<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 11, 1996
REGISTRATION NO. 333-7299
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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
------------------------
ARGOSY GAMING COMPANY
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 37-1304247
(State or other jurisdiction (I.R.S. Employer
of Identification Number)
incorporation or
organization)
AND ITS GUARANTOR SUBSIDIARIES
ILLINOIS ALTON GAMING COMPANY 37-1261292
LOUISIANA ARGOSY OF LOUISIANA, INC. 72-1265121
LOUISIANA CATFISH QUEEN PARTNERSHIP IN COMMENDAM 72-1274791
INDIANA THE INDIANA GAMING COMPANY 37-1314871
IOWA IOWA GAMING COMPANY 37-1329487
LOUISIANA JAZZ ENTERPRISES, INC. 72-1214771
MISSOURI THE MISSOURI GAMING COMPANY 37-1311505
MISSOURI THE ST. LOUIS GAMING COMPANY 37-1314873
(State of other jurisdiction (Exact name of Registrant as specified in its charter) (I.R.S. Employer
of Identification Number)
incorporation or
organization)
</TABLE>
--------------------------
7999
(Primary Standard Industrial Classification Code Number)
--------------------------
219 PIASA STREET
ALTON, ILLINOIS 62002
(618) 474-7500
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
J. THOMAS LONG
CHIEF EXECUTIVE OFFICER
ARGOSY GAMING COMPANY
219 PIASA STREET
ALTON, ILLINOIS 62002
(618) 474-7500
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------
COPY TO:
R. Cabell Morris, Jr.
Winston & Strawn
35 West Wacker Drive
Chicago, Illinois 60601
(312) 558-5600
--------------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: / /
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL 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>
PROSPECTUS
[LOGO]
OFFER TO EXCHANGE $1,000 IN PRINCIPAL AMOUNT OF ITS 13 1/4% FIRST MORTGAGE NOTES
DUE 2004
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT FOR EACH $1,000
IN PRINCIPAL AMOUNT OF ITS OUTSTANDING 13 1/4% FIRST MORTGAGE NOTES DUE 2004
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON OCTOBER 11, 1996 UNLESS EXTENDED.
------------------------
Argosy Gaming Company, a Delaware Corporation (the "Company"), hereby offers
to exchange (the "Exchange Offer") up to $235,000,000 in aggregate principal
amount of its new 13 1/4% First Mortgage Notes due 2004 (the "Exchange Notes")
for up to $235,000,000 in aggregate principal amount of its outstanding 13 1/4%
First Mortgage Notes due 2004 (the "Old Notes" and, together with the Exchange
Notes, the "Notes") that were issued and sold in a transaction exempt from
registration under the Securities Act of 1933, as amended (the "Securities
Act").
The terms of the Exchange Notes are substantially identical (including
principal amount, interest rate, maturity, security and ranking) to the terms of
the Old Notes for which they may be exchanged pursuant to the Exchange Offer,
except that the Exchange Notes (i) are freely transferable by holders thereof
(except as provided below) and (ii) are not entitled to certain registration
rights and certain liquidated damages provisions which are applicable to the Old
Notes under the Registration Rights Agreement (as defined herein). The Exchange
Notes will be issued under the indenture governing the Old Notes. The Exchange
Notes will be, and the Old Notes are, unconditionally guaranteed on a senior
basis by Alton Gaming Company, The Missouri Gaming Company, The St. Louis Gaming
Company, Iowa Gaming Company, Jazz Enterprises, Inc., Argosy of Louisiana, Inc.,
Catfish Queen Partnership in Commendam and The Indiana Gaming Company (the
"Guarantors"). There will be no cash proceeds to the Company from the Exchange
Offer.
The Exchange Notes will bear interest from June 5, 1996. Holders of Old
Notes whose Old Notes are accepted for exchange will be deemed to have waived
the right to receive any payment in respect of interest on the Old Notes accrued
from June 5, 1996 to the date of the issuance of the Exchange Notes. The
Exchange Notes will bear interest at the rate of 13 1/4% per annum, payable
semi-annually on June 1 and December 1 of each year, commencing December 1,
1996. The Company will not be required to make any mandatory redemption or
sinking fund payments with respect to the Exchange Notes prior to maturity. The
Exchange Notes are redeemable at the option of the Company, in whole or in part,
at any time on or after June 1, 2000 at the redemption prices set forth herein,
plus accrued and unpaid interest, if any, and Liquidated Damages (as defined
herein), if any, thereon to the date of redemption. Upon a Change of Control (as
defined herein), holders of the Exchange Notes will have the right to require
the Company to purchase all or any of their Exchange Notes at 101% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the date
of purchase. In addition, under certain circumstances, the Company will be
required to offer to purchase Exchange Notes in various amounts at either 100%
or 101% of the principal amount thereof, plus accrued and unpaid interest, if
any, to the date of purchase in the event of certain asset sales, loss of
certain licenses and certain events with respect to the Lawrenceburg Casino (as
defined herein) and from certain distributions from the Lawrenceburg Casino.
The Exchange Notes will, and the Old Notes do, rank senior in right of
payment to all future and existing subordinated Indebtedness (as defined herein)
of the Company and PARI PASSU with other senior Indebtedness of the Company. The
Exchange Notes and the related guarantees will be, and the Old Notes and related
guarantees are, secured, subject to certain prior liens and certain exceptions,
by a first lien on substantially all the present assets of the Company and the
current Guarantors, including (i) substantially all the assets used in the
Company's Alton, Riverside, Baton Rouge and Sioux City properties, (ii) a pledge
of all the capital stock of, and partnership interests in, the Company's
Subsidiaries (as defined herein) owned by the Company and the Guarantors
(excluding the Company's partnership interest in its Sioux City property), (iii)
a pledge of intercompany notes, if any, payable to the Company and the
Guarantors from their Subsidiaries, and (iv) an assignment of the proceeds of
the management agreement relating to the Lawrenceburg Casino project. The
collateral for the Exchange Notes will not, and for the Old Notes does not,
include assets of the Company's Lawrenceburg Casino project. The indenture
pursuant to which the Exchange Notes will be, and the Old Notes were, issued
limits the ability of the Company and its Subsidiaries to incur additional
Indebtedness. Under certain circumstances, the collateral securing the Notes may
be subject to other liens securing Indebtedness, which liens will be PARI PASSU
to the lien of the Exchange Notes.
(CONTINUED ON NEXT PAGE)
--------------------------
HOLDERS OF OLD NOTES SHOULD CAREFULLY CONSIDER THE MATTERS SET FORTH IN
"RISK FACTORS" COMMENCING ON PAGE 16 OF THIS PROSPECTUS PRIOR TO MAKING A
DECISION WITH RESPECT TO THE EXCHANGE OFFER.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAVE THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
NEITHER THE ILLINOIS GAMING BOARD, THE MISSOURI GAMING COMMISSION, THE IOWA
RACING AND GAMING COMMISSION, THE LOUISIANA GAMING CONTROL BOARD OR THE INDIANA
GAMING COMMISSION NOR ANY OTHER STATE REGULATORY BODY HAS PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS OFFERING MEMORANDUM OR THE INVESTMENT
MERITS OF THE SECURITIES OFFERED HEREBY. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
THE DATE OF THIS PROSPECTUS IS SEPTEMBER 11, 1996.
