Leevac provided a payment
and performance bond for the entire contract price. Subject to change orders
and events outside its control, Leevac must deliver the vessel in structurally
complete condition on June 15, 2000 and must complete all necessary work so
that the vessel is ready for gaming operations by October 2, 2000. If Leevac
fails to deliver and complete construction of the vessel on these dates, Leevac
will be obligated to pay us $50,000 per day for each and every day the delivery
of the vessel is late, up to a maximum of $600,000. We may terminate the
contract at any time without cause by giving seven days' prior written notice
to Leevac. If this occurs, we will pay Leevac for all work completed before our
termination of the contract.
Joint Venture Agreement of Hollywood Casino Shreveport
HCS I, HCS II and Shreveport Paddlewheels have entered into a Third Amended
and Restated Joint Venture Agreement of Hollywood Casino Shreveport, formerly
known as the Queen of New Orleans at the Hilton Joint Venture and QNOV. In the
joint venture agreement, the parties agreed to develop, construct, own and
operate a riverboat gaming casino and hotel and agreed that HCS I shall have
sole and exclusive control of our business.
HWCC-Louisiana and Sodak Louisiana, a former partner in QNOV, each
contributed $2.5 million of capital to us before September 1998. Shreveport
Paddlewheels contributed an additional $1.0 million to us when we received our
initial funding for the construction and development of the Shreveport resort.
As the agreement requires, HWCC-Louisiana loaned Shreveport Paddlewheels the
$1.0 million for its contribution, which is secured by a pledge of Shreveport
Paddlewheels' partnership interest and a collateral assignment of the agreement
providing for the payment to Shreveport Paddlewheels of approximately 1% of our
net revenues. Also, Shreveport Paddlewheels has been credited with another $1.0
million capital contribution to us in recognition of guarantees provided by New
Orleans Paddlewheels. As a result, Shreveport Paddlewheels will be entitled to
the return of $2.0 million of capital on any sale of our partnership, but will
not be entitled to any profits or losses from our operations. The joint venture
agreement also provides a mechanism to admit other parties to our partnership.
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We are required to make tax distributions to HCS I and HCS II at least once a
year. In addition, our profits and losses are to be allocated 99% to HCS I and
1% to HCS II. After commencement of operations, and upon a sale or other
disposition of our partnership (including upon a sale by the trustee following
any foreclosure), (1) HCS I, HCS II and Shreveport Paddlewheels will be
entitled to residual interests equal to 89.1%, 0.9% and 10%, respectively, of
the net proceeds of the sale or disposition after payment of outstanding debt
and the return of contributed capital and (2) Shreveport Paddlewheels is
entitled to receive an additional amount representing the appraised value of
its future fees under the marine services agreement.
Assignment of Joint Venture Interest
HWCC-Louisiana, Sodak Louisiana, New Orleans Paddlewheels and Shreveport
Paddlewheels have entered into an Amended and Restated Assignment of Joint
Venture Interest pursuant to which New Orleans Paddlewheels and Shreveport
Paddlewheels have assigned their interests in us to HWCC-Louisiana and Sodak
Louisiana. Under the agreement, Shreveport Paddlewheels is entitled to receive
an amount equal to approximately 1% of the net revenues of Hollywood Casino
Shreveport, until Shreveport Paddlewheels no longer holds its residual
interest. HCS I and HCS II have assumed HWCC-Louisiana's obligations under this
agreement.
Management Services Agreement
We have entered into a management agreement with HWCC-Shreveport, a direct
subsidiary of Hollywood Casino, which will result in the executives of
Hollywood Casino effectively operating and managing the Shreveport resort. Each
of the executive officers of HWCC-Shreveport, with the exception of Juris
Basens, is currently an executive officer of Hollywood Casino. Under the terms
of the management agreement, HWCC-Shreveport will have uninterrupted control of
the operations of the Shreveport resort during the term of the management
agreement, including, but not limited to the following:
. Pre-opening sales office set-up, together with a pre-opening
marketing plan to be approved in advance by us;
. With the exception of the general manager, sole and absolute
discretion to hire, supervise, direct the work of, discharge and
determine the compensation and other benefits of all employees at
the Shreveport resort;
. Coordination of initial inventory purchases;
. Establishment of operating policies and procedures for the
Shreveport resort;
. Establishment of security systems for assets, personnel and patrons
of the Shreveport resort;
. Establishment of accounting and internal control systems and
procedures;
. Establishment of a preventative maintenance program;
. Establishment of risk management policies and procedures; and
. Training of all staff.
Management Fees. We will pay HWCC-Shreveport a basic and an incentive
management fee for its services. The basic management fee will be equal to 2%
of the net revenues from casino operations, hotel operations and all other
facilities and amenities at the Shreveport resort managed by HWCC-Shreveport,
less particular items specified in the management agreement. The incentive fee
will be equal to the sum of:
. 5% of EBITDA in excess of $25 million and up to $35 million;
. 7% of EBITDA in excess of $35 million and up to $40 million; and
. 10% of EBITDA in excess of $40 million.
For purposes of calculating the incentive fee, "EBITDA" is reduced by the
basic management fee but not the marine services fee or the approximately 1% of
our net revenues payable to Shreveport Paddlewheels.
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The payment of management fees to the manager of the Shreveport resort will
be subordinated to all payments on the notes. In addition, management fees may
not be paid if there is a default under the notes or if the payment would cause
our fixed charge coverage ratio under the indenture to be less than 1.5 to 1.
We will also reimburse HWCC-Shreveport for its expenses incurred in connection
with the services provided under the management agreement.
Term. The term of the management agreement began in September 1998, when the
Louisiana Gaming Control Board approved the development of the Shreveport
resort, and will continue until we no longer hold a riverboat gaming license in
Louisiana, subject to earlier termination as provided below.
Termination. Each party has the right to terminate the management agreement
if (1) the other party materially breaches the agreement, (2) any statute,
regulation, rule or ruling renders the conduct of gaming in the United States
or at the Shreveport resort illegal, (3) the Louisiana Gaming Control Board
deems HWCC- Shreveport unsuitable or (4) the U.S. Patent and Trademark Office
rescinds the "Hollywood Casino" trademark. In addition, each party has the
right to terminate the management agreement if, in its good faith judgment,
certain facts occur which would jeopardize any gaming license or application
for a gaming license of such terminating party or its affiliates anywhere in
the United States. In this case, the non-terminating party may purchase all of
the terminating party's (or its affiliate's) interest in us at a mutually
agreed upon purchase price.
We may terminate the management agreement if, after completion of the first
full year after opening, for any two consecutive fiscal years the operating
cash flow margin is less than 75% of the operating cash flow margin of our
competitors.
If we fail to furnish the funds required for HWCC-Shreveport to properly
manage the Shreveport resort or fail to compensate or reimburse HWCC-Shreveport
in accordance with the management agreement, HWCC-Shreveport may (1) advance
the necessary funds in the form of a loan or (2) terminate the management
agreement. In addition, HWCC-Shreveport may terminate the management agreement,
in its sole discretion, if there is a voluntary or involuntary assignment,
transfer or disposition of our interest in the management agreement of the
Shreveport resort and (1) the assignee, purchaser, or recipient has not agreed
to be bound by the management agreement or (2) HWCC-Shreveport has not given
permission. We are required to notify HWCC-Shreveport at least 60 days before
any contemplated assignment, transfer or disposition. HWCC-Shreveport may
withhold its permission if it has good faith opinion that the action would
jeopardize, restrict, limit or create a right of cancellation of any approval,
consent or licensing of HWCC-Shreveport or its affiliates by any gaming
authorities. If HWCC-Shreveport terminates the management agreement due to any
of the foregoing reasons, and the cash flow for the Shreveport resort is in
excess of $1 for the immediately preceding fiscal quarter, we will be obligated
to pay HWCC-Shreveport an amount equal to two times the sum of the basic
management fee and incentive fee for the immediately preceding 12 months, plus
any other amounts owed to HWCC-Shreveport.
Technical Services Agreement
In connection with the management agreement, we have also entered into a
technical services agreement with HWCC-Shreveport, under which HWCC-Shreveport
is currently performing various advisory services in connection with the design
and construction of the Shreveport resort and will continue to do so until it
is substantially completed. As remuneration, we will reimburse HWCC-Shreveport
on a monthly basis for all expenses incurred in connection with its services.
Lease with the City of Shreveport
We have entered into a lease with the City of Shreveport for the land on
which our Shreveport resort will be constructed. The initial term of the lease
will begin on the day that construction of our resort begins and end ten years
after the date the resort opens. We have options to renew the lease on the same
terms for eight
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<PAGE>
successive terms of five years each. Thereafter, we will have the option to
extend the lease under the then prevailing market rates and terms for ground
leases in the Shreveport/Bossier City area to owners and operators of riverboat
casinos.
The City of Shreveport may terminate the lease as a result of, among other
things, a default by us under the lease or failure to substantially complete
construction within 18 months of commencement, subject to extensions by the
Louisiana Gaming Control Board. We have the right to terminate the lease at any
time if operation of the Shreveport resort becomes uneconomic.
Base rental payments under the lease will be $10,000 per month during the
construction period increasing to $450,000 per year upon opening and continuing
at that amount for the remainder of the initial lease term. During the first
five-year renewal term, the annual base rental payment will be $402,500. The
annual base rental payment will be $462,875 for the second five-year renewal
term, $532,306 for the third five-year renewal term, $612,152 for the fourth
five-year renewal term and $703,975 for the fifth five-year renewal term with
no further increases. In addition to the base rent, we will pay monthly
percentage rent of not less than $500,000 per year, equal to 1% of monthly
adjusted gross revenues and the amount, if any, by which the monthly parking
facilities' net income exceeds the parking income credit.
Retail Lease
In connection with the ground lease, we have entered into a retail space
lease with Red River Entertainment under which we have leased approximately
42,000 square feet of retail space to Red River Entertainment. The initial term
of the lease is the same period as our lease with the City of Shreveport. Red
River Entertainment has three five-year options to renew the lease upon 180
days prior notice to us. Red River Entertainment will pay $6 per square foot
annually, payable monthly. In addition, Red River Entertainment will pay us a
percentage rent equal to the sum of:
. 50% of the net cash flow generated by the retail space which does
not exceed $550,000 per year;
. 25% of the net cash flow generated by the retail space in excess of
$550,000 and which does not exceed $615,000 during the year; and
. 40% of the net cash flow generated by the retail space in excess of
$615,000 in that year.
Trademark License Agreement
We have entered into a trademark license agreement with Hollywood Casino,
under which Hollywood Casino granted a license to us to use all of Hollywood
Casino's service marks and trademarks for an initial term of five years, with
automatic renewals each year for an additional one year period. In connection
with the trademark license agreement, we may only use the trademarks in Bossier
and Caddo Parishes, Louisiana, the parishes encompassing Shreveport and Bossier
City. We will pay royalties in the amount of $100 per year to Hollywood Casino
for the use of the license. Upon termination of the management agreement for
any reason, the license agreement will also terminate and we will only be
permitted to use the Hollywood Casino trademarks for six months following such
termination.
Tax Sharing Agreement
HWCC-Louisiana, HCS I and HCS II have entered into a tax sharing agreement
with Hollywood Casino. Hollywood Casino is the parent company of a group of
companies which includes HWCC-Louisiana, HCS I and HCS II and files
consolidated federal income tax returns. Under the terms of the tax sharing
agreement, each of HWCC-Louisiana, HCS I and HCS II will pay Hollywood Casino
an amount equal to its separate tax liability. The separate tax liability of
each of HWCC-Louisiana, HCS I and HCS II will be that amount of federal income
tax that it would owe if it filed a tax return independent of the Hollywood
Casino group of companies. If the calculation of the separate tax liability for
any year results in a net operating loss, Hollywood Casino will credit the
amount of the loss against any amount which HWCC-Louisiana, HCS I and HCS II
might otherwise have to pay Hollywood Casino in any future tax year or refund
HWCC-Louisiana, HCS I and
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HCS II amounts previously paid by HWCC-Louisiana, HCS I and HCS II under the
tax sharing agreement, provided that HWCC-Louisiana, HCS I and HCS II remain a
part of the Hollywood Casino group of companies. The obligation of HWCC-
Louisiana, HCS I and HCS II to make tax payments under the tax sharing
agreement continues regardless of whether there has been a default in the
payment of the notes.
In the event that HWCC-Louisiana, HCS I or HCS II are required to file a
consolidated, combined, unitary or similar tax return for state or local income
or franchise tax purposes, the tax sharing agreement will be amended so as to
apply the principles set forth therein to such tax return, and the definition
of "Tax Amount" in the indenture will include amounts sufficient to permit
HWCC-Louisiana, HCS I and HCS II to satisfy their respective obligations under
the tax sharing agreement as so amended.
Compromise Agreement; Side Agreement
HWCC-Louisiana entered into a compromise agreement with Hilton New Orleans
Corporation, New Orleans Paddlewheels and the City of New Orleans, in
connection with which Hilton New Orleans agreed to pay the City of New Orleans
$5.0 million in settlement of tax claims made by the City of New Orleans
against our predecessor and HWCC-Louisiana and Sodak agreed to pay an
additional $5.0 million to the City of New Orleans contingently upon receipt of
the first proceeds of construction financing representing approximately 70% of
the total project cost for the Shreveport resort. HCS I and HCS II assumed this
obligation of HWCC-Louisiana and Sodak Louisiana. The $5.0 million payment to
the City of New Orleans was made in August 1999.
Loan and Settlement Agreement
In connection with the compromise agreement, New Orleans Paddlewheels,
Shreveport Paddlewheels, HWCC-Louisiana, Sodak Louisiana and Hilton New Orleans
have entered into a loan and settlement agreement. Under this agreement, HWCC-
Louisiana and Sodak Louisiana agreed that we would contingently reimburse a
$2.0 million payment made by Hilton New Orleans to the City of New Orleans upon
the earlier of the termination of the construction of the Shreveport resort or
in ten monthly installments of $200,000 beginning with the opening of the
Shreveport resort. This obligation arose upon the completion of the offering of
the original notes and HCS I and HCS II assumed the obligations of HWCC-
Louisiana to cause us to pay the $2.0 million under the agreement.
Marine Services Agreement
We have entered into a marine services agreement with Shreveport
Paddlewheels, in connection with which Shreveport Paddlewheels will provide
consulting services concerning marine regulatory matters in connection with the
construction, development and operation of our riverboat casino. We will pay
Shreveport Paddlewheels a consulting fee of $30,000 per month plus reasonable
expenses, beginning on the opening date of our Shreveport resort. The marine
services agreement terminates immediately if neither Shreveport Paddlewheels
nor one of its affiliates owns an interest in the Shreveport resort.
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MANAGEMENT
We draw upon the gaming experience of Hollywood Casino, which, through HWCC-
Shreveport, will develop, manage and oversee the operation of the Shreveport
resort. The name, age and respective position of each director and executive
officer, each of whom, with the exception of Juris Basens, holds a comparable
position with Hollywood Casino, are as follows:
<TABLE>
<CAPTION>
Name Age Positions
---- --- ---------
<C> <C> <S>
Jack E. Pratt........... 72 Chief Executive Officer and Chairman of the Board
of Directors
Edward T. Pratt, Jr. ... 76 Vice Chairman of the Board of Directors
William D. Pratt........ 71 Executive Vice President, Secretary, General
Counsel and Director
Edward T. Pratt III..... 44 President
Paul C. Yates........... 38 Executive Vice President, Chief Financial
Officer, Treasurer and Assistant Secretary
Charles F. LaFrano III.. 44 Vice President and Assistant Secretary
Juris Basens............ 45 Vice President and General Manager
</TABLE>
Set forth below is a description of the backgrounds of our directors and
executive officers. Jack E. Pratt, Edward T. Pratt, Jr. and William D. Pratt
are brothers and Edward T. Pratt III is the son of Edward T. Pratt, Jr. There
is no other family relationship between any of the directors and any of the
executive officers or any of our subsidiaries or affiliates. Our officers are
elected by the Board of Directors and hold office until their respective
successors are duly elected and qualified.
Jack E. Pratt has been Chief Executive Officer of HWCC-Louisiana and HWCC-
Shreveport since June 16, 1999 and of HCS I, HCS II and Shreveport Capital
since July 21, 1999. He also served as Chairman of the Board of Directors and
President of HWCC-Louisiana from April 1993 to June 15, 1999 and as Chairman of
the Board of Directors and President of HWCC-Shreveport from November 1997 to
June 15, 1999. Mr. Pratt has been Chief Executive Officer and Chairman of the
Board of Hollywood Casino since 1993. From 1990 to May 1995, he also served as
President of Hollywood Casino. Mr. Pratt has served as a director of Greate Bay
Casino Corporation for more than five years. He also served as Chairman of the
Board of Directors and Chief Executive Officer of Greate Bay for more than five
years prior to his resignation from such positions on January 2, 1998. Mr.
Pratt served as Chairman of the Board of Directors and Chief Executive Officer
of GB Holdings, Inc. and Greate Bay Hotel and Casino, Inc. and as Chairman of
the Board of Directors, President and Chief Executive Officer of GB Property
Funding until his resignation from such positions on January 2, 1998. On
January 5, 1998, these Greate Bay subsidiaries filed petitions for relief under
Chapter 11 of the United States Bankruptcy Code. Mr. Pratt served until his
resignation from such positions in January 1998 as Chairman of the Board of
Directors and Chief Executive Officer of Pratt Casino Corporation, Chairman of
the Board of Directors, President and Chief Executive Officer of PRT Funding
Corp. and Chairman of the Board of Directors and President of New Jersey
Management, Inc. On May 25, 1999, Pratt Casino, PRT Funding and New Jersey
Management filed petitions for relief under Chapter 11 of the United States
Bankruptcy Code.
Edward T. Pratt, Jr. has been Vice Chairman of the Board of Directors of
HWCC-Louisiana and HWCC-Shreveport since June 16, 1999 and of HCS I, HCS II and
Shreveport Capital since July 21, 1999. He also served as Vice President,
Treasurer and a director of HWCC-Louisiana from April 1993 to June 15, 1999 and
as Vice President, Treasurer and a director of HWCC-Shreveport from November
1997 to June 15, 1999. Mr. Pratt has been Vice President, Treasurer and Vice
Chairman of the Board of Directors of Hollywood Casino since 1990 and has
served for more than five years as Treasurer and Vice Chairman of the Board of
Directors of Greate Bay. Mr. Pratt also served until his resignation from such
positions on January 2, 1998 as Vice Chairman of the Board of Directors of GB
Holdings and of GB Property Funding and as a director of Great Bay Hotel and
Casino. On January 5, 1998, these Greate subsidiaries filed petitions for
relief under Chapter 11 of the United States Bankruptcy Code. Mr. Pratt has
been Chief Financial Officer, Principal Accounting Officer and a director of
Pratt Casino, PRT Funding and New Jersey Management since January 2, 1998 and
also
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served as Vice Chairman of the Board of Directors of Pratt Casino and PRT
Funding from September 1993 to January 1, 1998 and as Executive Vice President,
Treasurer and a director of New Jersey Management for more than five years
prior to January 1, 1998. On May 25, 1999, Pratt Casino, PRT Funding and New
Jersey Management filed petitions for relief under Chapter 11 of the United
States Bankruptcy Code.
William D. Pratt has been Executive Vice President, Secretary, General
Counsel and a director of HWCC-Louisiana and HWCC-Shreveport since June 16,
1999 and of HCS I, HCS II and Shreveport Capital since July 21, 1999. He also
served as Vice President, Secretary and a director of HWCC-Louisiana from April
1993 to June 15, 1998 and as Vice President, Secretary and a director of HWCC-
Shreveport from November 1997 to June 15, 1999. Mr. Pratt has served as
Executive Vice President, Secretary, General Counsel and a director of
Hollywood Casino since 1990 and has served as Executive Vice President,
Secretary, General Counsel and director of Greate Bay for more than five years.
Mr. Pratt also served until his resignation from such positions on January 2,
1998 as Executive Vice President, General Counsel and Secretary of GB Holdings
and GB Property Funding and as a director of Greate Bay Hotel and Casino. On
January 5, 1998, these Greate Bay subsidiaries filed petitions for relief under
Chapter 11 of the United States Bankruptcy Code. Mr. Pratt also served until
his resignation from such positions in January 1998 as Executive Vice
President, Secretary, General Counsel and a director of Pratt Casino and PRT
Funding and as Vice President, Secretary and a director of New Jersey
Management. On May 25, 1999, Pratt Casino, PRT Funding and New Jersey
Management filed petitions for relief under Chapter 11 of the United States
Bankruptcy Code.
Edward T. Pratt III has been President of HWCC-Louisiana and HWCC-Shreveport
since June 16, 1999 and of HCS I, HCS II and Shreveport Capital since July 21,
1999. From October 1998 to June 15, 1999, he also served as Vice President of
HWCC-Louisiana and HWCC-Shreveport. Mr. Pratt has served on the Board of
Directors of Hollywood Casino since 1992. From 1992 to July 1993, he served as
Vice President, from July 1993 to May 1995, he served as Executive Vice
President, and in May 1995, Mr. Pratt was elected President and Chief Operating
Officer of Hollywood Casino. Mr. Pratt served as Executive Vice President--
Development and Corporate Affairs of Greate Bay for more than five years until
November 1995 when he was elected President and Chief Operating Officer of
Greate Bay. He also served until his resignation from such positions on
January 2, 1998 as President, Chief Operating Officer and a director of GB
Holdings and as Executive Vice President and a director of GB Property Funding.
On January 5, 1998, these Greate Bay subsidiaries filed petitions for relief
under Chapter 11 of the United States Bankruptcy Code. Mr. Pratt has been
Executive Vice President and Secretary of Pratt Casino, PRT Funding and New
Jersey Management since January 2, 1998 and also served as President, Chief
Operating Officer and a director of Pratt Casino and as Executive Vice
President and a director of PRT Funding from September 1993 to January 1, 1998.
On May 25, 1999, Pratt Casino, PRT Funding and New Jersey Management filed
petitions for relief under Chapter 11 of the United States Bankruptcy Code.
Paul C. Yates has been Executive Vice President, Chief Financial Officer and
Assistant Secretary of HWCC -Louisiana and HWCC-Shreveport since June 16, 1999
and Treasurer of HWCC-Louisiana and HWCC-Shreveport since July 21, 1999 and has
been Executive Vice President, Chief Financial Officer, Treasurer and Assistant
Secretary of HCS I, HCS II and Shreveport Capital since July 21, 1999. Mr.
Yates has also served as Executive Vice President and Chief Financial Officer
of Hollywood Casino since May 1998. Prior to August 1997, Mr. Yates served as a
Managing Director of Bear, Stearns & Co. Inc., a leading national investment
banking firm, for a period of more than five years. Bear, Stearns & Co. served
as an underwriter with respect to Hollywood Casino's October 1995 offering of
its 12 3/4% Senior Secured Notes, Hollywood Casino's May 1999 offering of its
11 1/4% Senior Secured Notes due 2007 and Floating Rate Senior Secured Notes
due 2006 and was an initial purchaser of the original notes offered in the
original offering.
Charles F. LaFrano III has been Vice President and Assistant Secretary of
HWCC-Louisiana and HWCC-Shreveport since October 1998 and of HCS I, HCS II and
Shreveport Capital since July 21, 1999. Mr. LaFrano has also served as Vice
President of Finance of Hollywood Casino since 1994 and has served as Vice
President of Greate Bay for more than five years. Mr. LaFrano served until his
resignation from such positions on January 2, 1998 as Vice President and
Assistant Secretary of GB Holdings and GB Property Funding. On January 5, 1998,
these Greate Bay subsidiaries filed petitions for relief under Chapter 11 of
the United States
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Bankruptcy Code. Mr. LaFrano served until his resignation from such positions
in January 1998 as Vice President and Assistant Secretary of Pratt Casino and
PRT Funding. On May 25, 1999, Pratt Casino and PRT Funding filed petitions for
relief under Chapter 11 of the United States Bankruptcy Code.
Juris Basens has been Vice President and General Manager of HCS I and Vice
President of HWCC- Shreveport since September 1999. Prior to such time, Mr.
Basens served as Vice President and General Manager of Casino Magic in Bossier
City, Louisiana, for a period of approximately two years. Mr. Basens also
served as Vice President and Chief Operating Officer of Casino Magic Corp. for
approximately one year. Prior to July 1996, Mr. Basens served as Vice President
and Chief Operating Officer of Casino America, Inc.
Compensation of Our Executive Officers
Each of the foregoing executive officers, with the exception of Juris Basens,
is also a full-time salaried employee of Hollywood Casino and will not be
compensated by us but will provide management services to us with respect to
the operation of the Shreveport resort.
Hollywood Casino Executive Compensation
The following table provides certain summary information concerning
compensation Hollywood Casino paid or accrued to or on behalf of its Chief
Executive Officer and each of its four other most highly compensated executive
officers determined as of the end of the last fiscal year for the fiscal years
ended December 31, 1999, 1998 and 1997.
<TABLE>
<CAPTION>
Annual Compensation Long-term
------------------------------ Compensation
Other Annual Awards/ All Other
Name and Principal Position Year Salary Bonus Compensation Options Compensation(1)
- --------------------------- ---- -------- -------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Jack E. Pratt(2)......... 1999 $645,000 $284,749 $-- 450,000 $29,610
Chief Executive Officer
and 1998 643,729 170,208 -- 150,000 19,270
Chairman of the Board 1997 643,235 228,476 -- 150,000 33,920
Edward T. Pratt III(2)... 1999 425,000 284,749 -- 450,000 4,000
President and Chief
Operating 1998 423,860 170,208 -- 150,000 4,000
Officer 1997 423,840 228,476 -- 150,000 3,500
Edward T. Pratt, Jr.(2).. 1999 325,000 122,145 -- -- 4,000
Vice President,
Treasurer and 1998 323,425 73,012 -- -- 4,000
Vice Chairman of the
Board 1997 324,312 101,545 -- -- 3,500
William D. Pratt(2)...... 1999 295,000 122,145 -- -- 16,815
Executive Vice
President, 1998 293,373 73,012 -- -- 11,240
Secretary and General
Counsel 1997 294,195 101,545 -- -- 11,547
Paul C. Yates(3)......... 1999 250,000 114,510 -- 50,000 1,442
Executive Vice President
and 1998 164,113 75,000 -- 150,000 --
Chief Financial Officer
</TABLE>
- --------
(1) Includes matching contributions by Hollywood Casino to The Hollywood Casino
Corporation Retirement Savings Plan (the "Savings Plan") on behalf of the
named executive officer. See "--Employee Retirement Savings Plan." Amounts
provided above for Jack E. Pratt, Edward T. Pratt, Jr. and William D. Pratt
also include pension benefit accruals on their behalf. See also "--
Employment Contracts."
(2) Jack E. Pratt held and Edward T. Pratt, Jr., William D. Pratt and Edward T.
Pratt III concurrently hold positions as officers of Greate Bay Casino
Corporation. Through September 1998, Greate Bay reimbursed Hollywood Casino
for that portion of salary, bonus and other compensation which relates to
services provided by Greate Bay. Effective October 1, 1998, Greate Bay pays
Hollywood Casino a monthly service fee which approximates its portion of
shared overhead costs.
(3) Mr. Yates began his employment in May 1998 and, therefore, the amounts
reflected above for 1998 represent only the period from the commencement of
his employment through the end of the year.
54
<PAGE>
Option Grants in Last Fiscal Year
The following table contains information concerning the grant of stock
options under the Hollywood Casino Corporation 1996 Long-Term Incentive Plan
(the "1996 Plan") to the named executive officers. No grants of stock options
under the 1992 Hollywood Casino Corporation Stock Option Plan (the "1992 Plan")
were made to the named executive officers during the fiscal year ended December
31, 1999.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation for
Option Grants in Last Fiscal Year-Individual Grants Option Term
------------------------------------------------------------ -----------------------
% of
Total Options
Options/ Granted to Market Price
SAR'S Employees in Exercise or on Date of Expiration
Name Granted(1) Fiscal Year Base Price Grant Date 5% 10%
---- ---------- ------------- ----------- ------------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Jack E. Pratt........... 450,000 35.0 $1.25 $1.25 4/5/04 $ 155,408 $343,412
Edward T. Pratt III..... 450,000 35.0 1.25 1.25 4/5/04 155,408 343,412
Edward T. Pratt, Jr. ... -- -- -- -- -- -- --
William D. Pratt........ -- -- -- -- -- -- --
Paul C. Yates........... 50,000 3.9 1.25 1.25 4/5/09 25,444 59,295
</TABLE>
- --------
(1) Options are granted "at market" on the date of grant and first become
exercisable six months from the date of grant for Jack E. Pratt and Edward
T. Pratt III. The options granted to Mr. Yates were awarded on April 6,
1999 and become exercisable as follows: 10,000 shares on or after
December 1, 1999 and 10,000 shares on or after each December 1 of 2000,
2001, 2002 and 2003.
Option Exercises and Holdings
The following table provides information, with respect to the named executive
officers, concerning options outstanding under the 1992 Plan and the 1996 Plan
during the last fiscal year and unexercised options held as of the end of the
fiscal year. There were no in the money options at fiscal year end as the
market price was less than the exercise price in all cases.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values
<TABLE>
<CAPTION>
Value of Unexercised
in the Money Options
at Fiscal Year-End
Value Realized (Market Price of Shares
(Market Price Number of Unexercised at Fiscal Year End($4.31)
Shares at Exercise Options at Fiscal Year End Less Exercise Price)
Acquired Less ------------------------------ -------------------------
Name on Exercise Exercise Price) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- --------------- ------------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jack E. Pratt........... -- $ -- 900,000 -- $2,165,625 $ --
Edward T. Pratt III..... -- -- 900,000 -- 2,165,625 --
Edward T. Pratt, Jr. ... -- -- -- -- -- --
William D. Pratt........ -- -- -- -- -- --
Paul C. Yates........... -- -- 60,000 140,000 150,938 363,125
</TABLE>
On June 19, 1998, the Hollywood Casino Board of Directors approved the
repricing of all options granted under the Hollywood Casino Corporation 1996
Non-Employee Director Stock Option Plan (the "Directors Plan") before January
1, 1998. The exercise price on these options was reset at $1.75 per share, the
market value of the stock of Hollywood Casino at the date of repricing. All of
the options repriced remain fully vested. The following table presents
information concerning the repricing of options to all of the executive
officers and directors since their inception.
55
<PAGE>
Ten Year Option Repricing Table
<TABLE>
<CAPTION>
Length of
Number of Market Original
Securities Price of Option Term
Underlying Stock Exercise Price New Remaining at
Date of Options at Time at Time of Exercise Date of
Name Repricing Required of Repricing Repricing Price Repricing
---- --------- ---------- ------------ -------------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
James A. Colquitt....... 6/19/98 10,000 $1.75 $6.25 $1.75 8 yr.
James A. Colquitt....... 6/19/98 2,500 1.75 3.88 1.75 8 yr., 7 mo.
Theodore H. Strauss..... 6/19/98 10,000 1.75 6.25 1.75 8 yr.
Theodore H. Strauss..... 6/19/98 2,500 1.75 3.88 1.75 8 yr., 7 mo.
Oliver B. Revell III.... 6/19/98 10,000 1.75 2.81 1.75 9 yr., 3 mo.
</TABLE>
Compensation Committee Interlocks and Insider Participation
The compensation committee of the Hollywood Casino Board of Directors is
comprised of William D. Pratt, James A. Colquitt and Theodore H. Strauss. Mr.
Pratt also serves as an executive officer and director of Greate Bay. Mr.
Strauss is a Senior Managing Director of Bear, Stearns & Co., which served as
underwriters with respect to Hollywood Casino's offering of its 12 3/4% Senior
Secured Notes and was an initial purchaser of Hollywood Casino's 1999 offering
of $360.0 million Senior Secured Notes.
Compensation of Directors
Hollywood Casino's non-employee directors receive an annual fee of $50,000
for service on the Board of Directors as well as grants of stock options under
the Director's Plan. Directors who are Hollywood Casino officers, employees or
otherwise affiliated with Hollywood Casino are not presently expected to
receive compensation for their services as directors. Directors are entitled to
reimbursement of their reasonable out-of-pocket expenses in connection with
their travel to and attendance at meetings of the Hollywood Casino Board of
Directors or committees of the Hollywood Casino Board of Directors.
Employment Contracts
Jack E. Pratt, Chairman of the Board and Chief Executive Officer, Edward T.
Pratt, Jr., Vice Chairman of the Board, Vice President and Treasurer, and
William D. Pratt, Executive Vice President, Secretary and General Counsel, are
under employment contracts with Hollywood Casino and have provided services to
Greate Bay under intercompany service and allocation agreements ratified by the
respective non-interested directors of the Board of Directors. Their employment
contracts were executed during October 1989 and originally expired on September
30, 1992, but have subsequently been extended by amendment through December 31,
2003 with respect to Jack E. Pratt and to December 31, 2002 with respect to
Edward T. Pratt, Jr. and William D. Pratt. Services to Greate Bay will continue
to be provided pursuant to intercompany service agreements. The terms of the
contracts may be extended again by mutual agreement of the parties and the
extended term, or any further extension thereof, will be followed immediately
by a four-year period as consultants to Hollywood Casino. Upon expiration of
the consulting term, each of the Pratt brothers will be entitled to receive a
lifetime pension benefit and his designated beneficiary is entitled to receive
a death benefit, throughout the term of the employment, consulting and pension
benefit periods.
The terms of the employment contracts provide for an annual base salary in
the first year for Jack E. Pratt, Edward T. Pratt, Jr. and William D. Pratt of
$350,000, $223,000 and $191,000, respectively, subject to annual review and
increase by the compensation committee of the Hollywood Casino Board of
Directors. Compensation under the consulting and pension benefit provisions of
the employment contracts of each of the Pratt brothers will be 75% of their
respective highest annual salaries during the employment term of each contract.
The death benefit is derived by multiplying each Pratt brother's highest annual
salary during his employment term by 50%. The benefit will be paid annually to
his designated beneficiary for a period of
56
<PAGE>
ten years after his death. The estimated annual pension benefit payable to Jack
E. Pratt, Edward T. Pratt, Jr. and William D. Pratt is currently $500,000,
$250,000 and $227,000, respectively.
Edward T. Pratt III, President and Chief Operating Officer, is under an
employment contract with Hollywood Casino dated as of January 1, 2000 in such
capacities continuing through December 31, 2003 unless sooner terminated by
either party. The terms of Mr. Pratt's agreement provide for a minimum annual
base salary effective January 1, 2000 of $468,000, subject to annual review and
increase by the compensation committee of the Hollywood Casino Board of
Directors. If a change in control occurs, the agreement provides that if Mr.
Pratt's employment were to be terminated, he would receive the greater of the
remaining compensation under his employment contract or three times his then
annual base salary, payable in a lump sum or in equal monthly installments over
the applicable period.
Paul C. Yates, Executive Vice President and Chief Financial Officer, is under
an employment contract with Hollywood Casino dated as of January 1, 2000
continuing through December 31, 2002, unless sooner terminated by either party.
The terms of Mr. Yates agreement provide for a minimum annual base compensation
of $275,000 during 2000 and increasing to an annual base compensation of
$300,000 effective January 1, 2001 for the remainder of the term of the
contract. In addition, Mr. Yates participates in Hollywood Casino's incentive
bonus plans; however, the employment agreement provides for a minimum annual
bonus of $75,000. If a change in control occurs, the agreement provides that if
Mr. Yates' employment were to be terminated, he would receive the remaining
compensation and minimum bonus under his employment agreement payable in a lump
sum or in equal monthly installments over the applicable period.
HWCC Development Corporation entered into an employment agreement with Juris
Basens which was subsequently assigned to us. Under the employment agreement,
Mr. Basens will serve as our Vice President and General Manager until August
30, 2002. Mr. Basens will receive an annual base salary of $225,000 and a
minimum incentive bonus of $8,333 per month until December 31, 2000 and a
minimum annual bonus of $150,000 for each calendar year thereafter. Mr. Basens
also received a one-time signing bonus of $75,000. On September 16, 1999,
Hollywood Casino granted Mr. Basens stock options to purchase 50,000 shares of
class A common stock of Hollywood Casino pursuant to the 1996 Plan at an
exercise price of $2.50 per share, the market value on the date of grant, that
will vest in increments of 12,500 shares on each September 16 in the years 2000
through 2003.
Stock Option Plans
The Hollywood Casino Corporation 1996 Long-Term Incentive Plan. During 1996,
Hollywood Casino's stockholders approved the adoption of the Hollywood Casino
Corporation 1996 Long-Term Incentive Plan. Hollywood Casino has reserved
3,000,000 shares of its class A common stock for grants of nonqualified stock
options, stock options qualified for special tax treatment under the Code and
restricted stock awards (collectively, "awards") to its employees and those of
its subsidiaries.
Awards under the 1996 Plan, together with the exercise price, vesting
schedule and restrictions and conditions, if any, are determined by a committee
of the Hollywood Casino Board of Directors. However, any common stock acquired
pursuant to an award to a director, executive officer or 10% or greater
stockholder must be held by that participant for at least six months from the
date of the award, unless the committee determines that a disposition would not
violate the federal securities laws. The exercise price must be at least 100%,
or at least 110% in the case of incentive stock options granted to certain
employees who own greater than 10% of Hollywood Casino's outstanding common
stock, of the fair market value of the common stock on the date of grant and
may be paid in cash or in shares of Hollywood Casino common stock valued at
fair market value on the date of exercise.
No participant in the 1996 Plan may currently receive awards during any
fiscal year covering an aggregate of more than 500,000 shares of common stock.
The grant of incentive stock options is also subject to a $100,000 calendar
year limit for each participant. Upon termination of a participant's employment
for any reason, the participant will forfeit the nonvested portions of all
awards he or she holds. Awards which have not yet vested are not transferable
or assignable other than by will, by the laws of descent and distribution or as
57
<PAGE>
otherwise allowed by the 1996 Plan. The 1996 Plan also provides that if a
change in control occurs, all unmatured installments of awards will become
fully accelerated and exercisable in full.
The Hollywood Casino Corporation 1996 Non-Employee Director Stock
Plan. During 1996, Hollywood Casino's stockholders approved the adoption of the
Hollywood Casino Corporation 1996 Non-Employee Director Stock Plan. Hollywood
Casino has reserved 150,000 shares of its class A common stock for grants of
nonqualified stock options to its directors who are not employees ("outside
directors") in order to attract and retain these individuals and encourage
their performance.
Under the Directors' Plan, an option to purchase 10,000 shares of common
stock of Hollywood Casino was granted to each outside director upon adoption of
the Directors' Plan in 1996. Each person becoming an outside director of
Hollywood Casino after adoption of the Directors' Plan will automatically
receive an option to purchase 10,000 shares on the date that person becomes a
director. Additionally, outside directors will receive a nonqualified option to
purchase 2,500 shares of Hollywood Casino common stock on January 15 of each
year. The exercise price for all options under the Directors' Plan is 100% of
the fair market value of the common stock on the date of grant and may be paid
in cash or in shares of Hollywood Casino common stock valued at fair market
value on the date of exercise. An outside director may also elect to receive
all or part of his or her retainer fee in the form of common stock based on the
market value of the common stock as of the end of the period for which such fee
applies. Common stock received in lieu of a retainer fee is fully vested upon
receipt.
Options granted under the Directors' Plan extend for ten years from and may
be exercised any time after six months from the date of grant. Upon termination
of a participant's service as a director due to death or total disability,
outstanding options may be exercised for a period of 12 months after the
termination unless the original expiration date of the option is sooner. Upon
termination of a participant's service as a director for reason of retirement,
outstanding options may be exercised for a period of three months after
retirement. Options granted under the Directors' Plan are not transferable or
assignable other than by will, by the laws of descent and distribution or as
otherwise allowed by the Directors' Plan.
The 1992 Hollywood Casino Corporation Stock Option Plan. During 1992,
Hollywood Casino reserved 1,197,000 shares of its class B common stock for the
purpose of establishing the Hollywood Casino Corporation 1992 Stock Option Plan
for its key executives. After the completion of its initial public offering in
June 1993, all stock options outstanding under the 1992 Plan became exercisable
for class A common stock and any options granted under the 1992 Plan after that
date are to purchase class A common stock.
Options granted under the 1992 Plan vest in equal annual installments over a
period of three years. In the event of the death, disability or retirement of a
participant in the 1992 Plan, the participant's options will accelerate and be
exercisable in full. If the participant's employment with Hollywood Casino is
terminated for cause, the options held by that participant will automatically
terminate. Options granted under the 1992 Plan are not assignable except by
will, the laws of descent and distribution or pursuant to a qualified domestic
relations order. The 1992 Plan provides that if any person or group, other than
certain members of the Pratt family, becomes the beneficial owner of 51% or
more of the total voting power of each class of Hollywood Casino's capital
stock, subject to particular exceptions, the vesting of all outstanding options
will accelerate and be exercisable in full. The exercise of incentive stock
options granted under the 1992 Plan is subject to a $100,000 calendar-year
limit for each option holder based on the fair market value of the Hollywood
Casino's common stock at the time the option was granted. The exercise price of
options granted under the 1992 Plan may be paid in cash or in shares of class A
common stock valued at fair market value on the date of exercise.
Employee Retirement Savings Plan
During 1993, Hollywood Casino adopted The Hollywood Casino Corporation
Retirement Savings Plan, a qualified defined contribution plan for the benefit
of all of its employees who satisfy certain eligibility
58
<PAGE>
requirements. The Savings Plan is qualified under the requirements of Section
401(k) of the Internal Revenue Code allowing participating employees to benefit
from the tax deferral opportunities provided therein. All of their employees
who have completed one year of service and who have attained the age of 21, are
eligible to participate in the Savings Plan.
The Savings Plan provides for Hollywood Casino to make matching contributions
based upon certain criteria, including levels of participation by our
employees. Hollywood Casino accrued matching contributions totaling
approximately $652,000 for the year ended December 31, 1999.
Hollywood Casino's Design and Construction Team
Edward T. Pratt III is responsible for supervising the design, development,
construction and opening of the Shreveport resort. Mr. Pratt has over 20 years
of experience managing the construction of casino and hotel properties. Mr.
Pratt has been involved in numerous construction projects at Hollywood Casino
and its affiliates, including Hollywood Casino's dockside gaming facility and
hotel tower in Tunica County, Mississippi and its riverboat facility and
entertainment complex in Aurora, Illinois. Mr. Pratt has also been involved in
the construction of numerous hotel properties. Representative projects are the
Maxim's de Paris Hotels in New York City (now the Peninsula Hotel) and Palm
Springs, California and the Sheraton Hotel in Orlando.
Edwin C. Hanson III is the Vice President of Architecture and Construction of
HWCC Development Corporation, Hollywood Casino's development subsidiary, and
joined Hollywood Casino and its affiliates in March 1988. In this capacity, Mr.
Hanson is the principal employee responsible for supervising the construction
process, including developing initial plans and budgets, managing the bidding
process, selecting and hiring team consultants and contractors and transferring
projects to operations staff upon completion. Mr. Hanson has been involved with
numerous construction projects at Hollywood Casino and its affiliates,
including the construction of Hollywood Casino's dockside gaming facility and
hotel tower in Tunica County, Mississippi and its riverboat facility and
entertainment complex in Aurora, Illinois and renovations of the Sands Hotel
and Casino in Atlantic City, New Jersey. Prior to joining Hollywood Casino, Mr.
Hanson worked in the design and construction industry for nearly ten years and
was involved in a number of hotel and condominium projects. A representative
project is Trump's Castle Hotel and Casino in Atlantic City.
Charles F. LaFrano III is primarily responsible for the financial management
and cost control of Hollywood Casino's construction and development projects,
including conceptual cost estimates and project and construction cost
accounting. Mr. LaFrano has been involved with previous construction projects
at Hollywood Casino and its affiliates, including Hollywood Casino's dockside
gaming facility and hotel tower in Tunica County, Mississippi and its riverboat
facility and entertainment complex in Aurora, Illinois.
Samuel G. Bocchicchio is the Vice President of Design and Development of HWCC
Development and joined Hollywood Casino and its affiliates in January 1983. In
this capacity, Mr. Bocchicchio is primarily responsible for incorporating the
Hollywood theme into the designs and developments of Hollywood Casino, as well
as marketing materials, signage and other external communications. Mr.
Bocchicchio has been involved with designing the casino and hotel facilities at
all of Hollywood Casino's Tunica and Aurora facilities, as well as the Sands
Hotel and Casino in Atlantic City, New Jersey.
P. Sean Lavelle is the Vice President of Design and Procurement of HWCC
Development and joined Hollywood Casino and its affiliates in March 1999. In
this capacity, Mr. Lavelle is primarily responsible for developing the themed
identity program and managing the development process for new construction,
renovations and capital improvements for Hollywood Casino and its affiliates.
Mr. Lavelle also served as the Director of Design and Construction of Hollywood
Casino from 1992 to 1997 and was involved in the interior design of Hollywood
Casino's Aurora and Tunica County facilities. In addition, he served as Project
Manager of Hollywood Casino's affiliates from 1985 to 1989. Prior to joining
Hollywood Casino, Mr. Lavelle was responsible for developing and managing a
variety of projects, including capital improvements for 27 properties owned by
Richfield Hospitality Services, Inc. in 1997 and 1998 and the Grand Wailea
Resort and Spa in Wailea, Maui from 1989 to 1991.
59
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the common stock of Hollywood Casino by (1) each person who is
known by Hollywood Casino to own beneficially more than 5% of its common stock,
(2) each of Hollywood Casino's directors and named executive officers and (3)
all of Hollywood Casino's current directors and named executive officers as a
group. Hollywood Casino owns beneficially and of record all of the issued and
outstanding equity of HWCC-Shreveport, HWCC-Louisiana, HCS I and HCS II,
Shreveport Capital Corporation and the partnership interests (subject to
Shreveport Paddlewheels' residual interest) in Hollywood Casino Shreveport.
<TABLE>
<CAPTION>
Shares of
Common Stock Percentage of
Beneficial Owner Beneficially Owned(1) Outstanding Common Stock
- ---------------- --------------------- ------------------------
<S> <C> <C>
Jack E. Pratt.................. 8,669,377(2) 33.5%
Edward T. Pratt III............ 3,272,525(3) 12.7%
Edward T. Pratt, Jr............ 1,096,544 4.4%
William D. Pratt............... 1,385,747(4) 5.6%
Paul C. Yates.................. 224,000(5) *
Theodore H. Strauss............ 66,000(6) *
James A. Colquitt.............. 30,000(6) *
Oliver B. Revell III........... 17,500(6) *
All directors and officers as a
group (9 individuals)......... 14,787,693(7) 54.9%
</TABLE>
- --------
* Less than 1%
(1) Except as otherwise described, each individual has the sole power to vote
and dispose of the common stock beneficially owned by him.
(2) Mr. Pratt's address is Two Galleria Tower, Suite 2200, 13455 Noel Road,
Dallas, Texas 75240. Beneficial ownership is attributable to the following:
(a) C. A. Pratt Partners, Ltd., a Texas limited partnership of which Jack
E. Pratt is the General Partner, owns 1,642,001 shares, or 6.6%, of
Hollywood Casino's outstanding stock, (b) the MEP Family Partnership and
the CLP Family Partnership, both Texas general partnerships for which Mr.
Pratt is the Managing General Partner, own 14,000 and 7,000 shares,
respectively, both less than 1% of Hollywood Casino's outstanding stock,
(c) 1,109,632 shares, or 4.4%, of Hollywood Casino's outstanding stock
owned of record either by adult children of Mr. Pratt or by family trusts
and subject to a proxy giving him the right to vote such shares and
prohibiting the transfer of such shares without his approval and (d)
975,134 shares, or 3.9%, of Hollywood Casino's outstanding common stock
held by Mr. Pratt as custodian for his minor children. Also includes
options to purchase 900,000 shares of Hollywood Casino's common stock
exercisable within 60 days of the date hereof under the Hollywood Casino
Corporation 1996 Long-Term Incentive Plan (the "1996 Plan").
(3) Mr. Pratt's address is Two Galleria Tower, Suite 2200, 13455 Noel Road,
Dallas, Texas 75240. Beneficial ownership is attributable to 1,438,812
shares, or 5.8%, of Hollywood Casino's common stock owned of record by
siblings of Mr. Pratt and subject to a proxy giving him the right to vote
such shares and prohibiting the transfer of such shares without his
approval. Also includes options to purchase 900,000 shares of Hollywood
Casino's common stock exercisable within 60 days of the date hereof under
the 1996 Plan.
(4) Beneficial ownership is attributable to the following: (a) 381,088 shares,
or 1.5%, of Hollywood Casino's outstanding stock owned of record by adult
children of Mr. Pratt and subject to a proxy giving him the right to vote
such shares and prohibiting the transfer of such shares without his
approval and (b) WDP Jr. Family Trust, for which Mr. Pratt is the Managing
Trustee, owns 200,294 shares, less than 1% of Hollywood Casino's
outstanding stock.
(5) Includes options to purchase 94,000 shares of Hollywood Casino's common
stock exercisable within 60 days of the date hereof under the 1996 Plan.
(6) Includes 20,000 shares of Hollywood Casino's common stock for each of Mr.
Strauss and Mr. Colquitt and 15,000 shares of Hollywood Casino's common
stock for Mr. Revell subject to options exercisable within 60 days of the
date hereof under the Hollywood Casino Corporation 1996 Non-Employee
Director Stock Plan.
(7) Includes 1,963,000 shares of Hollywood Casino's common stock subject to
options exercisable within 60 days of the date hereof.
60
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Management Agreement
We have entered into a management agreement with HWCC-Shreveport. Under this
agreement, HWCC-Shreveport will manage the day-to-day operations of our
Shreveport resort. The terms of the management agreement are described in the
section entitled "Material Contracts--Management Agreement." We believe that
the terms of the agreement are at least as favorable as those that could be
obtained from third parties.
Technical Services Agreement
We have also entered into a technical services agreement with HWCC-Shreveport
to provide certain construction and project supervision services prior to the
opening of the Shreveport casino. The terms of the technical services agreement
are described in the section entitled "Material Contract--Technical Services
Agreement." We believe that the terms of the agreement are at least as
favorable as those that could be obtained from third parties.
Tax Sharing Agreement
The guarantors have entered into a tax sharing agreement with Hollywood
Casino and its other domestic corporate subsidiaries. Under this agreement,
Hollywood Casino will file consolidated federal income tax returns that include
the guarantors as part of a group of companies and each of the guarantors has
agreed to pay Hollywood Casino for its portion of the group's tax liability.
The terms of the tax sharing agreement are described in the section entitled
"Material Contracts--Tax Sharing Agreement." We believe that the terms of the
agreement are at least as favorable as those that could be obtained from third
parties.
Trademark License Agreement
We have entered into a trademark license agreement with Hollywood Casino.
Under this agreement, we will have the right to use the "Hollywood" name and
certain other trademarks in connection with our Shreveport resort. The terms of
the trademark license agreement are described in the section entitled "Material
Contracts--Trademark License Agreement." We believe that the terms of the
agreement are at least as favorable as those that could be obtained from third
parties.
Marine Services Agreement
We have entered into an agreement with Shreveport Paddlewheels to provide
certain marine services. The terms of the marine services agreement are
described in the section entitled "Material Contracts--Technical Services
Agreement." We believe that the terms of the agreement are at least as
favorable as those that could be obtained from third parties.
Assignment of Joint Venture Agreement
In connection with the assignment of all of New Orleans Paddlewheels' and a
portion of Shreveport Paddlewheels' interest in QNOV to HWCC-Louisiana and
Sodak Louisiana, we and those parties entered into an assignment agreement that
provides for, among other things, the payment to Shreveport Paddlewheels of an
amount equal to approximately 1% of our net revenues. The terms of the
assignment agreement are described in the section entitled "Material
Contracts--Assignment of Joint Venture Interest." HCS I and HCS II have assumed
HWCC-Louisiana's obligations under this agreement. We believe that the terms of
the agreement are at least as favorable as those that could be obtained from
third parties.
Loan and Settlement Agreement
In connection with the compromise agreement, New Orleans Paddlewheels,
Shreveport Paddlewheels, HWCC-Louisiana, Sodak Louisiana and Hilton New Orleans
have entered into a loan and settlement agreement. Under this agreement, HWCC-
Louisiana and Sodak Louisiana agreed that we would reimburse a $2.0 million
payment made by Hilton New Orleans to the City of New Orleans upon the earlier
of the termination of the construction of the Shreveport resort or in ten
monthly installments of $200,000, commencing with the opening of the Shreveport
resort. HCS I and HCS II have assumed HWCC-Louisiana's obligations to cause us
to pay the $2.0 million under this agreement. We believe that the terms of the
agreement are at least as favorable as those that could be obtained from third
parties.
61
<PAGE>
DESCRIPTION OF THE EXCHANGE OFFER
Purpose and Effect
On August 10, 1999, we sold the original notes to the initial purchasers. In
connection with the sale of the original notes, we entered a registration
rights agreement with the initial purchasers requiring us to register the notes
with the SEC and offer to exchange the registered notes for original notes. A
copy of the registration rights agreement has been filed as an exhibit to the
registration statement of which this prospectus is a part and we urge you to
read the text of the registration rights agreement. We expressly qualify all of
our discussions of the registration rights agreement by the terms of the
agreement itself. As a result of the timely filing and the effectiveness of the
registration statement, we will not owe liquidated damages provided for in the
registration rights agreement.
The registration rights agreement further provides that we will use our
reasonable best efforts to, among other things, cause to be filed with the SEC
this registration statement under the Securities Act with respect to an offer
to exchange your original notes for newly issued registered notes. Except as
discussed below, upon the completion of the exchange offer we will have no
further obligations to register your original notes. Any original notes not
tendered will continue to be subject to particular restrictions on transfer.
Accordingly, the liquidity of the market for the original notes could be
adversely affected upon consummation of the exchange offer.
In order to participate in the exchange offer, we require that you represent
to us that:
. you are acquiring the registered notes in the ordinary course of
your business;
. you are not engaging in, and do not intend to engage, in a
distribution of the registered notes;
. you do not have an arrangement or understanding with any person to
participate in the distribution of the registered notes;
. you are not our "affiliate," or an "affiliate" of the guarantors,
meaning that you, directly, or indirectly through one or more
intermediaries, do not control or are not controlled by or under
common control with, us or the guarantors; and
. if you are a broker-dealer, you will receive registered notes for
your own account, your registered notes will be acquired as a result
of market-making activities or other trading activities, and you
acknowledge that you will deliver a prospectus in connection with
any resale of your registered notes.
You may be entitled to "shelf" registration rights. In accordance with the
registration rights agreement, we are required to file a shelf registration
statement covering your original notes for a continuous offering of your
original notes if:
. we determine that we are not permitted to effect the exchange offer
because of any change in law or applicable interpretations of the
staff of the SEC; or
. any holder of Transfer Restricted Securities notifies us within 20
business days following the date the exchange offer is consummated
that:
(1) it is prohibited by law or SEC policy from participating in the
exchange offer; or
(2) it may not resell the registered notes acquired by it in the
exchange offer to the public without delivering a prospectus and
that this prospectus is not appropriate or available for such
resales; or
(3) it is a broker-dealer and owns original notes acquired directly
from us or any of our affiliates; or
. we do not consummate the exchange offer within 30 business days
after the exchange offer becomes effective.
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For purposes of the foregoing, "Transfer Restricted Securities" means each
original note until the earliest to occur of:
. the date on which the original note has been exchanged in the
exchange offer for a registered note which is entitled to be resold
to the public without complying with the prospectus delivery
requirements of the Securities Act,
. the date on which the original note has been disposed of in
accordance with a Shelf Registration Statement and the purchasers
thereof have been issued a registered note, or
. the date on which the registered note is distributed to the public
pursuant to the resale exemption contained in Rule 144 under the
Securities Act and each registered note held by a broker-dealer
until the date on which the registered note is disposed of by a
broker-dealer pursuant to the "Plan of Distribution" contemplated by
this registration statement, including the delivery of the
prospectus contained herein.
If we are obligated to file a shelf registration statement, we will be
required to keep the shelf registration statement effective for at least two
years until . Other than as described above, you will not have the right to
participate in the shelf registration or require that we register your original
notes in accordance with the Securities Act.
Based on interpretations of the SEC's staff set forth in no-action letters
issued to third parties unrelated to us and the guarantors, we believe that,
with the exceptions set forth below, your registered notes issued in connection
with the exchange offer in exchange for your original notes may be offered for
resale, resold, and otherwise transferred by you without compliance with the
registration and prospectus delivery requirements of the Securities Act if:
. the registered notes acquired in connection with the exchange offer
are being obtained in the ordinary course of your business;
. you are not engaging in and do not intend to engage in a
distribution of the registered notes;
. you do not have an arrangement or understanding with any person to
participate in a distribution of the registered notes; and
. you are not our "affiliate," or an "affiliate" of the guarantors.
If you tender in the exchange offer for the purpose of participating in a
distribution of the registered notes, you cannot rely on this interpretation by
the SEC's staff and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with your secondary resale
transaction. If you are a broker-dealer that receives registered notes for your
own account in exchange for your original notes, where such original notes were
acquired by you as a result of market-making activities or other trading
activities, you must acknowledge that you will deliver a prospectus in
connection with any resale of your registered notes. See the discussion under
the section entitled "Plan of Distribution." If you are a broker-dealer who
acquired original notes directly from us and not as a result of market-making
activities or other trading activities, you may not rely on the SEC's
interpretations discussed above or participate in the exchange offer and must
comply with the prospectus delivery requirements of the Securities Act in order
to sell your original notes.
Consequences of Failure to Exchange
Following the completion of the exchange offer, except as provided above and
in the registration rights agreement we refer to, you will not have any further
registration rights and your original notes will continue to be subject to
certain restrictions on transfer. Accordingly, if you do not participate in the
exchange offer, your ability to sell your original notes could be adversely
affected. You may suffer adverse consequences if you fail to exchange your
original notes. See the discussion under the section entitled "Risk Factors--
Failure to Exchange Original Notes."
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Terms of the Exchange Offer
Upon the terms and subject to the conditions discussed in this prospectus and
in the letter of transmittal, we will accept any validly tendered original
notes which are not withdrawn before 5:00 p.m., New York City time, on the
expiration date of the exchange offer. We will issue $1,000 principal amount of
registered notes in exchange for each $1,000 principal amount of your original
notes. You may tender some or all of your notes in the exchange offer. However,
you may tender your original notes only in integral multiples of $1,000 in
principal amount.
The form and terms of the registered notes will be the same as the form and
terms of your original notes except that:
. interest on the registered notes will accrue from the last interest
payment date on which interest was paid on your original notes, or,
if no interest was paid, from the date of the original issuance of
your original notes; and
. the registered notes have been registered under the Securities Act
and will not bear a legend restricting their transfer.
This prospectus, together with the letter of transmittal you received with
this prospectus, is being sent to the Depository Trust Company's (DTC) nominee
and to others believed to have beneficial interests in the original notes. You
do not have any appraisal or dissenters' rights under the General Corporation
Law of the State of Delaware or under the indenture governing your original
notes. We intend to conduct the exchange offer in accordance with the
requirements of the Securities Act and the rules and regulations of the SEC
under the Securities Act.
We will have accepted your validly tendered original notes when we have given
oral or written notice to the exchange agent. The exchange agent will act as
agent for the tendering holders for the purpose of receiving the registered
notes from us. If the exchange agent does not accept any tendered original
notes for exchange because of an invalid tender or for any other valid reason,
the exchange agent will return the certificates, without expense, to the
tendering holder as promptly as practicable after the expiration date of the
exchange offer.
If you participate in the exchange offer, you will not be required to pay
brokerage commissions, fees, or, subject to the instructions in the letter of
transmittal, transfer taxes in connection with the exchange of your original
notes for registered notes. We will pay all charges and expenses, other than
particular applicable taxes you may incur in connection with the exchange
offer.
Expiration Date; Extensions; Amendments
The exchange offer will expire at 5:00 p.m., New York City time, on ,
2000, unless we, in our sole discretion, extend it. In no event do we intend to
extend the expiration date beyond the thirtieth business day following the
initial mailing of this prospectus. We will hold the exchange offer open for at
least 20 business days. If we decide to extend the exchange offer, we will
notify the exchange agent and each registered holder by oral or written notice
before 9:00 a.m., New York City time, on the next business day after the
previously scheduled expiration date.
We reserve the right, in our sole discretion:
. to delay accepting your original notes;
. to extend the exchange offer;
. to terminate the exchange offer if any of the conditions were not
satisfied by giving oral or written notice of delay, extension or
termination to the exchange agent; or
. to amend the terms of the exchange offer in any manner.
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If we make a material or fundamental change to the terms of the exchange
offer, we will file a post effective amendment to the registration statement of
which this prospectus is a part.
Procedures for Tendering Your Notes
Only you may tender your original notes in the exchange offer. Except as
stated under the heading "--Book Entry Transfer," to tender in the exchange
offer, you must:
. complete, sign and date the enclosed letter of transmittal, or a
copy of it;
. have the signature on the letter of transmittal guaranteed, if
required by the letter of transmittal; and
. mail, fax or otherwise deliver the letter of transmittal or copy to
the exchange agent on or before the expiration date.
In addition, either:
. the exchange agent must receive certificates for your original notes
and the letter of transmittal on or before the expiration date;
. the exchange agent must receive a timely confirmation of a book-
entry transfer of your original notes, if that procedure is
available, into the account of the exchange agent at the DTC under
the procedure for book-entry transfer described below before the
expiration date of the exchange offer; or
. you must comply with the guaranteed delivery procedures described
below.
For your original notes to be tendered effectively, the exchange agent must
receive the letter of transmittal and other required documents at the address
provided under "--Exchange Agent" before the expiration date of the exchange
offer at the address provided under "--Exchange Agent."
If you do not withdraw your tender before the expiration date, it will
constitute an agreement between you and us in accordance with the terms and
conditions in this prospectus and in the letter of transmittal.
The method of delivery to the exchange agent of your original notes, your
letter of transmittal and all other required documents is at your election and
risk. Instead of delivery by mail, we recommend that you use an overnight or
hand delivery service. In all cases, you should allow sufficient time to assure
delivery to the exchange agent before the expiration date of the exchange
offer. Do not send either a letter of transmittal or your original notes
directly to us. You may request your broker, dealer, commercial bank, trust
company or nominee to make the exchange on your behalf.
Procedure if your Original Notes are not Registered in your Name
Any beneficial owner whose original notes are registered in the name of a
broker, dealer, commercial bank, trust company, or other nominee and who wishes
to tender the original notes in the exchange offer should contact the
registered holder promptly and instruct the registered holder to tender the
original notes on the beneficial owner's behalf. If the beneficial owner wishes
to tender on the owner's own behalf, the owner must, before completing and
executing a letter of transmittal and delivering the owner's original notes,
either make appropriate arrangements to register ownership of the original
notes in the beneficial owner's name or obtain a properly completed bond power
or other proper endorsement from the registered holder. We strongly urge you to
act immediately since the transfer of registered ownership may take
considerable time.
Signature Requirements and Signature Guarantees
Unless you are a registered holder who requests that the registered notes be
mailed to you and issued in your name, or unless you are a member of, or
participant in, the Securities Transfer Agents Medallion Program,
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the New York Stock Exchange Medallion Signature Program, the Stock Exchange
Medallion Program, or an "Eligible Guarantor Institution" which includes banks,
brokers, dealers, municipal securities brokers and dealers, credit unions,
national securities exchanges, registered securities associations, clearing
agencies and savings associations, each an "Eligible Institution," you must
guarantee your signature on a letter of transmittal or a notice of withdrawal
by an Eligible Guarantor Institution.
If a trustee, executor, administrator, guardian, attorney-in-fact, officer of
a corporation, or other person acting in a fiduciary or representative capacity
signs the letter of transmittal or any notes or bond powers on your behalf,
that person must indicate their capacity when signing, and submit satisfactory
evidence to us with the letter of transmittal demonstrating their authority to
act on your behalf.
Conditions to the Exchange Offer
We will decide all questions as to the validity, form, eligibility,
acceptance, and withdrawal of tendered original notes and our determination
will be final and binding on you. We reserve the absolute right to reject any
and all original notes not properly tendered or the acceptance of which would
be unlawful in the opinion of our counsel. We also reserve the right to waive
any defects, irregularities, or conditions of tender as to particular original
notes. Our interpretation of the terms and conditions of the exchange offer,
including the instructions in a letter of transmittal, will be final and
binding on all parties. You must cure any defects or irregularities in
connection with tenders of original notes as we shall determine. Although we
intend to notify holders of defects or irregularities with respect to tenders
of original notes, we, the exchange agent, or any other person will not incur
any liability for failure to give this notification. Tenders of original notes
will not be deemed to have been made until any defects or irregularities have
been cured or waived. Any original notes received by the exchange agent that
are not properly tendered and as to which defects or irregularities have not
been cured or waived will be returned by the exchange agent to the tendering
holders, unless otherwise provided in the letter of transmittal, as soon as
practicable following the expiration date of the exchange offer.
We reserve the right to purchase or to make offers for any original notes
that remain outstanding after the expiration date of the exchange offer or to
terminate the exchange offer and, to the extent permitted by law, purchase
original notes in the open market, in privately negotiated transactions or
otherwise. The terms of any of these purchases or offers could differ from the
terms of the exchange offer.
These conditions are for our sole benefit and we may assert them at any time
or for any reason. We may waive in whole or in part at any time and from time
to time these conditions in our sole discretion. Our failure to exercise any of
our rights will not be a waiver of our rights and each such right shall be
deemed an ongoing right which may be asserted at any time and from time to
time.
We will not accept for exchange any original notes tendered, and no
registered notes will be issued in exchange for any original notes, if at the
time any stop order is threatened or in effect with respect to the registration
statement or the qualification of the indenture relating to the registered
notes under the Trust Indenture Act. We are required to use every reasonable
effort to obtain the withdrawal of any stop order at the earliest possible
time.
In all cases, the issuance of registered notes will be made only after timely
receipt by the exchange agent of certificates for original notes or a timely
book-entry confirmation of the original notes into the exchange agent's account
at DTC's book-entry transfer facility, a properly completed and duly executed
letter of transmittal or, with respect to DTC and its participants, electronic
instructions of the holder agreeing to be bound by the letter of transmittal,
and any other required documents. If we do not accept any tendered original
notes for a valid reason or if you submit original notes for a greater
principal amount than you desire to exchange, we will return the unaccepted or
non-exchanged original notes to you at our expense. In the case of original
notes tendered by book-entry transfer into the exchange agent's account at
DTC's book-entry transfer facility under the book-entry transfer procedures
described below, the non-exchanged original notes will be credited to an
account maintained with the book-entry transfer facility. This will occur as
promptly as practicable after the expiration or termination of the exchange
offer for the original notes.
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Notwithstanding any other provision of the exchange offer, we will not be
required to accept for exchange, or to issue registered notes in exchange for,
any original notes and may terminate or amend the exchange offer if at any time
before the acceptance of the original notes for exchange or the exchange of the
registered notes for the original notes, we determine that the exchange offer
violates applicable law, any applicable interpretation of the staff of the SEC
or any order of any governmental agency or court of competent jurisdiction.
Book-Entry Transfer
The exchange agent will make requests to establish accounts at DTC's book-
entry transfer facility for purposes of the exchange offer within two business
days after the date of this prospectus. Any financial institution that is a
participant in the book-entry transfer facility's system may make book-entry
delivery of original notes being tendered by causing the book-entry transfer
facility to transfer the original notes into the exchange agent's account at
the book-entry transfer facility in accordance with the appropriate procedures
for transfer. However, although delivery of original notes may be effected
through book-entry transfer at the book-entry transfer facility, a letter of
transmittal or copy of the letter of transmittal, with any required signature
guarantees and any other required documents, must, except as provided in the
following paragraph, be transmitted to and received by the exchange agent on or
before the expiration date of the exchange offer or the guaranteed delivery
procedures below must be complied with.
DTC's Automated Tender Offer Program, referred to by us as ATOP, is the only
method of processing the exchange offer through DTC. To accept the exchange
offer through ATOP, participants in DTC must send electronic instructions to
DTC through DTC's communication system instead of sending a signed, hard copy
letter of transmittal. DTC is obligated to communicate those electronic
instructions to the exchange agent. To tender notes through ATOP, the
electronic instructions sent to DTC and transmitted by DTC to the exchange
agent must contain the participant's acknowledgment of its receipt of and
agreement to be bound by the letter of transmittal for the original notes.
Guaranteed Delivery Procedures
If a registered holder of original notes desires to tender any original notes
and the original notes are not immediately available, or time will not permit
the holder's original notes or other required documents to reach the exchange
agent before the expiration date of the exchange offer, or the procedure for
book-entry transfer cannot be completed on a timely basis, a tender may be
effected if:
. the tender is made through an Eligible Institution;
. before the expiration date of the exchange offer, the exchange agent
received from the Eligible Institution a properly completed and duly
executed letter of transmittal and notice of guaranteed delivery, in
form provided by us the notice of guaranteed delivery must state the
name and address of the holder of the original notes and the amount
of original notes tendered, that the tender is being made and
guaranteeing that within three New York Stock Exchange trading days
after the date of execution of the notice of guaranteed delivery,
the certificates for all physically tendered original notes, in
proper form for transfer, or a book-entry confirmation and any other
documents required by the letter of transmittal will be deposited by
the Eligible Institution with the exchange agent; and
. the certificates for all physically tendered original notes, in
proper form for transfer, or a book-entry confirmation and all other
documents required by the applicable letter of transmittal are
received by the exchange agent within three New York Stock Exchange
trading days after the date of execution of the Notice of Guaranteed
Delivery.
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Withdrawal Rights
You may withdraw your tender of original notes at any time before 5:00 p.m.,
New York City time, on the expiration date of the exchange offer.
For a withdrawal to be effective, a written or, for a DTC participant,
electronic ATOP transmission notice of withdrawal, must be received by the
exchange agent at its address provided in this prospectus before 5:00 p.m., New
York City time, on the expiration date of the exchange offer.
The notice of withdrawal must:
. specify the name of the person who deposited the original notes to
be withdrawn;
. identify the original notes to be withdrawn, including the
certificate number or numbers and principal amount of the original
notes;
. be signed by the holder in the same manner as the original signature
on the letter of transmittal by which the original notes were
tendered or be accompanied by documents of transfer sufficient to
have the trustee of the original notes register the transfer of the
original notes into the name of the person withdrawing the tender;
and
. specify the name in which any original notes are to be registered,
if different from that of the holder who tendered the original
notes.
We will determine all questions as to the validity, form and eligibility of
your notice and our determination will be final and binding on all parties. Any
original notes withdrawn will not be considered to have been validly tendered.
We will return any original notes which have been tendered but not exchanged
without cost to the holder as soon as practicable after withdrawal, rejection
of tender or termination of the exchange offer. Properly withdrawn original
notes may be retendered by following one of the above procedures before the
expiration date.
Exchange Agent
You should direct all executed letters of transmittal to State Street Bank
and Trust Company, the exchange agent for the exchange offer. Questions,
requests for assistance and requests for additional copies of the prospectus or
a letter of transmittal should be directed to the exchange agent addressed as
follows:
By Mail: Overnight Courier:
State Street Bank and Trust Company State Street Bank and Trust Company
Corporate Trust Department Corporate Trust Department
P.O. Box 778 2 Avenue de Lafayette
Boston, Massachusetts 02102 Fifth Floor, Corporate Trust Window
Attention: Mackenzie Elijah Boston, Massachusetts 02111-1724
Attention: Mackenzie Elijah
By Hand in New York (as Drop Agent)
State Street Bank and Trust Company By Hand in Boston:
61 Broadway State Street Bank and Trust Company
15th Floor, Corporate Trust Window 2 Avenue de Lafayette
New York, New York 10006 Fifth Floor, Corporate Trust Window
Boston, Massachusetts 02111-1724
Facsimile Transmission Number
(for Eligible Institutions Only) Confirm by telephone:
(617) 662-1452 (617) 662-1525
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Fees and Expenses
We currently do not intend to make any payments to brokers, dealers or others
to solicit acceptances of the exchange offer. The principal solicitation is
being made by mail. However, additional solicitations may be made in person or
by telephone by our officers and employees.
Our estimated cash expenses incurred in connection with the exchange offer
will be paid by us and are estimated to be $100,000 in the aggregate. This
amount includes fees and expenses of the trustee for the original and
registered notes, accounting, legal, printing and related fees and expenses.
Transfer Taxes
If you tender original notes for exchange you will not be obligated to pay
any transfer taxes. However, if you instruct us to register registered notes in
the name of, or request that your original notes not tendered or not accepted
in the exchange offer be returned to, a person other than you, you will be
responsible for the payment of any transfer tax owed.
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DESCRIPTION OF THE REGISTERED NOTES
You can find the definitions of certain terms used in this description under
the caption "Certain Definitions." In this description, (1) the word "issuers"
refers collectively to Hollywood Casino Shreveport and Shreveport Capital and
not to any of their respective subsidiaries and (2) the words "we," "us" and
"our" refer only to Hollywood Casino Shreveport and not to any of our
subsidiaries. Capitalized terms in this description are defined in this section
under the caption "Certain Definitions" below.
The issuers will issue the registered notes under an indenture among
themselves and State Street Bank and Trust Company, as trustee. The original
notes and the registered notes are collectively referrred to as the "notes."
The terms of the notes include those stated in the indenture and those made
part of the indenture by reference to the Trust Indenture Act of 1939. The
notes are secured obligations of the issuers. The collateral documents referred
to under the caption "Security" define the terms of the agreements that will
secure the registered notes.
Shreveport Capital is our wholly owned subsidiary and was incorporated solely
for the purpose of serving as a co-issuer of the notes in order to facilitate
the original offering and subsequent resales of the notes. We believe that
certain prospective purchasers of the notes may be restricted in their ability
to purchase debt securities of partnerships, such as us, unless the debt
securities are jointly issued by a corporation. Shreveport Capital will not
have any operations or any material assets and will not have any revenues. As a
result, prospective investors should not expect Shreveport Capital to
contribute to the amounts required to be paid on the notes.
The following description is a summary of the material provisions of the
indenture, the registration rights agreement and the collateral documents. It
does not restate any of those agreements in its entirety. We urge you to read
the indenture, the registration rights agreement and the collateral documents
because they, and not this description, define your rights as holders of the
notes. Copies of the indenture, the registration rights agreement and the
collateral documents are available as provided in this prospectus under the
caption "Where You Can Find More Information."
Brief Description of the Notes and the Guarantees
The notes:
. are 13% first mortgage notes due 2006 with contingent interest in
the aggregate original principal amount of $150.0 million;
. are senior secured obligations of the issuers;
. are secured by a first priority security interest in substantially
all of the issuers' existing and future assets, other than amounts
in the Equity Escrow Account, up to $35.0 million of FF&E acquired,
leased or refinanced by us with FF&E Financing and certain licenses
which may not be pledged under applicable law;
. rank pari passu in right of payment to all of the issuers' existing
and future senior indebtedness;
. rank senior in right of payment to any of the issuers' existing and
future subordinated indebtedness; and
. are guaranteed by the guarantors, as described below.
The notes are guaranteed by HWCC-Louisiana, HCS I and HCS II and will be
guaranteed by all of our future material Restricted Subsidiaries. We do not
currently have any Restricted Subsidiaries, other than Shreveport Capital.
Each guarantee:
. is a senior secured obligation of the respective guarantor;
. is secured by a first priority security interest in all of the
guarantors' existing and future assets, other than $2.5 million in
cash held by HWCC-Louisiana which will be used by HWCC-Louisiana to
fulfill its obligations under the Membership Interest Purchase
Agreement;
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. ranks pari passu in right of payment to all of the guarantors'
existing and future senior indebtedness; and
. ranks senior in right of payment to any of the guarantor's existing
and future subordinated indebtedness.
Principal, Maturity and Interest
The indenture provides for the issuance by the issuers of notes with a
maximum aggregate principal amount of $150.0 million. The issuers issued notes
in denominations of $1,000 and integral multiples of $1,000. The notes will
mature on August 1, 2006.
Fixed interest on the notes will accrue at the rate of 13% per year and will
be payable semi-annually in arrears on each February 1 and August 1, each being
an "Interest Payment Date", beginning on February 1, 2000, to the holders of
record of notes on the immediately preceding January 15 and July 15, each being
a "Record Date". Fixed interest will accrue from the date of original issuance
of the notes or, if fixed interest has already been paid, from the date it was
most recently paid. Fixed interest will be computed on the basis of a 360-day
year comprised of twelve 30-day months.
In addition, the notes will accrue Contingent Interest after the Shreveport
resort begins Operating. Contingent Interest will be calculated to accrue, each
being an "Accrual Period", as follows:
(1) in the case of the First Accrual Period, from and including the date
on which the Shreveport resort begins Operating to, and including, the
earlier of:
(a) the end of the First Accrual Period if the corresponding
principal amount of the notes has not become due and payable; or
(b) the date of payment if the corresponding principal amount of the
notes has become due and payable, whether at stated maturity, upon
acceleration, upon any mandatory or optional redemption or otherwise,
(2) in the case of each Semiannual Period following the First Accrual
Period from, but not including, the end of the First Accrual Period or the
end of the immediately preceding Semiannual Period, as applicable, to, and
including, the end of each such Semiannual Period if the corresponding
principal amount of the notes has not become due and payable.
(3) in the case of any Interim Period following the First Accrual Period
from, but not including, the end of the First Accrual Period or most recent
Semiannual Period, as applicable, to, and including, the date of payment if
the corresponding principal amount of the notes has become due and payable,
whether at stated maturity, upon acceleration, upon any mandatory or
optional redemption or otherwise.
Contingent Interest will be payable semiannually. On each Interest Payment
Date after the First Accrual Period, Contingent Interest with respect to the
Accrual Period completed immediately before that Interest Payment Date will be
payable to the holders of notes on the Record Date immediately preceding the
applicable Interest Payment Date, unless all or a portion of such Contingent
Interest is permitted to be deferred. The issuers may defer payment of all or a
portion of accrued Contingent Interest then otherwise due and payable, and may
continue to defer the payment of accrued Contingent Interest which has already
been deferred if, and only to the extent that:
(1) the payment of that portion of Contingent Interest on the applicable
Interest Payment Date will cause our Adjusted Fixed Charge Coverage Ratio
for our four consecutive fiscal quarters ending immediately before the
applicable Interest Payment Date to be less than 1.5 to 1.0, but may not
defer the portion, which, if paid, would not cause the Adjusted Fixed
Charge Coverage Ratio to be less than 1.5 to 1.0; and
(2) the principal amount of the notes corresponding to that Contingent
Interest has not then matured and become due and payable, whether at stated
maturity, upon acceleration, upon any mandatory or optional redemption or
otherwise.
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Contingent Interest that is deferred will become due and payable, in whole or
in part, upon the earlier of:
(1) the next succeeding Interest Payment Date on which all or a portion
of that Contingent Interest is not permitted to be deferred; and
(2) the maturity of the corresponding principal amount of the notes,
whether at stated maturity, upon acceleration, upon any mandatory or
optional redemption or otherwise.
No interest will accrue on deferred Contingent Interest.
No Recourse Against Shreveport Paddlewheels, L.L.C.
Neither Shreveport Paddlewheels, L.L.C. nor any of its affiliates, other than
us, will have any obligation to make any payments of any kind that become due
on the notes.
Methods of Receiving Payments on the Notes
If a holder of notes has given wire transfer instructions to the issuers, the
issuers will pay all principal, interest, premium and liquidated damages, if
any, on that holder's notes in accordance with those instructions. All other
payments on notes will be made at the office or agency of the paying agent and
registrar within the City and State of New York, unless the issuers elect to
make interest payments by check mailed to the holders of notes at their
addresses provided in the register of holders.
Paying Agent and Registrar for the Notes
The trustee will initially act as paying agent and registrar. The issuers may
change the paying agent or registrar without prior notice to the holders of
notes, and either of the issuers may act as paying agent or registrar.
Transfer and Exchange
A holder of notes may transfer or exchange notes in accordance with the
indenture. The registrar and the trustee may require a holder of notes, among
other things, to furnish appropriate endorsements and transfer documents and
the issuers may require a holder of notes to pay any taxes and fees required by
law or permitted by the indenture. The issuers are not required to transfer or
exchange any note selected for redemption. Also, the issuers are not required
to transfer or exchange any note for a period of 15 days before a selection of
notes to be redeemed.
The registered holder of a note will be treated as the owner of it for all
purposes.
Guarantees
Each of HWCC-Louisiana, HCS I, HCS II and all of our future Restricted
Subsidiaries that at any time has Total Assets in excess of $2.5 million will
jointly and severally and fully and unconditionally guarantee the issuers'
payment obligations under the notes. The obligations of each guarantor under
its guarantee will be limited as necessary to prevent that guarantee from
constituting a fraudulent conveyance under applicable law. See "Risk Factors--
Fraudulent Conveyance."
Security
The notes will be secured by a first priority security interest in
substantially all of the issuers' assets other than funds and securities in the
Equity Escrow Account, whether now owned or subsequently acquired, including,
without limitation, and subject to the liens permitted by the collateral
documents:
(1) a pledge of any funds and securities deposited and held in the Cash
Collateral Accounts until the time as the funds and securities are
disbursed in accordance with the terms of the Cash Collateral and
Disbursement Agreement;
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(2) a leasehold mortgage on all of the real property comprising the
Shreveport resort, including all additions and improvements and component
parts related to it and issues and profits from it;
(3) a security interest in all furniture, fixtures and equipment which
are part of the Shreveport resort, other than up to $35.0 million of FF&E
acquired, leased or refinanced through FF&E Financing;
(4) a first priority security interest in the riverboat which will be a
part of the Shreveport resort;
(5) a first priority security interest in all of the issuers' accounts
receivable, general intangibles, inventory and other personal property not
contemplated by clause (3) above;
(6) a collateral assignment of our interests in the Completion Capital
Agreement, the License Agreement, the Management Agreement and the
principal agreements entered into by us in connection with the development,
construction, ownership or operation of the Shreveport resort; and
(7) to the extent permitted by law, a pledge of all licenses and permits
relating to the Shreveport resort.
The guarantees will be secured by a first priority security interest in
substantially all of the guarantors' existing and future assets, including a
pledge of the capital stock of HCS I and HCS II and the partnership interests
in us held by HCS I and HCS II, but excluding the $2.5 million in cash that
HWCC-Louisiana will use to fund its remaining obligation to Sodak Gaming in
connection with the acquisition of Sodak Louisiana under the Membership
Interest Purchase Agreement.
The above mentioned liens and security interests may be subordinate or junior
to mechanics' liens which, under applicable Louisiana law, may have priority
over the leasehold mortgage on the Shreveport resort and the security interest
in the riverboat that will be part of the Shreveport resort. However, we have
obtained title insurance on all of the Shreveport resort other than the
riverboat that will be a part of the Shreveport resort in favor of the trustee
that ensures against losses from the enforcement of mechanics' liens. In
addition, secured lenders of indebtedness incurred to purchase FF&E may be
granted a security interest in the FF&E for the sole purpose of perfecting such
lenders' security interests in such FF&E. Furthermore, we may incur up to $10.0
million in aggregate principal amount of Indebtedness for working capital and
other general corporate purposes that may be secured by a Pari Passu Lien on
the Pari Passu Collateral.
Subject to the terms of any intercreditor agreement relating to Pari Passu
Collateral, if an event of default occurs, the trustee may, in addition to any
rights and remedies available to it under the indenture and the collateral
documents, take any action as it deems advisable to protect and enforce its
rights in the collateral, including the institution of sale or foreclosure
proceedings. Subject to the terms of any intercreditor agreement relating to
Pari Passu Collateral, 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 or any other amounts then payable to the trustee under the
indenture, and thereafter to pay amounts due and payable with respect to the
notes.
So long as no default or event of default has occurred and be continuing, and
subject to certain terms and conditions in the indenture and the collateral
documents, the issuers and their Subsidiaries and the guarantors will be
entitled to receive the benefit of all cash dividends, interest and other
payments made upon or with respect to the collateral pledged by them and to
exercise any voting and other consensual rights pertaining to the collateral
pledged by them. Upon the occurrence and during the continuance of a default or
event of default:
(1) all rights of the issuers and their Subsidiaries and the guarantors
to exercise their voting or other consensual rights will cease, and all
rights will become vested in the trustee which, to the extent permitted by
law, will have the sole right to exercise these rights;
(2) all rights of the issuers and their Subsidiaries and the guarantors
to receive all cash dividends, interest and other payments made upon or
with respect to the collateral will cease and cash dividends, interest and
other payments will be paid to the trustee; and
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(3) the trustee may sell the collateral or any part thereof in accordance
with the terms of the collateral documents.
Subject to the terms of any intercreditor agreement relating to Pari Passu
Collateral, under the terms of the indenture and the collateral documents, the
trustee will determine the circumstances and manner in which the collateral
will be disposed of, including, but not limited to, the determination of
whether to release all or any portion of the collateral from the Liens created
by the collateral documents and whether to foreclose on the collateral
following a default or event of default. Moreover, upon the full and final
payment and performance of all obligations of the issuers and the guarantors
under the indenture and the notes, the collateral documents will terminate and
the collateral will be released. The proceeds of any sale of the collateral
pursuant to the indenture and the related collateral documents following an
event of default may not be sufficient to satisfy payments due on the notes.
Certain Gaming Law Limitations
The trustee's ability to foreclose upon the collateral will be limited by
relevant gaming laws, which generally require that persons who own or operate a
casino or purchase, possess or sell gaming equipment hold a valid gaming
license. No person can hold a license in the State of Louisiana unless the
person is found qualified or suitable by the relevant gaming authorities. In
order for the trustee or a purchaser at or after foreclosure to be found
qualified or suitable, the gaming authorities would have discretionary
authority to require the trustee, any or all of the holders of the notes and
any such purchaser to file applications, be investigated and be found qualified
or suitable as an owner or operator of gaming establishments. The applicant for
qualification, a finding of suitability or licensing must pay a filing fee and
all costs of any investigation. If the trustee is unable or chooses not to
qualify, be found suitable or licensed to own, operate or sell such assets, it
would have to retain or sell to an entity licensed to operate or sell such
assets, which would also be subject to the approval of the Louisiana Gaming
Control Board. In addition, in any foreclosure sale or subsequent resale by the
trustee, licensing requirements under the relevant gaming laws may limit the
number of potential bidders and may delay any sale, either of which events
would have an adverse effect on the sale price of the collateral. Therefore,
the practical value of realizing on the collateral may, without the appropriate
approvals, be limited.