<PAGE>
(COVER PAGE CONTINUED)
The Old Notes were originally issued and sold on June 5, 1996 in a
transaction not registered under the Securities Act, in reliance upon the
exemption provided in Section 4(2) of the Securities Act and Rule 144A
promulgated under the Securities Act. Accordingly, the Old Notes may not be
reoffered, resold or otherwise pledged, hypothecated or transferred in the
United States unless so registered or unless an applicable exemption from the
registration requirements of the Securities Act is available. Based upon its
view of interpretations provided to third parties by the Staff (the "Staff") of
the Securities and Exchange Commission (the "Commission"), the Company believes
that the Exchange Notes issued pursuant to the Exchange Offer in exchange for
the Old Notes may be offered for resale, resold and otherwise transferred by
holders thereof (other than any holder which is (i) an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act (an
"Affiliate"), (ii) a broker-dealer who acquired Old Notes directly from the
Company or (iii) a broker-dealer who acquired Old Notes as a result of market
making or other trading activities) without compliance with the registration and
prospectus delivery provisions of the Securities Act provided that such Exchange
Notes are acquired in the ordinary course of such holders' business and such
holders are not engaged in, and do not intend to engage in, and have no
arrangement or understanding with any person to participate in, a distribution
of such Exchange Notes. Each broker-dealer that receives Exchange Notes for its
own account pursuant to the Exchange Offer must acknowledge that it will deliver
a prospectus in connection with any resale of such Exchange Notes. The Letter of
Transmittal that is filed as an exhibit to the Registration Statement of which
this Prospectus is a part (the "Letter of Transmittal") states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
Broker-dealers who acquired Old Notes as a result of market making or other
trading activities may use this Prospectus, as supplemented or amended, in
connection with resales of the Exchange Notes. The Company has agreed that, for
a period of 180 days after this Registration Statement is declared effective by
the Commission, it will make this Prospectus available to any broker-dealer for
use in connection with any such resale. Any holder who tenders in the Exchange
Offer for the purpose of participating in a distribution of the Exchange Notes
and any other holder that cannot rely upon such interpretations must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction.
Old Notes initially purchased by qualified institutional buyers were
initially represented by two global Notes in registered form, registered in the
name of a nominee of The Depository Trust Company ("DTC"), as depository. The
Exchange Notes exchanged for Old Notes represented by the global Notes will be
represented by one or more global Exchange Notes in registered form, registered
in the name of the nominee of DTC. See "Description of Exchange Notes -- Book
Entry, Delivery and Form." Exchange Notes issued to non-qualified institutional
buyers in exchange for Old Notes held by such investors will be issued only in
certificated, fully registered, definitive form. Except as described herein,
Exchange Notes in definitive certificated form will not be issued in exchange
for the global Exchange Note(s) or interests therein.
The Old Notes and the Exchange Notes constitute new issues of securities
with no established public trading market. Any Old Notes not tendered and
accepted in the Exchange Offer will remain outstanding. To the extent that Old
Notes are tendered and accepted in the Exchange Offer, a holder's ability to
sell untendered, and tendered but unaccepted, Old Notes could be adversely
affected. Following consummation of the Exchange Offer, the holders of any
remaining Old Notes will continue to be subject to the existing restrictions on
transfer thereof and the Company will have no further obligation to such holders
to provide for the registration under the Securities Act of the Old Notes except
under certain limited circumstances. See "Old Notes Registration Rights;
Liquidated Damages." No assurance can be given as to the liquidity of the
trading market for either the Old Notes or the Exchange Notes.
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Old Notes being tendered or accepted for exchange. The Exchange Offer
will expire at 5:00 p.m., New York City time, on October 11, 1996, unless
extended (the "Expiration Date"). The date of acceptance for exchange of the Old
Notes (the "Exchange Date") will be the first business day following the
Expiration Date, upon surrender of the Old Notes. Old Notes tendered pursuant to
the Exchange Offer may be withdrawn at any time prior to the Expiration Date;
otherwise such tenders are irrevocable.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. The reports, proxy statements and other information filed by the
Company with the Commission can be inspected and copied at the public reference
facilities of the Commission at its principal office at Judiciary Plaza, 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at its regional
offices at 500 W. Madison Street, 14th Floor, Chicago, Illinois 60606, and at
Seven World Trade Center, 13th Floor, New York, New York 10048. Any interested
party may obtain copies of such material at prescribed rates from the Public
Reference Section of the Commission at its principal office at Judiciary Plaza,
450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. The Commission
maintains a web site (http://www.sec.gov) that contains reports, proxy
statements and other information regarding registrants that file electronically
with the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the year ended December 31,
1995, Quarterly Reports on Form 10-Q for the three months ended March 31, 1996
and June 30, 1996, and Current Reports on Form 8-K dated February 26, 1996,
March 15, 1996, March 19, 1996, and June 5, 1996 are hereby incorporated by
reference.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering made hereby shall be deemed to be incorporated
by reference in this Prospectus and to be a part hereof from the date of filing
of such documents. Any statement contained herein or in a document incorporated
or deemed to be incorporated herein by reference shall be deemed to be modified
or superseded for purposes of this Prospectus to the extent that a statement
contained in any subsequently filed document which is deemed to be incorporated
by reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Propsectus.
The Company will provide, without charge, to each person to whom a copy of
this Prospectus is delivered, on the written or oral request of such person, a
copy of any or all of the documents incorporated herein by reference (other than
exhibits thereto). Written or telephone requests for such copies should be
directed to the Company's principal office: Argosy Gaming Company, 219 Piasa
Street, Alton, Illinois 62002, Attention: Director of Investor Relations
(telephone: (618) 474-7500).
3
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO APPEARING
ELSEWHERE IN THIS PROSPECTUS. EXCEPT AS OTHERWISE NOTED, ALL INFORMATION IN THIS
PROSPECTUS IS PRESENTED AFTER GIVING EFFECT TO ALL TRANSACTIONS THAT ARE
DESCRIBED IN THIS PROSPECTUS AS OCCURRING PRIOR TO OR SIMULTANEOUSLY WITH THE
CLOSING OF THE EXCHANGE OFFER. UNLESS THE CONTEXT OTHERWISE REQUIRES, "COMPANY"
AND "ARGOSY" WHEN USED IN THIS PROSPECTUS SHALL MEAN ARGOSY GAMING COMPANY AND
ITS SUBSIDIARIES AND PREDECESSOR ENTITIES.
THE COMPANY
Argosy Gaming Company ("Argosy" or the "Company") is a leading
multi-jurisdictional developer, owner and operator of riverboat and dockside
casinos and related entertainment facilities in the midwestern and southern
United States. The Company, through its subsidiaries, owns and operates the
Alton Belle Casino in Alton, Illinois, serving the St. Louis metropolitan
market; the Argosy Casino in Riverside, Missouri, serving the Kansas City
metropolitan market; the Belle of Baton Rouge in Baton Rouge, Louisiana; and the
Belle of Sioux City in Sioux City, Iowa. In a highly competitive application
process, Indiana Gaming Company, L.P. ("Indiana Gaming L.P."), a limited
partnership in which the Company is the general partner and holds a 57.5%
partnership interest, received a certificate of suitability from the Indiana
Gaming Commission to develop and operate a riverboat casino and related
entertainment and support facilities in Lawrenceburg, Indiana (the "Lawrenceburg
Casino"), which is located approximately 15 miles west of Cincinnati, Ohio. The
Company is building what is anticipated to be one of the largest riverboat
casinos in the United States and estimates that the total cost of developing the
Lawrenceburg Casino project will be $210 million. The Lawrenceburg Casino is
expected to draw from a population of approximately 1.6 million residents in the
Cincinnati metropolitan area and approximately an additional 5.4 million people
who reside within 100 miles of Lawrenceburg.
The Company's business strategy emphasizes the phased development of
attractive gaming and related entertainment facilities in gaming jurisdictions
that the Company believes possess favorable long-term demographic and
competitive characteristics. As part of this strategy, the Company endeavors to
be an early entrant in emerging gaming markets, to establish a customer base and
to develop its gaming properties in stages. The Company's casinos were the first
gaming facilities to open in each of the St. Louis, Kansas City and Baton Rouge
markets. By employing a phased development strategy, the Company believes it can
reduce its initial capital investment and adapt the nature and scope of
subsequent developments based on a continuing assessment of the size and
competitive outlook of each of the Company's gaming markets. The Company intends
to utilize management's proven ability to successfully open riverboat casino
properties in new markets by continuing to pursue opportunities to develop or
acquire (either independently or through joint ventures) riverboat, dockside
and/or land-based gaming operations.
The Company's operating strategy is to develop a loyal customer base by
offering a variety of gaming and non-gaming entertainment amenities at
attractive facilities that emphasize high standards of service and customer
satisfaction. In each of its gaming markets, the Company establishes marketing
programs that identify, target and attract local patrons typically residing
within a 100-mile radius of its gaming facilities. The Company's marketing
programs are designed to increase customer awareness, patronage and loyalty, as
well as to encourage repeat business. The Company focuses and evaluates its
marketing efforts through player tracking systems, slot clubs and preferred
player clubs and utilizes mass advertising, direct mail and special promotions
to attract customers within each of its gaming markets.
CURRENT OPERATIONS
ALTON BELLE CASINO, ALTON, ILLINOIS
The Company commenced operations in Alton, Illinois in September 1991 as the
first gaming facility to open in the St. Louis market and in the State of
Illinois. The Alton Belle Casino is a three-deck contemporary style cruise liner
featuring 21,000 square feet of gaming space with approximately 650 slot
machines and 41 table games. The Alton Belle Casino also currently includes a
37,000-square foot, three-level floating
4
<PAGE>
entertainment pavilion that features a sports and entertainment lounge, a
120-seat buffet, a 90-seat fine dining restaurant, conference facilities and a
food court. Additionally, the Company is the only gaming operator in the St.
Louis market that offers its customers off-track betting facilities.
The Alton Belle Casino is located approximately 20 miles northeast of
downtown St. Louis and generally draws from a population of approximately 2.5
million within the St. Louis metropolitan area and an additional 1.2 million
within a 100-mile radius of the City of St. Louis. In particular, the primary
target market of the Alton Belle Casino is the northern and eastern regions of
the greater St. Louis metropolitan area, including certain regions of Illinois.
The Company's management believes that its early entry into the St. Louis market
has resulted in the development of a core base of customers, which, together
with its data base of over 300,000 active customers, has enabled the Alton Belle
Casino to remain competitive in the St. Louis market despite the significant
increase in the number of gaming operations. The Company's Alton operations
generated net revenues and earnings before interest, taxes, depreciation and
amortization ("EBITDA") of $86.0 million and $26.7 million, respectively, for
the year ended December 31, 1995 and $39.9 million and $10.0 million,
respectively, for the six months ended June 30, 1996.
ARGOSY CASINO, RIVERSIDE, MISSOURI
The Argosy Casino began operations in Riverside, Missouri on June 22, 1994
as the first gaming facility to open in the Kansas City market. The Argosy
Casino's riverboat is styled as a turn-of-the-century paddle wheel steamboat and
features 32,900 square feet of gaming space with approximately 950 slot machines
and 57 table games. The riverboat casino is complemented by an 85,000-square
foot, land-based entertainment pavilion that opened on January 15, 1996. The new
pavilion features a Mediterranean theme and includes over 14,000 square feet of
banquet and conference facilities, a 78-seat specialty restaurant, a sports and
entertainment lounge and a 350-seat buffet restaurant. A 624-space parking
garage and a 1,262-space surface parking area are located adjacent to the
pavilion. In August 1995, the Company began offering dockside gaming at the
Argosy Casino and is considering adding a second dockside gaming facility in
Riverside in order to increase the number of gaming positions and to offer its
patrons staggered boarding times, thereby maximizing customer convenience. The
Company is also pursuing the development of a 200-room hotel at its Riverside
facility.
The Argosy Casino draws from a population of approximately 1.6 million in
the greater Kansas City metropolitan area and an additional 900,000 within a
100-mile radius of Kansas City. The Argosy Casino is situated on a 55-acre site
that is located approximately five miles from downtown Kansas City and offers
convenient access from two major highways. Once competing gaming facilities that
are currently under construction are completed, the Company believes that the
Argosy Casino, which currently is the only existing or planned casino in the
western Kansas City metropolitan area, will primarily attract customers who
reside in the northwestern, western and southwestern regions of the Kansas City
metropolitan area. The Company's Riverside operations generated net revenues and
EBITDA of $94.1 million and $29.5 million, respectively, for the year ended
December 31, 1995 and $47.3 million and $10.5 million, respectively, for the six
months ended June 30, 1996.
BELLE OF BATON ROUGE, BATON ROUGE, LOUISIANA
The Belle of Baton Rouge began operations in Baton Rouge, Louisiana in
September 1994 as the first riverboat gaming facility in the Baton Rouge market.
The Belle of Baton Rouge is a three-level, ante-bellum themed riverboat casino
that contains 28,900 square feet of gaming space with approximately 775 slot
machines and 46 table games. The riverboat casino is complemented by the
Company's adjacent, land-based entertainment development known as Catfish Town.
The first phase of Catfish Town opened during 1995 and features a 250-seat
entertainment lounge and sports bar, a 50-seat premium steakhouse, a 250-seat
buffet/ coffee shop and conference facilities. The second phase of Catfish Town,
an approximately 50,000-square foot entertainment facility, opened in April 1996
and features a climate-controlled, five-story glass atrium that will host a
variety of entertainment functions, including banquets, parties, festivals,
concerts and live entertainment events. The third phase of the Catfish Town
project will feature the build-out of approximately 150,000 square feet of
leaseable retail space within the atrium complex that is expected to feature a
5
<PAGE>
variety of entertainment-related tenants, including specialty restaurants and
specialty retail stores, entertainment venues, nightclubs and a microbrewery.
The Company has improved customer accessability to the Belle of Baton Rouge by
completing construction in October 1995 of a 733-space parking garage and by
leasing in December 1995 a 271-space surface parking lot adjacent to Catfish
Town. The Company is also pursuing opportunities to develop, through a joint
venture, a 300-room hotel on the Company's property in Catfish Town. See "Risk
Factors -- Louisiana Local Option Referendum to Restrict Gaming."