Certain Bankruptcy Limitations
The right of the trustee to repossess and dispose of the collateral upon the
occurrence of an event of default is likely to be significantly impaired by
applicable bankruptcy law if a bankruptcy proceeding were to be commenced by or
against either of the issuers or a guarantor before the trustee has repossessed
and disposed of the collateral. Under bankruptcy law, a secured creditor such
as the trustee is prohibited from repossessing its security from a debtor in a
bankruptcy case, or from disposing of security repossessed from the debtor,
without bankruptcy court approval. Moreover, bankruptcy law permits the debtor
to continue to retain and to use collateral, and the proceeds, products,
offspring, rents or profits of the collateral, even though the debtor is in
default under the applicable debt instruments, provided that the secured credit
is given "adequate protection." The meaning of the term "adequate protection"
may vary according to circumstances, but it is intended in general to protect
the value of the secured creditor's interest in the collateral and may include,
if approved by the court, cash payments or the granting of additional security
for any diminution in the value of the collateral as a result of the stay of
repossession or the disposition or any use of the collateral by the debtor
during the pendency of the bankruptcy case. The court has broad discretionary
powers in all these matters, including the valuation of collateral. In
addition, since the enforcement of the Lien of the trustee in cash, deposit
accounts and cash equivalents, other than the Cash Collateral Accounts, may be
limited in a bankruptcy proceeding, the holders of the notes may not have any
consent rights with respect to the use of those funds by either of the issuers
or any of their Subsidiaries during the pendency of the proceeding. In view of
these considerations, it is impossible to predict how long payments under the
notes could be delayed following commencement of a bankruptcy case, whether or
when the trustee could repossess or dispose of the collateral or whether or to
what extent holders of the notes would be compensated for any delay in payment
or loss of value of the collateral.
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Completion Capital Agreement
We and Hollywood Casino, HWCC-Louisiana, HCS I, HCS II have entered into a
Completion Capital Agreement that provides that if:
(1) we have provided the trustee and the Independent Construction
Consultant with a written notice that there are not sufficient available
funds to complete the Shreveport resort so that it will be Operating by
April 30, 2001;
(2) (a) the Independent Construction Consultant has provided the trustee
and us with a written notice that there will not be sufficient available
funds to complete the Shreveport resort so that it will be Operating by
April 30, 2001 and (b) within 60 days of us receiving the notice, we have
not provided evidence satisfactory to the Independent Construction
Consultant that there will be sufficient additional funds to complete the
Shreveport resort so that it will be Operating by April 30, 2001; or
(3) after having expended the funds in the Equity Escrow Account, no
disbursement has occurred pursuant to the Cash Collateral and Disbursement
Agreement for 90 consecutive days;
then Hollywood Casino will pay into the Construction Disbursement Account the
lesser of:
(a) $5.0 million less any amounts previously paid into the Construction
Disbursement Account pursuant to this paragraph or
(b) the amount the Independent Construction Consultant provides to the
trustee in a certificate stating the amount necessary to cause the
Shreveport resort to be Operating by April 30, 2001.
In addition, if the Shreveport resort is not Operating by April 30, 2001,
Hollywood Casino will pay $5.0 million in cash, less any amounts previously
paid into the Construction Disbursement Account pursuant to the provisions of
the previous paragraph, into the Construction Disbursement Account.
Furthermore, Hollywood Casino will be required to pay $5.0 million in cash,
less any amounts previously paid into the Construction Disbursement Account
pursuant to the provisions of the previous paragraph, into the Construction
Disbursement Account upon:
(1) the commencement of a voluntary bankruptcy case by us on or prior
to April 30, 2001,
(2) the commencement of an involuntary bankruptcy case against us
which is not dismissed, bonded or discharged on or before to the
earlier of
(a) 60 days after the commencement and
(b) April 30, 2001 or
(3) the entry of an order for relief against us on or before April
30, 2001, under any bankruptcy law in effect at any time. Hollywood
Casino has agreed that it will not assert any defenses or setoffs to
the payment of those amounts.
Optional Redemption
At any time before August 1, 2002, the issuers may on any one or more
occasions redeem up to 35% of the aggregate principal amount of notes issued
under the indenture at a redemption price of 113% of the principal amount
thereof, plus accrued and unpaid interest and liquidated damages, if any, to
the redemption date, with the net cash proceeds of a Qualified Equity Offering;
provided, however, that:
(1) at least 65% of the aggregate principal amount of notes originally
issued under the indenture remains outstanding immediately after the
occurrence of any redemption (excluding notes held by us and our
Subsidiaries); and
(2) the redemption must occur within 60 days of the date of the closing
of the Qualified Equity Offering.
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Except pursuant to the preceding paragraph, the notes will not be redeemable
at the issuers' option before August 1, 2003.
On or after August 1, 2003, the issuers may redeem all or a part of the notes
upon not less than 30 nor more than 60 days' notice, at the redemption prices,
expressed as percentages of principal amount, provided below plus accrued and
unpaid interest and liquidated damages, if any, to the applicable redemption
date, if redeemed during the twelve-month period beginning on August 1 of the
years indicated below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2003.............................. 106.50%
2004.............................. 103.25%
2005 and thereafter............... 100.00%
</TABLE>
Mandatory Redemption
The issuers are not required to make mandatory redemption or sinking fund
payments with respect to the notes.
Repurchase at the Option of Holders
Change of Control
If a Change of Control occurs, each holder of notes will have the right to
require the issuers to repurchase all or any part of that holder's notes
pursuant to a "Change of Control Offer" on the terms provided in the indenture.
In the Change of Control Offer, the issuers will offer payment (a "Change of
Control Payment") in cash equal to 101% of the aggregate principal amount of
notes repurchased plus accrued and unpaid interest and liquidated damages, if
any, to the date of purchase. Within ten days following any Change of Control,
the issuers will mail a notice to each holder of notes describing the
transaction or transactions that constitute the Change of Control and offering
to repurchase notes the on "Change of Control Payment Date" specified in the
notice, which date will be no earlier than 30 days and no later than 60 days
from the date the notice is mailed, pursuant to the procedures required by the
indenture and described in the notice.
On the Change of Control Payment Date, the issuers will, to the extent
lawful:
(1) accept for payment all notes or portions of notes properly tendered
pursuant to the Change of Control Offer;
(2) deposit with the Paying Agent an amount equal to the Change of
Control Payment in respect of all notes or portions of notes so tendered;
and
(3) deliver or cause to be delivered to the trustee the notes so accepted
together with an officers' certificate stating the aggregate principal
amount of notes or portions of notes being purchased by the issuers.
The paying agent will promptly mail to each holder who tendered notes the
Change of Control Payment for those notes, and the trustee will promptly
authenticate and mail or cause to be transferred by book entry to each holder a
new note equal in principal amount to any unpurchased portion of the notes
surrendered, if any; provided, however, that each new note will be in a
principal amount of $1,000 or an integral multiple of $1,000. The issuers will
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
The provisions described above that require the issuers to make a Change of
Control Offer following a Change of Control will be applicable regardless of
whether any other provisions of the indenture are applicable. Except as
described above with respect to a Change of Control, the indenture does not
contain provisions that permit the holders of notes to require that the issuers
repurchase or redeem notes in the event of a takeover, recapitalization or
similar transaction. No assurance can be given that the issuers will have
sufficient funds at the time of a Change of Control in order to consummate a
Change of Control Offer.
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The issuers will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements listed
in the indenture applicable to a Change of Control Offer made by the issuers
and purchases all notes validly tendered and not withdrawn under the Change of
Control Offer.
The definition of Change of Control includes a phrase relating to the direct
or indirect sale, lease, transfer, conveyance or other disposition of "all or
substantially all" of the assets of Hollywood Casino and its Subsidiaries taken
as a whole. Although there is a limited body of case law interpreting the
phrase "substantially all," there is no precise established definition of the
phrase under applicable law. Accordingly, the ability of a holder of notes to
require the issuers to repurchase notes as a result of a sale, lease, transfer,
conveyance or other disposition of less than all of the assets of Hollywood
Casino Corporation and its Subsidiaries taken as a whole to another Person or
group may be uncertain.
Asset Sales
We will not, and will not permit any of our Restricted Subsidiaries to,
consummate an Asset Sale unless:
(1) the Shreveport resort is Operating;
(2) we, or the Restricted Subsidiary, as the case may be, receive
consideration at the time of the Asset Sale at least equal to the fair
market value of the assets or Equity Interests issued or sold or otherwise
disposed of;
(3) the fair market value is determined by our Board of Directors and
evidenced by a resolution of that Board of Directors set forth in an
officers' certificate delivered to the trustee; and
(4) at least 75% of the consideration received by us or the Restricted
Subsidiary is in the form of cash. For purposes of this provision and not
for purposes of the definition of "Net Proceeds" (except to the extent
provided in that definition with respect to the conversion of non-cash
proceeds to cash), each of the following will be deemed to be cash:
(a) any liabilities (as shown on our or the Restricted Subsidiary's
most recent balance sheet) of us or any Restricted Subsidiary, other
than contingent liabilities and liabilities that are by their terms
subordinated to the notes or any Restricted Subsidiary's guarantee,
that are assumed by the transferee of any such assets pursuant to a
customary novation agreement that releases us or the Restricted
Subsidiary from further liability; and
(b) any securities, notes or other obligations received by us or any
Restricted Subsidiary from the transferee that are contemporaneously,
subject to ordinary settlement periods, converted by us or the
Restricted Subsidiary into cash, to the extent of the cash received in
that conversion.
Within 270 days after the receipt of any Net Proceeds from an Asset Sale, we
or the Restricted Subsidiary may apply the Net Proceeds to make a capital
expenditure, improve real property or acquire long-term assets that are used or
useful in a line of business permitted by the covenant entitled "--Line of
Business"; provided, however, that we or the Restricted Subsidiary, as the case
may be, grant to the trustee, on behalf of the holders of notes, and, if the
Asset Sale relates to Pari Passu Collateral, the holders of any Indebtedness
secured by the Pari Passu Collateral, a first priority perfected security
interest, subject to Permitted Liens, on any property or assets acquired or
constructed with the Net Proceeds of any Asset Sale on the terms provided in
the indenture, the intercreditor agreement entered into by us with respect to
the Pari Passu Collateral in accordance with the indenture and the collateral
documents. Pending the final application of any Net Proceeds, we or the
applicable Restricted Subsidiary may invest the Net Proceeds in Cash
Equivalents which will be held in an account in which the trustee will have a
first priority perfected security interest, subject to Permitted Liens, for the
benefit of the holders of notes and, if the Asset Sale relates to Pari Passu
Collateral, the holders of any Indebtedness secured by the Pari Passu
Collateral on a pari passu basis with the notes.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the preceding paragraph will constitute "Excess Proceeds." Within
ten days following the date that the aggregate amount of Excess
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Proceeds exceeds $5.0 million, the issuers will make an "Asset Sale Offer" to
all holders of notes and all holders of other Indebtedness that is pari passu
with the notes and secured by Pari Passu Collateral containing provisions
similar to those provided in the indenture with respect to offers to purchase
or redeem with the proceeds of sales of assets to purchase the maximum
principal amount of notes and any other Indebtedness that may be purchased out
of the Excess Proceeds, pro rata in proportion to the respective principal
amounts of the notes and the other Indebtedness. The offer price in any Asset
Sale Offer will be equal to 100% of principal amount plus accrued and unpaid
interest and liquidated damages, if any, to the date of purchase, and will be
payable in cash. If any Excess Proceeds remain after consummation of an Asset
Sale Offer, the issuers may use the Excess Proceeds for any purpose not
otherwise prohibited by the indenture and the collateral documents. If the
aggregate principal amount of notes and other Indebtedness tendered pursuant to
an Asset Sale Offer exceeds the amount of Excess Proceeds, the trustee will
select the notes and the other Indebtedness to be purchased on a pro rata basis
based on the principal amount of notes and such other Indebtedness tendered.
Upon completion of each Asset Sale Offer, the amount of Excess Proceeds shall
be reset at zero.
Events of Loss
Within 360 days after any Event of Loss with respect to any collateral with a
fair market value, or replacement cost, if greater, in excess of $1.0 million,
we or our affected Restricted Subsidiary, as the case may be, may apply the Net
Loss Proceeds from such Event of Loss to the rebuilding, repair, replacement or
construction of improvements to the Shreveport resort, with no concurrent
obligation to make any purchase of any notes; provided, however, that:
(1) we deliver to the trustee within 60 days of the Event of Loss a
written opinion from a reputable contractor that the Shreveport resort with
at least the Minimum Facilities can be rebuilt, repaired, replaced or
constructed and Operating within 360 days of the Event of Loss;
(2) an Officers' Certificate certifying that we have available from Net
Loss Proceeds or other sources sufficient funds to complete the rebuilding,
repair, replacement or construction described in clause (1) above; and
(3) the Net Loss Proceeds are less than $75.0 million.
Any Net Loss Proceeds that are not reinvested or not permitted to be
reinvested as provided in the first sentence of this covenant will be deemed
"Excess Loss Proceeds." Within ten days following the date that the aggregate
amount of Excess Loss Proceeds exceeds $5.0 million, we will make an "Event of
Loss Offer" to all holders of notes and holders of other Indebtedness that is
pari passu with the notes and secured by Pari Passu Collateral containing
provisions similar to those provided in the indenture with respect to offers to
purchase or redeem with the proceeds of Events of Loss to purchase the maximum
principal amount of notes and any other Indebtedness that may be purchased out
of the Excess Loss Proceeds, pro rata in proportion to the respective principal
amounts of the notes and such other Indebtedness. The offer price in any Event
of Loss Offer will be equal to 100% of principal amount plus accrued and unpaid
interest and liquidated damages, if any, to the date of purchase, and will be
payable in cash. If any Excess Loss Proceeds remain after consummation of an
Event of Loss Offer, the issuers may use them for any purpose not otherwise
prohibited by the indenture and the collateral documents. If the aggregate
principal amount of notes tendered pursuant to an Event of Loss Offer exceeds
the Excess Loss Proceeds, the trustee will select the notes and the other
Indebtedness to be purchased on a pro rata basis based on the principal amount
of notes and other Indebtedness tendered. Upon completion of any Event of Loss
Offer, the amount of Excess Loss Proceeds will be reset at zero.
If, before the date on which the Shreveport resort becomes Operating, the Net
Loss Proceeds to be used for rebuilding, repair, replacement or construction of
the Shreveport resort exceed $5.0 million, then the Net Loss Proceeds will be
deposited into an account in which the trustee will be granted a first priority
perfected security interest, subject to Permitted Liens; provided, however,
that any Net Loss Proceeds will be disbursed in a manner consistent with the
Plans and the revised budget for the Shreveport resort. Pending their final
application, all Net Loss Proceeds will be invested in Cash Equivalents held in
an account in which the trustee
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has a first priority perfected security interest, subject to Permitted Liens,
for the benefit of the holders of notes and, if the Event of Loss relates to
Pari Passu Collateral, the holders of any Indebtedness secured by the Pari
Passu Collateral on a pari passu basis with the notes. These pledged funds and
securities will be released to us to pay for or reimburse us for the actual
cost of a permitted use of Net Loss Proceeds as provided above, or the Event of
Loss Offer, pursuant to the terms of the collateral documents. We or the
applicable Restricted Subsidiary will grant to the trustee, on behalf of the
holders of notes and, if the Event of Loss relates to Pari Passu Collateral,
the holders of any Indebtedness secured by the Pari Passu Collateral, a first
priority perfected security interest, subject to Permitted Liens, on any
property or asset rebuilt, repaired, replaced or constructed with the Net Loss
Proceeds on the terms provided in the indenture, the intercreditor agreement
entered into by us with respect to the Pari Passu Collateral in accordance with
the indenture and the collateral documents.
In the event of an Event of Loss pursuant to clause (3) of the definition of
"Event of Loss" with respect to any property or assets that have a fair market
value (or replacement cost, if greater) in excess of $5.0 million, we or the
affected Restricted Subsidiary, as the case may be, will be required to receive
consideration:
(1) at least equal to the fair market value (evidenced by a resolution
of our Board of Directors provided in an officers' certificate
delivered to the trustee) of the property or assets subject to the
Event of Loss and
(2) with respect to any "Event of Loss" of any portion of the hotel,
riverboat casino or parking structure and restaurant and entertainment
promenade that are a part of the Shreveport resort, at least 90% of
which is in the form of Cash Equivalents.
Compliance with Securities Laws
The issuers will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent these laws and regulations are applicable in connection with each
repurchase of notes pursuant to a Change of Control Offer, an Asset Sale Offer,
Event of Loss Offer and any offer made to the holders of notes pursuant to
clause (7) of the second paragraph under the covenant entitled "Restricted
Payments." To the extent that the provisions of any securities laws or
regulations conflict with the Change of Control, Asset Sales or Event of Loss
provisions of the indenture or the provisions of clause (7) of the second
paragraph under the covenant entitled "Restricted Payments," the issuers will
comply with the applicable securities laws and regulations and will not be
deemed to have breached their obligations under these provisions of the
indenture by virtue of any conflict.
Selection and Notice
If less than all of the notes are to be redeemed at any time, the trustee
will select notes for redemption as follows:
(1) if the notes are listed, in compliance with the requirements of the
principal national securities exchange on which the notes are listed; or
(2) if the notes are not so listed, on a pro rata basis, by lot or by any
method as the trustee deems fair and appropriate.
No notes of $1,000 or less shall be redeemed in part. Notices of redemption
shall be mailed by first class mail at least 30 but not more than 60 days
before the redemption date to each holder of notes to be redeemed at its
registered address. Notices of redemption may not be conditional.
If any note is to be redeemed in part only, the notice of redemption that
relates to that note must state the portion of the principal amount of the note
to be redeemed. A new note in principal amount equal to the unredeemed portion
of the original note will be issued in the name of the holder upon cancellation
of the original note. Notes called for redemption become due on the date fixed
for redemption. On and after the redemption date, interest ceases to accrue on
notes or portions of them called for redemption.
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Certain Covenants
Restricted Payments
We will not, and will not permit any of our Restricted Subsidiaries to,
directly or indirectly:
(1) declare or pay any dividend or make any other payment or distribution
on account of our or any of our Restricted Subsidiaries' Equity Interests,
including, without limitation, any payment in connection with any merger or
consolidation involving us or any of our Restricted Subsidiaries, or to the
direct or indirect holders of our or any of our Restricted Subsidiaries'
Equity Interests in any capacity, other than dividends or distributions
payable in Equity Interests, other than Disqualified Stock, or dividends or
distributions payable to us or one of our Restricted Subsidiaries;
(2) purchase, redeem or otherwise acquire or retire for value (including,
without limitation, in connection with any merger or consolidation
involving us) any of our Equity Interests or of any direct or indirect
parent of us;
(3) make any payment on or with respect to, or purchase, redeem, defease
or otherwise acquire or retire for value any Indebtedness that is pari
passu with or subordinated to the notes, except (a) a payment of interest
or principal at the Stated Maturity of the Indebtedness and (b) a payment
at any time of interest or principal on Indebtedness permitted by clauses
(8) or (10) of the second paragraph under the covenant entitled "Incurrence
of Indebtedness and Issuance of Preferred Equity"; or
(4) make any Restricted Investment
all payments and other actions enumerated in clauses (1) through (4) above
being collectively referred to as "Restricted Payments," unless, at the time of
and after giving effect to the Restricted Payment:
(1) the Shreveport resort is Operating;
(2) no default or event of default will have occurred and be continuing
or would occur as a consequence of the Restricted Payment; and
(3) we would, at the time of such Restricted Payment and after giving pro
forma effect to the Restricted Payment as if it had been made at the
beginning of the applicable four-quarter period, have been permitted to
incur at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test provided in the first paragraph of the covenant
entitled "--Incurrence of Indebtedness and Issuance of Preferred Equity;"
and
(4) the Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by us and our Restricted Subsidiaries after
the date of the indenture (excluding Restricted Payments permitted by
clauses (2) through (5) and (7) through (9) of the next succeeding
paragraph), is less than the sum, without duplication, of:
(a) 50% of our Consolidated Net Income for the period, taken as one
accounting period, from the date of the indenture to the end of our
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 that period is a deficit, less 100% of
such deficit), plus
(b) 100% of the aggregate net cash proceeds we received since the
date of the indenture as a contribution to our common equity capital,
other than amounts contributed directly or indirectly by Hollywood
Casino to us which are deposited into the Equity Escrow Account and
pursuant to the Completion Capital Agreement, plus
(c) 50% of any cash dividends we received or any of our Restricted
Subsidiaries after the date of the indenture from one of our
Unrestricted Subsidiaries, to the extent the dividends were not
otherwise included in our Consolidated Net Income for that period, plus
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(d) to the extent that any Restricted Investment that was made after
the date of the indenture is sold for cash or otherwise liquidated or
repaid for cash, the sum of
(1) 50% of the cash proceeds with respect to such Restricted
Investment in excess of the aggregate amount invested in that
Restricted Investment, less the cost of disposition, if any, and
(2) the aggregate amount invested in that Restricted Investment;
plus
(e) to the extent that any Subsidiary that was designated as an
Unrestricted Subsidiary after the date of the indenture is redesignated
as a Restricted Subsidiary, the lesser of
(1) the amount of the Investment in the Subsidiary treated as a
Restricted Payment at and since the time that the Subsidiary was
designated as an Unrestricted Subsidiary, as determined by the
last paragraph of this covenant, and
(2) the fair market value of the Investment in the Subsidiary as
of the date that it is redesignated as a Restricted Subsidiary.
With respect to any payments made pursuant to (a) clauses (1) through (4),
(7) and (8) below, so long as no default has occurred and is continuing or
would be caused by the payments, (b) clause (5) below, regardless of whether
any default or event of default has occurred and is continuing or would be
caused by the payments and (c) clauses (6) and (9) below, so long as no default
or event of default in the payment when due of any principal, interest, premium
or liquidated damages on the notes has occurred or be continuing or would be
caused by the payments, the preceding provisions will not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration thereof, if at the date of declaration the payment would have
complied with the provisions of the indenture;
(2) the redemption, repurchase, retirement, defeasance or other
acquisition of any pari passu or subordinated Indebtedness of ours or any
of our Restricted Subsidiaries that is a guarantor or of any of our Equity
Interests in exchange for, or out of the net cash proceeds of the
substantially concurrent sale (other than to one of our Subsidiaries) of,
our Equity Interests (other than Disqualified Stock); provided, however,
that the amount of any net cash proceeds that are utilized for any
redemption, repurchase, retirement, defeasance or other acquisition will be
excluded from clause (4)(b) of the preceding paragraph;
(3) the defeasance, redemption, repurchase or other acquisition of pari
passu or subordinated Indebtedness of us or any of our Restricted
Subsidiaries that is a guarantor with the net cash proceeds from an
incurrence of Permitted Refinancing Indebtedness;
(4) the payment to the Manager of:
(a) cost reimbursements in the amounts permitted by the Technical
Services Agreement and the Management Agreement and
(b) management fees in the amounts permitted by the Management
Agreement, the terms of the Manager Subordination Agreement and the
requirement that all payments are made in compliance with the covenant
entitled "Restriction on Payment of Management Fees";
(5) the payment to (a) HCS I or HCS II of any amounts that they may be
required to pay to Paddlewheels pursuant to the Assignment Agreement and
(b) Paddlewheels of amounts required to be paid to it by us pursuant to the
terms of the Assignment Agreement and the Marine Services Agreement;
(6) any redemption required pursuant to the provisions of the indenture
described under the caption "--Mandatory Disposition Pursuant to Gaming
Laws" above;
(7) the payment of dividends or distributions by us (a) within nine
months after the Shreveport resort begins Operating of an amount equal to
(i) 50% of the Remaining Construction Amounts, less (ii) the amount paid by
the issuers to holders of notes pursuant to the Construction Repurchase
Offer; provided, however, that (A) no payment may be made pursuant to this
clause (7) before the time that the Construction Repurchase Offer has been
consummated and (B) the Construction Repurchase Offer may
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only be commenced after the Shreveport resort begins Operating and all
Project Costs have been invoiced and paid, other than those amounts
required to be retained pursuant to the Cash Collateral and Disbursement
Agreement, and (b) of amounts required to be paid pursuant to the terms of
the License Agreement;
(8) payments by us to any of our Affiliates with respect to
reimbursements for costs incurred by these Affiliates in connection with
the provision or procurement of goods or services by the Affiliates to us
in the ordinary course of business; and
(9) payments by us to HWCC-Louisiana, HCS I and HCS II in amounts equal
to the Tax Amount.
The amount of all Restricted Payments, other than cash, will be the fair
market value on the date of the Restricted Payment of the assets or securities
proposed to be transferred or issued to or by us or the Restricted Subsidiary,
as the case may be, pursuant to the Restricted Payment. The fair market value
of any assets or securities that are required to be valued by this covenant
shall be determined by our Board of Directors whose resolution with respect
thereto shall be delivered to the trustee. Our Board of Directors'
determination must be based upon an opinion or appraisal issued by an
accounting, appraisal or investment banking firm of national standing if the
fair market value exceeds $5.0 million. Not later than the date of making any
Restricted Payment, we will deliver to the trustee an officers' certificate
stating that the Restricted Payment is permitted and setting forth the basis
upon which the calculations required by this "Restricted Payments" covenant
were computed, together with a copy of any fairness opinion or appraisal
required by the indenture.
Incurrence of Indebtedness and Issuance of Preferred Equity
We will not, and will not permit any of our Subsidiaries to, directly or
indirectly, create, incur, issue, assume, guarantee or otherwise become
directly or indirectly liable, contingently or otherwise, with respect to
(collectively, "incur") any Indebtedness, including Acquired Debt, and we will
not issue any Disqualified Stock and will not permit any of our Subsidiaries to
issue any shares of preferred equity; provided, however, that, the issuers may
incur Indebtedness, including Acquired Debt, or issue Disqualified Stock, if:
(1) the Shreveport resort is Operating; and
(2) the Fixed Charge Coverage Ratio for our most recently ended four full
fiscal quarters for which internal financial statements are available
immediately preceding the date on which the additional Indebtedness is
incurred or the Disqualified Stock is issued would have been at least 2.0
to 1, determined on a pro forma basis, including a pro forma application of
the net proceeds from the Indebtedness or Disqualified Stock, as if the
additional Indebtedness had been incurred or the preferred equity or
Disqualified Stock had been issued, as the case may be, at the beginning of
the four-quarter period.
The first paragraph of this covenant will not prohibit the incurrence of any
of the following items of Indebtedness so long as no default or event of
default has occurred and is continuing (collectively, "Permitted Debt"):
(1) the incurrence by us and our Restricted Subsidiaries of (a)
Indebtedness represented by the notes to be issued on the date of the
indenture and the notes to be issued in exchange for the notes pursuant to
the registration rights agreement and (b) their respective obligations
arising under the collateral documents to the extent these obligations
would represent Indebtedness;
(2) the incurrence by us or any of our Restricted Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds of
which are used to refund, refinance or replace Indebtedness (other than
intercompany Indebtedness) that was permitted by the indenture to be
incurred under the first paragraph of this covenant or clauses (1), (2),
(8) and (10) of this paragraph;
(3) the incurrence by us or any of our Restricted Subsidiaries of
intercompany Indebtedness between or among us and any of our Restricted
Subsidiaries as provided in the covenant entitled "Advances to Restricted
Subsidiaries"; provided, however, that:
(a) this Indebtedness must be expressly subordinated to the prior
payment in full in cash of all Obligations with respect to the notes;
and
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(b) (i) any subsequent issuance or transfer of Equity Interests that
results in any the Indebtedness being held by a Person other than us or
any of our Restricted Subsidiaries or (ii) any sale or other transfer
of any Indebtedness to a Person other than us or any of our Restricted
Subsidiaries will be deemed, in each case, to constitute an incurrence
of Indebtedness by us or that Restricted Subsidiary, as the case may
be, that was not permitted by this clause (3);
(4) the incurrence by us or any of our Restricted Subsidiaries of Hedging
Obligations that are incurred for the purpose of fixing or hedging interest
rate risk with respect to any floating rate Indebtedness that is permitted
by the terms of this indenture to be outstanding;
(5) the guarantee by us or any of our Restricted Subsidiaries of
Indebtedness permitted to be incurred by another provision of this
covenant;
(6) the incurrence by us or any of our Restricted Subsidiaries of
Indebtedness in respect of performance, surety or appeal bonds in the
ordinary course of business;
(7) the accrual of interest, the accretion or amortization of original
issue discount, the payment of interest on any Indebtedness in the form of
additional Indebtedness with the same terms and the payment of dividends on
Disqualified Stock in the form of additional shares of the same class of
Disqualified Stock will not be deemed to be an incurrence of Indebtedness
or an issuance of Disqualified Stock for the purposes of this covenant;
provided, however, in each case, that the amount thereof is included in our
Fixed Charges or the applicable Restricted Subsidiary as accrued;
(8) the incurrence by us of FF&E Financing; provided, however, that
(a) the principal amount of the Indebtedness does not exceed the
cost, including sales and excise taxes, installation and delivery
charges and other direct costs of, and other direct expenses paid or
charged in connection with, the purchase, of the FF&E purchased or
leased with the proceeds thereof,
(b) no Indebtedness incurred under the notes is utilized for the
purchase or lease of such FF&E and
(c) the aggregate principal amount of the Indebtedness, including all
Permitted Refinancing Indebtedness incurred to refund, refinance or
replace any Indebtedness incurred pursuant to this clause, does not
exceed $35.0 million outstanding at any time;
(9) the guarantee by us of Indebtedness incurred by any minority or women
owned business enterprise that provides goods or services to us; provided,
however, that:
(a) the Indebtedness is directly related to the construction,
development or operation of the Shreveport resort and
(b) the total amount of guarantees for which we have become and may
become obligated pursuant to this clause may not exceed an aggregate of
$200,000;
(10) the incurrence by us or any of our Restricted Subsidiaries of
Indebtedness, including all Permitted Refinancing Indebtedness incurred to
refund, refinance or replace any Indebtedness incurred pursuant to this
clause, in an aggregate principal amount not to exceed $10.0 million at any
one time outstanding for working capital purposes and other general
purposes;
(11) the incurrence by us of Indebtedness to Hilton New Orleans
Corporation, a Louisiana corporation, pursuant to the terms of the Loan and
Settlement Agreement in an amount not to exceed $2.0 million; and
(12) the incurrence by us of Indebtedness to the City of New Orleans
pursuant to the Compromise Agreement in the amount of $5.0 million, which
was paid promptly after the issuance of the notes.
We will not incur any Indebtedness, including Permitted Debt, that is
contractually subordinated in right of payment to any other of our Indebtedness
unless that Indebtedness is also contractually subordinated in right of payment
to the notes on substantially identical terms; provided, however, that none of
our Indebtedness will be deemed to be contractually subordinated in right of
payment to any other of our Indebtedness solely by virtue of being unsecured.
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For purposes of determining compliance with this "Incurrence of Indebtedness
and Issuance of Preferred Equity" covenant, if an item of proposed Indebtedness
meets the criteria of more than one of the categories of Permitted Debt
described in clauses (1) through (11) above, or is entitled to be incurred
pursuant to the first paragraph of this covenant, we will be permitted to
classify that item of Indebtedness on the date of its incurrence in any manner
that complies with this covenant.
If any Indebtedness that may be incurred under this covenant may be secured
by a Pari Passu Lien on the Pari Passu Collateral, upon the request of the
issuers, the trustee is authorized to enter into an intercreditor agreement
with the holder or holders of that Indebtedness, referred to as a "Pari Passu
Debtholder, " in substantially the form attached as an exhibit to the indenture
that provides the following:
(a) the Lien of the trustee on the Pari Passu Collateral will be equal in
priority, regardless of the time or method of attachment or perfection, to
the Lien in favor of, or for the benefit of, the Pari Passu Debtholder for
the sum of:
(1) a principal amount of such Indebtedness not to exceed the
principal amount permitted by the indenture to be secured by a Pari
Passu Lien and
(2) any other Obligations in respect of the principal amount of the
Indebtedness;
(b) the intercreditor agreement is solely for the purpose of establishing
the relative interests of the Pari Passu Debtholder, the trustee and the
holders of notes and is not for the benefit of any other party;
(c) the holders, or their representatives, of a majority in interest of
the aggregate principal amount of the notes (for these purposes, the
trustee acting pursuant to the indenture will represent the holders of
notes) and other Indebtedness secured by the Pari Passu Lien at the time
outstanding will have the sole right to take, enforce or exercise any right
or remedy to take or exercise any action or election or to refrain from
taking or exercising any action with respect to any of the Pari Passu
Collateral or the collateral documents relating to the Pari Passu
Collateral; provided, however, that the Pari Passu Debtholder may take or
exercise any action or election or refrain from taking or exercising any
action with respect to any collateral that is not Pari Passu Collateral or
under any document that does not apply to the Pari Passu Collateral;
provided, further, that the trustee will have no duty or obligation to any
Pari Passu Debtholder in taking or exercising any action or election or in
refraining from taking or exercising any action with respect to any of the
Pari Passu Collateral or the collateral documents;
(d) each of the trustee and the Pari Passu Debtholder agree that any
money or funds realized with respect to the Pari Passu Collateral in
connection with the enforcement or exercise of any right or remedy with
respect to any Pari Passu Collateral following the acceleration of the
notes will be distributed as follows: first, to the payment of all
reasonable expenses in connection with the collection, realization or
administration of funds or the exercise of rights or remedies; second, to
each holder of Indebtedness secured by a Pari Passu Lien on the Pari Passu
Collateral, a proportion of the remaining money or funds in the same
proportion as the total outstanding obligations so secured held by the
holder bears to the total outstanding obligations so secured until all the
secured obligations have been paid in full; and third, us or to whoever may
be lawfully entitled to receive the same as a court of competent
jurisdiction may direct;
(e) the trustee and the Pari Passu Debtholder agree that any amounts in
the Cash Collateral Accounts and all current and future assets of HWCC-
Louisiana, HCS I and HCS II, including, without limitation, the shares of
HCS I and HCS II owned by HWCC-Louisiana and the interests in us owned by
HCS I and HCS II, but excluding the $2.5 million in cash to be used by
HWCC-Louisiana to fund its obligations under the Membership Interest
Purchase Agreement, will be held for the sole benefit of the holders of
notes; and
(f) each of the trustee, the holders of notes and the Pari Passu
Debtholders will have the right to alter or amend their respective
agreements and documents with us in accordance with their terms and to
release any collateral from their respective Liens in accordance with the
terms of their respective agreements.
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Liens
We will not, and will not permit any of our Subsidiaries to, directly or
indirectly, create, incur, assume or suffer to exist any Lien of any kind on
any asset now owned or subsequently acquired, or any proceeds, income or
profits therefrom or assign or convey any right to receive income therefrom,
except Permitted Liens.
Dividend and Other Payment Restrictions Affecting Subsidiaries
We will not, and will not permit any of our Restricted Subsidiaries to,
directly or indirectly, create or permit to exist or become effective any
consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock to
us or any of our Restricted Subsidiaries, or with respect to any other
interest or participation in, or measured by, its profits, or pay any
Indebtedness owed to us or any of our Restricted Subsidiaries;
(2) make loans or advances to us or any of our Restricted Subsidiaries;
or
(3) transfer any of its properties or assets to us or any of our
Restricted Subsidiaries.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) the notes, the indenture, the guarantees or the collateral documents;
(2) applicable law;
(3) customary non-assignment provisions in leases entered into in the
ordinary course of business and consistent with past practices;
(4) Permitted Refinancing Indebtedness; provided, however, that the
restrictions contained in the agreements governing such Permitted
Refinancing Indebtedness are no more restrictive, taken as a whole, than
those contained in the agreements governing the Indebtedness being
refinanced;
(5) the acquisition of the Capital Stock of any Person, or property or
assets of any Person by us or any Restricted Subsidiary, if the
encumbrances or restrictions (a) existed at the time of the acquisition and
were not incurred in contemplation thereof and (b) are not applicable to
any Person or the property or assets of any Person other than the Person
acquired or the property or assets of the Person acquired;
(6) purchase money obligations or capital lease obligations for FF&E
acquired with FF&E Financing that impose restrictions of the type described
in clause (3) of the first paragraph of this covenant on the FF&E so
acquired;
(7) any agreement for the sale or other disposition of a Restricted
Subsidiary that restricts distributions by that Restricted Subsidiary
pending its sale or other disposition;
(8) Liens securing Indebtedness that limit the right of the debtor to
dispose of the assets subject to such Lien;
(9) provisions with respect to the disposition or distribution of assets
or property in joint venture agreements, asset sale agreements, stock sale
agreements and other similar agreements entered into in the ordinary course
of business; and
(10) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business.
Merger, Consolidation or Sale of Assets
Neither we nor any guarantor may, directly or indirectly
(1) consolidate or merge with or into another Person (whether or not we
or the guarantor is the surviving entity) or
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(2) sell, assign, transfer, convey or otherwise dispose of all or
substantially all of our and our Restricted Subsidiaries' properties or
assets, taken as a whole, in one or more related transactions, to another
Person; unless:
(a) either (1) we or the guarantor, as applicable, is the surviving
entity or (2) the Person formed by or surviving the consolidation or
merger, if other than us or the guarantor, or to which the sale,
assignment, transfer, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the
United States, any state thereof or the District of Columbia;
(b) the Person formed by or surviving the consolidation or merger, if
other than us or the guarantor, or the Person to which the sale,
assignment, transfer, conveyance or other disposition shall have been
made assumes all of our of the guarantor's obligations, as applicable,
under the notes, the indenture, the registration rights agreement, the
guarantee and the collateral documents pursuant to agreement reasonably
satisfactory to the trustee;
(c) immediately after the transaction no default or event of default
exists;
(d) the transaction would not result in the loss or suspension or
material impairment of any of our or any of our Restricted
Subsidiaries' Gaming Licenses unless a comparable replacement Gaming
License is effective before or simultaneously with the loss, suspension
or material impairment;
(e) if we consolidate or merge, we or the Person formed by or
surviving the consolidation or merger (if other than us) or to which
the sale, assignment, transfer, conveyance or other disposition shall
have been made will, or, in the case of a consolidation or merger of a
guarantor or the sale, assignment, transfer, conveyance or other
disposition of the property or assets of the guarantor, we will, on the
date of the transaction after giving pro forma effect to the
transaction and any related financing transactions as if the same had
occurred at the beginning of the applicable four-quarter period, be
permitted to incur at least $1.00 of additional Indebtedness pursuant
to the Fixed Charge Coverage Ratio test provided in the first paragraph
of the covenant entitled "--Incurrence of Indebtedness and Issuance of
Preferred Equity"; and
(f) the transaction would not require any holder or beneficial owner
of notes to obtain a Gaming License or be qualified or found suitable
under the law of any applicable gaming jurisdiction; provided, however,
that the holder or beneficial owner would not have been required to
obtain a Gaming License or be qualified or found suitable under the
laws of any applicable gaming jurisdiction in the absence of the
transaction.
In addition, neither we nor any guarantor may, directly or indirectly, lease
all or substantially all of our or its properties or assets, in one or more
related transactions, to any other Person. This "Merger, Consolidation or Sale
of Assets" covenant will not apply to a sale, assignment, transfer, conveyance
or other disposition of assets between or among us and any of our Restricted
Subsidiaries.
Notwithstanding the foregoing, we may reorganize as a corporation or other
business entity in accordance with the procedures established in the indenture,
provided that we have delivered to the trustee an opinion of counsel in the
United States reasonably acceptable to the trustee confirming that the
reorganization is not adverse to holder of the notes, it being recognized that
the reorganization will not be deemed adverse to the holders of the notes
solely because:
(1) of the accrual of deferred tax liabilities resulting from the
reorganization or
(2) the successor or surviving corporation is either subject to income
tax as a corporate entity or is considered to be an "includible
corporation" of an affiliated group of corporations within the meaning of
the Internal Revenue Code of 1986, as amended, or any similar state or
local law.
Transactions with Affiliates
We will not, and will not permit any of our Restricted Subsidiaries to, make
any payment to, or sell, lease, transfer or otherwise dispose of any of its
properties or assets to, or purchase any property or assets from, or
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enter into or make or amend any transaction, contract, agreement,
understanding, loan, advance or guarantee with, or for the benefit of, any
Affiliate, each being an "Affiliate Transaction," unless:
(1) the Affiliate Transaction is on terms that are no less favorable to
us or the relevant Restricted Subsidiary than those that would have been
obtained in a comparable transaction by us or the Restricted Subsidiary
with an unrelated Person; and
(2) we deliver to the trustee:
(a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$1.0 million, a resolution of our Board of Directors included in an
officers' certificate certifying that the Affiliate Transaction
complies with this covenant and that the Affiliate Transaction has been
approved unanimously by the Board of Directors; and
(b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$5.0 million, other than in connection with the Software Agreement, an
opinion as to the fairness to the holders of notes of such Affiliate
Transaction from a financial point of view issued by an accounting,
appraisal or investment banking firm of national standing.
The following items shall not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the prior paragraph:
(1) payments made pursuant to the Completion Capital Agreement,
Management Agreement, License Agreement, Tax Sharing Agreement, Technical
Services Agreement, Assignment Agreement and Marine Services Agreement;
(2) purchases of goods and services in the ordinary course of business;
(3) transactions between or among us and/or our Restricted Subsidiaries;
(4) Restricted Payments that are permitted by the covenant entitled
"Restricted Payments;"
(5) reasonable fees and compensation (including, without limitation,
bonuses, retirement plans and securities, stock options and stock ownership
plans) paid or issued to and indemnities provided on behalf of our or our
Restricted Subsidiaries, officers, directors, employees or consultants in
the ordinary course of business; and
(6) any other transactions that do not involve, in the aggregate for all
transactions, the payment of more than $250,000 in consideration in any one
calendar year.
Construction
We will construct the Shreveport resort, including the furnishing, fixturing
and equipping of the resort, with diligence and continuity in a good and
workmanlike manner substantially in accordance with the Plans.
Limitations on Use of Proceeds
We were required to deposit $113.4 million of the net proceeds of the
original offering into the Construction Disbursement Account, $5.0 million of
the net proceeds of the original offering into the Completion Reserve Account
and approximately $27.3 million of the net proceeds of the original offering in
the Interest Reserve Account. The funds in the Cash Collateral Accounts will be
invested solely in Government Securities; provided, however, that, after the
date of the indenture, funds in the Interest Reserve Account may be invested in
Pledged Securities so long as, on the date of any such investments, such
Pledged Securities have a value on such date which, in the opinion of a
nationally recognized firm of independent public accountants, is at least equal
to 125.0% of
(1) the amount of the first three payments of fixed interest that are
unpaid or
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(2) the pro rata portion of those interest payments equal to the
percentage of the interest payments to be secured by the Pledged
Securities. All funds in the Cash Collateral Accounts will be disbursed
only in accordance with the Cash Collateral and Disbursement Agreement.
Limitation on Status as Investment Company
The issuers and our Subsidiaries are prohibited from being required to
register as an "investment company," within the meaning of the Investment
Company Act of 1940, or from otherwise becoming subject to regulation under the
Investment Company Act of 1940.
Sale and Leaseback Transactions
We will not, and will not permit any of our Restricted Subsidiaries to, enter
into any sale and leaseback transaction; provided, however, that we may enter
into a sale and leaseback transaction if:
(1) we could have (a) incurred Indebtedness in an amount equal to the
Attributable Debt relating to such sale and leaseback transaction under
clause (2) of the first paragraph of the covenant entitled "--Incurrence of
Indebtedness and Issuance of Preferred Equity" and (b) incurred a Lien to
secure the Indebtedness pursuant to the covenant entitled "--Liens";
(2) the gross cash proceeds of the sale and leaseback transaction are at
least equal to the fair market value, as determined in good faith by our
Board of Directors and included in an officers' certificate delivered to
the trustee, of the property that is the subject of the sale and leaseback
transaction; and
(3) the transfer of assets in the sale and leaseback transaction is
permitted by, and we apply the proceeds of the transaction in compliance
with, the covenant entitled "--Repurchase at the Option of Holders--Asset
Sales."
Additional Subsidiary Guarantees
If we or any of our Restricted Subsidiaries acquires or creates a Restricted
Subsidiary after the date of the indenture that at any time has Total Assets of
$2.5 million or more, then that newly acquired or created Restricted Subsidiary
must become a guarantor and execute a supplemental indenture and collateral
documents pledging all of their assets and securing the guarantee and deliver
an Opinion of Counsel to the trustee within ten business days of the date on
which it was acquired or created. Any Restricted Subsidiary that becomes a
guarantor will remain a guarantor unless we designate that guarantor to be an
Unrestricted Subsidiary in accordance with the indenture or is otherwise
released from its obligations as a guarantor as provided in the indenture.
Designation of Restricted and Unrestricted Subsidiaries
Our Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if that designation would not cause a default. If a
Restricted Subsidiary is designated as an Unrestricted Subsidiary, the
aggregate fair market value of all of our and our Restricted Subsidiaries'
outstanding Investments in the Restricted Subsidiary so designated will be
deemed to be an Investment made as of the time of the designation and will
reduce the amount available for Restricted Payments under the first paragraph
of the covenant entitled "--Restricted Payments" or for future Investments
under one or more clauses of the definition of Permitted Investments, as we
determine. That designation will only be permitted if the Restricted Payment
would be permitted at that time and if the Restricted Subsidiary otherwise
meets the definition of an Unrestricted Subsidiary. Our Board of Directors may
redesignate any Unrestricted Subsidiary to be a Restricted Subsidiary if the
redesignation would not cause a default.
Limitation on Issuances and Sales of Equity Interests in Subsidiaries
All of our Restricted Subsidiaries, other than Shreveport Capital, shall be
wholly owned by us, by one or more of our Restricted Subsidiaries or by us and
one or more of its Restricted Subsidiaries.
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We will not, and will not permit any of our Restricted Subsidiaries to,
transfer, convey, sell, lease or otherwise dispose of any Equity Interests in
any of our Restricted Subsidiaries to any Person, other than us or one of our
Restricted Subsidiaries, unless:
(1) the transfer, conveyance, sale, lease or other disposition is of all
the Equity Interests in the Restricted Subsidiary; and
(2) the cash Net Proceeds from the transfer, conveyance, sale, lease or
other disposition are applied in accordance with the covenant entitled
"Repurchase at the Option of Holders--Asset Sales."
In addition, we will not permit any of our Restricted Subsidiaries to issue
any of its Equity Interests to any Person other than to us or one or more of
our Restricted Subsidiaries.
Line of Business
We will not, and will not permit any of our Subsidiaries to, engage in any
business or investment activities other than a Permitted Business. Neither we
nor any of our Subsidiaries may conduct a Permitted Business in any gaming
jurisdiction in which we or such Subsidiary is not licensed on the date of the
indenture if the holders of the notes would be required to be licensed as a
result of that business or investment; provided, however, that the provisions
described in this sentence will not prohibit us or any of our Subsidiaries from
conducting a Permitted Business in any jurisdiction that does not require the
licensing or qualification of all the holders, but reserves the discretionary
right to require the licensing or qualification of any holders. We will not,
and will not permit any of our Subsidiaries to, engage in any business,
development or investment activity other than at or in conjunction with the
Shreveport resort until the Shreveport resort is Operating.
Advances to Restricted Subsidiaries
All advances, other than equity contributions, to Restricted Subsidiaries
made by us after the date of the indenture will be evidenced by intercompany
notes in our favor. These intercompany notes will be pledged pursuant to the
collateral documents to the trustee as collateral to secure the notes. Each
intercompany note will be payable upon demand and will bear interest at a rate
equal to the then current fair market interest rate.
Insurance
Until the notes have been paid in full, we will, and will cause our
Restricted Subsidiaries to, maintain insurance with carriers against such risks
and in such amounts as is customarily carried by similar businesses with such
deductibles, retentions, self insured amounts and coinsurance provisions as are
customarily carried by similar businesses of similar size, including, without
limitation, property and casualty. Customary insurance coverage will be deemed
to include, without limitation, the following:
(1) workers' compensation insurance to the extent required to comply with
all applicable state, territorial or United States laws and regulations, or
the laws and regulations of any other applicable jurisdiction;
(2) comprehensive general liability insurance with minimum limits of $1.0
million;
(3) umbrella or excess liability insurance providing excess liability
coverages over and above the foregoing underlying insurance policies up to
a minimum limit of $25.0 million;
(4) business interruption insurance at all times on and after the
Shreveport resort is Operating; and
(5) property insurance protecting the property against losses or damages
as is customarily covered by an "all-risk" policy or a property policy
covering "special" causes of loss for a business of similar type and size;
provided, however, that the insurance will provide coverage of not less
than the lesser of (a) 120% of the outstanding principal amount of the
notes plus accrued and unpaid fixed interest and (b) 100% of actual
replacement value, as determined at each policy renewal based on the F.W.
Dodge Building Index or some other recognized means, of any improvements
customarily insured consistent with industry standards and, in each case,
with a deductible no greater than 2% of the insured value of the
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Shreveport resort or any greater amount as is available on commercially
reasonable terms, other than earthquake or flood insurance, for which the
deductible may be up to 10% of the replacement value.
All insurance required by this covenant, except worker's compensation, will
name us and the trustee as additional insureds or loss payees, as the case may
be, with losses in excess of $1.0 million payable jointly to us and the
trustee, unless a default or event of default has occurred and is then
continuing, in which case all losses are payable solely to the trustee, with no
recourse against the trustee for the payment of premiums, deductibles,
commissions or club calls, and for at least 30 days notice of cancellation. All
of these insurance policies will be issued by carriers having an A.M. Best &
Company, Inc. rating of A or higher and a financial size category of not less
than X, or if the carrier is not rated by A.M. Best & Company, Inc., having the
financial stability and size deemed appropriate by an opinion from a reputable
insurance broker. We will deliver to the trustee on each anniversary of the
closing date a certificate of an insurance agent describing the insurance
policies obtained by us and our Restricted Subsidiaries, together with an
officer's certificate stating that the policies comply with this covenant and
the related applicable provisions of the collateral documents.
Amendments to Certain Agreements
Neither of the issuers nor any of our Restricted Subsidiaries will amend,
waive or modify, or take or refrain from taking any action that has the effect
of amending, waiving or modifying any provision of any of the collateral
documents, Completion Capital Agreement, Management Agreement, License
Agreement, Tax Sharing Agreement, Technical Services Agreement, Assignment
Agreement, Marine Services Agreement, Side Agreement and Contribution and
Assumption Agreement; provided, however, that (1) any of these agreements may
be amended or modified so long as the terms of the agreement as so amended or
modified are no less favorable to the holders of the notes than the terms of
the agreement as of the date of the indenture and (2) any of the collateral
documents may be amended, waived or modified as provided below under the
caption "--Amendment, Supplement and Waiver."
Restriction on Payment of Management Fees
We will not, directly or indirectly, pay to the Manager or any of our
Affiliates any Management Fees, except pursuant to the Management Agreement in
accordance with the indenture. Amounts payable pursuant to the Management
Agreement may not be prepaid, and no payment of Management Fees, either current
or accrued, will be made:
(1) if at the time of payment of such Management Fee, a default or an
event of default has occurred and be continuing or shall occur as a result
thereof; or
(2) to the extent the payment would cause our Fixed Charge Coverage Ratio
for the most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date on which
the Management Fee is proposed to be paid to be less than 1.5 to 1
(calculated on a pro forma basis after adding back Management Fees that
were deducted from Consolidated Cash Flow during that period and deducting
from Consolidated Cash Flow Management Fees to be paid pursuant to this
provision); provided, however, that, with respect to periods following the
date the Shreveport resort first becomes Operating and before the time when
internal financial statements are available for four full fiscal quarters
following the date the Shreveport resort first becomes Operating, the Fixed
Charge Coverage Ratio will be calculated with respect to the number of full
fiscal quarters, but in no event less than one full fiscal quarter, for
which internal financial statements are available following the date the
Shreveport resort first becomes Operating.
Any Management Fees not permitted to be paid pursuant to this covenant will
be deferred and will accrue and may be paid only at the time that they would
otherwise be permitted to be paid under the indenture. The right to receive
payment of the Management Fee will be subordinate in right of payment to the
right of the holders of notes to receive payments pursuant to the notes.
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Further Assurances
The issuers will, and will cause each of our Restricted Subsidiaries to do,
execute, acknowledge, deliver, record, re-record, file, re-file, register and
re-register, as applicable, any and all further acts, deeds, conveyances,
security agreements, mortgages, assignments, estoppel certificates, financing
statements and continuations of each of the above, termination statements,
notices of assignment, transfers, certificates assurances and other instruments
as may be required from time to time in order to:
(1) carry out more effectively the purposes of the collateral documents;
(2) subject to the Liens created by any of the collateral documents any
of the properties, rights or interests required to be encumbered thereby;
(3) perfect and maintain the validity, effectiveness and priority of any
of the collateral documents and the Liens intended to be created thereby;
and
(4) better assure, convey, grant, assign, transfer, preserve, protect and
confirm to the trustee any of the rights granted now or in the future
intended by the parties thereto to be granted to the trustee under any
other instrument executed in connection therewith or granted to us under
the collateral documents or under any other instrument executed in
connection therewith.
Restrictions on Activities of HWCC-Louisiana, HCS I, HCS II and Shreveport
Capital
None of HWCC-Louisiana HCS I, HCS II or Shreveport Capital may:
(1) hold any material assets; provided, however, that
(a) HWCC-Louisiana may hold shares of HCS I and HCS II and the $2.5
million in cash that it will use to fund its obligations under the
Membership Interest Purchase Agreement until such obligations are paid
pursuant to the Membership Interest Purchase Agreement and
(b) HCS I and HCS II may each hold interests in us;
(2) consolidate or merge with or into any other Person, other than as
permitted in the covenant entitled "Merger, Consolidation or Sale of
Assets";
(3) become liable or pay for any obligations; provided, however, that
each of them may become liable for or pay for
(a) (1) its obligations under the indenture, the notes, the
guarantees, the registration rights agreement, the collateral documents
and any performance, surety or appeal bonds incurred in the ordinary
course of business, (2) any judgments and (3) its obligations under the
Membership Interest Purchase Agreement, Tax Sharing Agreement,
Assignment Agreement, Compromise Agreement, Loan and Settlement
Agreement, Joint Venture Agreement, Side Agreement and Contribution and
Assumption Agreement and
(b) Shreveport Capital may be a co-obligor with respect to
Indebtedness if we are also an obligor of that Indebtedness and the net
proceeds of the Indebtedness are received by us or one or more of our
Restricted Subsidiaries other than Shreveport Capital; or
(4) engage in any significant business activities, other than those that
are reasonably necessary for HCS I to take in its capacity as our managing
general partner.
Payments for Consent
The issuers will not, and will not permit any of our Restricted Subsidiaries
to, directly or indirectly, pay or cause to be paid any consideration to or for
the benefit of any holder of notes for or as an inducement to any consent,
waiver or amendment of any of the terms or provisions of the indenture or the
notes unless the consideration is offered to be paid and is paid to all holders
of notes that consent, waive or agree to amend in the time frame provided in
the solicitation documents relating to the consent, waiver or agreement.
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Reports
Whether or not required by the SEC, so long as any notes are outstanding, the
issuers and the Guarantors will furnish to the holders of notes, within 15 days
following the time periods specified in the SEC's rules and regulations:
(1) all consolidated quarterly and annual financial information that
would be required to be contained in a filing with the SEC on Forms 10-Q
and 10-K if the issuers were required to file these Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report on
the annual financial statements by the issuers' certified independent
accountants; and
(2) all current reports that would be required to be filed with the SEC
on Form 8-K if the issuers were required to file Form 8-K.
If we have designated any of our Subsidiaries as Unrestricted Subsidiaries,
then the consolidated quarterly and annual financial information required by
the preceding paragraph will include a reasonably detailed presentation, either
on the face of the financial statements or in the footnotes thereto, and in
Management's Discussion and Analysis of Financial Condition and Results of
Operations, of the financial condition and results of operations of the issuers
and our Restricted Subsidiaries separate from the financial condition and
results of operations of our Unrestricted Subsidiaries as required by the rules
and regulations of the SEC.
In addition, following the consummation of the exchange offer contemplated by
the registration rights agreement, whether or not required by the SEC, the
issuers and Guarantors will file a copy of all of the information and reports
referred to in clauses (1) and (2) above with the SEC for public availability
within the time periods specified in the SEC's rules and regulations, unless
the SEC will not accept the filing, and make this information available to
securities analysts and prospective investors upon request. In addition, the
issuers have agreed that, for so long as any notes remain outstanding, they
will furnish to the holders of notes and to securities analysts and prospective
investors, upon their request, the information required to be delivered
pursuant to Rule 144A(d)(4) under the Securities Act.
Cash Collateral and Disbursement Agreement
Pursuant to the Disbursement Agreement entered into among the issuers, First
American Title Insurance Company, as disbursement agent, and State Street Bank
and Trust Company, as trustee, the $145.7 million of net proceeds of the
original offering were placed into a construction disbursement account,
completion reserve account or interest reserve account and invested in
Government Securities. All funds and securities in each of these accounts will
be pledged as security for the repayment of the notes and will be distributed
by the disbursement agent pursuant to the Disbursement Agreement.
Construction Disbursement Account
The issuers have deposited $113.4 million of the net proceeds of the original
offering into the construction disbursement account. The disbursement agent
will invest these funds in Government Securities which will be held in the
construction disbursement account until the funds are needed to pay for the
development, construction, equipping and opening of the Shreveport resort. All
of the funds and securities in the construction disbursement account will be
pledged to the trustee for the benefit of the noteholders. Subject to certain
exceptions provided the in the Cash Collateral and Disbursement Agreement, the
disbursement agent will authorize the disbursement of funds from the
construction disbursement account only upon the satisfaction of the certain
disbursement conditions provided in the Cash Collateral and Disbursement
Agreement. These conditions include the requirement that we deliver to the
Disbursement Agent and the Independent Construction Consultant a certificate
certifying:
. the purposes to which the requested funds will be applied;
. that the construction performed to date is substantially in
accordance with the plans and the requested disbursement is
appropriate in light of the budget;
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. that we do not have any reason to believe that construction will not
terminate on or before the operating deadline;
. that we do not have any knowledge, notice or claim of any mechanics'
liens either filed or threatened against the Shreveport resort which
have not been insured or otherwise bonded over;
. that the budget shows the anticipated costs of completing the
Shreveport resort, and that there are funds available to complete
the construction of each component of the Shreveport resort within
the budget;
. that no event of default exists under the indenture and we are in
compliance in all material respects with each representation,
warranty and covenant contained in the indenture;
. that no circumstances have occurred which would provide us with any
defenses against the obligations evidenced by the notes or permit us
to assert any right to set off any amounts against these
obligations;
. that all equity contributions required to have been made under the
Cash Collateral and Disbursement Agreement on or before the date of
the requested funds have been made; and
. that all permits and approvals necessary as of the date of the
requested funds have been obtained and are in full force and effect.
In addition, before any funds may be disbursed, the disbursement agent will
be required to receive from the Independent Construction Consultant a
certification certifying that it has reviewed the disbursement request, has
visited the project site within the last month and concurs with certain of the
certifications made by us in the disbursement request. In addition, before any
funds will be disbursed, the Independent Construction Consultant must certify
that (1) the disbursement request is appropriate in light of the percentage of
construction completed and (2) there are sufficient available funds to complete
the construction of each component of the Shreveport resort within the budget
for the resort.
Interest Reserve Account
We deposited $27.3 million of the net proceeds of the original offering into
the interest reserve account. These funds will be sufficient to purchase
Government Securities which, upon receipt of scheduled interest and principal
payments, will provide for the payment in full of the first three payments of
fixed interest on the notes. All funds and securities in the interest reserve
account will be pledged to the trustee for the benefit of the noteholders.
Completion Reserve Account
We deposited $5.0 million of the net proceeds of the original offering into
the completion reserve account. The Disbursement Agent will invest these funds
in Government Securities which will be held in the completion reserve account
until the funds are needed to pay for the development, construction, equipping
and opening of the Shreveport resort. All funds and securities in the
completion reserve account will be pledged to the trustee for the benefit of
the holders of the notes. The Disbursement Agent will authorize the
disbursement of funds from the completion reserve account only upon the
satisfaction of the disbursement conditions provided in the Cash Collateral and
Disbursement Agreement. These conditions include that there are insufficient
funds in the construction disbursement account to make the disbursement.
Excess Funds
If (1) any funds remain in the Construction Disbursement Account or the
Completion Reserve Account upon the completion of the Shreveport resort as
described in the Cash Collateral and Disbursement Agreement or (2) funds remain
in the interest reserve account after the third interest payment has been made
on the notes and, in each case, there is no event of default under the
indenture, the Disbursement Agent will disburse the remaining funds into any
account specified by us for use in any manner permitted by the indenture.
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Events of Default and Remedies
Each of the following is an event of default under the indenture:
(1) default for 30 days in the payment when due of interest on, or
liquidated damages with respect to, the notes; provided, however, that
payments of Contingent Interest that are permitted to be deferred as
provided in the indenture will not become due for this purpose until the
payment is required to be made pursuant to the terms of the indenture;
(2) default in payment when due of the principal of, or premium, if any,
on the notes;
(3) (a) default in the payment of principal of, premium, if any, and
interest on notes required to be purchased with respect to a Change of
Control Offer, Asset Sale Offer or Event of Loss Offer, when due and
payable; and
(b) failure to perform or comply with the provisions described under
(1) "--Certain Covenants--Merger, Consolidation or Sale of Assets"
or "--Limitation on Use of Proceeds" or
(2) "--Certain Covenants--Restricted Payments," but only if the
failure under this clause (2) is caused by a Restricted Payment
described in the first set of clauses (1) through (3) of the first
paragraph of the covenant entitled "--Certain Covenants--Restricted
Payments;"
(4) failure by
(a) either of the issuers or any of our Restricted Subsidiaries for
60 days after notice thereof to comply with the any of the other
agreements in the indenture not set forth in clause (3) above or
(b) us for 30 days after notice thereof to comply with any of the
agreements in the Cash Collateral and Disbursement Agreement;
(5) default under any mortgage, indenture or instrument under which there
may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by us or any of our Restricted
Subsidiaries, or the payment of which is guaranteed by us or any of our
Restricted Subsidiaries, whether the Indebtedness or guarantee now exists,
or is created after the date of the indenture, if that default:
(a) is caused by a failure to pay principal of, or interest or
premium, if any, on Indebtedness before the expiration of the grace
period provided in the Indebtedness on the date of the default, a
"Payment Default"; or
(b) results in the acceleration of the Indebtedness before its
express maturity, and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other
Indebtedness under which there has been a Payment Default or the
maturity of which has been so accelerated, aggregates $5.0 million or
more;
(6) failure by either of the issuers or any of our Restricted
Subsidiaries to pay final judgments aggregating in excess of $5.0 million,
which judgments are not paid, discharged or stayed for a period of 60 days;
(7) breach by either of the issuers or any guarantor in any material
respect of any representation or warranty or agreement in any of the
collateral documents or in any certificates delivered in connection with
the collateral documents, the repudiation by any of them of any of its
obligations under any of the collateral documents, the unenforceability of
the collateral documents against any of them for any reason which continues
for 30 days after written notice from the trustee or holders of at least
25% in outstanding principal amount of notes or the loss of the perfection
or priority of the Liens granted by any of them pursuant to the collateral
documents for any reason;
(8) except as permitted by the indenture, any guarantee by a guarantor
with Total Assets of $5.0 million or more shall be held in any judicial
proceeding to be unenforceable or invalid or shall cease for any reason to
be in full force and effect or any guarantor with Total Assets of $5.0
million or more, or any Person acting on behalf of any guarantor, shall
deny or disaffirm its obligations under its guarantee;
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(9) certain events of bankruptcy or insolvency with respect to either of
the issuers or any of our Restricted Subsidiaries;
(10) default by Hollywood Casino in the performance of its obligations
provided in, or repudiation of its obligations under, the Completion
Capital Agreement;
(11) if HWCC-Louisiana, HCS I, HCS II and us ever fail to own
collectively 100% of the issued and outstanding Equity Interests of
Shreveport Capital; or
(12) the failure of the Shreveport resort to be Operating by the
Operating Deadline or any revocation, suspension or loss of any gaming
license which results in the cessation or suspension of business at the
Shreveport resort for a period of more than 90 consecutive days; provided,
however, that, in any event, there shall not be an event of default under
this clause if the suspension of business results from an Event of Loss and
we are complying with the covenant entitled "Repurchase at the Option of
Holders--Event of Loss."
In the case of an event of default arising from certain events of bankruptcy
or insolvency with respect to either of the issuers or any of our Restricted
Subsidiaries that is a Significant Subsidiary or any group of our Restricted
Subsidiaries that, taken together, would constitute a Significant Subsidiary,
all outstanding notes will become due and payable immediately without further
action or notice. If any other event of default occurs and is continuing, the
trustee or the holders of at least 25% in principal amount of the then
outstanding notes may declare all the notes to be due and payable immediately.
Holders of notes may not enforce the indenture or the notes, except as
provided in the indenture. Subject to certain limitations, holders of a
majority in principal amount of the then outstanding notes may direct the
trustee in its exercise of any trust or power. The trustee may withhold from
holders of notes notice of any continuing default or event of default (except a
default or event of default relating to the payment of principal or interest or
liquidated damages) if it determines that withholding notice is in their
interest.
The holders of a majority in aggregate principal amount of the notes then
outstanding by notice to the trustee may on behalf of the holders of all of the
notes waive any existing default or event of default and its consequences under
the indenture, except a continuing default or event of default in the payment
of interest or liquidated damages on, or the principal of, the notes.
In the case of any event of default occurring by reason of any willful action
or inaction taken or not taken by or on behalf of the issuers with the
intention of avoiding payment of the premium that the issuers would have had to
pay if the issuers then had elected to redeem the notes pursuant to the
optional redemption provisions of the indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the notes. If an event of default occurs before August
1, 2003, by reason of any willful action or inaction taken or not taken by or
on behalf of the issuers with the intention of avoiding the prohibition on
redemption of the notes before August 1, 2003, then the premium specified in
the indenture shall also become immediately due and payable to the extent
permitted by law upon the acceleration of the notes.
The issuers are required to deliver to the trustee annually a statement
regarding compliance with the indenture. Upon becoming aware of any default or
event of default, the issuers are required to deliver to the trustee a
statement specifying the default or event of default.
No Personal Liability of Directors, Officers, Employees, Partners and
Stockholders
No director, officer, employee, partner, incorporator or stockholder of
either of the issuers or any guarantor, as such, shall have any liability for
any obligations of either of the issuers or any of the Guarantors under the
notes, the indenture, the guarantees, the collateral documents or for any claim
based on, in respect of, or by reason of, such obligations or their creation.
Each holder of notes by accepting a note waives and releases all liability. The
waiver and release are part of the consideration for issuance of the notes. The
waiver may not be effective to waive liabilities under the federal securities
laws.
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Legal Defeasance and Covenant Defeasance
The issuers may, at their option and at any time, elect to have all of their
obligations discharged with respect to the outstanding notes and all
obligations of the Guarantors discharged with respect to their guarantees
("Legal Defeasance") except for:
(1) the rights of holders of outstanding notes to receive payments in
respect of the principal of, or interest or premium and liquidated damages,
if any, on such notes when such payments are due from the trust referred to
below;
(2) the issuers' obligations with respect to the notes concerning issuing
temporary notes, registration of notes, mutilated, destroyed, lost or
stolen notes and the maintenance of an office or agency for payment and
money for security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the trustee, and
the issuers' and the guarantor's obligations in connection therewith; and
(4) the Legal Defeasance provisions of the indenture.
In addition, the issuers may, at their option and at any time, elect to have
the obligations of the issuers and the Guarantors released with respect to
certain covenants that are described in the indenture ("Covenant Defeasance")
and thereafter any omission to comply with those covenants shall not constitute
a default or event of default with respect to the notes. In the event Covenant
Defeasance occurs, certain events (not including non-payment, bankruptcy,
receivership, rehabilitation and insolvency events) described under "Events of
Default" will no longer constitute an event of default with respect to the
notes. In addition, the Liens securing the collateral will be released upon
Covenant Defeasance or Legal Defeasance.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) the issuers must irrevocably deposit with the trustee, in trust, for
the benefit of the holders of notes, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in the amounts that will
be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, and fixed
interest, the maximum remaining amount payable as Contingent Interest, and
premium and liquidated damages, if any, on the outstanding notes on the
stated maturity or on the applicable redemption date, as the case may be,
and the issuers must specify whether the notes are being defeased to
maturity or to a particular redemption date;
(2) in the case of Legal Defeasance, the issuers shall have delivered to
the trustee an Opinion of Counsel reasonably acceptable to the trustee
confirming that
(a) the issuers have received from, or there has been published by,
the Internal Revenue Service a ruling or
(b) since the date of the indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that,
and based thereon such Opinion of Counsel shall confirm that, the
holders of the outstanding notes will not recognize income, gain or
loss for federal income tax purposes as a result of 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 the Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance, the issuers shall have delivered
to the trustee an Opinion of Counsel reasonably acceptable to the trustee
confirming that the holders of the outstanding notes will not recognize
income, gain or loss for federal income tax purposes as a result of 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 the Covenant Defeasance had not occurred;
(4) no default or event of default shall have occurred and be continuing
either:
(a) on the date of the deposit (other than a default or event of
default resulting from the borrowing of funds to be applied to the
deposit) or
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(b) insofar as events of default from bankruptcy or insolvency events
are concerned, at any time in the period ending on the 91st day after
the date of deposit;
(5) the Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material
agreement or instrument (other than the indenture) to which either of the
issuers or any of our Restricted Subsidiaries is a party or by which either
of the issuers or any of our Restricted Subsidiaries is bound;
(6) the issuers must have delivered to the trustee an opinion of counsel
to the effect that, assuming no intervening bankruptcy of either of the
issuers or any guarantor between the date of the deposit and the 91st day
following the deposit and assuming that no holder is an "insider" of either
of the issuers under applicable bankruptcy law, after the 91st day
following the deposit, the trust funds will not be subject to the effect of
any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally;
(7) the issuers must deliver to the trustee an officers' certificate
stating that the deposit was not made by the issuers with the intent of
preferring the holders of notes over the other creditors of either of the
issuers with the intent of defeating, hindering, delaying or defrauding
creditors of either of the issuers or others; and
(8) the issuers must deliver to the trustee an officers' certificate and
an Opinion of Counsel, each stating that all conditions precedent relating
to the Legal Defeasance or the Covenant Defeasance have been complied with.
Notwithstanding the above, the trustee shall pay us from time to time upon
our request any cash or Government Securities held by it as provided in the
third paragraph of this section which, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the trustee (which may be the opinion
delivered under clause (1) of the third paragraph of this section), are in
excess of the amount thereof that would then be required to be deposited to
effect a Legal Defeasance or Covenant Defeasance.
Amendment, Supplement and Waiver
Except as provided in the next three succeeding paragraphs, the indenture,
the notes, the guarantees or the collateral documents may be amended or
supplemented by the issuers, the Guarantors and the trustee with the consent of
the holders of at least a majority in principal amount of the notes then
outstanding (including, without limitation, consents obtained in connection
with a purchase of, or tender offer or exchange offer for, notes), and any
existing default or compliance with any provision of the indenture, the notes,
the Guarantees or the collateral documents may be waived with the consent of
the holders of a majority in principal amount of the then outstanding notes
(including, without limitation, consents obtained in connection with a purchase
of, or tender offer or exchange offer for, notes).
Without the consent of each holder affected, an amendment or waiver may not
(with respect to any notes held by a non-consenting holder):
(1) reduce the principal amount of notes whose holders must consent to an
amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any note or
alter the provisions with respect to the redemption of the notes, other
than provisions relating to the covenants described above under the caption
"--Repurchase at the Option of Holders";
(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 interest or premium, or liquidated damages, if any, on the notes, except
a rescission of acceleration of the notes by the holders of at least a
majority in aggregate principal amount of the notes and a waiver of the
payment default that resulted from such acceleration;
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(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 or the rights of holders of notes to receive
payments of principal of, or interest or premium or liquidated damages, if
any, on the notes;
(7) waive a redemption payment with respect to any note, other than a
payment required by one of the covenants described above under the caption
"--Repurchase at the Option of Holders";
(8) release any guarantor from any of its obligations under its guarantee
or the indenture, except in accordance with the terms of the indenture;
(9) release all or substantially all of the collateral from the Lien of
the indenture or the collateral documents, except in accordance with the
provisions thereof; or
(10) make any change in the preceding amendment and waiver provisions.
Any amendment to, or waiver of, the provisions of any of the collateral
documents relating to the covenant entitled "Liens" or the security provisions
of the indenture will require the consent of the holders of at least 85% in
principal amount of the notes then outstanding.
Notwithstanding the preceding, without the consent of any holder of notes,
the issuers, the Guarantors and the trustee may amend or supplement the
indenture, the notes, the guarantees or the collateral documents:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated notes in addition to or in place of
certificated notes;
(3) to provide for the assumption of the either of the issuers'
obligations to holders of notes in the case of a merger or consolidation or
sale of all or substantially all of that issuers' assets;
(4) to make any change that would provide any additional rights or
benefits to the holders of notes or that does not adversely affect the
legal rights under the indenture of that holder;
(5) to comply with requirements of the SEC in order to effect or maintain
the qualification of the indenture under the Trust Indenture Act; or
(6) to enter into additional or supplemental collateral documents or an
intercreditor agreement with a Pari Passu Debtholder.
Satisfaction and Discharge
The indenture will be discharged and will cease to be of further effect as to
all notes issued thereunder, when:
(1) either:
(a) all notes that have been authenticated (except lost, stolen or
destroyed notes that have been replaced or paid and notes for whose
payment money has theretofore been deposited in trust and thereafter
repaid to the issuers) have been delivered to the trustee for
cancellation; or
(b) all notes that have not been delivered to the trustee for
cancellation have become due and payable by reason of the making of a
notice of redemption or otherwise or will become due and payable within
one year and the issuers or any guarantor have irrevocably deposited or
caused to be deposited with the trustee as trust funds in trust solely
for the benefit of the holders of notes, cash in U.S. dollars, non-
callable Government Securities, or a combination thereof, in those
amounts that will be sufficient without consideration of any
reinvestment of interest, to pay and discharge the entire indebtedness
on the notes not delivered to the trustee for cancellation for
principal, fixed interest, the maximum amount payable as Contingent
Interest and premium and liquidated damages, if any, to the date of
maturity or redemption;
(2) no default or event of default shall have occurred and be continuing
on the date of the deposit or shall occur as a result of the deposit and
the deposit will not result in a breach or violation of, or constitute
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a default under, any other instrument to which either of the issuers or any
guarantor is a party or by either of the issuers or any guarantor is bound;
(3) the issuers and each guarantor has paid or caused to be paid all sums
payable by them under the indenture; and
(4) the issuers have delivered irrevocable instructions to the trustee
under the indenture to apply the deposited money toward the payment of the
notes at maturity or the redemption date, as the case may be.
In addition, the issuers must deliver an officers' certificate and an
Opinion of Counsel to the trustee stating that all conditions precedent to
satisfaction and discharge have been satisfied.
Notwithstanding the above, the trustee shall pay us from time to time upon
our request any cash or Government Securities held by it as provided in this
section which, in the opinion of a nationally recognized firm of independent
public accountants expressed in a written certification delivered to the
trustee, are in excess of the amount thereof that would then be required to be
deposited to effect a Satisfaction and Discharge.
Concerning the Trustee
If the trustee becomes a creditor of either of the issuers or any guarantor,
the indenture limits its right to obtain payment of claims in certain cases,
or to realize on certain property received in respect of any such claim as
security or otherwise. The trustee will be permitted to engage in other
transactions. However, if it acquires any conflicting interest it must
eliminate such conflict within 90 days, apply to the SEC for permission to
continue or resign.
The holders of a majority in principal amount of the then outstanding notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the trustee, subject to
certain exceptions. The indenture provides that in case an event of default
shall occur and be continuing, the trustee will be required, in the exercise
of its power, to use the degree of care of a prudent man in the conduct of his
own affairs. Subject to these provisions, the trustee will be under no
obligation to exercise any of its rights or powers under the indenture at the
request of any holder of notes, unless the holder shall have offered to the
trustee security and indemnity satisfactory to it against any loss, liability
or expense.
Book-Entry, Delivery and Form
Except as provided below, your notes will be issued in registered, global
form in minimum denominations of $1,000 and integral multiples of $1,000 in
excess thereof.
The notes will be represented by a note in registered, global form without
interest coupons (the "Global Note"). The Global Note 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 in DTC as described below.
The following description of the operations and procedures of DTC are
provided solely as a matter of convenience. These operations and procedures
are solely within the control of DTC and are subject to changes by them. We
take no responsibility for these operations and procedures and urges investors
to contact the DTC or its participants directly to discuss these matters.
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 its Participants. The Participants include securities brokers
and dealers (including the initial purchasers), banks, trust companies,
clearing corporations and certain other organizations. Access to DTC's system
is also available to other entities such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly (collectively, the "Indirect
Participants"). Persons
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who are not Participants may beneficially own securities held by or on behalf
of DTC only through the Participants or the Indirect Participants. The
ownership interests in, and transfers of ownership interests in, 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 Note, DTC will credit the accounts of
Participants designated by the initial purchasers with portions of the
principal amount of the Global Note; and
(2) ownership of these interests in the Global Note will be shown on, and
the transfer of ownership thereof will be effected only through, records
maintained by DTC (with respect to the Participants) or by the Participants
and the Indirect Participants (with respect to other owners of beneficial
interest in the Global Notes).
Investors in the Global Note who are Participants in DTC's system may hold
their interests therein directly through DTC. Investors in the Global Note who
are not Participants may hold their interests therein indirectly through
organizations which are Participants in such system. All interests in a Global
Note may be subject to the procedures and requirements of DTC. The laws of some
states require that certain Persons take physical delivery in definitive form
of securities that they own. Consequently, the ability to transfer beneficial
interests in the Global Note to such persons will be limited to that extent.
Because DTC can act only on behalf of Participants, which in turn act on behalf
of Indirect Participants, the ability of a person having beneficial interests
in the Global Note to pledge such interests to persons that do not participate
in the DTC system, or otherwise take actions in respect of such interests, may
be affected by the lack of a physical certificate evidencing such interests.
Except as described below, owners of interest in the Global Note 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 of, and interest and premium and
liquidated damages, if any, on the Global Note registered in the name of DTC or
its nominee will be payable to DTC in its capacity as the registered holder
under the indenture. Under the terms of the indenture, the Company and the
trustee will treat the persons in whose names the new notes, including the
Global Notes, are registered as the owners thereof for the purpose of receiving
payments and for all other purposes. Consequently, neither we, the trustee nor
any of our trustee's agents has 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 interest in the Global Notes or for maintaining, supervising or
reviewing any of DTC's records or any Participant's or Indirect
Participant's records relating to the beneficial ownership interests in the
Global Notes; or
(2) any other matter relating to the actions and practices of DTC or any
of its Participants or Indirect Participants.
DTC has advised us that its current practice, upon receipt of any payment in
respect of securities such as the registered notes (including principal and
interest), is to credit the accounts of the relevant Participants with the
payment on the payment date unless DTC has reason to believe it will not
receive payment on such payment date. Each relevant Participant is credited
with an amount proportionate to its beneficial ownership of an interest in the
principal amount of the relevant security as shown on the records of DTC.
Payments by the Participants and the Indirect Participants to the beneficial
owners of new notes will be governed by standing instructions and customary
practices and will be the responsibility of the Participants or the Indirect
Participants and will not be the responsibility of DTC, the trustee or us.
Neither we nor the trustee will be liable for any delay by DTC or any of its
Participants in identifying the beneficial owners of the registered notes, and
we and the trustee may conclusively rely on and will be protected in relying on
instructions from DTC or its nominee for all purposes.
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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 registered notes only at the direction of one or more Participants to
whose account DTC has credited the interests in the Global Notes 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 such direction.
However, if there is an event of default under the registered notes, DTC
reserves the right to exchange the Global Note for legended registered notes in
certificated form, and to distribute such registered notes to its Participants.
Although DTC has agreed to the foregoing procedures to facilitate transfers
of interests in the Global Note among participants in DTC, it is under no
obligation to perform or to continue to perform these procedures, and may
discontinue them at any time. Neither we nor the trustee nor any of their
respective agents will have any responsibility for the performance by DTC or
its respective participants or indirect participants of its respective
obligations under the rules and procedures governing its operations.
Transfers of Interests in Global Notes for Certificated Notes
An entire Global Note may be exchanged for definitive registered notes in
registered, certificated form without interest coupons ("Certificated Notes")
if:
(1) DTC (a) notifies the issuers that it is unwilling or unable to
continue as Depositary for the Global Notes and the issuers thereupon fail
to appoint a successor Depositary within 120 days or (b) has ceased to be a
clearing agency registered under the Exchange Act,
(2) the issuers, at their option, notify the trustee in writing that it
elects to cause the issuance of Certificated Notes or
(3) there shall have occurred and be continuing a default or an event of
default with respect to the registered notes. In any such case, the issuers
will notify the trustee in writing that, upon surrender by the Direct and
Indirect Participants of their interest in the Global Note, Certificated
Notes will be issued to each person that such Direct and Indirect
Participants and the DTC identify as being the beneficial owner of the
related notes.
In addition, beneficial interests in the Global Note held by any Direct or
Indirect Participant may be exchanged for Certificated Notes upon request to
DTC, by such Direct Participant (for itself or on behalf of an Indirect
Participant), to the trustee in accordance with customary DTC procedures.
Certificated Notes delivered in exchange for any beneficial interest in any
Global Note will be registered in the names, and issued in any approved
denominations, requested by DTC on behalf of such Direct or Indirect
Participants in accordance with DTC's customary procedures.
Neither the issuers nor the trustee will be liable for any delay by the
holder of the Global Note or DTC in identifying the beneficial owners of notes,
and the issuers and the trustee may conclusively rely on, and will be protected
in relying on, instructions from the holder of the Global Note or DTC for all
purposes.
Same Day Settlement and Payment
The indenture will require that payments in respect of the notes represented
by the Global Note, including principal, premium, if any, interest and
liquidated damages, if any, be made by wire transfer of immediately available
same day funds to the accounts specified by the holder of interests in such
Global Note. With respect to Certificated Notes, issuers will make all payments
of principal, premium, if any, interest and liquidated damages, if any, by wire
transfer of immediately available same day funds to the accounts specified by
the holders thereof or, if no such account is specified, by mailing a check to
each such holder's registered address. The registered notes represented by the
Global Notes are expected to be eligible to trade in the PORTAL
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market and to trade in DTC's Same-Day Funds Settlement System, and any
permitted secondary market trading activity in such registered notes will,
therefore, be required by DTC to be settled in immediately available funds. The
issuers expect that secondary trading in the Certificated Notes will also be
settled in immediately available funds.
Certain Definitions
Provided below are certain defined terms used in the indenture. Reference is
made to the indenture for a full disclosure of all these terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other
Person is merged with or into or became a Subsidiary of such specified
Person, whether or not such Indebtedness is incurred in connection with, or
in contemplation of, such other Person merging with or into, or becoming a
Subsidiary of, such specified Person; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by such
specified Person.
"Adjusted Fixed Charge Coverage Ratio" means, with respect to any Person for
any period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to Adjusted Fixed Charges of such
Person and its Restricted Subsidiaries for such period (calculated in the same
manner as the Fixed Charge Coverage Ratio is calculated).
"Adjusted Fixed Charges" means, with respect to any Person for any period,
the Fixed Charges of such Person and its Restricted Subsidiaries for such
period, plus any Contingent Interest to the extent paid in such period.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person; provided, however, that Paddlewheels shall
not be deemed to be our "Affiliate." For purposes of this definition,
"control," as used with respect to any Person, shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of such Person, whether through the ownership of voting
securities, by agreement or otherwise; provided, however, that beneficial
ownership of 10% or more of the voting securities of a Person shall be deemed
to be control. For purposes of this definition, the terms "controlling,"
"controlled by" and "under common control with" shall have correlative
meanings.
"Assignment Agreement" means the Amended and Restated Assignment of Joint
Venture Interest dated as of September 22, 1998, among Sodak Louisiana, L.L.C.,
a Louisiana limited liability company, HWCC-Louisiana, Paddlewheels and New
Orleans Paddlewheels, Inc., a Louisiana corporation, as in effect on the date
of the indenture or as amended or modified pursuant to the provisions of the
covenant entitled "Amendment to Certain Agreements."
"Asset Sale" means:
(1) the sale, lease, conveyance or other disposition of any assets or
rights; provided that the sale, conveyance or other disposition of all or
substantially all of our assets and Restricted Subsidiaries taken as a
whole will be governed by the provisions of the indenture described above
under the caption "--Repurchase at the Option of Holders--Change of
Control" and the provisions described above under the caption "--Certain
Covenants--Merger, Consolidation or Sale of Assets" and not by the
provisions of the Asset Sale covenant; and
(2) the issuance of Equity Interests by any of our Restricted
Subsidiaries or the sale of Equity Interests by us in any of our
Subsidiaries.
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Notwithstanding the preceding, the following items shall not be deemed to be
Asset Sales:
(1) any single transaction or series of related transactions that
involves assets having a fair market value of less than $1.0 million;
(2) a transfer of assets between or among us and our Restricted
Subsidiaries;
(3) an issuance of Equity Interests by one of our Restricted Subsidiaries
to us or to another Restricted Subsidiary;
(4) the sale or lease of equipment, inventory, accounts receivable or
other assets in the ordinary course of business;
(5) the sale or other disposition of cash or Cash Equivalents; and
(6) a Restricted Payment or Permitted Investment that is permitted by the
covenant entitled "Certain Covenants--Restricted Payments."
"Attributable Debt" in respect of a sale and leaseback transaction means, at
the time of determination, the present value of the obligation of the lessee
for net rental payments during the remaining term of the lease included in such
sale and leaseback transaction, including any period for which such lease has
been extended or may, at the option of the lessor, be extended. Such present
value shall be calculated using a discount rate equal to the rate of interest
implicit in such transaction, determined in accordance with GAAP.
"Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and
Rule 13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person" (as that term is used in Section 13(d)(3)
of the Exchange Act), such "person" shall be deemed to have beneficial
ownership of all securities that such "person" has the right to acquire by
conversion or exercise of other securities, whether such right is currently
exercisable or is exercisable only upon the occurrence of a subsequent
condition. The terms "Beneficially Owns" and "Beneficially Owned" shall have a
corresponding meaning.
"Board of Directors" means:
(1) with respect to a corporation, the Board of Directors of the
corporation;
(2) with respect to a partnership, the Board of Directors of the managing
general partner of the partnership; and
(3) with respect to any other Person, the board or committee of such
Person serving a similar function.
"Capital Lease Obligation" means, at the time any determination thereof is to
be made, the amount of the liability in respect of a capital lease that would
at that time be required to be capitalized on a balance sheet in accordance
with GAAP.
"Capital Stock" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated)
of corporate stock;
(3) in the case of a partnership or limited liability company,
partnership or membership interests (whether general or limited); and
(4) any other interest or participation that confers on a Person the
right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"Cash Collateral Accounts" means, collectively, the Construction Disbursement
Account, the Completion Reserve Account, the Interest Reserve Account and the
Segregated Account.