The Belle of Baton Rouge draws from a population of approximately 540,000 in
the Baton Rouge metropolitan area. The Company believes that the Belle of Baton
Rouge will benefit from the entertainment, retail and hotel amenities expected
to be offered at the Catfish Town development, from the facility's proximity to
the Baton Rouge convention center and from its convenient access from Baton
Rouge's two major interstate highways. The Belle of Baton Rouge casino generated
net revenues and EBITDA of $50.3 million and $7.6 million, respectively, for the
year ended December 31, 1995 and $28.3 million and $6.4 million, respectively,
for the six months ended June 30, 1996.
BELLE OF SIOUX CITY, SIOUX CITY, IOWA
The Company became the manager of the Belle of Sioux City on October 4, 1994
and on December 1, 1994 became the 70% general partner of the Belle of Sioux
City, L.P. The Company is the manager of the casino and receives a percentage
management fee based upon the facility's adjusted gross gaming revenues (as
defined in the management agreement). This fee was 4.5% through 1995 and
increased to 6.5% in January 1996. The Belle of Sioux City is a three-level
historic themed riverboat featuring approximately 11,800 square feet of gaming
space with approximately 470 slot machines and 27 table games. The casino
facility is complemented by an adjacent barge facility, which features buffet
dining, a bar and a gift shop, and 274 surface parking spaces.
The Belle of Sioux City draws from a population of approximately 80,000 in
Sioux City and an additional 900,000 residents within a 100-mile radius of Sioux
City. The Company's Sioux City operations generated net revenues and EBITDA
(before the Company's management fee) of $22.0 million and $3.6 million,
respectively, for the year ended December 31, 1995 and $10.2 million and $1.0
million, respectively, for the six months ended June 30, 1996.
OPERATIONS UNDER DEVELOPMENT
LAWRENCEBURG CASINO, LAWRENCEBURG, INDIANA
On June 30, 1995, Indiana Gaming L.P. received a certificate of suitability
from the Indiana Gaming Commission to develop and operate a riverboat casino and
entertainment complex in Lawrenceburg, Indiana, which is located approximately
15 miles west of Cincinnati, Ohio. The Company is the sole general partner of,
and holds a 57.5% general partnership interest in, Indiana Gaming L.P. Conseco
Entertainment, L.L.C. ("Conseco"), an indirect subsidiary of Conseco, Inc.,
holds a 29% limited partnership interest and certain other investors, including
H. Steven Norton, Chief Operating Officer of the Company, who brought the
opportunity to the Company concurrent with his initial employment, hold the
remaining 13.5% limited partnership interest in Indiana Gaming L.P.
The Lawrenceburg Casino is expected to draw from a population of
approximately 1.6 million residents in the Cincinnati metropolitan area and an
additional 5.4 million people who reside within 100 miles of Lawrenceburg,
including the major metropolitan markets of Dayton and Columbus, Ohio;
Indianapolis, Indiana; and, to a lesser extent, Lexington, Kentucky. The City of
Lawrenceburg has major interstate highway access from each of these metropolitan
areas. Indiana gaming law currently limits the number of gaming licenses to be
issued in the state to a total of 11, including a maximum of 5 licenses along
the Ohio River and a limit of one license per county. In addition, casino gaming
is not currently permitted under the laws of either Ohio or Kentucky. As a
result, the Company expects to face limited direct competition for gaming
revenues upon the opening of the Lawrenceburg Casino. The next closest Indiana
gaming facility to the Cincinnati market will be located approximately 15 miles
south of Lawrenceburg and the principal traffic route between the greater
Cincinnati metropolitan area and the other facility passes Lawrenceburg. In
addition, Indiana gaming law does not restrict the size of a licensee's gaming
facility or place limits on customer losses or betting levels.
6
<PAGE>
The Company plans to open a temporary gaming facility in Lawrenceburg in the
fourth quarter of 1996 and anticipates opening the permanent gaming facility not
later than twelve months thereafter. The temporary facility will feature a
leased 1,200-passenger gaming vessel with approximately 870 slot machines and 52
table games and an entertainment barge featuring ticketing, restaurant and bar
facilities. For the permanent facility, Indiana Gaming L.P. is building what it
believes to be one of the largest riverboat casinos in the United States,
featuring approximately 90,000 square feet of gaming space on three levels. The
permanent riverboat casino is expected to initially have approximately 2,600
gaming positions and accommodate approximately 4,400 passengers and crew
members. It is anticipated that the permanent facility also will include a
300-room hotel, a 1,750-space parking garage, 2,000 additional surface parking
spaces and a 120,000-square foot land-based entertainment pavilion and support
facility featuring specialty restaurants, meeting and banquet rooms and a sports
bar and entertainment lounge. The Company will manage the development,
construction and operation of the Lawrenceburg Casino and will receive a
management fee equal to 7.5% of the facility's EBITDA. Conseco will receive a
financial advisory fee equal to 5% of the facility's EBITDA. The Company
estimates that the total cost to open the temporary gaming facility and to
construct the proposed permanent riverboat casino, land-based facilities and
300-room hotel will be approximately $210 million, which costs are being funded
57.5% by the Company and 42.5% by Conseco. Pursuant to the Lawrenceburg Casino
partnership agreement, the Company and Conseco will fund on a pro rata basis any
project costs between $210 million and $225 million and the Company is obligated
to fund any project costs over $225 million. The Company's inability to satisfy
its funding obligations for the Lawrenceburg Casino could result in a
significant dilution of its interest in Indiana Gaming L.P. and its possible
removal as the general partner. See "Lawrenceburg Casino Partnership Agreement"
and "Risk Factors."
As of June 30, 1996, approximately $44 million of construction costs have
been expended by Indiana Gaming L.P. for the Lawrenceburg Casino project,
principally on progress payments on the construction of the riverboat casino,
purchases of land, design and preconstruction services and licensing costs.
Construction projects, such as the Company's, entail significant risks,
including shortages of materials or skilled labor, unforeseen engineering,
environmental or geological problems, difficulties arising from statutes,
regulations or actions of governmental bodies having jurisdiction or authority
with regard to certain aspects of the project, work stoppages, weather
interferences, floods, unanticipated cost increases and other problems. In
addition, the number and scope of the licenses and approvals required to
complete the construction of any project, particularly those pertaining to
riverboat and dockside casino, hotel and other destination resort facilities,
are extensive. The opening of the Lawrenceburg Casino is subject to the issuance
of a gaming license in Indiana and while Indiana Gaming L.P. has been awarded a
certificate of suitability, no assurance can be given that Indiana Gaming L.P.
will be awarded its final gaming license or the other approvals necessary to
open the Lawrenceburg Casino. See "Risk Factors."
------------------------
The Company was incorporated in Delaware in 1992. The Company's principal
executive offices are located at 219 Piasa Street, Alton, Illinois 62002, and
its telephone number is (618) 474-7500.
7
<PAGE>
THE EXCHANGE OFFER
<TABLE>
<S> <C>
The Exchange Offer........... The Company is offering to exchange (the "Exchange Offer")
up to $235,000,000 aggregate principal amount of its new
13 1/4% First Mortgage Notes due 2004 (the "Exchange
Notes") for up to $235,000,000 aggregate principal amount
of its outstanding 13 1/4% First Mortgage Notes due 2004
that were issued and sold in a transaction exempt from
registration under the Securities Act (the "Old Notes").