"Cash Collateral and Disbursement Agreement" means the Cash Collateral and
Disbursement Agreement dated the date of the indenture, among the issuers, the
trustee and the Disbursement Agent in connection with the Shreveport resort.
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"Cash Equivalents" means:
(1) United States dollars;
(2) securities issued or directly and fully guaranteed or insured by the
United States government or any agency or instrumentality thereof, provided
that the full faith and credit of the United States is pledged in support
thereof, having maturities of not more than six months from the date of
acquisition;
(3) certificates of deposit and eurodollar time deposits with maturities
of six months or less from the date of acquisition, bankers' acceptances
with maturities not exceeding six months and overnight bank deposits, in
each case, with any domestic commercial bank having capital and surplus in
excess of $500.0 million and a Thomson Bank Watch Rating of "B" or better;
(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and (3) above
entered into with any financial institution meeting the qualifications
specified in clause (3) above;
(5) commercial paper having the highest rating obtainable from Moody's
Investors Service, Inc. or Standard & Poor's Rating Services and in each
case maturing within six months after the date of acquisition; and
(6) money market funds at least 95% of the assets of which constitute
Cash Equivalents of the kinds described in clauses (1) through (5) of this
definition.
"Change of Control" means the occurrence of any of the following:
(1) the direct or indirect sale, transfer, conveyance or other
disposition, other than by way of merger or consolidation, in one or a
series of related transactions, of all or substantially all of the assets
of Hollywood Casino and its Subsidiaries taken as a whole;
(2) the liquidation or dissolution of, or the adoption of a plan relating
to the liquidation or dissolution of, either of the Issuers or Hollywood
Casino or any successor thereto;
(3) Hollywood Casino becoming aware of (by way of a report or any other
filing pursuant to Section 13(d) of the Exchange Act, proxy vote, written
notice or otherwise) the acquisition by any Person or related group, within
the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, or
any successor provision to either of the foregoing, including any "group"
acting for the purpose of acquiring, holding or disposing of securities
within the meaning of Rule 13d-5(b)(1) under the Exchange Act, other than
any of the Principals, in a single transaction or in a related series of
transactions, by way of merger, consolidation or other business combination
or purchase of beneficial ownership, within the meaning of Rule 13d-3 under
the Exchange Act, or any successor provision, of 30% or more of the total
voting power entitled to vote in the election of the Board of Directors of
Hollywood Casino or such other Person surviving the transaction and, at
such time, the Principals collectively shall fail to beneficially own,
directly or indirectly, securities representing greater than the combined
voting power of Hollywood Casino's or such other Person's Voting Stock as
is beneficially owned by such person or group;
(4) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Hollywood Casino's Board of
Directors, together with any new directors whose election or appointment by
such board or whose nomination for election by the stockholders of
Hollywood Casino was approved by a vote of a majority of the directors then
still in office who were either directors at the beginning of such period
or whose election or nomination for election was previously so approved,
ceasing for any reason to constitute a majority of the Hollywood Casino's
Board of Directors then in office;
(5) Hollywood Casino consolidates with, or merges with or into, any
Person, or any Person consolidates with, or merges with or into, Hollywood
Casino, in any such event pursuant to a transaction in which any of the
outstanding Voting Stock of Hollywood Casino is converted into or exchanged
for cash, securities or other property, other than any such transaction
where the Voting Stock of Hollywood Casino outstanding immediately prior to
such transaction is converted into or exchanged for Voting Stock
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(other than Disqualified Stock) of the surviving or transferee Person
constituting a majority of the outstanding shares of such Voting Stock of
such surviving or transferee Person immediately after giving effect to such
issuance;
(6) the first day on which Hollywood Casino ceases to Beneficially Own
100% of our outstanding Equity Interests', other than our Equity Interests
owned by Paddlewheels on the date of the indenture; or
(7) the termination or repudiation by the Manager of the Management
Agreement.
"Completion Capital Agreement" means the Completion Capital Agreement dated
as of the date of the indenture, among Hollywood Casino, HWCC-Louisiana, HCS I,
HCS II and us, as in effect on the date of the indenture or as amended or
modified pursuant to the provisions of the covenant entitled "Amendments to
Certain Agreements."
"Completion Reserve Account" means the completion reserve account to be
maintained by the Disbursement Agent and pledged to the trustee pursuant to the
terms of the Cash Collateral and Disbursement Agreement, into which $5.0
million of the proceeds of the original offering were deposited.
"Compromise Agreement" means the Compromise Agreement dated as of September
15, 1998, among QNOV, Hilton New Orleans Corporation, New Orleans Paddlewheels,
Inc., the City of New Orleans and Hilton Hotels Corporation.
"Consolidated Cash Flow" means, with respect to any specified Person for any
period, the Consolidated Net Income of such Person for such period plus:
(1) an amount equal to any extraordinary loss plus any net loss realized
by such Person or any of its Restricted Subsidiaries in connection with an
Asset Sale, to the extent such losses were deducted in computing such
Consolidated Net Income; plus
(2) provision for taxes based on income or profits or the Tax Amount of
such Person and its Restricted Subsidiaries for such period, to the extent
that such provision for taxes or Tax Amount was deducted in computing such
Consolidated Net Income; plus
(3) consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued and whether or not
capitalized, including, without limitation, amortization of debt issuance
costs and original issue discount, non-cash interest payments, the interest
component of any deferred payment obligations, the interest component of
all payments associated with Capital Lease Obligations, imputed interest
with respect to Attributable Debt, commissions, discounts and other fees
and charges incurred in respect of letter of credit or bankers' acceptance
financings, and net of the effect of all payments made or received pursuant
to Hedging Obligations, to the extent that any such expense was deducted in
computing such Consolidated Net Income; plus
(4) any pre-opening expenses to the extent that such preopening expenses
were deducted in computing Consolidated Net Income on a consolidated basis
and determined in accordance with GAAP; plus
(5) depreciation, amortization, including amortization of goodwill and
other intangibles but excluding amortization of prepaid cash expenses that
were paid in a prior period, and other non-cash expenses, excluding any
such non-cash expense to the extent that it represents an accrual of or
reserve for cash expenses in any future period or amortization of a prepaid
cash expense, other than pre-opening expenses, that was paid in a prior
period, of such Person and its Restricted Subsidiaries for such period to
the extent that such depreciation, amortization and other non-cash expenses
were deducted in computing such Consolidated Net Income; minus
(6) non-cash items increasing such Consolidated Net Income for such
period, other than the accrual of revenue in the ordinary course of
business, in each case, on a consolidated basis and determined in
accordance with GAAP.
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Notwithstanding the preceding, the provision for taxes based on the income or
profits of, and the depreciation and amortization and other non-cash expenses
of, and of our Restricted Subsidiaries shall be added to Consolidated Net
Income to compute our Consolidated Cash Flow only to the extent that a
corresponding amount would be permitted at the date of determination to be
dividended to us by such Restricted Subsidiary without prior governmental
approval, that has not been obtained, and without direct or indirect
restriction pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to that Restricted Subsidiary or its equityholders.
"Consolidated Net Income" means, with respect to any specified Person for any
period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided, however, that:
(1) the Net Income of any Person that is not a Subsidiary or that is
accounted for by the equity method of accounting shall be included only to
the extent of the amount of dividends or distributions paid in cash to the
specified Person or a Restricted Subsidiary thereof;
(2) the Net Income of any Restricted Subsidiary shall be excluded to the
extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at
the date of determination permitted without any prior governmental
approval, that has not been obtained, or, directly or indirectly, by
operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation
applicable to that Restricted Subsidiary or its stockholders;
(3) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded;
(4) the cumulative effect of a change in accounting principles shall be
excluded;
(5) the Net Income of any Unrestricted Subsidiary shall be excluded,
whether or not distributed to the specified Person or one of its Restricted
Subsidiaries; and
(6) for purposes of calculating our Consolidated Net Income and our
Restricted Subsidiaries for any period, Net Income will be reduced by the
amount of any Paddlewheels Revenue Participation payable with respect to
such period.
"Construction Disbursement Account" means the construction disbursement
account to be maintained by the Disbursement Agent and pledged to the trustee
pursuant to the terms of the Cash Collateral and Disbursement Agreement, into
which $113.4 million of the net proceeds of the original offering were
deposited.
"Construction Disbursement Budget" means itemized schedules setting forth on
a line item basis all of the costs (including financing costs) estimated to be
incurred in connection with the financing, design, development, construction
and equipping of the Shreveport resort, as such schedules are delivered to the
Disbursement Agent on the date of the indenture and as amended from time to
time in accordance with the terms of the Cash Collateral and Disbursement
Agreement.
"Construction Repurchase Offer" means an offer by the issuers at their sole
discretion to all holders of notes to purchase the maximum principal amount of
notes that may be purchased with 50% of the Remaining Construction Amounts;
provided, however, that:
(1) the price for any notes to be purchased pursuant to such offer will
be paid in cash and will be equal to the sum of
(a) 100% of the principal amount thereof,
(b) accrued and unpaid interest on such notes and
(c) accrued liquidated damages on such notes, if any;
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(2) such offer will be conducted in the manner described under
"Compliance with Securities Laws;" and
(3) if the principal amount of notes tendered in such offer exceed the
offer amount, the trustee shall select the notes to be purchased in the
manner described under "--Selection and Notice."
"Contingent Interest" means:
(1) for the purpose of the First Accrual Period and any Semiannual
Period, the product of 5% multiplied by our Consolidated Cash Flow for such
First Accrual Period or Semiannual Period, as applicable;
(2) for the purpose of any Interim Period occurring after the date that
internal financial statements for the prior two fiscal quarters are
available, the product of
(a) 5% multiplied by our Consolidated Cash Flow for those two fiscal
quarters and
(b) a fraction, the numerator of which is the number of days from the
end of the most recent Semiannual Period to the date of payment and the
denominator of which is 180;
(3) for the purpose of an Accrual Period that ends prior to the
completion of the First Accrual Period or for any Interim Period occurring
prior to the date that internal financial statements for the immediately
preceding two fiscal quarters are available, the product of
(a) 5% multiplied by our Consolidated Cash Flow for all completed
calendar months during such period for which financial statements are
available and
(b) a fraction, the numerator of which is the number of days from the
date the Shreveport resort begins Operating to the date of payment and
the denominator of which is the aggregate number of days for all
completed months included in such period;
in each case, multiplied by a fraction, the numerator of which is the principal
amount of notes outstanding on the close of business on that Record Date and
the denominator of which is $150.0 million; provided, however, that Contingent
Interest that accrues in respect of any four consecutive fiscal quarters,
excluding any Contingent Interest deferred from prior periods, shall not exceed
the product of
(a) 5% multiplied by $100.0 million and
(b) a fraction, the numerator of which is such principal amount of
outstanding notes and the denominator of which is $150.0 million.
"Contribution and Assumption Agreement" means the Contribution and Assumption
Agreement dated as of July 21, 1999, among HWCC-Louisiana, HCS I, HCS II and
Paddlewheels, as in effect on the date of the indenture or as amended or
modified pursuant to the provisions of the covenant entitled "Amendments to
Certain Agreements."
"Disbursement Agent" means First American Title Insurance Company.
"Disqualified Stock" means any Capital Stock that, by its terms, or by the
terms of any security into which it is convertible, or for which it is
exchangeable, in each case at the option of the holder thereof, or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the holder
thereof, in whole or in part, on or prior to the date that is 91 days after the
date on which the notes mature. Notwithstanding the preceding sentence, any
Capital Stock that would constitute Disqualified Stock solely because the
holders thereof have the right to require us to repurchase such Capital Stock
upon the occurrence of a change of control or an asset sale shall not
constitute Disqualified Stock if the terms of such Capital Stock provide that
we may not repurchase or redeem any such Capital Stock pursuant to such
provisions unless such repurchase or redemption complies with the covenant
entitled "--Certain Covenants--Restricted Payments."
"Eligible Institution" means a domestic commercial banking institution that
has combined capital and surplus of not less than $500 million or its
equivalent in foreign currency, whose debt is rated "A" or higher according to
S&P or Moody's at the time any investment or rollover therein is made.
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"Equity Escrow Account" means the account into which $44.7 million in cash
was deposited on the date of the indenture representing equity contributions
made to us by HCS I, HCS II and Paddlewheels.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock, but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock.
"Event of Loss" means, with respect to any asset, any
(1) loss, destruction or damage of such asset,
(2) condemnation, seizure or taking by exercise of the power of
eminent domain or otherwise of such property or asset, or confiscation
of such asset or the requisition of the use of such asset or
(3) settlement in lieu of clause (2) above.
"FF&E" means furniture, fixtures or equipment used in the ordinary course of
our businesses and our Restricted Subsidiaries.
"FF&E Financing" means the incurrence of Indebtedness, the proceeds of which
are utilized solely to finance the acquisition of (or entry into a capital
lease by us or a Restricted Subsidiary with respect to) FF&E.
"Final Plans" with respect to any particular work or improvement means Plans
which
(1) have received final approval from all governmental authorities
required to approve such Plans prior to completion of the work or
improvements and
(2) contain sufficient specificity to permit the completion of the
work or improvement.
"First Accrual Period" means the period beginning on the date the Shreveport
resort begins Operating through and including the next June 30 or December 31,
as applicable.
"Fixed Charge Coverage Ratio" means with respect to any specified Person for
any period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person for
such period. In the event that the specified Person or any of its Restricted
Subsidiaries incurs, assumes, Guarantees, repays, repurchases or redeems any
Indebtedness, other than ordinary working capital borrowings, or issues,
repurchases or redeems preferred equity subsequent to the commencement of the
period for which the Fixed Charge Coverage Ratio is being calculated and on or
prior to the date on which the event for which the calculation of the Fixed
Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge
Coverage Ratio shall be calculated giving pro forma effect to such incurrence,
assumption, Guarantee, repayment, repurchase or redemption of Indebtedness, or
such issuance, repurchase or redemption of preferred equity, and the use of the
proceeds therefrom as if the same had occurred at the beginning of the
applicable four-quarter reference period.
In addition, for purposes of calculating the Fixed Charge Coverage Ratio:
(1) acquisitions that have been made by the specified Person or any of
its Restricted Subsidiaries, including through mergers or consolidations
and including any related financing transactions, during the four-quarter
reference period or subsequent to such reference period and on or prior to
the Calculation Date shall be given pro forma effect as if they had
occurred on the first day of the four-quarter reference period and
Consolidated Cash Flow for such reference period shall be calculated on a
pro forma basis in accordance with Regulation S-X under the Securities Act,
but without giving effect to clause (3) of the proviso set forth in the
definition of Consolidated Net Income;
(2) the Consolidated Cash Flow attributable to discontinued operations,
as determined in accordance with GAAP, and operations or businesses
disposed of prior to the Calculation Date, shall be excluded; and
(3) the Fixed Charges attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed
of prior to the Calculation Date, shall be excluded, but only to the extent
that the obligations giving rise to such Fixed Charges will not be
obligations of the specified Person or any of its Restricted Subsidiaries
following the Calculation Date.
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"Fixed Charges" means, with respect to any specified Person for any period,
the sum, without duplication, of:
(1) the consolidated interest expense, excluding Contingent Interest, if
any, paid or accrued, of such Person and its Restricted Subsidiaries for
such period, whether paid or accrued, including, without limitation,
amortization of debt issuance costs and original issue discount, non-cash
interest payments, the interest component of any deferred payment
obligations, the interest component of all payments associated with Capital
Lease Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect of
letter of credit or bankers' acceptance financings, and net of the effect
of all payments made or received pursuant to Hedging Obligations; plus
(2) the consolidated interest of such Person and its Restricted
Subsidiaries that was capitalized during such period; plus
(3) any interest expense on Indebtedness of another Person that is
guaranteed by that Person or one of its Restricted Subsidiaries or secured
by a Lien on assets of such Person or one of its Restricted Subsidiaries,
whether or not such Guarantee or Lien is called upon; plus
(4) the product of
(a) all dividends, whether paid or accrued and whether or not in
cash, on any series of preferred equity of such Person or any of its
Restricted Subsidiaries, other than dividends on Equity Interests
payable solely in Equity Interests of us, other than Disqualified
Stock, or to us or one of our Restricted Subsidiaries, times
(b) a fraction, the numerator of which is one and the denominator of
which is one minus the then current combined federal, state and local
statutory tax rate of that Person, or, in the case of a Person that is
a partnership or limited liability company, the combined federal, state
and local income tax rate that was or would have been used to calculate
the Tax Amount of that Person, expressed as a decimal, in each case, on
a consolidated basis and in accordance with GAAP.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
"Gaming Facility" means any building, riverboat, barge or other structure
used or expected to be used to enclose space in which a gaming operation is
conducted and either is wholly or partially owned, directly or indirectly, by
us or any of our Restricted Subsidiaries or any portion or aspect of which is
managed or used, or expected to be managed or used, by us or any of our
Restricted Subsidiaries.
"Gaming Law" means the gaming laws of any jurisdiction or jurisdictions to
which either of the issuers or any of our Subsidiaries is, or may at any time
after the date of the indenture, be subject.
"Gaming License" means any license, permit, franchise or other authorization
from any gaming authority necessary on the date of the indenture or at any time
thereafter to own, lease, operate or otherwise conduct the business of either
of the issuers or any of our Restricted Subsidiaries.
"Government Securities" means securities that are:
(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 also includes a depository receipt issued by a bank, as
defined in Section 3(a)(2) of the Securities Act of 1933, as custodian
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with respect to any such Government Security or a specific payment of
principal of or interest on any such Government Security held by the custodian
for the account of the holder of such depository receipt; provided, however,
that, except as required by law, the custodian is not authorized to make any
deduction from the amount payable to the holder of the 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 the depository receipt.
"HCS I" means HCS I, Inc., a Louisiana corporation.
"HCS II" means HCS II, Inc., a Louisiana corporation.
"Hedging Obligations" means, with respect to any specified Person, the
obligations of such Person under:
(1) interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements; and
(2) other agreements or arrangements designed to protect such Person
against fluctuations in interest rates.
"Hollywood Casino" means Hollywood Casino Corporation, a Delaware
corporation.
"Indebtedness" means, with respect to any specified Person, any indebtedness
of such Person, whether or not contingent, in respect of:
(1) borrowed money;
(2) obligations evidenced by bonds, notes, debentures or similar
instruments or letters of credit, or reimbursement agreements in respect
thereof;
(3) banker's acceptances;
(4) Capital Lease Obligations;
(5) the balance deferred and unpaid of the purchase price of any
property, except any such balance that constitutes an accrued expense or
trade payable;
(6) any Hedging Obligations;
(7) all Indebtedness of others secured by a Lien on any asset of the
specified Person, whether or not such Indebtedness is assumed by the
specified Person; provided, however, that the amount of such Indebtedness
shall be limited to the lesser of the fair market value of the assets or
property to which such Lien attaches and the amount of the Indebtedness so
incurred; and
(8) to the extent not otherwise included, the Guarantee by the specified
Person of any indebtedness of any other Person;
and any and all deferrals, renewals, extensions, refinancings and refundings,
whether direct or indirect, thereof and any amendments, modifications or
supplements thereto, if and to the extent any of the preceding items, other
than letters of credit and Hedging Obligations, would appear as a liability
upon a balance sheet of the specified Person prepared in accordance with GAAP.
The amount of any Indebtedness outstanding as of any date shall be:
(1) the accreted value thereof, in the case of any Indebtedness issued
with original issue discount; and
(2) the principal amount thereof, together with any interest thereon that
is more than 30 days past due, in the case of any other Indebtedness.
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"Independent Construction Consultant" means the independent construction
consultant retained in connection with the construction of the Shreveport
resort, or any successor independent construction consultant appointed by the
trustee pursuant to the terms of the Cash Collateral and Disbursement
Agreement.
"Intercompany Notes" means the intercompany notes issued by our Restricted
Subsidiaries in favor of us or a Guarantor to evidence advances by us or that
Guarantor.
"Interim Period" means any period, other than the First Accrual Period, that
begins on any January 1 and ends before the next June 30 and any period that
begins on any July 1 and ends before the next December 31.
"Interest Reserve Account" means the interest reserve account to be
maintained by the Disbursement Agent and pledged to the trustee pursuant to the
terms of the Cash Collateral and Disbursement Agreement, into which $27.3
million of the proceeds of the original offering were deposited.
"Investments" means, with respect to any Person, all direct or indirect
investments by such Person in other Persons, including Affiliates, in the forms
of loans, including guarantees or other obligations, advances or capital
contributions (excluding commission, travel and similar advances to officers
and employees made in the ordinary course of business), purchases or other
acquisitions for consideration of Indebtedness, Equity Interests or other
securities, together with all items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP. If we or any
of our Restricted Subsidiaries sells or otherwise disposes of any Equity
Interests of any of our direct or indirect Restricted Subsidiaries such that,
after giving effect to any such sale or disposition, such Person is no longer
our Restricted Subsidiary, we shall be deemed to have made an Investment on the
date of any such sale or disposition equal to the fair market value of the
Equity Interests of such Restricted Subsidiary not sold or disposed of in an
amount determined as provided in the final paragraph of the covenant entitled
"--Certain Covenants--Restricted Payments." The acquisition by us or any of our
Restricted Subsidiaries of a Person that holds an Investment in a third Person
shall be deemed to be an Investment by us or such Restricted Subsidiary in such
third Person in an amount equal to the fair market value of the Investment held
by the acquired Person in such third Person in an amount determined as provided
in the final paragraph of the covenant entitled "Certain Covenants--Restricted
Payments."
"Joint Venture Agreement" means the Third Amended and Restated Joint Venture
Agreement of Hollywood Casino Shreveport dated as of July 21, 1999, among
Paddlewheels, HCS I and HCS II, as in effect on the date of the indenture.
"License Agreement" means the License Agreement dated as of the date of the
indenture, between Hollywood Casino Corporation and us, as in effect on the
date of the indenture or as amended or modified pursuant to the provisions of
the covenant entitled "Amendments to Certain Agreements."
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law, including
any conditional sale or other title retention agreement, any lease in the
nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement
under the Uniform Commercial Code, or equivalent statutes, of any jurisdiction.
"Loan and Settlement Agreement" means the Loan and Settlement Agreement dated
as of January 16, 1998, among New Orleans Paddlewheels, Inc., Paddlewheels,
HWCC-Louisiana, Sodak Louisiana, L.L.C. and Hilton New Orleans Corporation, as
in effect on the date of the indenture.
"Management Agreement" means the Management Services Agreement dated as of
September 22, 1998, between us and the Manager relating to the management of
the Shreveport resort, as in effect on the date of the indenture or as amended
or modified pursuant to the provisions of the covenant entitled "Amendments to
Certain Agreements."
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"Management Fees" means any fees payable to the Manager pursuant to the
Management Agreement.
"Manager" means HWCC-Shreveport, Inc., a Louisiana corporation.
"Manager Subordination Agreement" means the Manager Subordination Agreement
dated as of the date of the indenture, among us, the Manager and the trustee.
"Marine Services Agreement" means the Marine Services Agreement dated as of
September 22, 1998, between us and Paddlewheels, as in effect on the date of
the indenture or as amended or modified pursuant to the provisions of the
covenant entitled "Amendments to Certain Agreements."
"Membership Interest Purchase Agreement" means the Purchase Agreement dated
as of March 31, 1999, among HWCC-Louisiana, Sodak Gaming and Sodak Louisiana,
L.L.C., as in effect on the date of the indenture.
"Minimum Facilities" means, with respect to the Shreveport resort, a
riverboat casino which has in operation at least 1,600 gaming positions, a
hotel which has at least 350 hotel rooms, two restaurants with seating for at
least 500 people, two bars, an entertainment lounge and parking for at least
1,800 vehicles.
"Net Income" means, with respect to any specified Person:
(1) the net income or loss of such Person, determined in accordance with
GAAP and before any reduction in respect of preferred equity dividends or
distributions, excluding, however:
(a) any gain, but not loss, together with any related provision for
taxes or Tax Amount on such gain, but not loss, realized in connection
with:
(I) any Asset Sale (including, without limitation, dispositions
pursuant to sale and leaseback transactions); or
(II) the disposition of any securities by such Person or any of
its Restricted Subsidiaries or the extinguishment of any
Indebtedness of such Person or any of its Restricted Subsidiaries;
and
(b) any extraordinary gain, but not loss, together with any related
provision for taxes or Tax Amount on such extraordinary gain, but not
loss; less
(2) in the case of any Person that is a partnership or limited liability
company, the Tax Amount of such Person for such period.
"Net Loss Proceeds" means the aggregate cash proceeds received by us or any
of our Restricted Subsidiaries in respect of any Event of Loss, including,
without limitation, insurance proceeds from condemnation awards or damages
awarded by any judgment, net of the direct costs in recovery of such Net Loss
Proceeds, including, without limitation, legal, accounting, appraisal and
insurance adjuster fees and any relocation expenses incurred as a result
thereof, amounts required to be applied to the repayment of Indebtedness
secured by a Lien on the asset or assets that were the subject of such Event of
Loss, and any taxes or the portion of the Tax Amount attributable to such Event
of Loss paid or payable as a result thereof.
"Net Proceeds" means the aggregate cash proceeds received by us or any of our
Subsidiaries in respect of any Asset Sale, including, without limitation, any
cash received upon the sale or other disposition of any non-cash consideration
received in any Asset Sale, net of the direct costs relating to such Asset
Sale, including, without limitation, legal, accounting and investment banking
fees, sales commissions, relocation expenses incurred as a result thereof and
taxes or the portion of the Tax Amount attributable to such Asset Sale paid or
payable as a result thereof, in each case, after taking into account any
available tax credits or deductions and any tax sharing arrangements, and
amounts required to be applied to the repayment of Indebtedness secured by a
Lien on the asset or assets that were the subject of such Asset Sale and any
reserve for adjustment in respect of the sale price of such asset or assets
established in accordance with GAAP.
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"Non-Recourse Debt" means Indebtedness:
(1) as to which neither we nor any of our Restricted Subsidiaries:
(a) provides credit support of any kind, including any undertaking,
agreement or instrument that would constitute Indebtedness
(b) are directly or indirectly liable as a guarantor or otherwise or
(c) constitutes the lender;
(2) no default with respect to which, including any rights that the
holders thereof may have to take enforcement action against an Unrestricted
Subsidiary, would permit upon notice, lapse of time or both any holder of
any other Indebtedness (other than the notes) of us or any of our
Restricted Subsidiaries to declare a default on such other Indebtedness or
cause the payment thereof to be accelerated or payable prior to its stated
maturity; and
(3) as to which the lenders have been notified in writing that they will
not have any recourse to the stock or assets of us or any of our Restricted
Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Operating" means, with respect to the Shreveport resort, the first time
that:
(1) all Gaming Licenses have been granted and have not been revoked or
suspended;
(2) all Liens, other than Liens created by the collateral documents or
Permitted Liens, related to the development, construction and equipping of,
and beginning operations at, the Shreveport resort have been discharged or,
if payment is not yet due or if such payment is contested in good faith by
us, sufficient funds remain in the Construction Disbursement Account to
discharge such Liens and we have taken any action, including the
institution of legal proceedings necessary to prevent the sale of any or
all of the Shreveport resort or the real property on which the Shreveport
resort will be constructed;
(3) the Independent Construction Consultant shall deliver a certificate
to the trustee certifying that the Shreveport resort is substantially
complete in all material respects in accordance with the Final Plans with
respect to the Minimum Facilities;
(4) the Shreveport resort is in a condition, including installation of
furnishings, fixtures and equipment, to receive customers in the ordinary
course of business;
(5) the Minimum Facilities are open to the general public and operating
in accordance with applicable law; and
(6) a permanent or temporary certificate of occupancy has been issued for
the Shreveport resort by the appropriate governmental authorities.
"Operating Deadline" means April 30, 2001.
"Paddlewheels" means Shreveport Paddlewheels, L.L.C., a Louisiana limited
liability company.
"Paddlewheels Revenue Participation" means the amount payable by us to
Paddlewheels equal to 1% of the Complex Net Revenues, as defined in the
Assignment Agreement, pursuant to the terms of the Assignment Agreement.
"Pari Passu Collateral" means the collateral owned by us, excluding the
funds held in the Cash Collateral Accounts.
"Pari Passu Lien" means a Lien on the Pari Passu Collateral that ranks pari
passu with the Lien of the trustee for the ratable benefit of the holders of
notes pursuant to the intercreditor agreement in substantially the form
attached as an exhibit to the indenture.
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"Permitted Business" means the gaming business and other businesses necessary
for, incident to, connected with, arising out of, or developed or operated to
permit or facilitate the conduct or pursuit of the gaming business, including
developing and operating lodging facilities, restaurants, sports or
entertainment facilities, transportation services or other related activities
or enterprises and any additions or improvements thereto, and potential
opportunities in the gaming business.
"Permitted Investments" means:
(1) any Investment in us or in any of our Restricted Subsidiaries;
(2) any Investment in Cash Equivalents, Government Securities or Pledged
Securities;
(3) any Investment by us or any of our Restricted Subsidiaries in a
Person, if as a result of such Investment:
(a) such Person becomes our Restricted Subsidiary; or
(b) such Person is merged, consolidated or amalgamated with or into,
or transfers or conveys substantially all of its assets to, or is
liquidated into, us or any of our Restricted Subsidiaries;
(4) any Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant entitled "Repurchase at the Option of
Holders--Asset Sales";
(5) any acquisition of assets solely in exchange for the issuance of our
Equity Interests, other than Disqualified Stock;
(6) Hedging Obligations;
(7) one or more Investments by us in any entities the sole purpose of
which is to develop, construct and/or operate golf courses; provided,
however, that:
(a) the aggregate amount of all such Investments does not exceed $3.0
million and
(b) the development, construction and operation of such golf course
would satisfy the provisions of the covenant entitled "Line of
Business";
(8) any Investment by us or any of our Restricted Subsidiaries in persons
required in order to secure liquor and/or other licenses or permits under
applicable law incident to the operation by us or any of our Restricted
Subsidiaries of a Permitted Business; provided, however, that the aggregate
amount of such Investment shall at no time exceed $100,000;
(9) any Investment made in settlement of gambling debts incurred by
patrons of any casino owned or operated by us or any of our Restricted
Subsidiaries which settlements have been entered into in the ordinary
course of business; and
(10) Investments not otherwise permitted by the foregoing clauses (1)
through (9) in an aggregate outstanding amount of not more than $250,000.
"Permitted Liens" means:
(1) Liens on the assets of the issuers and the guarantors created by the
indenture and the collateral documents securing the notes and the
guarantees;
(2) Liens on property of a Person existing at the time such Person is
merged into or consolidated with us or any of our Restricted Subsidiaries;
provided, however, that such Liens were in existence before the
contemplation of such merger or consolidation and do not extend to any
assets other than those of the Person merged into or consolidated with us
or any of our Restricted Subsidiaries;
(3) Liens on property existing at the time of acquisition thereof by us
or any of our Restricted Subsidiaries; provided, however, that such Liens
were in existence before the contemplation of such acquisition;
(4) Liens existing on the date of the indenture;
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<PAGE>
(5) Liens to secure the performance of statutory obligations, surety or
appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business;
(6) Liens for taxes, assessments or governmental charges or claims that
are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded;
provided, however, that any reserve or other appropriate provision as shall
be required in conformity with GAAP shall have been made therefor;
(7) Liens on FF&E to secure Indebtedness permitted by clause (6) of the
second paragraph of the covenant entitled "--Incurrence of Indebtedness and
Issuances of Preferred Equity";
(8) Pari Passu Liens on the Pari Passu Collateral to secure Indebtedness
permitted by clause (8) of the second paragraph of the covenant entitled
"--Incurrence of Indebtedness and Issuances of Preferred Equity;"
(9) pledges or deposits in the ordinary course of business to secure
lease obligations or nondelinquent obligations under workers' compensation,
unemployment insurance or similar legislation;
(10) easements, rights-of-way, restrictions, minor defects or
irregularities in title and other similar charges or encumbrances not
interfering in any material respect with our or any of our Subsidiaries'
business or assets incurred in the ordinary course of business;
(11) ground leases in respect of real property on which facilities owned
or leased by us or any of our Restricted Subsidiaries is located;
(12) Liens on assets of Unrestricted Subsidiaries that secure Non-
recourse Debt of Unrestricted Subsidiaries;
(13) Liens arising from UCC financing statements regarding property
leased by us or any of our Restricted Subsidiaries;
(14) Liens incurred and pledges made in the ordinary course of business
in connection with workers" compensation, unemployment insurance and social
security benefits; and
(15) without limiting our ability or the ability of any of our
Subsidiaries to create, incur, assume or suffer to exist any Lien otherwise
permitted under any of the foregoing clauses, any extension, renewal or
replacement, in whole or in part, of any Lien described in the foregoing
clauses; provided, however, that any such extension, renewal or replacement
Lien is limited to the property or assets covered by the Lien extended,
renewed or replaced or substitute property or assets, the value of which is
(and, for property or assets having an aggregate fair market value of more
than $100,000, as determined by our Board of Directors to be) not
materially greater than the value of the property or assets for which the
substitute property or assets are substituted.
"Permitted Refinancing Indebtedness" means any Indebtedness of us or any of
our Restricted Subsidiaries issued in exchange for, or the net proceeds of
which are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of us or any of our Restricted Subsidiaries, other than
intercompany Indebtedness; provided, however, that:
(1) the principal amount, or accreted value, if applicable, of such
Permitted Refinancing Indebtedness does not exceed the principal amount, or
accreted value, if applicable, of the Indebtedness so extended, refinanced,
renewed, replaced, defeased or refunded, plus all accrued interest thereon
and the amount of all expenses and premiums incurred in connection
therewith; provided, if such Indebtedness is secured by a Lien described in
clause (7) of the definition of "Permitted Liens," then the principal
amount, or accreted value, if applicable, of such Permitted Refinancing
Indebtedness will not exceed the then current fair market value of the
asset so encumbered;
(2) such Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, and has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity of,
the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded;
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<PAGE>
(3) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the notes, such
Permitted Refinancing Indebtedness has a final maturity date later than the
final maturity date of, and is subordinated in right of payment to, the
notes on terms at least as favorable to the holders of notes as those
contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; and
(4) such Indebtedness is incurred either by us or by the Restricted
Subsidiary who is the obligor on the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, limited
liability company or government or other entity.
"Plans" means all drawings, plans and specifications, prepared by or on
behalf of us, as the same may be amended or supplemented from time to time as
specified in the Cash Collateral and Disbursement Agreement and, if required,
submitted to and approved by the appropriate regulatory authorities, which
describe and show the Shreveport resort and the labor and materials necessary
for the construction thereof.
"Pledged Securities" means:
(1) Government Securities having a maturity date on or before the date on
which the payments of interest on the notes to which such Government
Securities are pledged occur;
(2) any certificate of deposit maturing not more than 270 days after the
date of acquisition issued by, or time deposit of, an Eligible Institution;
(3) commercial paper maturing not more than 270 days after the date of
acquisition issued by a corporation other than an Affiliate of ours with a
rating at the time any investment therein is made, of "A-1" or higher
according to Standard & Poor's Ratings Services or "P-1" or higher
according to Moody's Investors Service, Inc.;
(4) any banker's acceptances or money market deposit accounts issued or
offered by an Eligible Institution; and
(5) any fund investing exclusively in investments of the types described
in clauses (1) through (4) above; and
in the case of clauses (2) through (4) above, which have a maturity date on or
before the date on which the payments of interest on the notes to which such
securities are pledged occur.
"Principals" means:
(1) Jack Pratt, Edward T. Pratt, Jr., William D. Pratt, Crystal A. Pratt,
Marina A. Pratt and Edward T. Pratt, III, their respective estates and
members of the immediate family, including adopted children, of any of them
who acquire Voting Stock of Hollywood Casino from any such estates;
(2) C.A. Pratt Partners, Ltd., a Texas limited partnership; provided,
however, that, in each case, the majority of the voting equity interest of
the partnership is Beneficially Owned by a Person named in clause (1); and
(3) The WDP, Jr. Family Trust; provided, however, that a Person named in
clause (1) is:
(a) the Beneficial Owner of a majority of the Voting Stock of
Hollywood Casino held by such trust, or
(b) if the trust is irrevocable, the trustee of the irrevocable trust
is a Person named in clause (1).
"Qualified Equity Offering" means an offering of Hollywood Casino's common
stock which results in net proceeds to Hollywood Casino of at least $20.0
million, but only to the extent that the net proceeds of the offering are
contributed directly or indirectly as equity by Hollywood Casino to us.
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<PAGE>
"Remaining Construction Amounts" means an amount equal to the aggregate of
amounts remaining in the Construction Disbursement Account, the Completion
Reserve Account and the Segregated Account on the date the Shreveport resort
becomes Operating, less the amount of the Remaining Costs.
"Remaining Costs" has the meaning ascribed thereto in the Cash Collateral
and Disbursement Agreement.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Segregated Account" has the meaning ascribed thereto in the Cash Collateral
and Disbursement Agreement.
"Semiannual Period" means each period that begins on January 1 and ends on
the next June 30 or each period that begins on July 1 and ends on the next
December 31.
"Side Agreement" means the Side Agreement dated as of January 16, 1998,
among Queen of New Orleans at the Hilton Joint Venture, HWCC-Louisiana and
Sodak Louisiana, L.L.C., as in effect on the date of the indenture or as
amended or modified pursuant to the provisions of the covenant entitled
"Amendments to Certain Agreements."
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the date
hereof.
"Sodak Gaming" means Sodak Gaming, Inc., a South Dakota corporation.
"Software Agreement" means the Software License and Maintenance Agreement
entered into between us and Advanced Casino Systems Corporation.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations
to repay, redeem or repurchase any such interest or principal prior to the
date originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any specified Person:
(1) any corporation, association or other business entity of which more
than 50% of the total voting power of shares of Capital Stock entitled,
without regard to the occurrence of any contingency, to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by such Person or one or more of the
other Subsidiaries of that Person, or a combination thereof; and
(2) any partnership
(a) the sole general partner or the managing general partner of which
is such Person or a Subsidiary of such Person or
(b) the only general partners of which are such Person or one or more
Subsidiaries of such Person, or any combination thereof.
"Tax Amount" means payments by us to HCS I and HCS II in amounts sufficient
to permit HCS I and HCS II to fulfill the obligations with respect to all
taxes of HWCC-Louisiana, HCS I and HCS II; provided, however, that so long as
HWCC-Louisiana, HCS I and HCS II file a consolidated, combined, unitary or
similar federal, state or local income or franchise tax return with Hollywood
Casino, the payment by us with respect to such taxes shall be an amount
sufficient to permit HWCC-Louisiana, HCS I and HCS II to fulfill their
117
<PAGE>
respective obligations under the Tax Sharing Agreement solely with respect to
their respective obligations thereunder that are attributable to our income.
"Tax Sharing Agreement" means the Tax Sharing Agreement dated the date of the
indenture, between Hollywood Casino and its domestic corporate Subsidiaries,
including HWCC-Louisiana, HCS I and HCS II as in effect on the date of the
indenture or as amended or modified pursuant to the provisions of the covenant
entitled "Amendments to Certain Agreements."
"Technical Services Agreement" means the Technical Services Agreement dated
as of September 22, 1998, between the Manager and us, as in effect on the date
of the indenture or as amended or modified pursuant to the provisions of the
covenant entitled "Amendments to Certain Agreements."
"Total Assets" means, with respect to any Person, the aggregate of all assets
of such Person and its subsidiaries as would be shown on the balance sheet of
such Person prepared in accordance with GAAP.
"Unrestricted Subsidiary" means any of our Subsidiaries other than Shreveport
Capital that is designated by our Board of Directors as an Unrestricted
Subsidiary pursuant to a resolution, but only to the extent that such
Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or understanding
with us or any of our Restricted Subsidiaries unless the terms of any such
agreement, contract, arrangement or understanding are no less favorable to
us or such Restricted Subsidiary than those that might be obtained at the
time from Persons who are not our Affiliates;
(3) is a Person with respect to which neither we nor any of our
Restricted Subsidiaries has any direct or indirect obligation (a) to
subscribe for additional Equity Interests or (b) to maintain or preserve
such Person's financial condition or to cause such Person to achieve any
specified levels of operating results; and
(4) has not guaranteed or otherwise directly or indirectly provided
credit support for any Indebtedness of us or any of our Restricted
Subsidiaries.
Any designation of our Subsidiaries as an Unrestricted Subsidiary shall be
evidenced to the trustee by filing with the trustee a certified copy of the
Board Resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the preceding conditions and was
permitted by the covenant entitled "Certain Covenants--Restricted Payments."
If, at any time, any Unrestricted Subsidiary would fail to meet the preceding
requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an
Unrestricted Subsidiary for purposes of the indenture and any Indebtedness of
such Subsidiary shall be deemed to be incurred by one of our Restricted
Subsidiaries as of such date and, if such Indebtedness is not permitted to be
incurred as of such date under the covenant entitled "Incurrence of
Indebtedness and Issuance of Preferred Equity," we shall be in default of such
covenant. Our Board of Directors may at any time designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided, however, that such
designation shall be deemed to be an incurrence of Indebtedness by any of our
Restricted Subsidiaries of any outstanding Indebtedness of such Unrestricted
Subsidiary and such designation shall only be permitted if:
(1) such Indebtedness is permitted under the covenant entitled "--
Incurrence of Indebtedness and Issuance of Preferred Equity," calculated on
a pro forma basis as if such designation had occurred at the beginning of
the four-quarter reference period and
(2) no default or event of default would be in existence following such
designation.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
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<PAGE>
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying
(a) the amount of each then remaining installment, sinking fund,
serial maturity or other required payments of principal, including
payment at final maturity, in respect thereof, by
(b) the number of years, calculated to the nearest one-twelfth, that
will elapse between such date and the making of such payment; by
(2) the then outstanding principal amount of such Indebtedness.
119
<PAGE>
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of the material United States federal
income tax consequences relevant to the exchange of your original notes for
registered notes. This discussion is a summary for general information purposes
only, and does not consider all aspects of federal income taxation that may be
relevant to a particular investor in light of his, her or its personal
circumstances.
This discussion is based upon the United States federal tax law now in
effect, which is subject to change, possibly retroactively. The description
does not consider the effect of any applicable foreign, state, local or other
tax laws or estate or gift tax consequences.
We urge you to consult your own tax advisors regarding the particular United
States federal tax consequences to you of exchanging your original notes for
registered notes, as well as any tax consequences that may arise under the laws
of any foreign, state, local or other taxing jurisdiction.
Exchange of Original Notes for Registered Notes
Based on an opinion from Weil, Gotshal & Manges LLP, our tax counsel, the
exchange of your original notes for registered notes pursuant to the exchange
offer will not constitute a sale or an exchange for federal income tax
purposes. Accordingly, not only will the exchange offer have no federal income
tax consequences to you if you exchange your original notes for registered
notes (i.e., you will not recognize gain or loss for federal income tax
purposes, there will be no change in your tax basis, and your holding period
will carry over to the registered notes), but the federal income tax
consequences of holding and disposing of the registered notes will also be the
same as those that would apply to your original notes.
PLAN OF DISTRIBUTION
If you are a broker-dealer that receives registered notes for your own
account in exchange for your original notes pursuant to the exchange offer,
where your original notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, you must acknowledge that
you will deliver a prospectus in connection with any resale of your registered
notes. This prospectus, as it may be amended or supplemented from time to time,
may be used by you in connection with resales of registered notes received in
exchange for your original notes where your original notes were acquired as a
result of market-making activities or other trading activities. We have agreed
that, for a period of one year after the consummation of the exchange offer, we
will make this prospectus, as amended or supplemented, available to you for use
in connection with any such resale. In addition, until , 2000, if you effect
a transaction in the registered notes you may be required to deliver a
prospectus.
Neither we nor the guarantors will receive any proceeds from any sale of
registered notes by broker-dealers. If you are a broker-dealer, registered
notes you receive for your own account in connection with the exchange offer
may be sold from time to time in one or more transactions in the over-the-
counter market, in negotiated transactions, through the writing of options on
the registered notes or a combination of such methods of resale, at market
prices prevailing at the time of resale, at prices related to such prevailing
market prices or negotiated prices. You may make resales directly to purchasers
or to or through brokers or dealers who may receive compensation in the form of
commissions or concessions from any such broker-dealer or the purchasers of any
such registered notes. If you are a broker-dealer that resells registered notes
that we received by you for your own account in connection with the exchange
offer and you participate in a distribution of your registered notes, you may
be deemed to be an "underwriter" within the meaning of the Securities Act, and
any profit on any resale of registered notes and any commissions or concessions
received by you may be deemed to be underwriting compensation under the
Securities Act. The letter of transmittal states that by acknowledging that you
will deliver and by delivering a prospectus, you will not be deemed to admit
that you are an "underwriter" within the meaning of the Securities Act.
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For a period of one year after the registration statement is declared
effective, we will promptly send additional copies of this prospectus and any
amendment or supplement to this prospectus to you, if you are a broker-dealer
that requests these documents in the letter of transmittal or otherwise. We
have agreed to pay all expenses incident to the exchange offer, including the
expenses of one counsel for the holders of the notes, other than commissions or
concessions of any broker-dealers and will indemnify you, including any broker-
dealers, against certain liabilities, including certain liabilities under the
Securities Act.
LEGAL MATTERS
The validity of the registered notes offered by this prospectus will be
passed upon for the issuers by Weil, Gotshal & Manges LLP, Dallas, Texas and
New York, New York.
EXPERTS
The financial statements of Hollywood Casino Shreveport as of December 31,
1999 and 1998 and for each of the periods during the three years ended December
31, 1999; HWCC-Louisiana, Inc. as of December 31, 1999 and 1998 and for each of
the three years in the period ended December 31, 1999 and Sodak Louisiana,
L.L.C. as of December 31, 1998 and 1997, for the year ended December 31, 1998
and for the period from inception (October 20, 1997) through December 31, 1997,
included in this prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports appearing herein, and are
included in reliance upon the reports of such firm given upon their authority
as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
The issuers and guarantors are not currently subject to the periodic
reporting and other information requirements of the Exchange Act. The issuers
and guarantors have agreed that, whether or not required to do so by the rules
and regulations of the SEC, so long as any registered notes remain outstanding,
they will furnish to the trustee and deliver or cause to be delivered to
holders of the registered notes, beginning with respect to the fiscal quarter
ending September 30, 1999, (1) all consolidated quarterly and annual financial
information that would be required to be contained in a filing with the SEC on
Forms 10-Q and 10-K if we were required to file such forms and, with respect to
the annual information only, a report thereon by our certified independent
accountants and (2) all reports that would be required to be filed with the SEC
on form 8-K if the issuers were required to file such reports. From and after
the time a registration statement with respect to the registered notes is
declared effective by the SEC, the issuers will file such information with the
SEC, provided the SEC will accept such filing. Anyone who receives this
prospectus may obtain a copy of the indenture, each of the collateral documents
and the registration rights agreement without charge by writing to the issuers
and the guarantors, c/o William D. Pratt, Executive Vice President, Secretary
and General Counsel, Hollywood Casino Shreveport, Two Galleria Tower, 13455
Noel Road, Suite 2200, Dallas, Texas 75240.
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<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Hollywood Casino Shreveport and Subsidiary:
Independent Auditors' Report............................................ F-2
Consolidated Balance Sheets as of December 31, 1999 and 1998............ F-3
Consolidated Statements of Operations for the Years Ended December 31,
1999, 1998 and 1997 and for the Period from September 22, 1998 Through
December 31, 1999...................................................... F-4
Consolidated Statement of Changes in Partners' Capital for the Period
from January 1, 1997 Through September 21, 1998 and for the Period from
September 22, 1998 Through December 31, 1999........................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1999, 1998 and 1997 and for the Period from September 22, 1998 Through
December 31, 1999...................................................... F-6
Notes to Consolidated Financial Statements ............................. F-7
HWCC-Louisiana, Inc. and Subsidiaries:
Independent Auditors' Report............................................ F-16
Consolidated Balance Sheets as of December 31, 1999 and 1998............ F-17
Consolidated Statements of Operations for the Years Ended December 31,
1999, 1998 and 1997.................................................... F-18
Consolidated Statement of Changes in Shareholder's Equity (Deficit) for
the Three Years Ended December 31, 1999................................ F-19
Consolidated Statements of Cash Flows for the Years Ended December 31,
1999, 1998 and 1997.................................................... F-20
Notes to Consolidated Financial Statements.............................. F-21
Sodak Louisiana, L.L.C.
Independent Auditors' Report............................................ F-30
Balance Sheets as of December 31, 1998 and 1997......................... F-31
Statements of Operations for the Year Ended December 31, 1998 and for
the Period from Inception (October 20, 1997) Through December 31,
1997................................................................... F-32
Statement of Changes in Shareholder's Equity for the Period from
Inception (October 20, 1997) through December 31, 1998................. F-33
Statements of Cash Flows for the Year Ended December 31, 1998 and the
Period from Inception (October 20, 1997) Through December 31, 1997..... F-34
Notes to Financial Statements........................................... F-35
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To Hollywood Casino Shreveport:
We have audited the accompanying balance sheets of Hollywood Casino
Shreveport (a development stage general partnership for periods subsequent to
September 22, 1998 and formerly known as QNOV) as of December 31, 1999 and
1998, and the related statements of operations, changes in partners' capital,
and cash flows for each of the periods during the three years ended
December 31, 1999 and for the period from September 22, 1998 through December
31, 1999. These financial statements are the responsibility of the
Partnership's 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, such financial statements present fairly, in all material
respects, the financial position of Hollywood Casino Shreveport as of December
31, 1999 and 1998, and the results of its operations and its cash flows for
each of the periods during the three years ended December 31, 1999 and for the
period from September 22, 1998 to December 31, 1999, in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dallas, Texas
February 25, 2000
F-2
<PAGE>
HOLLYWOOD CASINO SHREVEPORT AND SUBSIDIARY
A Development Stage General Partnership for Periods Subsequent to September 22,
1998
(Formerly Known as QNOV)
CONSOLIDATED BALANCE SHEETS (NOTE 1)
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents......................... $ 19,014,000 $ 3,734,000
Interest receivable............................... 1,432,000 --
Prepaid expenses and other current assets......... 620,000 --
------------ -----------
Total current assets............................ 21,066,000 3,734,000
------------ -----------
Property and Equipment:
Furniture and equipment........................... 23,000 --
Construction in progress.......................... 43,654,000 6,957,000
------------ -----------
43,677,000 6,957,000
Less accumulated depreciation..................... (2,000) --
------------ -----------
43,675,000 6,957,000
------------ -----------
Cash restricted for construction project............ 147,310,000 --
------------ -----------
Deferred financing costs, net....................... 4,928,000 --
------------ -----------
$216,979,000 $10,691,000
============ ===========
Liabilities and Partners' Capital
Current Liabilities:
Current maturities of long-term debt.............. $ 400,000 $ --
Accounts payable.................................. 11,648,000 726,000
Interest payable.................................. 7,637,000 --
Other accrued liabilities......................... 35,000 5,000,000
Due to affiliates................................. 230,000 --
------------ -----------
Total current liabilities....................... 19,950,000 5,726,000
------------ -----------
Long-term debt...................................... 151,359,000 --
------------ -----------
Commitments and Contingencies (Note 5)
Partners' Capital:
Partners' capital contributions................... 50,000,000 5,000,000
Accumulated deficit during the development stage.. (4,330,000) (35,000)
------------ -----------
Total partners' capital............................. 45,670,000 4,965,000
------------ -----------
$216,979,000 $10,691,000
============ ===========
</TABLE>
The accompanying footnotes to consolidated financial statements are an integral
part of these consolidated balance sheets.
F-3
<PAGE>
HOLLYWOOD CASINO SHREVEPORT AND SUBSIDIARY
A Development Stage General Partnership for Periods Subsequent to September 22,
1998
(Formerly Known as QNOV)
CONSOLIDATED STATEMENTS OF OPERATIONS (NOTE 1)
<TABLE>
<CAPTION>
Period from Period from Period from
September 22, September 22, January 1,
1998 through Year Ended 1998 through 1998 through Year Ended
December 31, December 31, December 31, September 21, December 31,
1999 1999 1998 1998 1997
------------- ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Revenue:
Casino................ $ $ $ $ $45,803,000
Beverage.............. -- -- -- -- 2,904,000
Other................. -- -- -- 89,000 1,664,000
----------- ----------- -------- ----------- -----------
-- -- -- 89,000 50,371,000
Less--promotional
allowances............. -- -- -- -- (2,916,000)
----------- ----------- -------- ----------- -----------
Net revenues............ -- -- -- 89,000 47,455,000
----------- ----------- -------- ----------- -----------
Expenses:
Casino................ -- -- -- -- 22,612,000
Admission fees........ -- -- -- -- 6,432,000
Other departmental.... -- -- -- 76,000 276,000
Property operations... -- -- -- 155,000 6,989,000
Vessel rent........... -- -- -- (21,000) 2,827,000
General and
administrative....... -- -- -- 986,000 2,468,000
Management fees....... -- -- -- -- 2,519,000
Development costs..... 240,000 150,000 90,000 -- --
Preopening expenses... 841,000 841,000 -- -- --
Depreciation and
amortization......... 295,000 295,000 -- -- 1,547,000
----------- ----------- -------- ----------- -----------
Total expenses.......... 1,376,000 1,286,000 90,000 1,196,000 45,670,000
----------- ----------- -------- ----------- -----------
Operating (loss)
income................. (1,376,000) (1,286,000) (90,000) (1,107,000) 1,785,000
----------- ----------- -------- ----------- -----------
Non-operating income
(expense):
Interest income......... 3,699,000 3,644,000 55,000 241,000 583,000
Interest expense, net of
capitalized interest of
$1,052,000 in 1999..... (6,653,000) (6,653,000) -- (50,000) (88,000)
----------- ----------- -------- ----------- -----------
Total non-operating
(expense) income....... (2,954,000) (3,009,000) 55,000 191,000 495,000
----------- ----------- -------- ----------- -----------
Net (loss) income..... $(4,330,000) $(4,295,000) $(35,000) $ (916,000) $ 2,280,000
=========== =========== ======== =========== ===========
</TABLE>
The accompanying footnotes to consolidated financial statements are an integral
part of these consolidated financial statements.
F-4
<PAGE>
HOLLYWOOD CASINO SHREVEPORT AND SUBSIDIARY
A Development Stage General Partnership for Periods Subsequent to September 22,
1998
(Formerly Known as QNOV)
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL (NOTE 1)
For the Period from January 1, 1997 through September 21, 1998
and for the Period from September 22, 1998 through December 31, 1999
<TABLE>
<CAPTION>
Partners' Capital
---------------------------------------------------------------------------------------
Hilton New Orleans HWCC- Sodak Shreveport
New Orleans Paddlewheels, Louisiana, Louisiana, HCS I, HCS II, Paddlewheels,
Corp. (1) Inc. (1) Inc. L.L.C. (2) Inc. Inc. L.L.C
----------- ------------- ---------- ---------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, January 1,
1997................... $(2,267,000) $(2,267,000) $ -- $ -- $ -- $ -- $ --
Net income.............. 1,140,000 1,140,000 -- -- -- -- --
Distributions........... (1,982,000) (1,982,000) -- -- -- -- --
----------- ----------- ---------- ---------- ----------- -------- ----------
Balances, December 31,
1997................... (3,109,000) (3,109,000) -- -- -- -- --
Net loss................ (458,000) (458,000) -- -- -- -- --
Cash distributions...... (3,000,000) (3,000,000) -- -- -- -- --
Assumption of
partnership
obligation............. 5,000,000 -- -- -- -- -- --
Non-cash distributions
of net liabilities..... 4,448,000 3,686,000 -- -- -- -- --
Reallocation of
partners' accounts..... (2,881,000) 2,881,000 -- -- -- -- --
----------- ----------- ---------- ---------- ----------- -------- ----------
Balances, September 21,
1998................... -- -- -- -- -- -- --
Contributed capital..... 2,500,000 2,500,000 -- -- --
----------- ----------- ---------- ---------- ----------- -------- ----------
Balances, December 31,
1998................... -- -- 2,500,000 2,500,000 -- -- --
Merger of Sodak
Louisiana, L.L.C. (2).. -- -- 2,500,000 (2,500,000) -- -- --
Contribution of interest
(3).................... -- -- (5,000,000) -- 4,950,000 50,000 --
Contributed capital..... -- -- -- -- 43,560,000 440,000 1,000,000
Assignment of interest.. -- -- -- -- (990,000) (10,000) 1,000,000
----------- ----------- ---------- ---------- ----------- -------- ----------
Balances, December 31,
1999................... $ -- $ -- $ -- $ -- $47,520,000 $480,000 $2,000,000
=========== =========== ========== ========== =========== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
Deficit Accumulated During Development Stage
----------------------------------------------------------
HWCC- Sodak Shreveport
Louisiana, Louisiana, HCS II, Paddlewheels,
Inc. L.L.C. (2) HCS I, Inc. Inc. L.L.C
---------- ---------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balances, September 22,
1998................... $ -- $ -- $ -- $ -- $ --
Net loss................ (17,000) (18,000) -- -- --
------- ------- ----------- -------- -----
Balances, December 31,
1998................... (17,000) (18,000) -- -- --
Merger of Sodak
Louisiana, L.L.C. (2).. (30,000) 30,000 -- -- --
Contribution of interest
(3).................... 60,000 -- (59,000) (1,000) --
Net loss................ (13,000) (12,000) (4,227,000) (43,000) --
------- ------- ----------- -------- -----
Balances, December 31,
1999................... $ -- $ -- $(4,286,000) $(44,000) $ --
======= ======= =========== ======== =====
</TABLE>
- --------
(1) Hilton New Orleans Corporation and New Orleans Paddlewheels, Inc. withdrew
as partners and transferred their interests to HWCC-Louisiana, Inc., Sodak
Louisiana, L.L.C. and Shreveport Paddlewheels, L.L.C. during September
1998. At the time of their withdrawal, the joint venture had no recorded
assets or liabilities, all such amounts having been distributed to the
withdrawing partners, and the joint venture became a development stage
general partnership.
(2) Sodak Louisiana, L.L.C. became a wholly owned subsidiary of HWCC-
Louisiana, Inc. on April 23, 1999 and was merged into HWCC-Louisiana, Inc.
on July 9, 1999.
(3) On July 21, 1999, HWCC-Louisiana, Inc. contributed its ownership interest
in Hollywood Casino Shreveport to its wholly owned subsidiaries, HCS I,
Inc. and HCS II, Inc.
The accompanying footnotes to consolidated financial statements are an integral
part of these consolidated financial statements.
F-5
<PAGE>
HOLLYWOOD CASINO SHREVEPORT AND SUBSIDIARY
A Development Stage General Partnership for Periods Subsequent to September 22,
1998
(Formerly Known as QNOV)
CONSOLIDATED STATEMENTS OF CASH FLOWS (NOTE 1)
<TABLE>
<CAPTION>
Period from Period from Period from
September 22, September 22, January 1,
1998 through Year Ended 1998 through 1998 through Year Ended
December 31, December 31, December 31, September 21, December 31,
1999 1999 1998 1998 1997
------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Operating Activities:
Net (loss) income....... $ (4,330,000) $ (4,295,000) $ (35,000) $ (916,000) $ 2,280,000
Adjustments to reconcile
net (loss) income to
cash provided by (used
in) operating
activities:
Depreciation and
amortization,
including accretion of
discount.............. 362,000 362,000 -- -- 1,547,000
Increase in interest
receivable............ (1,432,000) (1,432,000) -- -- --
Provision for doubtful
accounts.............. -- -- -- -- 33,000
Decrease in accounts
receivable............ -- -- -- -- 298,000
Increase (decrease) in
accounts payable and
accrued liabilities... 14,320,000 13,594,000 726,000 -- (8,654,000)
Net change in other
current assets and
liabilities........... (390,000) (390,000) -- (2,009,000) 321,000
Net change in other
assets and
liabilities........... -- -- -- 2,847,000 380,000
------------- ------------- ----------- ----------- -----------
Cash provided by (used
in) operating
activities............. 8,530,000 7,839,000 691,000 (78,000) (3,795,000)
------------- ------------- ----------- ----------- -----------
Investing Activities:
Purchase of property and
equipment.............. (36,985,000) (35,028,000) (1,957,000) -- --
Proceeds from disposal
of vessel.............. -- -- -- -- 10,000,000
Increase in cash
restricted for
construction project... (147,310,000) (147,310,000) -- -- --
------------- ------------- ----------- ----------- -----------
Cash (used in) provided
by investing
activities............. (184,295,000) (182,338,000) (1,957,000) -- 10,000,000
------------- ------------- ----------- ----------- -----------
Financing Activities:
Capital contributions... 50,000,000 45,000,000 5,000,000 -- --
Partner distributions... -- -- -- (6,000,000) (3,964,000)
Proceeds from issuance
of long-term debt...... 150,000,000 150,000,000 -- -- --
Repayments of long-term
debt................... -- -- -- -- (6,000,000)
Deferred financing
costs.................. (5,221,000) (5,221,000) -- -- --
------------- ------------- ----------- ----------- -----------
Cash provided by (used
in) financing
activities............. 194,779,000 189,779,000 5,000,000 (6,000,000) (9,964,000)
------------- ------------- ----------- ----------- -----------
Net increase (decrease)
in cash and cash
equivalents............ 19,014,000 15,280,000 3,734,000 (6,078,000) (3,759,000)
Cash and cash
equivalents at
beginning of period.... -- 3,734,000 -- 6,078,000 9,837,000
------------- ------------- ----------- ----------- -----------
Cash and cash
equivalents at end of
period................. $ 19,014,000 $ 19,014,000 $ 3,734,000 $ -- $ 6,078,000
============= ============= =========== =========== ===========
</TABLE>
The accompanying footnotes to consolidated financial statements are an integral
part of these consolidated financial statements.
F-6
<PAGE>
HOLLYWOOD CASINO SHREVEPORT AND SUBSIDIARY
A Development Stage General Partnership for Periods Subsequent to September 22,
1998
(Formerly Known as QNOV)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Organization, Business and Basis of Presentation
Hollywood Casino Shreveport ("HCS") is currently a development stage general
partnership registered in the state of Louisiana. The original partnership
agreement was amended on September 22, 1998 to include as partners in what has
since been referred to herein as HCS the following companies: HWCC-Louisiana,
Inc. ("HCL"), a Louisiana corporation wholly owned by Hollywood Casino
Corporation ("HCC"); Sodak Louisiana, L.L.C. ("Sodak"), a Louisiana limited
liability company; and Shreveport Paddlewheels, L.L.C. ("Paddlewheels"), a
Louisiana limited liability company. The general partnership had originally
been formed in May 1992 for the purpose of developing and operating a riverboat
casino in New Orleans, Louisiana. Originally named Queen of New Orleans at the
Hilton Joint Venture ("QNOV"), the partnership was 50%-owned by Hilton New
Orleans Corporation ("Hilton") and 50%-owned by New Orleans Paddlewheels, Inc.
("NOP"). Hilton and NOP are collectively referred to herein as the "former
partners." QNOV commenced operations in New Orleans in February 1994.
During October 1996, QNOV received approval from state gaming authorities to
relocate its license to operate to the City of Shreveport, Louisiana,
approximately 180 miles east of Dallas, Texas. Subsequent to receiving approval
to relocate the license, QNOV made the decision in 1997 not to conduct gaming
operations in Shreveport. The former partners sought to transfer the license to
operate in Shreveport to another interested party. Under Louisiana gaming
regulations, the license to operate a riverboat gaming operation is not
transferable; however, the ownership of an entity licensed to operate is
transferable, subject to the approval of the Louisiana Gaming Control Board
(the "LGCB"). Accordingly, the transfer of the license to operate in Shreveport
was structured as the acquisition of the interests of the former partners in
QNOV. QNOV discontinued its riverboat casino operations in New Orleans in
October 1997 while it continued negotiations to transfer its interests to a new
group of partners. The former partners disposed of QNOV's assets other than its
license to operate and satisfied all but one of its obligations so that when
the former partners withdrew on September 22, 1998, QNOV's only asset was its
license to operate in Shreveport, its only liability was a $5,000,000
obligation to the City of New Orleans (see below) and all equity accounts of
the former partners of QNOV were reduced to a zero balance.
When the former partners of QNOV proposed moving to Shreveport, they
negotiated a settlement with the City of New Orleans to pay $10,000,000 with
respect to claims asserted by the City in connection with the relocation. This
liability was recorded by QNOV during 1997 and was to be paid after opening in
Shreveport. When the former partners' decided not to relocate to Shreveport,
the status of the obligation became uncertain. During September 1998, the
former partners of QNOV and the partners of HCS entered into a Compromise
Agreement with the City of New Orleans under which it was agreed that Hilton
would pay $5,000,000 to the City with QNOV being released from any further
relocation claims. QNOV reflected Hilton's payment as a capital contribution
prior to the withdrawal of the former partners from QNOV. As part of the
Compromise Agreement, the partners of HCS agreed to pay the City of New Orleans
$5,000,000 upon securing financing for construction of HCS's new riverboat
casino in Shreveport. In the event financing was not obtained, HCS would not be
required to make any payment.
The partners of HCS have treated this obligation to pay the City of New
Orleans as part of the cost of acquiring their partnership interests. The
acquisition of the partnership interests by the new partners and the subsequent
acquisition by HCL of Sodak's interest in HCS (see below) resulted in HCS
becoming substantially wholly owned by HCL. Furthermore, as noted above, the
$5,000,000 obligation was to be paid with proceeds from the project financing
sought by HCS. Accordingly, HCL's cost of acquiring the HCS partnership
interests was "pushed down" to HCS and the $5,000,000 obligation was included
in other accrued liabilities on the
F-7
<PAGE>
HOLLYWOOD CASINO SHREVEPORT
A Development Stage General Partnership for Periods Subsequent to September 22,
1998
(Formerly Known as QNOV)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
accompanying balance sheet at December 31, 1998. A corresponding $5,000,000
project cost has also been included in construction in progress (see Note 2) on
the accompanying consolidated balance sheets at December 31, 1999 and 1998. The
$5,000,000 obligation was paid by HCS in August 1999 upon the issuance of the
First Mortgage Notes (see Note 3).
The former partners had originally proposed a plan to jointly construct a
hotel in Shreveport with another casino operator to support their riverboat
casino project. When the former partners decided in 1997 not to relocate, all
such plans were abandoned and all associated costs were written off. Upon
admission of the new partners, HCS proceeded with entirely new plans to
develop, own and operate a riverboat gaming complex to be constructed in
Shreveport. In order to open the new facility, the partners of HCS had to
obtain financing for the project and will have to maintain licensing by the
LGCB and incur all the risks inherent in the construction of a new facility.
Upon completion, the new riverboat casino will operate under a different name,
with a different theme, in a different geographic market and with different
management and employees. Accordingly, the accompanying financial statements
reflect the operations and cash flows of HCS for the period from September 22,
1998 through December 31, 1999 as a development stage entity. HCS currently has
no operating activities other than development, financing and construction
activities with respect to the Shreveport resort. As currently planned, the
Shreveport resort will consist of a three-level riverboat casino with
approximately 1,370 slot machines and 75 table games; a 405-room, all suite,
art deco style hotel; and approximately 42,000 square feet of restaurant and
entertainment facilities.
Riverboat gaming operations in Louisiana are subject to regulatory control by
the LGCB. HCS's current license to operate the Shreveport resort expires on
October 15, 2004.
It was originally anticipated that HCS would develop the Shreveport resort
with each of HCL and Sodak having a 50% interest in the development and
subsequent operations. Paddlewheels was to have a residual interest after the
commencement of operations and in the event that the project was ever sold
amounting to 10% plus any capital contributions made by Paddlewheels to HCS. On
March 31, 1999, HCL entered into a definitive agreement with Sodak's parent to
acquire Sodak for the $2,500,000 Sodak had contributed to HCS, with $1,000 to
be paid at closing and the remainder to be paid six months after the opening of
the Shreveport resort. The revised structure of the partnership was approved by
the LGCB on April 20, 1999. As a result of the acquisition, HCL obtained an
effective 100% ownership interest in HCS with Paddlewheels retaining their
residual interest. During July 1999, Sodak was merged into HCL.
Also during July 1999, HCL formed two new, wholly owned subsidiaries, HCS I,
Inc. and HCS II, Inc., both Louisiana corporations. HCL contributed $1,000 of
capital to each entity, along with 99% of its interest in HCS to HCS I, Inc.
and the remaining 1% to HCS II, Inc. In addition, the HCS joint venture
agreement was amended and restated on July 21, 1999, to reflect, among other
things, the admission of HCS I, Inc. and HCS II, Inc. as partners of HCS and
the withdrawal of HCL as managing partner of HCS. As a result, HCS I, Inc. now
has an effective 99% interest in HCS and has become its managing general
partner. HCS II, Inc. now has an effective 1% interest in HCS. Paddlewheels
retained its 10% residual interest in HCS. HCS I, Inc. and HCS II, Inc. have
assumed HCL's obligation to cause HCS to pay Paddlewheels the 1% of "complex
net revenues" (see Note 5). The revised partnership structure was approved by
the LGCB on July 20, 1999. HCL contributed an additional $300,000 to HCS
through HCS I, Inc. and HCS II, Inc. in July 1999. Upon the issuance of the
First Mortgage Notes (see Note 3), HCL contributed an additional $43,700,000 to
HCS through HCS I, Inc. and HCS II, Inc. HCL also loaned $1,000,000 to
Paddlewheels which Paddlewheels contributed to HCS. The source of funds for
HCL's capital contributions and loan to Paddlewheels was capital contributions
from HCC, its parent.
F-8
<PAGE>
HOLLYWOOD CASINO SHREVEPORT
A Development Stage General Partnership for Periods Subsequent to September 22,
1998
(Formerly Known as QNOV)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Additionally, in July 1999, HCS formed a new, wholly owned subsidiary,
Shreveport Capital Corporation, a Louisiana corporation. HCS contributed $1,000
of capital to Shreveport Capital Corporation. Shreveport Capital Corporation
was formed for the sole purpose of being a co-issuer with respect to the First
Mortgage Notes and is not expected to have any operating activities, acquire
any assets or incur any liabilities.
The total estimated cost of the Shreveport resort is $230,000,000. Equity
contributions from HCL and Paddlewheels have provided $50,000,000 of the funds
necessary. During August 1999, HCS successfully completed the issuance of
$150,000,000 of 13% First Mortgage Notes with contingent interest (the "First
Mortgage Notes") due 2006 (see Note 3); it is expected that a commitment for
$30,000,000 of furniture, fixture and equipment financing will provide the
remaining funds for the project (see Note 5). Construction began in August 1999
with a planned opening date in early November 2000.
The accompanying financial statements for periods subsequent to July 1999 are
consolidated to include HCS's wholly owned subsidiary, Shreveport Capital
Corporation. All intercompany transactions and balances have been eliminated in
consolidation.
(2) Summary of Significant Accounting Policies
The significant accounting policies followed in the preparation of the
accompanying financial statements of HCS are discussed below. The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that effect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Cash and cash equivalents--
Cash and cash equivalents are comprised of cash and investments with original
maturities of three months or less, such as commercial paper, certificates of
deposit and fixed repurchase agreements.
Property and equipment--
Furniture and equipment is being depreciated using the straight line method
over the estimated useful life of five years. QNOV's property and equipment
used in their New Orleans operations was fully depreciated during 1997.
Construction in progress--
Costs associated with the construction of the Shreveport resort, including
the applicable interest on construction financing of $1,052,000 at December 31,
1999, are being capitalized and, commencing with the completion of the
Shreveport resort, will be amortized over the estimated useful lives of the
resulting assets. Capitalized costs will be allocated to the individual
components of property and equipment and other assets when such assets are
ready to be placed in service.
Preopening costs--
Preopening costs include, among other things, organizational costs, marketing
and promotional costs, hiring and training of new employees and other operating
costs incurred prior to the opening of the project. Such costs are accounted
for under the provisions of Statement of Position 98-5 issued by the American
Institute of Certified Public Accountants which requires that such costs be
expensed as incurred.
F-9
<PAGE>
HOLLYWOOD CASINO SHREVEPORT
A Development Stage General Partnership for Periods Subsequent to September 22,
1998
(Formerly Known as QNOV)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Deferred financing costs--
The costs of issuing long-term debt, including all underwriting, licensing,
legal and accounting fees, have been deferred and are being amortized over the
term of the related debt issue using the straight-line method which
approximates the effective interest method. Amortization of such costs amounted
to $293,000 during the year ended December 31, 1999 and is included in
amortization expense on the accompanying consolidated statement of operations.
Employee stock options--
HCS has adopted the disclosure provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"). SFAS 123 allows an entity to continue to measure compensation cost for
employee stock-based compensation plans using the intrinsic value based method
of accounting prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("Opinion 25"). Entities electing to
remain with the accounting under Opinion 25 are required to make pro forma
disclosures of net income as if the fair value based method of accounting under
SFAS 123 had been applied. HCL has elected to account for employee stock-based
compensation under Opinion 25. During September 1999, HCC issued stock options
to an employee of HCS for 50,000 shares of HCC common stock at an exercise
price of $2.50 per share, the market price on the date of grant. Pro forma
compensation expense for the period from the grant date (September 16, 1999)
through December 31, 1999 is not material.
Cash restricted for construction project--
Cash restricted for construction project consists of investments in
government securities which are to be used for specified purposes and which
were purchased with net proceeds from the First Mortgage Notes (see Note 3) as
required by the indenture for the First Mortgage Notes. Such restricted cash
includes (i) funds to be used for construction which are subject to meeting
certain conditions prior to their disbursement, (ii) funds to be used to make
the first three semiannual interest payments with respect to the First Mortgage
Notes and (iii) funds to be used to complete and open the Shreveport resort in
the event the construction funds in (i) above are not sufficient. Interest
earned, but not yet received, on such investments is included in interest
receivable on the accompanying consolidated balance sheet at December 31, 1999.
Upon receipt, interest is included in cash restricted for construction project.
At December 31, 1999, cash restricted for construction project is comprised
of the following:
<TABLE>
<S> <C>
Construction reserve........................................ $ 114,964,000
Interest reserve............................................ 27,275,000
Completion reserve.......................................... 5,071,000
-------------
$ 147,310,000
=============
</TABLE>
Long-lived assets--
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and 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 changes in circumstances
indicate that the carrying amount of an asset may not be fully recoverable. As
a result of its review, HCS does not believe that any such changes have
occurred.
F-10
<PAGE>
HOLLYWOOD CASINO SHREVEPORT
A Development Stage General Partnership for Periods Subsequent to September 22,
1998
(Formerly Known as QNOV)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Casino revenues, promotional allowances and departmental expenses--
QNOV recognized the net win from gaming activities (the difference between
gaming wins and losses) as casino revenues. Casino revenues are net of accruals
for anticipated payouts of progressive jackpots.
The estimated value of beverages, admissions and other items which were
provided to customers without charge has been included in revenues and a
corresponding amount has been deducted as promotional allowances. The costs of
such complimentaries have been included as casino expenses on the accompanying
statement of operations for the year ended December 31, 1997. The cost of
complimentaries allocated from other operating departments to the casino
department during the year ended December 31, 1997 was $1,320,000.
Income taxes--
HCS is a partnership and its tax attributes, including income and expense
items, are passed through to its partners. Accordingly, the accompanying
consolidated financial statements do not reflect state or federal income taxes.
Recent Accounting Pronouncement--
In June 1998, the Financial Accounting Standards Board issued a new
statement, "Accounting for Derivative Instruments and Hedging Activities"
("SFAS 133"), which has been amended to be 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 partners' capital until a hedged transaction occurs.
HCS does not believe the adoption of SFAS 133 will have a significant impact on
its financial position or results of operations.
(3) Long-term Debt
Long-term debt at December 31, 1999 consists of the following:
<TABLE>
<S> <C>
13% First Mortgage Notes, with contingent interest, due
2006(a).................................................... $150,000,000
Note payable, net of discount of $241,000 (b)............... 1,759,000
------------
Total indebtedness.......................................... 151,759,000
Less-current maturities..................................... (400,000)
------------
Total long-term debt........................................ $151,359,000
============
</TABLE>
- --------
(a) In August 1999, HCS and Shreveport Capital Corporation issued the First
Mortgage Notes. Fixed interest on the First Mortgage Notes at the annual
rate of 13% is payable on each February 1 and August 1, beginning February
1, 2000. In addition, contingent interest will accrue on the First Mortgage
Notes and will be payable on each interest date after the Shreveport resort
begins operations. The amount of contingent interest will be equal to 5% of
the consolidated cash flow of HCS for the applicable period subject to a
maximum contingent interest of $5,000,000 for any four consecutive fiscal
quarters.
The First Mortgage Notes are secured by, among other things, (i) a first
priority security interest in the net proceeds from the issue of the First
Mortgage Notes; (ii) a first priority security interest in substantially
all of the assets that will comprise the Shreveport resort other than up to
$35,000,000 in assets secured by
F-11
<PAGE>
HOLLYWOOD CASINO SHREVEPORT
A Development Stage General Partnership for Periods Subsequent to September 22,
1998
(Formerly Known as QNOV)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
equipment financing; (iii) a collateral assignment of the Shreveport
resort's interest in the principal agreements under which it will be
constructed, operated and managed and (iv) a collateral assignment of
certain licenses and permits with respect to the construction, operation
and management of the Shreveport resort. In addition, the First Mortgage
Notes are guaranteed on a senior secured basis by HCL, HCS I, Inc. and HCS
II, Inc. (collectively, the "Guarantors"). Such guarantees are secured by a
first priority secured interest in substantially all of the Guarantors'
assets, including a pledge of the capital stock of HCS I, Inc. and HCS II,
Inc. and their partnership interests in HCS. The security interest does not
include $2,500,000 held by HCL to fund its acquisition of Sodak.
The First Mortgage Notes may be redeemed at any time on or after August 1,
2003 at 106.5% of the then outstanding principal amount, decreasing to
103.25% and 100% on August 1, 2004 and 2005, respectively. HCS may also
redeem up to 35% of the First Mortgage Notes at a redemption price of 113%
plus accrued interest at any time prior to August 1, 2002 with the net cash
proceeds of an equity offering by HCC resulting in at least $20,000,000,
but only to the extent that such proceeds are contributed by HCC as equity
to HCS.
The indenture to the First Mortgage Notes contains various provisions
limiting the ability of HCS to borrow money, pay distributions on its
equity interests or prepay debt, make investments, create liens, sell its
assets or enter into mergers or consolidations. In addition, the indenture
restricts the ability of the Guarantors and Shreveport Capital Corporation
to acquire additional assets, become liable for additional obligations or
engage in any significant business activities.
(b) The partners of HCS agreed that HCS would contingently reimburse Hilton for
$2,000,000 of the amount it paid to the City of New Orleans under the
Compromise Agreement (see Note 1); such repayment is to be made upon the
earlier of the termination of construction of the Shreveport resort or in
monthly installments of $200,000, without interest, commencing with the
opening of the Shreveport resort. The $2,000,000 liability, net of a
discount in the original amount of $308,000, and the associated project
costs were recorded upon the issuance of the First Mortgage Notes in August
1999.
Scheduled payments of long-term debt as of December 31, 1999 are set forth
below:
<TABLE>
<S> <C>
2000............................................................ $ 400,000
2001............................................................ 1,600,000
2002............................................................ --
2003............................................................ --
2004............................................................ --
Thereafter...................................................... 150,000,000
------------
$152,000,000
============
</TABLE>
(4)Transactions with Affiliates
HCS
The operations of the Shreveport resort will be managed by HWCC-Shreveport,
Inc., a wholly owned subsidiary of HCC, under the terms of a management
agreement. The management agreement became effective when the LGCB approved the
development of the Shreveport resort and will remain in effect as long as HCS
holds its license, unless the management agreement is terminated earlier in
accordance with its terms. Under the terms of the management agreement, HCS
will pay HWCC-Shreveport basic and incentive management
F-12
<PAGE>
HOLLYWOOD CASINO SHREVEPORT
A Development Stage General Partnership for Periods Subsequent to September 22,
1998
(Formerly Known as QNOV)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
fees for its services. The basic fee will be equal to 2% of gross revenues, as
defined in the agreement, from the operation of the Shreveport resort. The
incentive fee will be equal to the sum of (i) 5% of earnings before interest,
taxes, depreciation and amortization ("EBITDA"), as defined in the agreement,
in excess of $25,000,000 and up to $35,000,000; (ii) 7% of EBITDA in excess of
$35,000,000 and up to $40,000,000; and (iii) 10% of EBITDA over $40,000,000. In
addition, HCS will reimburse HWCC-Shreveport for expenses incurred in
connection with services provided under the management agreement.
HCS has also entered into a Technical Services Agreement with HWCC-Shreveport
to provide certain construction and project supervision services prior to the
opening of the Shreveport resort. HCS will reimburse HWCC-Shreveport for
expenses incurred in connection with services provided under the Technical
Services Agreement. Such costs amounted to $291,000 for the year ended December
31, 1999 and for the period from September 28, 1998 through December 31, 1999.
Amounts payable under the agreement amounting to $56,000 are included in due to
affiliates on the accompanying consolidated balance sheet at December 31, 1999.
HCS has also entered into a Marine Services Agreement with Paddlewheels to
provide certain marine services for so long as Paddlewheels remains a joint
venture partner in HCS. The Marine Services Agreement became effective on
September 22, 1998 and, in addition to the reimbursement of Paddlewheels for
its direct expenses incurred, if any, HCS will pay a monthly fee of $30,000
effective with the opening of the Shreveport resort. No payments have been made
under the agreement through December 31, 1999.
QNOV
QNOV leased the front apron of the Lower Poydras Street Wharf and a portion
of the Upper Poydras Street Wharf from International Rivercenter ("IRC"), a
partnership in which Hilton Hotels Corporations ("HHC"), the ultimate parent of
Hilton, was a limited partner. Total expense in 1997 for this lease was
$1,467,000. Additional rent was due under the wharf lease for each passenger
over a base number of passengers of 1,100,000 annually. The incremental rate
was $1.00 for each passenger in excess of the base number increasing by $.10
for each 125,000 incremental passengers. While in operation during 1997, the
casino's incremental passengers totaled approximately 173,000, resulting in
$195,000 of additional rental expense.
QNOV leased office space from Queen of Jefferson, Inc. an affiliated company
of NOP. Total expense for this lease was $9,000 for the 1998 period through
September 22 and $103,000 for 1997.
QNOV's casino was operated by Hilton pursuant to a Casino Management
Agreement. As a management fee, Hilton received 3% of gross revenues (excluding
interest income) of the casino, payable monthly. Fees pursuant to this
agreement totaled $1,511,000 in 1997. Also, as a vessel rental fee, Hilton
received 6.25% of gaming revenues of the casino, payable monthly. Fees pursuant
to the agreement totaled $2,519,000 in 1997.
The riverboat vessel was operated by NOP pursuant to a Vessel Management
Agreement. NOP was entitled to a management fee of 2% of gross revenues
(excluding interest income) of the casino, payable monthly. Fees pursuant to
this agreement totaled $1,008,000 in 1997.
NOP was also responsible for the Marine Department payroll. QNOV reimbursed
NOP for salaries, wages and benefits for these individuals amounting to
$2,071,000 in 1997.
Marketing services were provided to QNOV by Visitor Marketing, Inc., an
affiliate of NOP. Payment for these services totaled $863,000 for the year
ended December 31, 1997.
F-13
<PAGE>
HOLLYWOOD CASINO SHREVEPORT
A Development Stage General Partnership for Periods Subsequent to September 22,
1998
(Formerly Known as QNOV)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
QNOV purchased rooms, food and beverage items, and other services totaling
approximately $2,000,000 in 1997 from New Orleans Hilton Riverside, a hotel
owned by IRC. Certain employees of QNOV were eligible to participate in an
employee investment plan whereby HHC contributed certain percentages of
employee contributions. Expenses for this plan totaled $188,000 in 1997.
(5)Commitments
For so long as it remains a joint venture partner in HCS, Paddlewheels will
receive, among other things, an amount equal to 1% of the net revenues, as
defined, of the Shreveport resort in exchange for the assignment by
Paddlewheels of its joint venture interest in HCS to HCL and Sodak.
HCC has entered into a completion capital agreement providing for the
contribution of up to an additional $5,000,000 in cash if at any time there are
insufficient funds available to enable the Shreveport resort to be operating by
April 30, 2001. In addition, if the Shreveport resort is not operating by April
30, 2001, HCC will contribute to HCS through HCL, HCS I, Inc. and HCS II, Inc.
on that date $5,000,000 in additional equity less any amounts previously
contributed under the completion capital agreement.
In May 1999, HCS entered into a ground lease with the City of Shreveport for
the land on which the Shreveport resort will be built. The term of the lease
began when construction commenced and will end on the tenth anniversary of the
date the Shreveport resort opens. HCS has options to renew the lease on the
same terms for up to an additional forty years. The lease may be further
renewed after that time at prevailing rates and terms for similar leases. The
City of Shreveport may terminate the lease as a result of, among other things,
a default by HCS under the lease or the failure to substantially complete
construction within the time period established by the LGCB. HCS may terminate
the lease at any time if the operation of the Shreveport resort becomes
uneconomic. Base rental payments under the lease are $10,000 per month during
the construction period increasing to $450,000 per year upon opening and
continuing at that amount for the remainder of the initial ten-year lease term.
During the first five-year renewal term, the base annual rental will be
$402,500. Subsequent renewal period base rental payments will increase by 15%
during each of the next four five-year renewal terms with no further increases.
In addition to the base rent, HCS will pay monthly percentage rent of not less
than $500,000 per year equal to 1% of monthly adjusted gross revenues and the
amount, if any, by which monthly parking facilities net income exceeds the
parking income credit, as all such terms are defined in the lease agreement.
Payments under the ground lease amounted to $56,000 for the period through
December 31, 1999 and are included in construction in progress in the
accompanying consolidated balance sheet at December 31, 1999.
HCS has entered into a lease commitment agreement with a third party lessor
for up to $30,000,000 to be used to acquire furniture, fixtures and equipment
for the Shreveport resort. Borrowings under the lease commitment may be made
monthly during the construction period in specified minimum amounts and will
accrue interest at the rate of LIBOR plus 4%. During the construction period,
HCS will only pay interest on outstanding borrowings as well as a fee of .5%
per annum on the undrawn portion of the commitment. Upon opening of the
Shreveport resort, the outstanding borrowings will become payable quarterly
including interest over a three year period to fully amortize the loan. The
lease will be treated as a capital lease for financial reporting purposes.
Borrowings under the lease commitment will be collateralized by the furniture,
fixture and equipment purchased. Covenants under the lease financing will be
substantially similar to those included in the indenture for the First Mortgage
Notes (see Note 3). No charges were incurred under the commitment through
December 31, 1999.