The Old Notes were initially offered and sold by Bear,
Stearns & Co. Inc., Donaldson, Lufkin & Jenrette
Securities Corporation, BA Securities, Inc. and Deutsche
Morgan Grenfell/ C.J. Lawrence Inc., as the initial
purchasers of the Old Notes (the "Initial Purchasers"), to
certain institutional and accredited investors at a price
of 100% of the principal amount thereof. The form and
terms of the Exchange Notes are substantially identical
(including principal amount, interest rate, maturity,
security and ranking) to the form and terms of the Old
Notes for which they may be exchanged pursuant to the
Exchange Offer, except that the Exchange Notes are freely
transferable by holders thereof except as provided herein
(see "The Exchange Offer -- Terms of the Exchange" and
"Terms and Conditions of the Letter of Transmittal") and
are not entitled to certain registration rights and
certain liquidation damages provisions that are applicable
to the Old Notes under a registration rights agreement
dated as of June 5, 1996 (the "Registration Rights
Agreement") between the Company, the Guarantors and the
Initial Purchasers.
Exchange Notes issued pursuant to the Exchange Offer in
exchange for the Old Notes may be offered for resale,
resold and otherwise transferred by holders thereof (other
than any holder which is (i) an Affiliate of the Company,
(ii) a broker-dealer who acquired Old Notes directly from
the Company or (iii) a broker-dealer who acquired Old
Notes as a result of market-making or other trading
activities), without compliance with the registration and
prospectus delivery provisions of the Securities Act
provided that such Exchange Notes are acquired in the
ordinary course of such holders' business and such holders
are not engaged in, and do not intend to engage in, and
have no arrangement or understanding with any person to
participate in, a distribution of such Exchange Notes.
Minimum Condition............ The Exchange Offer is not conditioned upon any minimum
aggregate principal amount of Old Notes being tendered or
accepted for exchange.
Expiration Date.............. The Exchange Offer will expire at 5:00 p.m., New York City
time, on October 11, 1996 unless extended (the "Expiration
Date").
Exchange Date................ The first date of acceptance for exchange for the Old
Notes will be the first business day following the
Expiration Date.
Conditions to the Exchange
Offer....................... The obligation of the Company to consummate the Exchange
Offer is subject to certain conditions. See "The Exchange
Offer -- Conditions to the Exchange Offer." The Company
reserves the right to terminate or amend the Exchange
Offer at any time prior to the Expiration Date upon the
occurrence of any such condition.
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
Withdrawal Rights............ Tenders of Old Notes pursuant to the Exchange Offer may be
withdrawn at any time prior to the Expiration Date. Any
Old Notes not accepted for any reason will be returned
without expense to the tendering holders thereof as
promptly as practicable after the expiration or
termination of the Exchange Offer.
Procedures for Tendering Old
Notes....................... See "The Exchange Offer -- How to Tender."
Federal Income Tax
Consequences................ The exchange of Old Notes for Exchange Notes by tendering
holders will not be a taxable exchange for federal income
tax purposes, and such holders should not recognize any
taxable gain or loss or any interest income as a result of
such exchange.
Use of Proceeds.............. There will be no cash proceeds to the Company from the
exchange pursuant to the Exchange Offer.
Effect on Holders of Old As a result of the making of this Exchange Offer, and upon
Notes....................... acceptance for exchange of all validly tendered Old Notes
pursuant to the terms of this Exchange Offer, the Company
will have fulfilled a covenant contained in the terms of
the Old Notes and the Registration Rights Agreement, and,
accordingly, the holders of the Old Notes will have no
further registration or other rights under the
Registration Rights Agreement, except under certain
limited circumstances. See "Old Notes Registration Rights;
Liquidated Damages." Holders of the Old Notes who do not
tender their Old Notes in the Exchange Offer will continue
to hold such Old Notes and will be entitled to all the
rights and limitations applicable thereto under the
Indenture. All untendered, and tendered but unaccepted,
Old Notes will continue to be subject to the restrictions
on transfer provided for in the Old Notes and the
Indenture. To the extent that Old Notes are tendered and
accepted in the Exchange Offer, the trading market, if
any, for the Old Notes not so tendered could be adversely
affected. See "Risk Factors -- Consequences of Failure to
Exchange Old Notes."
</TABLE>
TERMS OF THE EXCHANGE NOTES
The Exchange Offer applies to $235,000,000 aggregate principal amount of Old
Notes. The form and terms of the Exchange Notes are substantially identical to
the form and terms of the Old Notes except that the Exchange Notes have been
registered under the Securities Act and, therefore, will not bear legends
restricting the transfer thereof. The Exchange Notes will evidence the same debt
as the Old Notes and will be entitled to the benefits of the Indenture. See
"Description of Exchange Notes."
<TABLE>
<S> <C>
Securities Offered........... $235,000,000 principal amount of 13 1/4% First Mortgage
Notes due 2004.
Maturity Date................ June 1, 2004.
Interest Payment Dates....... June 1 and December 1 of each year, commencing December 1,
1996.
Ranking and Security......... The Exchange Notes will be secured obligations of the
Company and will rank senior in right of payment to all
subordinated Indebtedness (as defined herein) of the
Company and PARI PASSU in right of payment to all future
and existing senior Indebtedness of the Company. The
Exchange Notes and the related guarantees will be secured,
subject to prior liens and certain exceptions, by
substantially all the present assets of the Company and
the current
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
Guarantors, including (i) substantially all the assets
used in the Company's Alton, Riverside, Baton Rouge and
Sioux City properties, (ii) a pledge of all the capital
stock of, and partnership interests in, the Company's
Subsidiaries owned by the Company and the Guarantors
(excluding the Company's partnership interest in its Sioux
City property), (iii) a pledge of intercompany notes, if
any, payable to the Company and the Guarantors from their
Subsidiaries, and (iv) an assignment of the proceeds of
the management agreement with Indiana Gaming L.P. relating
to the Lawrenceburg Casino. The collateral for the
Exchange Notes will not include assets of the Lawrenceburg
Casino; however, the collateral for the Exchange Notes
will include a pledge of the Company's equity interest in,
and notes evidencing capital loans advanced to, the
Lawrenceburg Casino, as well as a pledge of the proceeds
of the management fee payable to the Company. The
collateral for the Exchange Notes will not include assets
owned by the Sioux City partnership; however collateral
for the Exchange Notes will include the riverboat owned by
the Company and leased to such partnership. The indenture
pursuant to which the Exchange Notes will be, and the Old
Notes were, issued (the "Indenture") limits the ability of
the Company and its Subsidiaries to incur additional
Indebtedness. Under certain circumstances, the collateral
securing the Exchange Notes may be subject to other liens
securing other Indebtedness, which liens will be PARI
PASSU to the lien of the Exchange Notes. The collateral
for the Notes will not include assets of future
Subsidiaries of the Company unless acquired with the
proceeds of the sale of collateral or certain
distributions from the Lawrenceburg Casino. See
"Description of Exchange Notes -- Security for the
Exchange Notes" and "-- Certain Covenants -- Limitation on
Incurrence of Additional Indebtedness and Disqualified
Capital Stock."
Guarantees................... The Exchange Notes will be unconditionally guaranteed on a
senior basis by each Guarantor. See "Description of
Exchange Notes -- Guarantees."
Mandatory Redemption......... The Company is not required to make mandatory redemption
or sinking fund payments prior to the maturity of the
Exchange Notes.
Optional Redemption.......... The Exchange Notes will be redeemable at the option of the
Company in whole or in part at any time on or after June
1, 2000 at the redemption prices set forth herein plus
accrued and unpaid interest, if any, and Liquidated
Damages, if any, thereon to the date of redemption. The
Company will also have the option to redeem the Exchange
Notes at any time if a holder is not found suitable by a
gaming authority. See "Description of Exchange Notes --
Optional Redemption."
Change of Control............ Upon a Change of Control (as defined herein), holders of
the Exchange Notes will have the right to require the
Company to purchase any or all of the Exchange Notes at a
purchase price equal to 101% of the aggregate principal
amount of the Exchange Notes plus accrued and unpaid
interest thereon to the date of purchase. See "Description
of Exchange Notes -- Certain Covenants -- Repurchase of
Notes at the Option of the Holder upon a Change of
Control."
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
Certain Covenants; Repurchase
Obligation.................. The Indenture contains covenants restricting or limiting
the ability of the Company and its Subsidiaries (which
term, as defined in the Indenture, does not include any
Unrestricted Subsidiaries) to, among other things, (i) pay
dividends or make other restricted payments, (ii) incur
additional indebtedness or issue certain preferred stock,
(iii) create liens, (iv) create dividend or other payment
restrictions affecting Subsidiaries, (v) enter into
mergers or consolidations or make sales of all or
substantially all assets of the Company, and (vi) enter
into transactions with affiliates. In addition, under
certain circumstances, the Company will be required to
offer to purchase Exchange Notes in various amounts at
either 100% or 101% of the principal amount thereof, plus
accrued and unpaid interest, if any, and Liquidated
Damages, to the date of purchase, in the event of certain
asset sales, loss of certain licenses and certain events
with respect to the Lawrenceburg Casino and from certain
distributions from the Lawrenceburg Casino. See
"Description of Exchange Notes."
Special Status of
Lawrenceburg Casino
Project..................... Indiana Gaming L.P., formed for the sole purpose of
developing the Lawrenceburg Casino project, is an
Unrestricted Subsidiary of the Company. None of the assets
of Indiana Gaming L.P. will be pledged as collateral;
however, the Company's 57.5% partnership interest in,
notes evidencing capital loans advanced to and the
proceeds to be received as a management fee from Indiana
Gaming L.P. will be pledged as collateral for the Exchange
Notes. A portion of the proceeds of the offering of the
Old Notes in the amount of $94.3 million was placed in a
disbursement account under the control of a disbursement
agent solely to fund the Company's share of the remaining
capital obligations necessary to construct, open and
complete the Lawrenceburg Casino project. Pursuant to the
terms of the disbursement agreement governing the
disbursement account, there are certain conditions and
limitations affecting the ability of the Company to draw
upon such funds. See "Description of Exchange Notes --
Cash Collateral and Disbursement Agreement." Approximately
$91.3 million of these capital obligations will be
invested in Indiana Gaming L.P. in the form of capital
loans and $3 million will be invested as preferred equity.
Investments by the Company in Indiana Gaming L.P., in the
form of capital loans and common and preferred equity,
will be pledged as collateral for the Exchange Notes. Any
funds remaining in the disbursement account will be
released to the Company upon final completion of the
Lawrenceburg Casino project. A portion of the funds may
also be released from the disbursement account to the
extent the project can obtain and fund third-party
financing for the hotel development. See "Lawrenceburg
Casino Partnership Agreement."
The Company's conduct with respect to Indiana Gaming L.P.
will be subject to certain restrictive covenants. The
Indenture requires the Company to make annual offers to
purchase Exchange Notes in a principal amount equal to 50%
of the distributions from Indiana Gaming L.P. (excluding
management fees, interest income, preferred dividends and
provisions for taxes, up to the amount of the
</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
investment therein), and to make an offer to repurchase
Exchange Notes with the proceeds of a sale of the assets
of, or its partnership interest in, Indiana Gaming L.P. In
addition, the Indenture provides that, as long as the
Company is the general partner of Indiana Gaming L.P., the
Company will prohibit Indiana Gaming L.P. from incurring
any indebtedness that is recourse to the Company or that
restricts the payment of dividends or other distributions
from Indiana Gaming L.P. to the Company or a Guarantor.
Furthermore, as long as the Company is general partner of
Indiana Gaming L.P., the Indenture restricts the ability
of the Company to amend the terms of the partnership
agreement dealing with distributions or partnership
purpose, which is limited to the operation of the
Lawrenceburg Casino. Under certain circumstances, the
Company may be removed as general partner of Indiana
Gaming L.P., including upon a foreclosure by the Trustee
under the Notes on the Company's equity interest in
Indiana Gaming L.P.
Cash Collateral and
Disbursement Agreement...... Pursuant to the terms of the Indenture, the Company, the
Trustee and LaSalle National Trust, N.A., as disbursement
agent, entered into a Cash Collateral and Disbursement
Agreement pursuant to which $94.3 million of the proceeds
of the Offering were deposited into a disbursement account
subject to the control of the disbursement agent. Funds in
the disbursement account will be available to fund the
Company's pro rata share of Lawrenceburg Casino project
disbursements. Funds may be released from the disbursement
account upon certification by the Company to the
disbursement agent (i) as to the proposed use of the
project disbursement in the Lawrenceburg Casino project in
conformity with the construction budget, (ii) that the
amounts held in the disbursement account plus amounts
contractually obligated to be contributed by Conseco and
third party equipment financing are sufficient to complete
the Lawrenceburg Casino project, (iii) that Conseco is no
more than 90 days past due on any prior capital call,
PROVIDED, HOWEVER, that any amounts not funded by Conseco
that have been funded by the Company (other than through
the disbursement account) in an aggregate amount not to
exceed $10 million at any one time will not be considered
past due and (iv) as to the satisfaction of certain other
conditions. A portion of the funds may also be released to
the Company from the disbursement account upon completion
of the Lawrenceburg Casino project and upon funding of
hotel construction by third party lenders. No
disbursements may be made at any time if (i) Indiana
Gaming L.P.'s certificate of suitability has been revoked
or canceled or has expired or been suspended and has not
been renewed by the Indiana Gaming Commission prior to
issuance of a riverboat owner's license, (ii) Indiana
Gaming L.P.'s application for a permanent riverboat
owner's license is denied by the Indiana Gaming
Commission, (iii) Indiana Gaming L.P. is found unsuitable
by the Indiana Gaming Commission, (iv) Indiana Gaming L.P.
has its riverboat owner's license revoked or suspended by
the Indiana Gaming Commission, (v) the Company or any of
its subsidiaries is found unsuitable by the Indiana Gaming
Commission, or (vi) the Company, any of its subsidiaries
or Indiana Gaming L.P. shall have received notice from
</TABLE>
12
<PAGE>
<TABLE>
<S> <C>
the Indiana Gaming Commission of the commencement of
proceedings by the Indiana Gaming Commission, the stated
purpose of which is to formally consider taking any of the
foregoing actions. The agreement grants the Trustee a
first priority security interest in the disbursement
account, and permits the Trustee the right to access the
disbursement account for certain payments of principal and
interest, including the offer to purchase described under
"Certain Covenants Relating to the Lawrenceburg Casino --
Repurchase of Exchange Notes on Certain Project Delays."