F-14
<PAGE>
HOLLYWOOD CASINO SHREVEPORT
A Development Stage General Partnership for Periods Subsequent to September 22,
1998
(Formerly Known as QNOV)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Third parties could assert obligations against HCS for liabilities that have
arisen or that might arise against QNOV or the former partners with respect to
any period prior to September 22, 1998. Management believes in the event such a
claim arises, it would be adequately covered under either existing
indemnification agreements with the former partners or insurance policies
maintained by QNOV or the former partners.
(6) Supplemental Cash Flow Information
HCS paid no interest or taxes during the years ended December 31, 1999 or
1998 or during the period from September 22, 1998 through December 31, 1999.
Interest paid during the year ended December 31, 1997 amounted to $2,000.
The issuance of a note to Hilton by HCS at a discounted face amount of
$1,692,000 (see Note 3(b)) and the associated project costs have been excluded
from the accompanying consolidated statements of cash flows for the year ended
December 31, 1999 and for the period from September 22, 1998 through
December 31, 1999 as a non-cash transaction.
Included in QNOV's liabilities at December 31, 1997 was a liability to Hilton
for $750,000. The $750,000 was incurred with respect to the termination of the
lease for docking facilities for QNOV's New Orleans berth (see Note 4). Hilton
settled the $750,000 obligation to IRC in exchange for an obligation by QNOV to
Hilton for such amount. The obligation accrued interest at the rate of 8.66%
per annum. The obligation to Hilton, together with accrued interest in the
amount of $50,000, was forgiven prior to September 22, 1998 and has been
reflected as a capital transaction with Hilton on the accompanying financial
statements.
Other liabilities to the former partners were incurred by QNOV during 1998
prior to the transfer of interests on September 22, 1998. Such general and
administrative costs included, among other things, payroll and related benefit
costs, office rental and legal fees with respect to the liquidating QNOV's
assets and settling its liabilities. Such obligations were forgiven prior to
September 22, 1998 and have been reflected as capital transactions on the
accompanying financial statements.
The capital transactions described in the prior two paragraphs have been
excluded from the accompanying statements of cash flows for the year ended
December 31, 1998 as non-cash transactions.
F-15
<PAGE>
INDEPENDENT AUDITORS' REPORT
To HWCC-Louisiana, Inc.:
We have audited the accompanying balance sheets of HWCC-Louisiana, Inc. (the
"Company") as of December 31, 1999 and 1998, and the related statements of
operations, changes in shareholder's equity (deficit), and cash flows for each
of the three years in the period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our 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, such financial statements present fairly, in all material
respects, the financial position of HWCC-Louisiana, Inc. as of December 31,
1999 and 1998, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1999 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dallas, Texas
February 25, 2000
F-16
<PAGE>
HWCC-LOUISIANA, INC. AND SUBSIDIARIES
(wholly owned by Hollywood Casino Corporation)
CONSOLIDATED BALANCE SHEETS (NOTE 1)
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents......................... $ 21,580,000 $ 68,000
Interest receivable............................... 1,432,000 --
Prepaid expenses and other current assets......... 649,000 --
------------ -----------
Total current assets............................ 23,661,000 68,000
------------ -----------
Investment in Hollywood Casino Shreveport (Note 1).. -- 2,483,000
------------ -----------
Property and Equipment:
Furniture and equipment........................... 24,000 1,000
Construction in progress.......................... 42,571,000 153,000
------------ -----------
42,595,000 154,000
Less accumulated depreciation..................... (2,000) --
------------ -----------
42,593,000 154,000
------------ -----------
Cash Restricted for Construction Project............ 147,310,000 --
------------ -----------
Other Assets:
Note receivable, net of discount.................. 936,000 --
Deferred financing costs.......................... 4,928,000 --
------------ -----------
5,864,000 --
------------ -----------
$219,428,000 $ 2,705,000
============ ===========
LIABILITIES AND SHAREHOLDER'S EQUITY
(DEFICIT)
Current Liabilities:
Current maturities of long-term debt.............. $ 400,000 $ --
Accounts payable.................................. 11,663,000 15,000
Interest payable.................................. 7,637,000 --
Other accrued liabilities......................... 35,000 --
Due to affiliates................................. 334,000 1,321,000
------------ -----------
Total current liabilities....................... 20,069,000 1,336,000
------------ -----------
Long-term debt...................................... 151,359,000 --
------------ -----------
Commitments and Contingencies (Note 7)
Minority Interest................................... 2,000,000 --
------------ -----------
Shareholder's Equity (Deficit):
Common stock, $1 par value per share, 1,000,000
shares authorized, 1,000 shares issued and
outstanding...................................... 1,000 1,000
Additional paid-in capital........................ 51,400,000 2,500,000
Accumulated deficit............................... (5,401,000) (1,132,000)
------------ -----------
46,000,000 1,369,000
------------ -----------
$219,428,000 $ 2,705,000
============ ===========
</TABLE>
The accompanying footnotes to financial statements are an
integral part of these balance sheets.
F-17
<PAGE>
HWCC-LOUISIANA, INC. AND SUBSIDIARIES
(wholly owned by Hollywood Casino Corporation)
CONSOLIDATED STATEMENTS OF OPERATIONS (NOTE 1)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1999 1998 1997
----------- -------- ---------
<S> <C> <C> <C>
Development and preopening expenses:
Travel.................................... $ (59,000) $(31,000) $(109,000)
Consulting and other professional
services................................. (401,000) -- (205,000)
Salaries and related costs................ (299,000) -- --
License fees.............................. (115,000) -- --
Public relations.......................... (60,000) -- --
Lobbying.................................. -- (15,000) (96,000)
Write off deferred project costs.......... -- (10,000) (139,000)
Other, net of reimbursements.............. (90,000) 17,000 (95,000)
----------- -------- ---------
Total development and preopening
expenses................................. (1,024,000) (39,000) (644,000)
General and administrative expenses......... (10,000) -- --
Amortization expense........................ (295,000) -- --
----------- -------- ---------
Loss from operations........................ (1,329,000) (39,000) (644,000)
Interest expense, net of capitalized
interest of $1,052,000 in 1999............. (6,653,000) -- --
Interest income............................. 3,701,000 -- --
----------- -------- ---------
Loss before taxes and other items........... (4,281,000) (39,000) (644,000)
Income tax benefit.......................... -- -- --
----------- -------- ---------
Loss before other items..................... (4,281,000) (39,000) (644,000)
Pre-acquisition losses (Note 1)............. 12,000 -- --
Equity in losses of Hollywood Casino
Shreveport (Note 1)........................ -- (17,000) --
----------- -------- ---------
Net loss................................ $(4,269,000) $(56,000) $(644,000)
=========== ======== =========
</TABLE>
The accompanying footnotes to consolidated financial statements are an
integral part of these consolidated financial statements.
F-18
<PAGE>
HWCC-LOUISIANA, INC. AND SUBSIDIARIES
(wholly owned by Hollywood Casino Corporation)
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY (DEFICIT) (NOTE 1)
For the Three Years Ended December 31, 1999
<TABLE>
<CAPTION>
Common Stock
------------- Additional Accumulated
Shares Amount Paid-in Capital Deficit
------ ------ --------------- -----------
<S> <C> <C> <C> <C>
----- ------ ----------- -----------
Balances, January 1, 1997........... 1,000 $1,000 $ -- $ (432,000)
Net loss.......................... -- -- -- (644,000)
----- ------ ----------- -----------
Balances, December 31, 1997......... 1,000 1,000 -- (1,076,000)
Capital contribution.............. -- -- 2,500,000 --
Net loss.......................... -- -- -- (56,000)
----- ------ ----------- -----------
Balances at December 31, 1998....... 1,000 1,000 2,500,000 (1,132,000)
Capital contribution.............. -- -- 48,900,000 --
Net loss.......................... -- -- -- (4,269,000)
----- ------ ----------- -----------
Balances, December 31, 1999......... 1,000 $1,000 $51,400,000 $(5,401,000)
===== ====== =========== ===========
</TABLE>
The accompanying footnotes to consolidated financial statements are an
integral part of these consolidated financial statements.
F-19
<PAGE>
HWCC-LOUISIANA, INC. AND SUBSIDIARIES
(wholly owned by Hollywood Casino Corporation)
CONSOLIDATED STATEMENTS OF CASH FLOWS (NOTE 1)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1999 1998 1997
------------- ----------- ---------
<S> <C> <C> <C>
Operating Activities:
Net loss.............................. $ (4,269,000) $ (56,000) $(644,000)
Adjustments to reconcile net loss to
cash provided by operating
activities:
Amortization expense, including
accretion of discount.............. 333,000 -- --
Pre-acquisition losses.............. 12,000 -- --
Write off deferred project costs.... -- 10,000 139,000
Equity in losses of Hollywood Casino
Shreveport......................... -- 17,000 --
(Increase) decrease in receivables.. (1,432,000) 40,000 5,000
Increase in other current assets.... (649,000) -- --
(Decrease) increase in due to
affiliate.......................... (987,000) 204,000 639,000
Increase in accounts payable and
accrued liabilities................ 18,818,000 15,000 --
------------- ----------- ---------
Cash provided by operating activities... 11,826,000 230,000 139,000
------------- ----------- ---------
Investing Activities:
Increase in cash from acquisition
(Note 1)............................. 1,474,000 -- --
Investment in Hollywood Casino
Shreveport........................... -- (2,500,000) --
Increase in cash restricted for
construction project................. (147,310,000) -- --
Loan to joint venture partner......... (1,000,000) -- --
Purchase of property and equipment.... (38,157,000) (163,000) (140,000)
------------- ----------- ---------
Cash used in investing activities....... (184,993,000) (2,663,000) (140,000)
------------- ----------- ---------
Financing Activities:
Issuance of long-term debt............ 150,000,000 -- --
Deferred financing costs.............. (5,221,000) -- --
Investment by joint venture partner... 1,000,000 -- --
Capital contributions................. 48,900,000 2,500,000 --
------------- ----------- ---------
Cash provided by financing activities... 194,679,000 2,500,000 --
------------- ----------- ---------
Net increase (decrease) in cash......... 21,512,000 67,000 (1,000)
Cash and cash equivalents at beginning
of year................................ 68,000 1,000 2,000
------------- ----------- ---------
Cash and cash equivalents at end of
year................................... $ 21,580,000 $ 68,000 $ 1,000
============= =========== =========
</TABLE>
The accompanying footnotes to consolidated financial statements are an
integral part of these consolidated financial statements.
F-20
<PAGE>
HWCC-LOUISIANA, INC. AND SUBSIDIARIES
(wholly owned by Hollywood Casino Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Organization, Business and Basis of Presentation
HWCC-Louisiana, Inc. ("HCL") is a Louisiana corporation and wholly owned
subsidiary of Hollywood Casino Corporation ("HCC"). HCL was formed in April
1993 for the purpose of obtaining a license to develop and own a riverboat
casino in Louisiana. HCL's initial efforts to obtain sites in Lake Charles and
Bossier City, Louisiana proved unsuccessful. In September 1998, HCL, Sodak
Louisiana, L.L.C. ("Sodak") and Shreveport Paddlewheels, L.L.C.
("Paddlewheels") acquired the interests of Queen of New Orleans at the Hilton
Joint Venture ("QNOV"). QNOV was a general partnership which owned and operated
a riverboat gaming facility in New Orleans, Louisiana. QNOV ceased operating
the riverboat casino in October 1997 having requested and obtained approval
from the Louisiana Gaming Control Board (the "LGCB") to move its licensed site
to the City of Shreveport, approximately 180 miles east of Dallas, Texas.
Subsequent to receiving approval to relocate the license, QNOV made the
decision not to conduct gaming operations in Shreveport. The partners of QNOV
sought to transfer the license to operate in Shreveport to another interested
party. Under Louisiana gaming regulations, the license to operate a riverboat
gaming operation is not transferrable; however, the ownership of a license to
operate is transferrable, subject to the approval of the LGCB. Accordingly, the
acquisition by HCL, Sodak and Paddlewheels of the license to operate in
Shreveport was structured as an acquisition of the interests of QNOV's
partners. The former partners disposed of QNOV's assets other than its license
to operate and satisfied all but one of its obligations so that when the former
partners withdrew on September 22, 1998 transferring their interests to HCL,
Sodak and Paddlewheels, QNOV's only asset was its license to operate in
Shreveport, its only liability was a $5,000,000 obligation to the city of New
Orleans (see below) and all equity accounts of the former partners of QNOV were
reduced to a zero balance. HCL, Sodak and Paddlewheels obtained the necessary
approvals from the LGCB to proceed with the project in Shreveport. In June
1999, HCL obtained approval to change the name of the partnership to Hollywood
Casino Shreveport ("HCS").
When the former partners of QNOV proposed moving to Shreveport, they
negotiated a settlement with the City of New Orleans to pay $10,000,000 with
respect to claims asserted by the City in connection with the relocation.
During September 1998, the partners of HCS, the former partners of QNOV and the
City of New Orleans entered into a Compromise Agreement under which one of
QNOV's former partners agreed to pay $5,000,000 to the City and QNOV was
released from any further relocation claims. As part of the Compromise
Agreement, the partners of HCS agreed to pay $5,000,000 to the City upon
securing financing for their planned Shreveport resort. In the event financing
was not obtained, HCS's partners would not be required to make any payment. As
a result of HCL's acquisition of Sodak's interest in HCS (see below), HCS has
become substantially wholly owned by HCL. HCL has treated this $5,000,000
obligation as part of the cost of acquiring their interest in HCS and has
included the cost in construction in progress on the accompanying consolidated
balances sheet at December 31, 1999. The obligation was paid in August 1999
upon issuance of the First Mortgage Notes (see Note 4).
For the period from September 22, 1998 until April 23, 1999, HCL's investment
in HCS was accounted for under the equity method of accounting. It was
originally anticipated that HCS would develop the Shreveport resort with each
of HCL and Sodak having a 50% after the commencement of operations and interest
in the development and subsequent operations. Paddlewheels was to have a
residual interest after the commencement of operations and in the event that
the project was ever sold amounting to 10% plus any capital contributions made
by Paddlewheels to HCS or otherwise credited to their account (see Note 6). On
March 31, 1999, HCL entered into a definitive agreement with Sodak's parent to
acquire Sodak for the $2,500,000 Sodak had contributed to HCS, with $1,000 to
be paid at closing and the remainder to be paid six months after the opening of
the Shreveport resort. The revised structure of the partnership was approved by
the LGCB on April 20, 1999. As a result, HCL obtained an effective 100%
ownership interest in HCS with Paddlewheels retaining their 10% residual
interest. The acquisition was accounted for under the purchase method of
accounting. Accordingly, effective as of the April 23, 1999 closing of HCL's
acquisition of Sodak, Sodak became a consolidated subsidiary of HCL.
F-21
<PAGE>
HWCC-LOUISIANA, INC. AND SUBSIDIARIES
(wholly owned by Hollywood Casino Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In July 1999, HCL formed two new, wholly owned subsidiaries, HCS I, Inc. and
HCS II, Inc., both Louisiana corporations. HCL contributed $1,000 of capital to
each entity along with 99% of its interest in HCS to HCS I, Inc. and the
remaining 1% of its interest to HCS II, Inc. In addition, the HCS joint venture
agreement was amended and restated on July 21, 1999, to reflect, among other
things, the admission of HCS I, Inc. and HCS II, Inc. as partners of HCS and
the withdrawal of HCL as managing partner of HCS. As a result, HCS I, Inc. now
has an effective 99% interest in HCS, and has become its managing general
partner. HCS II, Inc. now has an effective 1% interest in HCS. HCS I, Inc. and
HCS II, Inc. currently have no other operating activities or assets other than
their ownership interests in HCS. HCS I, Inc. and HCS II, Inc. have assumed
HCL's obligation to cause HCS to pay Paddlewheels the 1% of "complex net
revenues" (see Note 7). Paddlewheels retained its 10% residual interest in HCS.
The revised partnership structure was approved by the LGCB on July 20, 1999.
Additionally, in July 1999, HCS formed a new, wholly owned subsidiary,
Shreveport Capital Corporation ("SCC"), a Louisiana corporation. HCS
contributed $1,000 of capital to SCC. SCC was formed for the sole purpose of
being a co-issuer with respect to the First Mortgage Notes and is not expected
to have any operating activities, acquire any assets or incur any liabilities.
As currently planned, the Shreveport resort will consist of a three-level
riverboat casino with approximately 1,370 slot machines and 75 table games; a
405-room, all suite, art deco style hotel; and approximately 42,000 square feet
of restaurant and entertainment facilities. The total estimated cost of the
Shreveport resort is $230,000,000. Equity contributions from HCC have provided
$50,000,000 of the funds necessary. During August 1999, HCS successfully
completed the issuance of $150,000,000 of 13% First Mortgage Notes with
contingent interest (the "First Mortgage Notes") due 2006 (see Note 4); it is
expected that a commitment for $30,000,000 of furniture, fixture and equipment
financing will provide the remaining funds for the project (see Note 7).
Construction began in August 1999 with a planned opening date in early November
of 2000.
Riverboat gaming operations in Louisiana are subject to regulatory control by
the LGCB. HCS's current license to operate the Shreveport resort expires on
October 15, 2004.
The accompanying consolidated balance sheet as of December 31, 1999 reflects
(i) the April 23, 1999 acquisition of Sodak and the resulting consolidation of
Sodak and HCS with HCL and (ii) the formation of HCS I, Inc. HCS II, Inc. and
SCC. The accompanying consolidated statement of operations for the year ended
December 31, 1999 reflects the consolidated operations of HCL and its
subsidiaries, including Sodak and HCS, for the period from January 1, 1999 with
the pre-acquisition losses of Sodak from its investment in HCS reflected as a
nonoperating item. Sodak had no operations during the period presented. All
intercompany balances and transactions have been eliminated in consolidation.
(2) Summary of Significant Accounting Policies
The significant accounting policies followed in the preparation of the
accompanying financial statements of HCL are discussed below. The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that effect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Cash and cash equivalents--
Cash and cash equivalents are comprised of cash and investments with original
maturities of three months or less, such as commercial paper, certificates of
deposit and fixed repurchase agreements.
F-22
<PAGE>
HWCC-LOUISIANA, INC. AND SUBSIDIARIES
(wholly owned by Hollywood Casino Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Property and equipment--
Furniture and equipment is being depreciated using the straight line method
over the estimated useful life of five years.
Construction in progress--
Costs associated with the construction of the Shreveport resort are being
deferred. Construction costs, including the applicable interest on construction
financing of $1,052,000 at December 31, 1999, are being capitalized and,
commencing with the opening of the Shreveport resort, will be amortized over
the estimated useful lives of the resulting assets. Capitalized costs will be
allocated to the individual components of property and equipment when such
assets are ready to be placed in service.
Preopening costs--
Preopening costs include, among other things, organizational costs, marketing
and promotional costs, hiring and training of new employees and other operating
costs incurred prior to the opening of the project. Such costs are accounted
for under the provisions of Statement of Position 98-5 issued by the American
Institute of Certified Public Accountants which requires that such costs be
expensed as incurred.
Deferred financing costs--
The costs of issuing long-term debt, including all underwriting, licensing,
legal and accounting fees, have been deferred and are being amortized over the
term of the related debt issue using the straight-line method which
approximates the effective interest method. Amortization of such costs amounted
to $293,000 during the year ended December 31, 1999 and is included in
amortization expense on the accompanying consolidated statement of operations.
Employee stock options--
HCL has adopted the disclosure provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"). SFAS 123 allows an entity to continue to measure compensation cost for
employee stock-based compensation plans using the intrinsic value based method
of accounting prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("Opinion 25"). Entities electing to
remain with the accounting under Opinion 25 are required to make pro forma
disclosures of net income as if the fair value based method of accounting under
SFAS 123 had been applied. HCL has elected to account for employee stock-based
compensation under Opinion 25. During September 1999, HCC issued stock options
to an employee of HCS for 50,000 shares of HCC common stock at an exercise
price of $2.50 per share, the market price on the date of grant. Pro forma
compensation expense for the period from the grant date (September 16, 1999)
through December 31, 1999 is not material.
Cash restricted for construction project--
Cash restricted for construction project consists of investments in
government securities which are to be used for specified purposes and which
were purchased with net proceeds from the First Mortgage Notes (see Note 4) as
required by the indenture for the First Mortgage Notes. Such restricted cash
includes (i) funds to be used for construction which are subject to meeting
certain conditions prior to their disbursement, (ii) funds to be used to make
the first three semiannual interest payments with respect to the First Mortgage
Notes and (iii) funds to be used to complete and open the Shreveport resort in
the event the construction funds in (i) above are not sufficient. Interest
earned, but not yet received, on such investments is included in interest
receivable on the accompanying consolidated balance sheet at December 31, 1999.
Upon receipt, interest is included in cash restricted for construction project.
F-23
<PAGE>
HWCC-LOUISIANA, INC. AND SUBSIDIARIES
(wholly owned by Hollywood Casino Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
At December 31, 1999, cash restricted for construction project is comprised
of the following:
<TABLE>
<S> <C>
Construction reserve............................................. $114,964,000
Interest reserve................................................. 27,275,000
Completion reserve............................................... 5,071,000
------------
$147,310,000
============
</TABLE>
Long-lived assets--
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and 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 changes in circumstances
indicate that the carrying amount of an asset may not be fully recoverable. As
a result of its review, HCL does not believe that any such changes have
occurred.
Income taxes--
HCL is included in the consolidated federal income tax return of HCC.
Pursuant to an agreement between HCL and HCC, HCL's provision for taxes is
based on the amount of tax that would be provided if a separate federal income
tax return were to be filed.
Recent accounting pronouncement--
In June 1998, the Financial Accounting Standards Board issued a new
statement, "Accounting for Derivative Instruments and Hedging Activities"
("SFAS 133"), which has been amended to be 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 fair value of
derivatives may, depending on circumstances, be recognized in earnings or
deferred as a component of shareholder's equity until a hedged transaction
occurs. HCL does not believe the adoption of SFAS 133 will have a significant
impact on its consolidated financial position or results of operations.
(3) Acquisition of Sodak Louisiana, L.L.C.
As discussed in Note 1, HCL acquired Sodak on April 23, 1999 for a cash
payment of $1,000 and contingent consideration of $2,499,000 to be paid six
months after the Shreveport resort opens. Until such time as the Shreveport
resort opens, the $2,499,000 difference between Sodak's basis in the assets
acquired and the $1,000 paid by HCL will be treated as an adjustment to reduce
the recorded amount of project costs to the amount paid with respect to such
costs in accordance with Accounting Principles Board Statement Number 16,
"Business Combinations." Sodak had no operating activities prior to the
acquisition date other than equity from its investment in HCS and its only
asset was its investment in HCS. When the likelihood of completing and opening
of the Shreveport resort can be considered probable, the contingent
consideration will be recorded and project costs increased to reflect the
additional cost incurred by HCL. The following condensed pro forma
consolidated statement of operations of HCL for the year ended December 31,
1998 is presented to reflect the activities of HCL and Sodak on a consolidated
basis as if the acquisition of Sodak had occurred on January 1, 1998.
F-24
<PAGE>
HWCC-LOUISIANA, INC. AND SUBSIDIARIES
(wholly owned by Hollywood Casino Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Condensed Pro Forma Consolidated Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Year Ended
December 31, 1998
-----------------
<S> <C>
Interest income............................................ $ 55,000
Preopening expenses........................................ (90,000)
Development expenses....................................... (39,000)
------------
Net loss................................................... $ (74,000)
============
During July 1999, Sodak was merged into HCL and HCL contributed its ownership
in HCS to HCS I, Inc. and HCS II, Inc. As a result of these transactions, HCS
I, Inc., HCS II, Inc. and Paddlewheels are the only partners in HCS.
(4) Long-term Debt
Long-term debt at December 31, 1999 consists of the following:
13% First Mortgage Notes, with contingent interest, due
2006(a)................................................... $150,000,000
Note payable, net of discount of $241,000(b)............... 1,759,000
------------
Total indebtedness......................................... 151,759,000
Less-current maturities.................................... (400,000)
------------
Total long-term debt...................................... $151,359,000
============
</TABLE>
- --------
(a) In August 1999, HCS and SCC issued the First Mortgage Notes. Fixed interest
on the First Mortgage Notes at the annual rate of 13% is payable on each
February 1 and August 1, beginning February 1, 2000. In addition,
contingent interest will accrue on the First Mortgage Notes and will be
payable on each interest date after the Shreveport resort begins
operations. The amount of contingent interest will be equal to 5% of the
consolidated cash flow of HCS for the applicable period subject to a
maximum contingent interest of $5,000,000 for any four consecutive fiscal
quarters.
The First Mortgage Notes are secured by, among other things, (i) a first
priority security interest in the net proceeds from the issue of the First
Mortgage Notes; (ii) a first priority security interest in substantially
all of the assets that will comprise the Shreveport resort other than up to
$35,000,000 in assets secured by equipment financing; (iii) a collateral
assignment of the Shreveport resort's interest in the principal agreements
under which it will be constructed, operated and managed and (iv) a
collateral assignment of certain licenses and permits with respect to the
construction, operation and management of the Shreveport resort. In
addition, the First Mortgage Notes are guaranteed on a senior secured basis
by HCL, HCS I, Inc. and HCS II, Inc. (collectively, the "Guarantors"). Such
guarantees are secured by a first priority secured interest in
substantially all of the Guarantors' assets, including a pledge of the
capital stock of HCS I, Inc. and HCS II, Inc. and their partnership
interests in HCS. The security interest does not include $2,500,000 held by
HCL to fund its acquisition of Sodak.
The First Mortgage Notes may be redeemed at any time on or after August 1,
2003 at 106.5% of the then outstanding principal amount, decreasing to
103.25% and 100% on August 1, 2004 and 2005, respectively. HCS may also
redeem up to 35% of the First Mortgage Notes at a redemption price of 113%
plus accrued interest at any time prior to August 1, 2002 with the net cash
proceeds of an equity offering by HCC resulting in at least $20,000,000,
but only to the extent that such proceeds are contributed by HCC as equity
to HCS.
F-25
<PAGE>
HWCC-LOUISIANA, INC. AND SUBSIDIARIES
(wholly owned by Hollywood Casino Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The indenture to the First Mortgage Notes contains various provisions
limiting the ability of HCS to borrow money, pay distributions on its
equity interests or prepay debt, make investments, create liens, sell its
assets or enter into mergers or consolidations. In addition, the indenture
restricts the ability of the Guarantors and SCC to acquire additional
assets, become liable for additional obligations or engage in any
significant business activities.
(b) The partners of HCS agreed that HCS would contingently reimburse one of
QNOV's former partners for $2,000,000 of the amount it paid to the City of
New Orleans under the Compromise Agreement (see Note 1); such repayment is
to be made upon the earlier of the termination of construction of the
Shreveport resort or in monthly installments of $200,000, without interest,
commencing with the opening of the Shreveport resort. The $2,000,000
liability, net of a discount in the original amount of $308,000, and the
associated project costs were recorded upon the issuance of the First
Mortgage Notes in August 1999.
Scheduled payments of long-term debt as of December 31, 1999 are set forth
below:
<TABLE>
<S> <C>
2000............................................................ $ 400,000
2001............................................................ 1,600,000
2002............................................................ --
2003............................................................ --
2004............................................................ --
Thereafter...................................................... 150,000,000
------------
$152,000,000
============
</TABLE>
(5)Income Taxes
HCL's benefit for income taxes consists of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1999 1998 1997
----------- ------- ---------
<S> <C> <C> <C>
Deferred benefit (provision):
Federal..................................... $ 1,362,000 $ 8,000 $ 170,000
State....................................... 338,000 1,000 40,000
Change in valuation allowance................ (1,700,000) (9,000) (210,000)
----------- ------- ---------
$ -- $ -- $ --
=========== ======= =========
</TABLE>
A reconciliation between the calculated tax benefit on losses based on the
statutory rates in effect and the effective tax rates for the years ended
December 31, 1999, 1998 and 1997 follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1999 1998 1997
----------- ------- ---------
<S> <C> <C> <C>
Calculated income tax benefit at statutory
rate....................................... $ 1,451 000 $ 9,000 $ 219,000
Change in valuation allowance............... (1,700,000) (9,000) (210,000)
State income taxes, net of federal
provision.................................. 223,000 1,000 26,000
Lobbying.................................... -- -- (31,000)
Other....................................... 26,000 (1,000) (4,000)
----------- ------- ---------
Tax benefit as shown on statement of
operations................................. $ -- $ -- $ --
=========== ======= =========
</TABLE>
Deferred taxes result from differences in the timing of deductions taken
between tax and financial reporting purposes for the write off of deferred
project costs.
F-26
<PAGE>
HWCC-LOUISIANA, INC. AND SUBSIDIARIES
(wholly owned by Hollywood Casino Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
At December 31, 1999 and 1998, HCL had net operating loss carryforwards
("NOL's") totaling approximately $3,980,000 and $837,000, respectively, which
do not begin to expire until 2012. Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes", requires that the benefit of such NOL's
be recorded as an asset and, to the extent that management can not assess that
the utilization of all or a portion of such deferred tax asset is more likely
than not, a valuation allowance should be recorded. Based on the losses
incurred to date and the lack of any current operating income, management has
provided a valuation allowance for the entire deferred tax asset for all
periods presented.
The components of HCL's net deferred tax asset are as follows:
<TABLE>
<CAPTION>
December 31,
----------------------
1999 1998
----------- ---------
<S> <C> <C>
Deferred tax asset--
Net operating loss carryforward...................... $ 1,571,000 $ 343,000
Preopening expenses.................................. 460,000 --
Write off of deferred project costs.................. 49,000 49,000
Other................................................ 12,000 --
----------- ---------
Net deferred tax asset................................ 2,092,000 392,000
Valuation allowance................................... (2,092,000) (392,000)
----------- ---------
$ -- $ --
=========== =========
</TABLE>
(6) Transactions with Affiliates
HCC and certain of its subsidiaries provide services to HCL and pay direct
costs on HCL's behalf. Services provided include personnel for project,
administrative and other purposes. HCL either expenses or capitalizes such
costs in accordance with its normal capitalization policies as described in
Note 2. Amounts payable to HCC and its subsidiaries for services and for the
payment of third party costs are included in due to affiliates on the
accompanying consolidated balance sheets. During April 1999, HCC made a capital
contribution to HCL of $1,400,000. Proceeds from the capital contribution were
used to repay HCC and its subsidiaries with respect to such advances.
The operations of the Shreveport resort will be managed by HWCC-Shreveport,
Inc., a wholly owned subsidiary of HCC, under the terms of a management
agreement. The management agreement became effective when the LGCB approved the
development of the Shreveport resort and will remain in effect for so long as
HCS holds its license, unless the management agreement is terminated earlier in
accordance with its terms. Under the terms of the management agreement, HCS
will pay HWCC-Shreveport basic and incentive management fees for its services.
The basic fee will be equal to 2% of gross revenues, as defined in the
agreement, from the operation of the Shreveport resort. The incentive fee will
be equal to the sum of (i) 5% of earnings before interest, taxes, depreciation
and amortization ("EBITDA"), as defined in the agreement, in excess of
$25,000,000 and up to $35,000,000; (ii) 7% of EBITDA in excess of $35,000,000
and up to $40,000,000; and (iii) 10% of EBITDA over $40,000,000. In addition,
HCS will reimburse HWCC-Shreveport for expenses incurred in connection with
services provided under the management agreement.
HCS has also entered into a Technical Services Agreement with HWCC-Shreveport
to provide certain construction and project supervision services prior to the
opening of the Shreveport resort. HCS will reimburse HWCC-Shreveport for
expenses incurred in connection with services provided under the Technical
Services Agreement. Such costs amounted to $291,000 for the year ended
December 31, 1999; no such costs were incurred during 1998. Amounts payable
under the agreement amounting to $56,000 are included in due to affiliates on
the accompanying consolidated balance sheet at December 31, 1999.
F-27
<PAGE>
HWCC-LOUISIANA, INC. AND SUBSIDIARIES
(wholly owned by Hollywood Casino Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
HCL is billed by subsidiaries of HCC for certain administrative and other
services performed by their employees on behalf of HCL. Such charges amounted
to $170,000 during the year ended December 31, 1999; no such charges were
incurred prior to 1999. Amounts payable amounting to $64,000 are included in
due to affiliates on the accompanying consolidated balance sheet at
December 31, 1999.
HCS has also entered into an agreement with Paddlewheels to provide certain
marine services for so long as Paddlewheels remains a joint venture partner in
HCS. The Marine Services Agreement became effective on September 22, 1998 and,
in addition to the reimbursement of Paddlewheels for its direct expenses
incurred, if any, HCS will pay a monthly fee of $30,000 effective with the
opening of the Shreveport resort. No payments have been made under the
agreement through December 31, 1999.
(7) Commitments
HCL agreed that upon obtaining construction financing for the Shreveport
resort, it would loan $1,000,000 to Paddlewheels which Paddlewheels would use
to make a $1,000,000 capital contribution to HCS. HCL loaned the $1,000,000 to
Paddlewheels and Paddlewheels made its capital contribution to HCS in August
1999; the $1,000,000 is included in minority interest in the accompanying
consolidated balance sheet of HCL at December 31, 1999. The loan to
Paddlewheels accrues interest at the rate of prime commencing with the opening
of the Shreveport resort and will be payable monthly. Because the loan does not
bear interest prior to completion of the Shreveport resort, HCL recorded a
discount on the note which is being accreted during the construction period and
which will result in a note receivable balance of $1,000,000 at the projected
completion date. Principle on the loan is payable on the tenth anniversary of
the opening of the Shreveport resort.
Paddlewheels was also given credit for an additional $1,000,000 capital
contribution at the time construction financing was obtained and the $5,000,000
liability described in Note 1 was paid. Such credit was in recognition of
guarantees provided by an affiliate of Paddlewheels necessary to obtain LGCB
approval for the Shreveport resort. The additional $1,000,000 credit to
Paddlewheels's capital account results in an additional $1,000,000 minority
interest on HCL's consolidated balance sheet and has been treated as an
additional project cost.
For so long as it remains a joint venture partner in HCS, Paddlewheels will
also receive, among other things, an amount equal to 1% of "complex net
revenues" of the Shreveport resort as defined, which approximates net revenues,
in exchange for the assignment by Paddlewheels and its affiliates of their
joint venture interest in HCS to HCL and Sodak.
HCC has entered into a completion capital agreement providing for the
contribution of up to an additional $5,000,000 in cash if any time there are
insufficient funds available to enable the Shreveport resort to be operating by
April 30, 2001. In addition, if the Shreveport resort is not operating by April
30, 2001, HCC will contribute to HCS through HCL, HCS I, Inc. and HCS II, Inc.
on that date $5,000,000 in additional equity less any amounts previously
contributed under the completion capital agreement.
In May 1999, HCS entered into a ground lease with the city of Shreveport for
the land on which the Shreveport resort will be built. The term of the lease
begins when construction commences and ends on the tenth anniversary of the
date the Shreveport resort opens. HSC has options to renew the lease on the
same terms for up to an additional forty years. The lease may be further
renewed after that time at prevailing rates and terms for similar leases. The
City of Shreveport may terminate the lease as a result of, among other things a
default by HCS under the lease or the failure to substantially complete
construction within the time period established by the LGCB. HCS may terminate
the lease at any time if the operation of the Shreveport resort becomes
uneconomic. Base rental payments under the lease are $10,000 per month during
the construction period increasing to $450,000 per year upon opening and
continuing at that amount for the remainder of the initial ten-year lease term.
During the first five-year renewal term, the base annual rental will be
$402,500.
F-28
<PAGE>
HWCC-LOUISIANA, INC. AND SUBSIDIARIES
(wholly owned by Hollywood Casino Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Subsequent renewal period base rental payments will increase by 15% during each
of the next four five-year renewal terms with no further increases. In addition
to the base rent, HCS will pay monthly percentage rent of not less than
$500,000 per year equal to 1% of monthly adjusted gross revenues and the
amount, if any, by which monthly parking facilities net income exceeds the
parking income credit, as all such terms are defined in the lease agreement.
Payments under the ground lease amounted to $56,000 for the period through
December 31, 1999 and are included in construction in progress on the
accompanying consolidated balance sheet at December 31, 1999.
HCS has entered into a lease commitment with a third party lessor for up to
$30,000,000 to be used to acquire furniture, fixtures and equipment for the
Shreveport resort. Borrowings under the lease commitment may be made monthly
during the construction period in specified minimum amounts and will accrue
interest at the rate of LIBOR plus 4%. During the construction period, HCS will
only pay interest on outstanding borrowings as well as a fee of .5% per annum
on the undrawn portion of the commitment. Upon opening of the Shreveport
resort, the outstanding borrowings will become payable quarterly including
interest over a three year period to fully amortize the loan. The lease will be
treated as a capital lease for financial reporting purposes. Borrowings under
the lease commitment will be collateralized by the furniture, fixtures and
equipment purchased. Covenants under the lease financing will be substantially
similar to those included in the indenture for the First Mortgage Notes (see
Note 4). No charges were incurred under the commitment through
December 31, 1999.
Third parties could assert obligations against HCS for liabilities that have
arisen or that might arise against QNOV or QNOV's partners with respect to any
period prior to September 22, 1998. Management believes in the event such a
claim arises, it would be adequately covered under either existing
indemnification agreements with QNOV's partners or insurance policies
maintained by QNOV or its partners.
(8) Supplemental Cash Flow Information
HCL paid no interest or income taxes during the years ended December 31,
1999, 1998 or 1997.
In connection with the acquisition of Sodak, HCL assumed the following
liabilities:
<TABLE>
<S> <C>
Fair value of non-cash assets acquired......................... $ 1,465,000
Cash acquired.................................................. 1,525,000
Contingent liability for purchase.............................. (2,499,000)
Pre-acquisition losses attributable to joint venture partner... 12,000
Cash paid for capital stock.................................... (1,000)
-----------
Liabilities assumed............................................ $ 502,000
===========
</TABLE>
The issuance of a note to a former partner of QNOV at a discounted face
amount of $1,692,000 (see Note 4(b)) and the associated project costs have been
excluded from the accompanying consolidated statement of cash flows for the
year ended December 31, 1999 as a non-cash transaction.
The additional $1,000,000 credit to Paddlewheels' capital account (see Note
7) and corresponding addition to construction in progress have been excluded
from the accompanying consolidated statement of cash flows for the year ended
December 31, 1999 as a non-cash transaction.
F-29
<PAGE>
INDEPENDENT AUDITORS' REPORT
To Sodak Louisiana, L.L.C.:
We have audited the accompanying balance sheets of Sodak Louisiana, L.L.C.
(the "Company") as of December 31, 1998 and 1997, and the related statements of
operations, changes in shareholder's equity, and cash flows for the year ended
December 31, 1998 and the period from inception (October 20, 1997) through
December 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our 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, such financial statements present fairly, in all material
respects, the financial position of Sodak Louisiana, L.L.C. as of December 31,
1998 and 1997, and the results of its operations and its cash flows for the
year ended December 31, 1998 and the period from inception (October 20, 1997)
through December 31, 1997 in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Dallas, Texas
November 5, 1999
F-30
<PAGE>
SODAK LOUISIANA, L.L.C.
(wholly owned by Sodak Gaming, Inc.)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Assets
Current Asset:
Cash................................................ $ 1,000 $1,000
Investment in Hollywood Casino Shreveport............ 2,482,000 --
---------- ------
$2,483,000 $1,000
========== ======
Shareholders' Equity
Shareholders' Equity:
Common Stock, 1,000 shares authorized, 1,000 shares
issued and outstanding............................. $ 1,000 $1,000
Additional paid-in capital.......................... 2,500,000 --
Accumulated deficit................................. (18,000) --
---------- ------
$2,483,000 $1,000
========== ======
</TABLE>
The accompanying footnotes to financial statements are an
integral part of these balance sheets.
F-31
<PAGE>
SODAK LOUISIANA, L.L.C.
(wholly owned by Sodak Gaming, Inc.)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from
Inception
Year Ended (October 20, 1997)
December 31, Through
1998 December 31, 1997
------------ ------------------
<S> <C> <C>
Equity in losses of Hollywood Casino
Shreveport................................... $(18,000) $--
Income tax benefit............................ -- --
-------- ----
Net loss.................................... $(18,000) $--
======== ====
</TABLE>
The accompanying footnotes to financial statements are an
integral part of these balance sheets.
F-32
<PAGE>
SODAK LOUISIANA, L.L.C.
(wholly owned by Sodak Gaming, Inc.)
STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
For the Period from Inception (October 20, 1997) through December 31, 1998
<TABLE>
<CAPTION>
Common Stock
------------- Additional Accumulated
Shares Amount Paid-in Capital Deficit
------ ------ --------------- -----------
<S> <C> <C> <C> <C>
Capital contribution.................. 1,000 $1,000 $ -- $ --
----- ------ ---------- --------
Balances, December 31, 1997........... 1,000 1,000 -- --
Capital contribution.................. -- -- 2,500,000 --
Net loss.............................. -- -- -- (18,000)
----- ------ ---------- --------
Balances, December 31, 1998........... 1,000 $1,000 $2,500,000 $(18,000)
===== ====== ========== ========
</TABLE>
The accompanying footnotes to financial statements are an
integral part of these financial statements.
F-33
<PAGE>
SODAK LOUISIANA, L.L.C.
(wholly owned by Sodak Gaming, Inc.)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from
Inception
Year Ended (October 20, 1997)
December 31, Through
1998 December 31, 1997
------------ ------------------
<S> <C> <C>
Operating Activities:
Net loss...................................... $ (18,000) $ --
Adjustments to reconcile net loss to cash
provided by operating activities:
Equity in losses of Hollywood Casino
Shreveport.................................. 18,000 --
----------- ------
Cash provided by operating activities......... -- --
----------- ------
Cash Used in Investing Activities:
Investment in Hollywood Casino Shreveport..... (2,500,000) --
----------- ------
Cash Provided by Financing Activities:
Capital contributions......................... 2,500,000 1,000
----------- ------
Net increase in cash............................ -- 1,000
Cash at beginning of period..................... 1,000 --
----------- ------
Cash at end of period........................... $ 1,000 $1,000
=========== ======
</TABLE>
The accompanying footnotes to financial statements are an
integral part of these financial statements.
F-34
<PAGE>
SODAK LOUISIANA, L.L.C.
(wholly owned by Sodak Gaming, Inc.)
NOTES TO FINANCIAL STATEMENTS
(1) Organization and Business
Sodak Louisiana, L.L.C. ("Sodak") was a Louisiana limited liability company
which, prior to April 23, 1999, was a wholly owned subsidiary of Sodak Gaming,
Inc. Sodak was formed in October 1997 for the purpose of participating in a
joint venture to obtain a license to develop and own a riverboat casino in
Louisiana. In September 1998, Sodak, together with HWCC-Louisiana, Inc.
("HCL"), a Louisiana corporation and wholly owned subsidiary of Hollywood
Casino Corporation ("HCC"), and Shreveport Paddlewheels, L.L.C.
("Paddlewheels"), a Louisiana limited liability company, acquired the interests
of Queen of New Orleans at the Hilton Joint Venture ("QNOV"). QNOV was a
general partnership which owned and operated a riverboat gaming facility in New
Orleans, Louisiana. QNOV ceased operating the riverboat casino in October 1997
having requested and obtained approval from the Louisiana Gaming Control Board
(the "LGCB") to move its licensed site to the city of Shreveport, approximately
180 miles east of Dallas, Texas. Subsequent to receiving approval to relocate
the license, QNOV made the decision not to conduct gaming operations in
Shreveport. The partners of QNOV sought to transfer the license to operate in
Shreveport to another interested party. Under Louisiana gaming regulations, the
license to operate a riverboat gaming operation is not transferrable; however,
the ownership of a license to operate is transferrable, subject to approval of
the LGCB. Accordingly, the acquisition by Sodak, HCL, and Paddlewheels of the
license to operate in Shreveport was structured as an acquisition of the
interests of QNOV's partners. The former partners disposed of QNOV's assets
other than its license to operate and satisfied all but one of its obligations
so that when the former partners withdrew on September 22, 1998 transferring
their interests to Sodak, HCL and Paddlewheels, QNOV's only asset was its
license to operate in Shreveport, its only liability was a $5,000,000
obligation to the City of New Orleans in settlement of certain relocation
claims (see Note 4) and all equity accounts of the former partners were reduced
to a zero balance. Sodak, HCL and Paddlewheels received assignments of
interests from the former partners and obtained the necessary approvals from
the LGCB to proceed with the project in Shreveport. In June 1999, the new
partners obtained approval to change the name of the partnership to Hollywood
Casino Shreveport ("HCS").