</TABLE>
RISK FACTORS
Holders of the Old Notes should carefully consider the matters set forth
under the caption "Risk Factors" prior to making a decision with respect to the
Exchange Offer.
13
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following summary consolidated financial data has been derived from the
consolidated financial statements of the Company and should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's Consolidated Financial Statements
and Notes thereto, included elsewhere in this Prospectus.
The Company believes that the results of operations for each of the three
years in the period ended December 31, 1995 are not readily comparable to each
other because (i) the Alton Belle Casino commenced operations in September 1991,
was substantially expanded in May 1993, was affected by severe flooding
experienced in the St. Louis area in the summer of 1993 and was the only casino
that operated in the St. Louis market until June 1993, (ii) the Argosy Casino in
Riverside commenced operations on June 22, 1994 on a riverboat that offered only
the limited forms of casino gaming then permitted under Missouri law, and on
December 9, 1994 expanded its operations to offer additional casino gaming,
including slot machines, (iii) the Belle of Baton Rouge commenced operations on
September 30, 1994 through a 90% interest in a joint venture, which became a
100% subsidiary of the Company on June 6, 1995 (effective May 30, 1995), and
(iv) the Company became the manager of the Belle of Sioux City on October 4,
1994 and on December 1, 1994 became the 70% general partner of Belle of Sioux
City, L.P.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
-------------------------------- ---------------------
1993 1994 1995 1995 1996
--------- ---------- --------- --------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Casino revenues...................................... $ 60,182 $ 138,425 $ 237,613 $ 117,791 $ 118,147
Net revenues......................................... 67,525 153,045 252,691 125,536 125,954
Income from operations............................... 14,327 22,994 27,662 16,249 2,015
Interest expense..................................... 800 8,182 14,708 7,917 11,546
Net income (loss) (a)................................ 10,825 9,635 6,953 4,781 (5,868)
Net income (loss) per share.......................... -- .40 .29 .20 (.24)
Shares outstanding................................... -- 24,333 24,333 24,333 24,333
Pro forma net income (loss) per share (a)............ $ .38 -- $ .23 $ .15 --
Pro forma shares outstanding (a)..................... 23,764 -- 24,333 24,333 --
OTHER DATA:
Riverboat casinos in operation (b)................... 1 4 4 4 4
Casino square footage (b)............................ 20,982 94,546 94,546 94,546 94,546
Gaming positions (b)................................. 967 4,025 4,127 4,127 4,127
Capital expenditures................................. $ 36,027 $ 112,013 $ 71,854 $ 24,157 $ 62,083
Depreciation and amortization........................ 3,333 9,846 20,450 10,038 11,085
Development and preopening costs..................... 4,609 9,761 6,888 1,138 3,790
EBITDA (c)........................................... 17,660 32,840 48,112 26,287 13,100
Cash provided by (used in)
Operating activities............................... 15,419 24,783 49,932 24,527 6,115
Investing activities............................... (65,434) (118,714) (86,644) (34,114) (157,223)
Financing activities............................... 54,670 104,818 34,580 5,307 198,839
Ratio of earnings to fixed charges (d)............... 16.0x 2.3x 1.5x 1.9x --(d)
Pro forma ratio of earnings to fixed charges (d)..... -- -- 1.3x -- --(d)
Ratio of EBITDA to interest expense.................. 22.1x 4.0x 3.3x 3.3x 1.1x
</TABLE>
14
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<TABLE>
<CAPTION>
AS OF
JUNE 30, 1996
--------------
ACTUAL
--------------
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.......................................................................... $ 158,374(e)
Total assets....................................................................................... 509,897
Old Notes.......................................................................................... 235,000
Convertible Subordinated Notes..................................................................... 115,000
Other long-term debt, including current maturities................................................. 9,202
Total stockholders' equity......................................................................... 91,672
</TABLE>
- -------------
(a) From their inception until a reorganization that was effected on February
25, 1993, certain predecessor entities of the Company elected to be treated
as S Corporations under the Internal Revenue Code and were not generally
subject to corporate income taxes. The pro forma net income amount for the
year ended December 31, 1993 has been determined assuming the reorganization
had occurred on January 1, 1993, resulting in the Company being treated as a
C Corporation for tax purposes as of that date and to reflect the use of a
portion of the net proceeds of the Company's initial public offering to
retire debt. The pro forma tax provision for 1993 has been computed using an
effective tax rate of 39%. See Notes 1 and 8 of the Notes to the
Consolidated Financial Statements. In addition, pro forma net income per
share for the three months ended March 31, 1995 and for the year ended
December 31, 1995 reflects the Company's June 7, 1995 acquisition of Jazz
Enterprises, Inc. (the "Jazz Acquisition") as if the Jazz Acquisition had
occurred on January 1, 1995. The Company's pro forma net revenue, income
from operations, interest expense and net income giving such effect to the
Jazz Acquisition for the year ended December 31, 1995 is $252.7 million,
$26.8 million, $15.5 million and $5.7 million, respectively. The Company's
pro forma net revenue, income from operations, interest expense and net
income giving such effect to the Jazz Acquisition for the six months ended
June 30, 1995 is $125.6 million, $15.3 million, $8.7 million and $3.5
million respectively. See Note 7 of the Notes to Consolidated Financial
Statements.
(b) Data is as of end of period.
(c) EBITDA is defined as earnings before interest, taxes, depreciation and
amortization. EBITDA should not be construed as an alternative to operating
income or net income (as determined in accordance with generally accepted
accounting principles) as an indicator of the Company's operating
performance, or as an alternative to cash flows generated by operating,
investing and financing activities (as determined in accordance with
generally accepted accounting principles) as an indicator of cash flow or a
measure of liquidity. EBITDA is presented solely as supplemental disclosure
because management believes that it is a widely used measure of operating
performance in the gaming industry and for companies with a significant
amount of depreciation and amortization. The Company has other significant
uses of cash flows, including capital expenditures, which are not reflected
in EBITDA.
(d) The ratio of earnings to fixed charges has been computed by dividing
earnings available for fixed charges (income before income taxes plus fixed
charges less capitalized interest) by fixed charges (interest expense plus
capitalized interest and one third of rental expense (the portion deemed
representative of the interest factor)). The Company's earnings were
inadequate to cover fixed charges for the six months ended June 30, 1996 by
approximately $11.1 million. The pro forma ratio of earning to fixed charges
reflects the net increase in interest expense related to the issuance of
that portion of the Old Notes necessary to retire amounts outstanding under
the Company's former bank credit facility (the "Former Bank Credit
Facility") as of December 31, 1995 and June 30, 1996. The Former Bank Credit
Facility was repaid in full and terminated with a portion of the net
proceeds received by the Company in connection with the Offering of the Old
Notes. The Company's earnings were inadequate to cover pro forma fixed
charges for the six months ended June 30, 1996 by approximately $12.1
million.