As currently planned, the Shreveport resort will consist of a three-level
riverboat casino with approximately 1,370 slot machines and 75 table games; a
405-room, all suite, art deco style hotel; and approximately 42,000 square feet
of restaurant and entertainment facilities.
Riverboat gaming operations in Louisiana are subject to regulatory control by
the LGCB. HCS's current license to operate the Shreveport resort expires on
October 15, 2004.
The accompanying financial statements of Sodak include its 50% interest in
HCS under the equity method of accounting. The net assets of HCS at December
31, 1998 consisted of unexpended cash of $3,734,000 and capitalized project
costs of $1,957,000 net of accounts payable of $726,000. For the period ended
December 31, 1998, HCS expensed $90,000 of preopening costs and earned interest
income of $55,000.
It was originally anticipated that HCS would develop the Shreveport resort
with each of Sodak and HCL having a 50% interest in the development and
subsequent operations. Paddlewheels was to have a residual interest in the
event that the project was ever sold amounting to 10% plus any capital
contributions made by Paddlewheels to HCS. On March 31, 1999, Sodak Gaming,
Inc. entered into a definitive agreement with HCL to sell Sodak to HCL for the
$2,500,000 Sodak had contributed to HCS, with $1,000 to be paid at closing and
the remainder to be paid six months after the opening of the Shreveport resort.
The revised structure of the partnership was approved by the LGCB on April 20,
1999. Accordingly, effective as of April 23, 1999, Sodak became a wholly-owned
subsidiary of HCL. During July 1999, Sodak was merged into HCL.
(2) Summary of Significant Accounting Policies
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that effect the reported amounts of assets and
F-35
<PAGE>
SODAK LOUISIANA, L.L.C.
(wholly owned by Sodak Gaming, Inc.)
NOTES TO FINANCIAL STATEMENTS--(Continued)
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
(3) Income Taxes
Sodak was included in the consolidated federal income tax return of Sodak
Gaming, Inc. Pursuant to an agreement between Sodak and Sodak Gaming, Inc.,
Sodak's provision for taxes was based on the amount of tax that would have been
provided had a separate federal income tax return been filed.
Sodak's benefit for income taxes consisted of the following:
<TABLE>
<CAPTION>
Period from
Inception
Year Ended (October 20, 1997)
December 31, Through
1998 December 31, 1997
------------ ------------------
<S> <C> <C>
Deferred benefit:
Federal.................................... $ 3,000 $--
State...................................... 1,000 --
Change in valuation allowance................ (4,000) --
------- ----
$ -- $--
======= ====
</TABLE>
A reconciliation between the calculated tax benefit on losses based on the
statutory rates in effect and the effective tax rates for the year ended
December 31, 1998 and for the period from inception (October 20,1997) through
December 31, 1997 follows:
<TABLE>
<CAPTION>
Period from
Inception
Year Ended (October 20, 1997)
December 31, Through
1998 December 31, 1997
------------ ------------------
<S> <C> <C>
Calculated income tax benefit at statutory
rate..................................... $ 3,000 $--
Change in valuation account............... (3,000) --
------- ----
Tax benefit as shown on statement of
operations............................... $ -- $--
======= ====
</TABLE>
At December 31, 1998, Sodak had a net operating loss carryforward ("NOL")
representing Sodak's only deferred tax asset and totaling approximately $18,000
which does not expire until 2013. Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes", requires that the benefit of such NOL
be recorded as an asset and, to the extent that management can not assess that
the utilization of all or a portion of such deferred tax asset is more likely
than not, a valuation allowance should be recorded. Based on the losses
incurred to date and the lack of any current operating income, management
provided a valuation allowance for the entire deferred tax asset for all
periods presented.
The acquisition of Sodak by HCL could result in a "change in control", as
defined in Section 382 of the Internal Revenue Code of 1986, as amended, which
would limit the ability of HCL to utilize Sodak's NOL.
F-36
<PAGE>
SODAK LOUISIANA, L.L.C.
(wholly owned by Sodak Gaming, Inc.)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(4) Commitments
As discussed in Note 1, QNOV's partners previously conducted riverboat gaming
operations in New Orleans. When the former partners of QNOV proposed moving to
Shreveport, they negotiated a settlement with the City of New Orleans to pay
$10,000,000 with respect to claims asserted by the City in connection with the
relocation. During September 1998, the partners of HCS, the former partners of
QNOV and the City of New Orleans entered into a Compromise Agreement under
which one of QNOV's former partners agreed to pay $5,000,000 to the City and
QNOV was released from any further relocation claims. As part of the Compromise
Agreement, the partners of HCS agreed to pay the city $5,000,000 contingent
upon securing financing to construct the Shreveport resort. In the event
financing was not obtained, HCS's partners would not be required to make any
payment.
In addition, HCS entered into an agreement with the QNOV partner to
contingently repay the partner $2,000,000 of the amount it paid to the City;
such repayment is to be made upon the earlier of the termination of
construction of the Shreveport resort or in monthly installments of $200,000
commencing with the opening of the Shreveport resort. The resulting contingent
liability in the amount of $2,000,000 was not reflected by HCS at December 31,
1998 as the obligation was not incurred until funding for the project had been
obtained. The liability and associated project costs were recorded at such time
as funding was obtained.
For so long as it remains a joint venture partner in HCS, Paddlewheels will
receive, among other things, an amount equal to 1% of the net revenues, as
defined, of the Shreveport resort in exchange for the assignment by
Paddlewheels of its joint venture interest in HCS to Sodak and HCL.
(5) Supplemental Cash Flow Information
Sodak paid no interest or income taxes during the year ended December 31,
1998 or the period from inception (October 20, 1997) through December 31, 1997.
F-37
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
OF HOLLYWOOD CASINO CORPORATION
The following selected consolidated financial information of Hollywood Casino
Corporation for each of the five years in the period ended December 31, 1999 is
derived from its audited, consolidated financial statements. The financial
information for 1996 and 1995 includes the operating results of Greate Bay
Casino Corporation. On December 31, 1996, Hollywood Casino distributed its
approximate 80% ownership interest in Greate Bay to its stockholders. In 1998,
our results of operations were negatively impacted by a significant increase in
gaming taxes imposed by the Illinois legislature. Gaming taxes incurred by the
Aurora casino increased by $11.6 million in 1998. Holders of our notes will not
have any claims against the net assets of Hollywood Casino.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------
1999 1998 1997(1) 1996 1995
-------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net revenues................ $307,377 $268,760 $267,757 $530,580 $539,943
-------- -------- -------- -------- --------
Expenses:
Departmental............... 221,969 197,836 185,753 426,769 396,157
General and
administrative............ 19,239 17,778 16,790 37,169 36,914
Management and consulting
fees...................... 939 1,200 3,927 -- --
Depreciation and
amortization.............. 15,673 16,562 18,901 40,836 40,955
Preopening................. 841 -- -- -- --
Development................ 946 779 1,480 1,065 6,765
Termination of management
and consulting contracts.. 40,389 -- -- -- --
Write down of assets....... 13,322 -- 19,678 22,141 --
-------- -------- -------- -------- --------
Total expenses............ 313,318 234,155 246,529 527,980 480,791
-------- -------- -------- -------- --------
(Loss) income from
operations................. (5,941) 34,605 21,228 2,600 59,152
-------- -------- -------- -------- --------
Non-operating income
(expenses):
Interest income............ 7,868 2,844 1,896 3,101 3,708
Interest expense........... (45,540) (30,260) (30,437) (59,090) (55,558)
Tax settlement costs....... -- (1,087) -- -- --
Equity in losses of
unconsolidated affiliate.. (141) -- -- -- --
(Loss) gain on disposal of
assets.................... (567) (61) 552 (1,841) (514)
-------- -------- -------- -------- --------
Total non-operating
expenses, net............. (38,380) (28,564) (27,989) (57,830) (52,364)
-------- -------- -------- -------- --------
(Loss) income before income
taxes, extraordinary and
other items................ (44,321) 6,041 (6,761) (55,230) 6,788
Income tax provision........ (1,196) (816) (5,359) (63) (268)
-------- -------- -------- -------- --------
(Loss) income before
extraordinary and other
items...................... (45,517) 5,225 (12,120) (55,293) 6,520
Minority interest in
earnings of Limited
Partnership................ (5,801) (6,494) (5,012) -- --
-------- -------- -------- -------- --------
(Loss) income before
extraordinary items........ (51,318) (1,269) (17,132) (55,293) 6,520
Extraordinary items:
Early extinguishment of
debt, net of related tax
benefits(2)............... (30,353) (336) (215) -- (23,808)
-------- -------- -------- -------- --------
Net (loss) income........... $(81,671) $ (1,605) $(17,347) $(55,293) $(17,288)
======== ======== ======== ======== ========
Basic (loss) income per
common share(3):
(Loss) income before
extraordinary items....... $ (2.05) $ (.05) $ (.69) $ (2.24) $ .27
Extraordinary items........ (1.22) (.01) (.01) -- (.97)
-------- -------- -------- -------- --------
Net (loss) income.......... $ (3.27) $ (.06) $ (.70) $ (2.24) $ (.70)
======== ======== ======== ======== ========
</TABLE>
S-1
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1999 1998 1997(1) 1996 1995
------ ----- ------- ------ -----
(in thousands)
<S> <C> <C> <C> <C> <C>
Diluted (loss) income per common
share(3):
(Loss) income before extraordinary
items.................................. $(2.05) $(.05) $(.69) $(2.24) $ .26
Extraordinary items..................... (1.22) (.01) (.01) -- (.96)
------ ----- ----- ------ -----
Net (loss) income....................... $(3.27) $(.06) $(.70) $(2.24) $(.70)
====== ===== ===== ====== =====
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
---------------------------------------------
1999 1998 1997(1) 1996(1) 1995
-------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets................... $525,817 $270,740 $276,218 $308,158 $514,463
Total debt, including capital
lease obligations............. 538,458 227,529 226,922 232,046 496,847
Shareholders' (deficit)
equity........................ (74,157) 7,512 9,117 38,836 (57,233)
</TABLE>
- --------
(1) Restated to reflect the modification of Hollywood Casino's income tax
treatment resulting from its distribution of the common stock of Greate
Bay.
(2) Includes the following items: (i) for 1999, costs associated with the May
1999 issuance of Hollywood Casino's $310,000,000 of 11 1/4% and $50,000,000
of floating rate Senior Secured Notes, (ii) for 1998 and 1997, costs
associated with mandatory semi-annual offers to repurchase Hollywood
Casino's 12 3/4% Senior Secured Notes, net of related tax benefit, and
(iii) for 1995, costs associated with the October 1995 issuance of
Hollywood Casino's 12 3/4% Senior Secured Notes.
(3) During 1997, Hollywood Casino adopted the provisions of Financial
Accounting Standards No. 128, "Earnings per Share." The earnings per share
calculation has been restated for all prior periods presented.
S-2
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give any
information or represent anything not contained in this prospectus. You must
not rely on any unauthorized information. This prospectus does not offer to
sell or buy any securities in any jurisdiction where it is unlawful. The
information in this prospectus is current as of the date hereof.
---------------------
TABLE OF CONTENTS
---------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 10
Use of Proceeds.......................................................... 23
Capitalization........................................................... 24
Selected Financial Information........................................... 25
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 28
Business................................................................. 34
Management............................................................... 52
Security Ownership of Certain Beneficial Owners and Management........... 60
Certain Relationships and Related Transactions........................... 61
Description of the Exchange Offer........................................ 62
Description of the Registered Notes...................................... 70
United States Federal Income Tax Consequences............................ 120
Plan of Distribution..................................................... 120
Legal Matters............................................................ 121
Experts.................................................................. 121
Where You Can Find More Information...................................... 121
Index to Financial Statements............................................ F-1
Selected Consolidated Financial Information of Hollywood Casino
Corporation............................................................. S-1
</TABLE>
Until , 2000, all dealers effecting transactions in the registered notes,
whether or not participating in this distribution may be required to deliver a
prospectus. This is in addition to the obligation of dealers to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[HOLLYWOOD SHREVEPORT LOGO APPEARS HERE]
Hollywood Casino Shreveport
Shreveport Capital Corporation
Offer to Exchange all Outstanding
Original 13% First Mortgage Notes due 2006
for
Registered 13% First Mortgage Notes due 2006
-------------------------
PROSPECTUS
-------------------------
, 2000
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. Indemnification of Directors and Officers.
Hollywood Casino Shreveport
Not applicable.
Shreveport Capital Corporation
Shreveport Capital Corporation ("Shreveport Capital") is incorporated under
the laws of the State of Louisiana. Section 83 of the Louisiana Business
Corporation Law (the "LBCL") provides that a Louisiana corporation may
indemnify any person against whom an action, suit or proceeding is brought or
threatened (by reason of the fact that he is or was a director, officer,
employee or agent of the corporation or agent of another business, corporation,
partnership or other enterprise) against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred in connection with any 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 the corporation and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. In
the case of actions by or in the right of the corporation, the indemnity is
limited to expenses (including attorneys' fees and amounts paid in settlement
not exceeding, in the judgment of the board of directors, the estimated amount
expenses of litigating the action to conclusion) actually and reasonably
incurred in connection with a defense or settlement; provided that no indemnity
may be made in respect of any matter in which the person shall have been
adjudged by a court of competent jurisdiction, after exhaustion of all appeals
therefrom, to be liable for willful or intentional misconduct in performance of
his duty to the corporation, unless and only to the extent that the court
determines upon application that such person is fairly and reasonably entitled
to such indemnity.
To the extent a person has been successful on the merits or otherwise in
defense of any action, suit or proceeding or in defense of any claim, issue or
matter therein, the statute provides that he shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection therewith. Section 83 also provides for, among other things,
procedures for indemnification, advancement of expenses, non-exclusivity of the
provisions of Section 83 with respect to indemnification and advancement of
expenses, and insurance (including self-insurance) with respect to liabilities
incurred by directors, officers and others.
Section 24(C)(4) of the LBCL provides that a corporation may eliminate or
limit the liability of a director or officer to the corporation or its
shareholders for monetary damages for breach of fiduciary duty, except for
liability (i) for breach of any of the director's or officer's duty of loyalty
to the corporation or its shareholders; (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law;
(iii) under Section 92(D) of the LBCL (relating to unlawful dividends and
unlawful stock repurchases and redemptions); and (iv) for any transaction from
which the director or officer derived an improper personal benefit.
Shreveport Capital's Articles of Incorporation and Bylaws provide for the
indemnification of directors and officers of Shreveport Capital to the fullest
extent permitted by law. In addition, the Bylaws provide for the
indemnification of expenses actually and reasonably incurred by (i) a director
or officer of any subsidiary of Shreveport Capital, (ii) a fiduciary with
respect to any employee benefit plan of Shreveport Capital, or (iii) a
director, officer, partner, employee or agent of another corporation,
partnership, joint venture, trust or other for-profit or non-profit entity or
enterprise, if such position is or was held at the request of Shreveport
Capital.
The above discussion of the Articles of Incorporation and Bylaws of
Shreveport Capital and of Sections 83 and 24(C)(4) of the LBCL is not intended
to be exhaustive and is qualified in its entirety by the Articles of
Incorporation and Bylaws of Shreveport Capital and the LBCL.
II-1
<PAGE>
HWCC-Louisiana, Inc.
The Bylaws of HWCC-Louisiana, Inc., a Louisiana corporation ("HWCC-
Louisiana"), provide for indemnification of directors and officers to the
fullest extent permitted by the LBCL, as it currently exists or may hereafter
be amended. In addition, the Bylaws provide for the indemnification of expenses
actually and reasonably incurred by a director, officer, partner, employee or
agent of another business, nonprofit or foreign corporation, partnership, joint
venture, trust or other enterprise, including service with respect to employee
benefit plans, if such position is or was held at the request of HWCC-
Louisiana.
The above discussion of the Bylaws of HWCC-Louisiana and of Sections 83 and
24(C)(4) of the LBCL is not intended to be exhaustive and is qualified in its
entirety by the Bylaws of HWCC-Louisiana and the LBCL.
HCS I, Inc.
The Articles of Incorporation and Bylaws of HCS I, Inc., a Louisiana
corporation ("HCS I"), provide for the indemnification of directors and
officers of HCS I to the fullest extent permitted by law. In addition, the
Bylaws provide for the indemnification of expenses actually and reasonably
incurred by (i) a director or officer of any subsidiary of HCS I, (ii) a
fiduciary with respect to any employee benefit plan of HCS I, or (iii) a
director, officer, partner, employee or agent of another corporation,
partnership, joint venture, trust or other for-profit or non-profit entity or
enterprise, if such position is or was held at the request of HCS I.
The above discussion of the Articles of Incorporation and Bylaws of HCS I and
of Sections 83 and 24(C)(4) of the LBCL is not intended to be exhaustive and is
qualified in its entirety by the Articles of Incorporation and Bylaws of HCS I
and the LBCL.
HCS II, Inc.
The Articles of Incorporation and Bylaws of HCS II, Inc., a Louisiana
corporation ("HCS II"), provide for the indemnification of directors and
officers of HCS II to the fullest extent permitted by law. In addition, the
Bylaws provide for the indemnification of expenses actually and reasonably
incurred by (i) a director or officer of any subsidiary of HCS II, (ii) a
fiduciary with respect to any employee benefit plan of HCS II, or (iii) a
director, officer, partner, employee or agent of another corporation,
partnership, joint venture, trust or other for-profit or non-profit entity or
enterprise, if such position is or was held at the request of HCS II.
The above discussion of the Articles of Incorporation and Bylaws of HCS II
and of Sections 83 and 24(C)(4) of the LBCL is not intended to be exhaustive
and is qualified in its entirety by the Articles of Incorporation and Bylaws of
HCS II and the LBCL.
ITEM 21. Exhibits and Financial Statement Schedules.
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
3.1 --Third Amended and Restated Joint Venture Agreement of Hollywood
Casino Shreveport by and among Shreveport Paddlewheels, L.L.C.,
HCS I, Inc. and HCS II, Inc., dated as of July 21, 1999.+
3.2 --August 1999 Amendment to Third Amended and Restated Joint
Venture Agreement between Shreveport Paddlewheels, L.L.C., HCS I,
Inc. and HCS II, Inc.+
3.3 --Articles of Incorporation of Shreveport Capital Corporation.+
3.4 --Bylaws of Shreveport Capital Corporation.+
3.5 --Articles of Incorporation of HWCC-Louisiana, Inc., as amended.+
3.6 --Bylaws of Hollywood Casino--Lake Charles, Inc. (now known as
HWCC-Louisiana, Inc.).+
3.7 --Articles of Incorporation of HCS I, Inc.+
3.8 --Bylaws of HCS I, Inc.+
3.9 --Articles of Incorporation of HCS II, Inc.+
3.10 --Bylaws of HCS II, Inc.+
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
4.1 --Indenture among Hollywood Casino Shreveport and Shreveport
Capital Corporation as Co-Issuers, and HWCC-Louisiana, Inc., HCS
I, Inc. and HCS II, Inc., as Guarantors, and State Street Bank
and Trust Company, as Trustee, dated as of August 10, 1999.+
4.2 --Registration Rights Agreement, dated as of August 10, 1999, by
and among Hollywood Casino Shreveport, Shreveport Capital
Corporation, the Guarantors named therein and the Initial
Purchasers.+
4.3 --Collateral Assignment of Contracts and Documents dated August
10, 1999 between Hollywood Casino Shreveport and State Street
Bank and Trust Company, as Trustee.+
4.4 --Security Agreement dated August 10, 1999 between Hollywood
Casino Shreveport and State Street Bank and Trust Company, as
Trustee.+
4.5 --Partnership Interest Pledge Agreement dated August 10, 1999 made
by HCS I, Inc. in favor of State Street Bank and Trust Company,
as Trustee and Secured Party.+
4.6 --Cash Collateral and Disbursement Agreement dated August 10, 1999
between Hollywood Casino Shreveport, Shreveport Capital
Corporation, First American Title Insurance Company, as
Disbursement Agent and State Street Bank and Trust Company, as
Trustee.+
4.7 --Stock Pledge Agreement dated August 10, 1999 made by HWCC-
Louisiana, Inc. in favor of State Street Bank and Trust Company,
as Trustee.+
4.8 --Security Agreement dated August 10, 1999 made by Shreveport
Capital Corporation, HWCC-Louisiana, Inc., HCS I, Inc. and HCS
II, Inc. to State Street Bank and Trust Company, as Trustee and
Secured Party.+
4.9 --Security Agreement--Vessel Construction dated August 10, 1999
between Hollywood Casino Shreveport and State Street Bank and
Trust Company, as Trustee.+
4.10 --Mortgage, Leasehold Mortgage and Assignment of Leases and Rents
made by Hollywood Casino Shreveport in favor of State Street Bank
and Trust Company, as Mortgagee, dated August 10, 1999.+
4.11 --Partnership Interest Pledge Agreement dated August 10, 1999 made
by HCS II, Inc. in favor of State Street Bank and Trust Company,
as Trustee and Secured Party.+
4.12 --First Amendment to Security Agreement dated August 10, 1999
between HWCC-Shreveport, Inc. and State Street Bank and Trust
Company, as Trustee.+
4.13 --First Amendment to Cash Collateral and Disbursement Agreement
dated January 1, 2000 among Shreveport Capital Corporation,
Hollywood Casino Shreveport, First American Title Insurance
Company and State Street Bank and Trust Company.++
5.1 --Opinion of Weil, Gotshal & Manges LLP.*
8.1 --Opinion of Weil, Gotshal & Manges LLP.+
10.1 --Membership Interest Purchase Agreement, dated as of March 31,
1999, by and among HWCC-Louisiana, Inc., Sodak Gaming, Inc. and
Sodak Louisiana, L.L.C.(1)
10.2 --Completion Capital Agreement, dated as of August 10, 1999, by
and among Hollywood Casino Shreveport, HWCC-Louisiana, Inc., HCS
I, Inc., HCS II, Inc. and Hollywood Casino Corporation.(2)
10.3 --Manager Subordination Agreement, dated as of August 10, 1999, by
and among State Street Bank and Trust Company, as trustee, HWCC-
Shreveport, Inc. and Hollywood Casino Shreveport.(2)
10.4 --Management Services Agreement, dated as of September 22, 1998,
by and between QNOV and HWCC-Shreveport, Inc.(3)
10.5 --Amendment to Management Services Agreement, dated as of August
2, 1999, by and between Hollywood Casino Shreveport (formerly
QNOV) and HWCC-Shreveport, Inc.(3)
10.6 --Technical Services Agreement, dated as of September 22, 1998, by
and between QNOV and
HWCC-Shreveport, Inc.+
10.7 --Vessel Construction Contract, dated July 16, 1999, by and
between Leevac Shipyards, Inc. and Hollywood Casino Shreveport.+
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
10.8 --Employment Agreement, dated August 4, 1999, by and between HWCC
Development Corporation and Juris Basens.+
10.9 --Assignment and Assumption Agreement, dated September 1, 1999, by
and between HWCC Development Corporation and Hollywood Casino
Shreveport.+
10.10 --Compromise Agreement, dated September 15, 1998, by and among
Hilton New Orleans Corporation, New Orleans Paddlewheels, Inc.,
Queen of New Orleans at the Hilton Joint Venture and the City of
New Orleans.+
10.11 --Loan and Settlement Agreement, dated January 16, 1998, by and
among New Orleans Paddlewheels, Inc., Shreveport Paddlewheels,
L.L.C., HWCC-Louisiana, Inc., Sodak Louisiana L.L.C. and Hilton
New Orleans Corporation.+
10.12 --Retail Space Lease, executed as of June 3, 1999 by and between
QNOV and Red River Entertainment Company, L.L.C.+
10.13 --Ground Lease, dated May 19, 1999, by and between the City of
Shreveport, Louisiana and QNOV.+
10.14 --License Agreement, dated August 10, 1999, by and between
Hollywood Casino Corporation and Hollywood Casino Shreveport.+
10.15 --Construction Agreement, dated July 30, 1999, by and between
Hollywood Casino Shreveport and Broadmoor Anderson.+
10.16 --Amended and Restated Federal Income Tax Sharing Agreement dated
August 10, 1999 among Hollywood Casino Corporation, HWCC
Development Corporation, Hollywood Management, Inc., HWCC-Tunica,
Inc., HWCC-Golf Course Partners, Inc., Hollywood Casino-Aurora,
Inc., HWCC-Shreveport, Inc., HWCC-Argentina, Inc., HWCC-
Louisiana, Inc., HWCC-Holdings, Inc., HWCC-Aurora Management,
Inc., HWCC-Transportation, Inc., HCS I, Inc. and HCS II, Inc.+
10.17 --Marine Services Agreement dated September 22, 1998 between QNOV
and Shreveport Paddlewheels, L.L.C.+
10.18 --Side Agreement dated January 16, 1998 between Queen of New
Orleans at the Hilton Joint Venture, HWCC-Louisiana, Inc. and
Sodak Louisiana, L.L.C.+
10.19 --Loan Agreement dated August 10, 1999 between Shreveport
Paddlewheels, L.L.C. and HWCC-Louisiana, Inc.+
10.20 --Promissory Note dated August 10, 1999 in the original principal
amount of $1,000,000 made by Shreveport Paddlewheels, L.L.C., as
Borrower to HWCC-Louisiana, Inc., as Lender.+
10.21 --Security Agreement dated August 10, 1999 made by Shreveport
Paddlewheels, L.L.C., as Debtor, in favor of HWCC-Louisiana,
Inc., as Secured Party.+
10.22 --Guaranty Agreement dated August 10, 1999 made by New Orleans
Paddlewheels, L.L.C. in favor of HWCC-Louisiana, Inc.+
10.23 --Amended and Restated Assignment of Joint Venture Agreement dated
September 22, 1998 between Sodak Louisiana, L.L.C., HWCC-
Louisiana, Inc., New Orleans Paddlewheels, Inc. and Shreveport
Paddlewheels, L.L.C.+
10.24 --Contribution and Assumption Agreement dated July 21, 1999 among
HWCC-Louisiana, Inc., HCS I, Inc., HCS II, Inc. and Shreveport
Paddlwwheels, L.L.C.+
10.25 --First Amendment to Vessel Construction Contract, effective as of
September 1, 1999 by and between Hollywood Casino Shreveport and
Leevac Shipyards, Inc. ++
10.26 --First Amendment to Supplementary Conditions to General
Conditions of the Owner-Contractor Agreement dated December 10,
1999 by and between Hollywood Casino Shreveport and Broadmoor
Anderson.++
21.2 --Subsidiaries of HWCC-Louisiana, Inc.+
21.3 --Subsidiaries of HCS I, Inc.+
21.4 --Subsidiaries of HCS II, Inc.+
23.1 --Consent of Deloitte & Touche LLP.*
23.2 --Consent of Weil, Gotshal & Manges LLP (included in Exhibit 5.1).
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
25.1 --Statement of Eligibility and Qualification of State Street Bank
and Trust Company, as trustee under the Indenture listed in
Exhibit 4.1 hereto on Form T-1.+
27.1 --Financial Data Schedule--Hollywood Casino Shreveport.*
27.2 --Financial Data Schedule--HWCC-Louisiana, Inc.*
99.1 --Form of Letter of Transmittal.+
99.2 --Form of Notice of Guaranteed Delivery.+
</TABLE>
- --------
*Filed herewith.
+Previously filed.
++To be filed by amendment.
(1) Incorporated by reference to the exhibits filed in Hollywood Casino
Corporation's Annual Report on Form 10-K for the year ended December 31,
1998 as filed on April 15, 1999.
(2) Incorporated by reference to the exhibits filed in Form S-4 Registration
Statement (Registration 333-83081) for Hollywood Casino Corporation as
filed with the SEC on August 13, 1999.
(3) Incorporated by reference to the exhibits filed in Hollywood Casino
Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30,
1999 as filed with the SEC on August 16, 1999.
(b) Financial Statement Schedules:
All schedules have been omitted since the required information is either
not present or not in amounts sufficient to require submission of the
schedule, or because the information required is included in the
consolidated financial statements or notes thereof.
ITEM 22. Undertakings.
The undersigned registrant hereby undertakes:
(1) 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 the registration statement through
the date of responding to the request.
(2) 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 the registration
statement when it became effective.
(3) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the Co-Registrants' annual report pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(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 under
Item 20 above, or otherwise, the Co-Registrants have been advised that
in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Co-Registrants of expense incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suite or proceeding) is asserted against the registrant by such
director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Co-Registrant
certifies that it has reasonable grounds to believe that it meets all
requirements for filing on Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Dallas, State of Texas, on March 21, 2000.
HOLLYWOOD CASINO SHREVEPORT
By: HCS I, INC.
/s/ Paul C. Yates
By: ______________________________
Paul C. Yates
Executive Vice President,
Chief Financial Officer,
Treasurer and Assistant
Secretary
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Chief Executive Officer March 21, 2000
______________________________________ and Chairman of the Board
Jack E. Pratt of Directors
* Vice Chairman of the Board March 21, 2000
______________________________________ of Directors
Edward T. Pratt, Jr.
* Executive Vice President, March 21, 2000
______________________________________ Secretary, General
William D. Pratt Counsel and Director
* President March 21, 2000
______________________________________
Edward T. Pratt III
/s/ Paul C. Yates Executive Vice President, March 21, 2000
______________________________________ Chief Financial Officer,
Paul C. Yates Treasurer and Assistant
Secretary
* Vice President and March 21, 2000
______________________________________ Assistant Secretary
Charles F. LaFrano III
</TABLE>
/s/ Paul C. Yates
*By: ____________________________
Paul C. Yates
Attorney-in-fact
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Co-Registrant
certifies that it has reasonable grounds to believe that it meets all
requirements for filing on Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Dallas, State of Texas on March 21, 2000.
SHREVEPORT CAPITAL CORPORATION
/s/ Paul C. Yates
By: _________________________________
Paul C. Yates
Executive Vice President, Chief
Financial Officer, Treasurer and
Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Chief Executive Officer March 21, 2000
______________________________________ and Chairman of the Board
Jack E. Pratt of Directors
* Vice Chairman of the Board March 21, 2000
______________________________________ of Directors
Edward T. Pratt, Jr.
* Executive Vice President, March 21, 2000
______________________________________ Secretary, General
William D. Pratt Counsel and Director
* President March 21, 2000
______________________________________
Edward T. Pratt III
/s/ Paul C. Yates Executive Vice President, March 21, 2000
______________________________________ Chief Financial Officer,
Paul C. Yates Treasurer and Assistant
Secretary
* Vice President and March 21, 2000
______________________________________ Assistant Secretary
Charles F. LaFrano III
</TABLE>
/s/ Paul C. Yates
*By: ____________________________
Paul C. Yates
Attorney-in-fact
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Co-Registrant
certifies that it has reasonable grounds to believe that it meets all
requirements for filing on Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Dallas, State of Texas on March 21, 2000.
HCS I, INC.
/s/ Paul C. Yates
By: _________________________________
Paul C. Yates
Executive Vice President, Chief
Financial Officer, Treasurer and
Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Chief Executive Officer March 21, 2000
______________________________________ and Chairman of the
Jack E. Pratt Board of Directors
* Vice Chairman of the March 21, 2000
______________________________________ Board of Directors
Edward T. Pratt, Jr.
* Executive Vice President, March 21, 2000
______________________________________ Secretary, General
William D. Pratt Counsel and Director
* President March 21, 2000
______________________________________
Edward T. Pratt III
/s/ Paul C. Yates Executive Vice President, March 21, 2000
______________________________________ Chief Financial Officer,
Paul C. Yates Treasurer and Assistant
Secretary
* Vice President and March 21, 2000
______________________________________ Assistant Secretary
Charles F. LaFrano III
</TABLE>
/s/ Paul C. Yates
*By: ____________________________
Paul C. Yates
Attorney-in-fact
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Co-Registrant
certifies that it has reasonable grounds to believe that it meets all
requirements for filing on Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Dallas, State of Texas on March 21, 2000.
HCS II, INC.
/s/ Paul C. Yates
By: _________________________________
Paul C. Yates
Executive Vice President, Chief
Financial Officer, Treasurer and
Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Chief Executive Officer March 21, 2000
______________________________________ and Chairman of the
Jack E. Pratt Board of Directors
* Vice Chairman of the March 21, 2000
______________________________________ Board of Directors
Edward T. Pratt, Jr.
* Executive Vice President, March 21, 2000
______________________________________ Secretary, General
William D. Pratt Counsel and Director
* President March 21, 2000
______________________________________
Edward T. Pratt III
/s/ Paul C. Yates Executive Vice President, March 21, 2000
______________________________________ Chief Financial Officer,
Paul C. Yates Treasurer and Assistant
Secretary
* Vice President and March 21, 2000
______________________________________ Assistant Secretary
Charles F. LaFrano III
</TABLE>
/s/ Paul C. Yates
*By: ____________________________
Paul C. Yates
Attorney-in-fact
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Co-Registrant
certifies that it has reasonable grounds to believe that it meets all
requirements for filing on Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Dallas, State of Texas on March 21, 2000.
HWCC-LOUISIANA, INC.
/s/ Paul C. Yates
By: _________________________________
Paul C. Yates
Executive Vice President, Chief
Financial Officer, Treasurer and
Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Chief Executive Officer March 21, 2000
______________________________________ and Chairman of the
Jack E. Pratt Board of Directors
* Vice Chairman of the March 21, 2000
______________________________________ Board of Directors
Edward T. Pratt, Jr.
* Executive Vice President, March 21, 2000
______________________________________ Secretary, General
William D. Pratt Counsel and Director
* President March 21, 2000
______________________________________
Edward T. Pratt III
/s/ Paul C. Yates Executive Vice President, March 21, 2000
______________________________________ Chief Financial Officer,
Paul C. Yates Treasurer and Assistant
Secretary
* Vice President and March 21, 2000
______________________________________ Assistant Secretary
Charles F. LaFrano III
</TABLE>
/s/ Paul C. Yates
*By: ____________________________
Paul C. Yates
Attorney-in-fact
II-10
<PAGE>
Exhibit 5.1
March ___, 2000
Hollywood Casino Corporation
Two Galleria Tower, Suite 2200
13455 Noel Road
Dallas, Texas 75240
Ladies and Gentlemen:
We have acted as counsel to Hollywood Casino Shreveport, a Louisiana general
partnership (the "Hollywood Casino Shreveport"), Shreveport Capital Corporation,
a Louisiana corporation ("Shreveport Capital") and, together with Hollywood
Casino Shreveport, the "Issuers"), HWCC-Louisiana, Inc., a Louisiana corporation
("HWCC-Louisiana"), HCS I, Inc., a Louisiana corporation ("HCS I"), and HCS II,
Inc., a Louisiana corporation ("HCS II" and, together with HWCC-Louisiana and
HCS I, the "Guarantors"), in connection with the preparation and filing by the
Issuers and the Guarantors of a Registration Statement on Form S-4 (Registration
No. 333-88679) (the "Registration Statement") filed with the Securities and
Exchange Commission on March ___, 2000, under the Securities Act of 1933, as
amended (the "Act"), relating to the Issuers' $150,000,000 aggregate principal
amount of 13% First Mortgage Notes due 2006 with Contingent Interest (the
"Registered Notes") that are to be issued in exchange for a like principal
amount of the issued and outstanding 13% First Mortgage Notes due 2006 with
Contingent Interest (the "Outstanding Notes") of the Issuers. The Issuers
propose to offer, upon the terms set forth in the prospectus contained in the
Registration Statement, to exchange $1,000 principal amount of Registered Notes
for each $1,000 principal amount of Outstanding Notes (the "Exchange Offer").
The Guarantors will fully and unconditionally guarantee (the "Guarantees") the
Registered Notes on a senior secured basis. The Registered Notes and Guarantees
will be issued under an Indenture (the "Indenture"), dated as of August 10,
1999, by and among the Issuers, the Guarantors and State Street Bank and Trust
Company, as trustee (the "Trustee"). Capitalized terms defined in the
Registration Statement and not otherwise defined herein are used herein as so
defined.
In so acting, we have examined originals or copies, certified or otherwise
identified to our satisfaction, of the Indenture, the form of the Registered
Notes set forth in the Indenture and such corporate records, agreements,
documents and other instruments, and such certificates or comparable documents
of public officials and of officers and representatives of the Issuers and the
Guarantors, and have made such inquiries of such officers and representatives as
we have deemed relevant and necessary as a basis for the opinion hereinafter set
forth.
<PAGE>
In such examination, we have assumed the genuineness of all signatures, the
legal capacity of natural persons, the authenticity of all documents submitted
to us as originals, the conformity to original documents of documents submitted
to us as certified or photostatic copies and the authenticity of the originals
of such latter documents. As to all questions of fact material to this opinion
that have not been independently established, we have relied upon certificates
or comparable documents of officers and representatives of the Issuers and the
Guarantors. As to all matters of Louisiana law, we have relied exclusively on a
legal opinion from Jones, Walker, Waechter, Poitevent, Carrere & Denegre, L.L.P.
Based on the foregoing, and subject to the qualifications stated herein, we
are of the opinion that:
1. Each of Shreveport Capital and the Guarantors is a corporation validly
existing and in good standing under the laws of the State of Louisiana and has
all of the requisite corporate power and authority to enter into and perform its
obligations under the Indenture. The execution, delivery and performance of
each of Shreveport Capital and the Guarantors of their respective obligations
under the Indenture have been duly authorized by all necessary corporate action
on each of their parts.
2. Hollywood Casino Shreveport is a general partnership validly existing
under the laws of the State of Louisiana and has all the requisite partnership
power and authority to enter into and perform its obligations under the
Indenture. The execution, delivery and performance of Hollywood Casino
Shreveport of its obligations under the Indenture have been duly authorized by
all required partnership action.
3. Assuming that the Indenture has been duly authorized, executed and
delivered by the Trustee, when (i) the Registered Notes issuable upon
consummation of the Exchange Offer have been duly executed by the Issuers and
authenticated by the Trustee in accordance with the terms of the Indenture and
(ii) the Registered Notes issuable upon consummation of the Exchange Offer have
been duly delivered against receipt of Outstanding Notes surrendered in exchange
therefor, the Registered Notes issuable upon consummation of the Exchange Offer
will constitute the legal, valid and binding obligations of the Issuers,
enforceable against each of them in accordance with its terms, subject to
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting creditors' rights and remedies generally,
and subject, as to enforceability, to general principles of equity, including
principles of commercial reasonableness, good faith and fair dealing (regardless
of whether enforcement is sought in a proceeding at law or in equity), and
except that the waiver contained in Section 4.06 of the Indenture may be deemed
unenforceable.
4. Assuming that the Indenture has been duly authorized, executed and
delivered by the Trustee and that the Guarantee of the Registered Notes upon the
Consummation of the Exchange Offer has been duly authorized, executed and
delivered by each of the Guarantors, when (i) the Registered Notes issuable upon
consummation of the Exchange Offer have been duly executed by the Issuers and
authenticated by the Trustee in accordance with the terms of the Indenture and
(ii) the Registered Notes issuable upon consummation of the Exchange Offer have
been duly delivered against receipt of Outstanding Notes surrendered in exchange
therefor, the Guarantees issuable upon consummation of the Exchange Offer will
constitute the legal, valid and binding obligations of the Guarantors,
enforceable against each of them in accordance with its terms, subject to
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting creditors' rights and remedies generally,
and subject, as to enforceability, to general principles of equity, including
principles of commercial reasonableness, good faith and fair dealing (regardless
of whether enforcement is sought in a proceeding at law or in equity), and
except that the waiver contained in Section 4.06 of the Indenture may be deemed
unenforceable.
<PAGE>
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and the reference to this firm under the caption "Legal
Matters" in the Prospectus forming a part of the Registration Statement.
Very truly yours,
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the inclusion in this Amendment No. 3 to Registration Statement
No. 333-88679 of Hollywood Casino Shreveport and Shreveport Capital Corporation
of our reports dated February 25, 2000 on the consolidated financial statements
of Hollywood Casino Shreveport and HWCC-Louisiana, Inc. and of our report dated
November 5, 1999 on the financial statements of Sodak-Louisiana, L.L.C.
appearing in the Prospectus, which is part of such Registration Statement, and
the reference to us under the heading "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Dallas, Texas
March 21, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF HOLLYWOOD CASINO SHREVEPORT AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001096352
<NAME> HOLLYWOOD CASINO SHREVEPORT
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> OTHER YEAR OTHER
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999 DEC-31-1998
<PERIOD-START> SEP-22-1998 JAN-01-1999 SEP-22-1998
<PERIOD-END> DEC-31-1999 DEC-31-1999 DEC-31-1998
<CASH> 19,014 19,014 3,734
<SECURITIES> 0 0 0
<RECEIVABLES> 1,432 1,432 0
<ALLOWANCES> 0 0 0
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 21,066 21,066 3,734
<PP&E> 43,677 43,677 6,957
<DEPRECIATION> 2 2 0
<TOTAL-ASSETS> 216,979 216,979 10,691
<CURRENT-LIABILITIES> 19,950 19,950 5,726
<BONDS> 151,359 151,359 0
0 0 0
0 0 0
<COMMON> 0 0 0
<OTHER-SE> 45,670 45,670 4,965
<TOTAL-LIABILITY-AND-EQUITY> 216,979 216,979 10,691
<SALES> 0 0 0
<TOTAL-REVENUES> 0 0 0
<CGS> 0 0 0
<TOTAL-COSTS> 0 0 0
<OTHER-EXPENSES> 1,376 1,286 90
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 2,954 3009 (55)
<INCOME-PRETAX> (4,330) (4,295) (35)
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> (4,330) (4,295) (35)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (4,330) (4,295) (35)
<EPS-BASIC> 0 0 0
<EPS-DILUTED> 0 0 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF HOLLYWOOD CASINO SHREVEPORT AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001096352
<NAME> HOLLYWOOD CASINO SHREVEPORT
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> OTHER YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> SEP-21-1998 DEC-31-1997
<CASH> 0 6,078
<SECURITIES> 0 0
<RECEIVABLES> 0 541
<ALLOWANCES> 0 220
<INVENTORY> 0 19
<CURRENT-ASSETS> 0 6,438
<PP&E> 0 1,939
<DEPRECIATION> 0 1,939
<TOTAL-ASSETS> 0 6,438
<CURRENT-LIABILITIES> 5,000 12,656
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> (5,000) (6,218)
<TOTAL-LIABILITY-AND-EQUITY> 0 6,438
<SALES> 0 0
<TOTAL-REVENUES> 89 47,455
<CGS> 0 0
<TOTAL-COSTS> 76 29,287
<OTHER-EXPENSES> 1,120 16,350
<LOSS-PROVISION> 0 33
<INTEREST-EXPENSE> (191) (495)
<INCOME-PRETAX> (916) 2,280
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (916) 2,280
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (916) 2,280
<EPS-BASIC> 0 0
<EPS-DILUTED> 0 0
</TABLE>