(e) Includes the $94.5 million of cash that is held in a cash collateral and
disbursement account under the control of a disbursement agent solely for
use in connection with developing the Lawrenceburg Casino project. See
"Description of Exchange Notes -- Cash Collateral and Disbursement
Agreement."
15
<PAGE>
RISK FACTORS
IN ADDITION TO OTHER INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN
THIS PROSPECTUS, BEFORE TENDERING THEIR OLD NOTES FOR THE EXCHANGE NOTES OFFERED
HEREBY, HOLDERS OF OLD NOTES SHOULD CONSIDER CAREFULLY THE FOLLOWING FACTORS,
WHICH MAY BE GENERALLY APPLICABLE TO THE OLD NOTES AS WELL AS TO THE EXCHANGE
NOTES:
CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for Exchange Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes, as set forth in the legend thereon, as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act and applicable state
securities laws, or pursuant to an exemption therefrom. Except under certain
limited circumstances, the Company does not intend to register the Old Notes
under the Securities Act. In addition, any holder of Old Notes who tenders in
the Exchange Offer for the purpose of participating in a distribution of the
Exchange Notes may be deemed to have received restricted securities and, if so,
will be required to comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction. To
the extent Old Notes are tendered and accepted in the Exchange Offer, the
trading market, if any, for the Old Notes not so tendered could be adversely
affected. See "The Exchange Offer" and "Old Notes Registration Rights;
Liquidated Damages."
SUBSTANTIAL INDEBTEDNESS
At June 30, 1996, the Company's total long-term indebtedness was
approximately $359.2 million (including current maturities), its total
stockholders' equity was approximately $91.7 million and its total
capitalization was approximately $450.9 million. See "Capitalization." After
giving effect to the offering of the Old Notes, the pro forma ratio of earnings
to fixed charges for the fiscal year ended December 31, 1995 was 1.3x and
earnings were inadequate to cover pro forma fixed charges for the six months
ended June 30, 1996 by approximately $12.1 million. The substantial leverage and
capital commitments of the Company have important consequences for holders of
the Old Notes and Exchange Notes (the "Noteholders"), including the risk that
the Company may not generate sufficient cash flow from its subsidiaries
operations to pay principal of, and interest on, indebtedness and to meet its
capital expenditure requirements. In addition to the $235 million principal
amount outstanding of the Old Notes, the Company's indebtedness includes $115
million principal amount of 12% Convertible Subordinated Notes that have a final
maturity of June 1, 2001. Further, the operating and financial restrictions
contained in the Indenture and future indebtedness could affect the Company,
including without limitation, restrictions relating to the incurrence of
additional indebtedness for working capital, capital expenditures, acquisitions
or general corporate purposes, the distribution of cash to stockholders, the
making of certain investments and restricted payments, mergers and sales of
assets and the creation of liens. Such restrictions could have the following
effects: (i) the Company's ability to obtain additional financing may be
significantly impaired; (ii) the Company's ability to respond quickly to
increased competition and other market forces may be limited; (iii) the
Company's ability to pursue additional gaming opportunities will be limited; and
(iv) the Company's vulnerability to weak general economic conditions may be
greater than it would otherwise be absent such restrictions.
The ability of the Company to meet its debt service requirements and to
engage in various significant corporate transactions that may be important to
its business will be dependent upon future operating performance and the opening
of the Lawrenceburg Casino project, each of which is subject to financial,
economic, competitive, regulatory and other factors affecting the Company, many
of which are beyond the Company's control. These inherent uncertainties are
compounded as a result of the limited history of the riverboat gaming industry.
Since a substantial portion of its cash flow from operations must be dedicated
to the payment of interest on outstanding debt, there can be no assurance that
the Company's cash flow from operations will be sufficient to meet its debt
service requirements and other obligations or to repay its indebtedness at
maturity. If the Company is unable to generate sufficient cash flow, it could be
required to adopt one or more alternatives, such as reducing or delaying planned
capital expenditures, selling assets, restructuring debt or obtaining additional
capital. However, the Company's ability to raise funds by selling
16
<PAGE>
assets is greatly restricted by the Indenture and its ability to effect equity
offerings is dependent on the Company's results of operations and market
conditions. There can be no assurance that any of such alternatives will be
feasible on satisfactory terms, and resorting to alternative sources of funds
could impair the Company's competitive position and reduce its future cash flow.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
FORECLOSURE RESTRICTIONS
In the event of an "Event of Default" by the Company under the Indenture,
before the Trustee or the Noteholders can foreclose or take possession of the
pledged stock of or partnership interest in any of the Company's subsidiaries or
certain of the Company's or its subsidiaries' assets, the Trustee or such
Noteholders may have to file applications with the gaming commissions of
Illinois, Missouri, Louisiana, Indiana and Iowa and other jurisdictions in which
the Company's gaming assets are located, be investigated and be licensed by such
jurisdiction's gaming commissions. This process can take several months and,
accordingly, the ability of the Trustee or any Noteholder to foreclose could be
substantially delayed or impaired. Moreover, no assurance can be given that
either the Trustee or any Noteholder will be found suitable by such gaming
commissions. Additionally, the Trustee and the Noteholders may be prohibited
from taking possession of that portion of the collateral that constitutes gaming
equipment and machinery by applicable state and federal law. In an Event of
Default by the Company, before the Trustee or Noteholders can take possession of
or sell any collateral constituting security for the Notes, the Trustee or such
Noteholders, in addition to complying with applicable state gaming laws, will
have to comply with all applicable federal and state judicial or non-judicial
foreclosure and sale laws. Such laws may include cure provisions, mandatory sale
notice provisions, manner of sale provisions and redemption period provisions.
Such provisions may significantly increase the time associated with taking
possession or the sale of any collateral. Failure to comply with any applicable
provision could void the foreclosure on or sale of such collateral. In addition,
licensing requirements may limit the number of potential bidders in a
foreclosure sale, may delay the sale and may adversely affect the sale price of
the Company's assets. See "Regulatory Matters."
CERTAIN BANKRUPTCY CONSIDERATIONS
The right of the Trustee to repossess and dispose of the collateral for the
Notes upon the occurrence of an Event of Default on the Notes is likely to be
significantly impaired by applicable bankruptcy law if a bankruptcy proceeding
were to be commenced by or against the Company, whether by a Noteholder or
another creditor (including a junior creditor), prior to such repossession and
disposition. Under applicable bankruptcy law, secured creditors such as the
Noteholders are prohibited from repossessing their security from a debtor in a
bankruptcy case, or from disposing of security repossessed from such debtor,
without bankruptcy court approval. Moreover, applicable bankruptcy law permits
the debtor to continue to retain and to use the collateral even though the
debtor is in default under the applicable debt instruments, provided that the
secured creditor is given "adequate protection." The meaning of the term
"adequate protection" may vary according to circumstances, but it is intended in
general to protect the value of the secured creditor's interest in the
collateral and may include cash payments or the granting of additional security,
at such time and in such amount as the court in its discretion may determine,
for any diminution in the value of the collateral as a result of the stay of
repossession or disposition or any use of the collateral by the debtor during
the pendency of the bankruptcy case. In view of the lack of a precise definition
of the term "adequate protection" and the broad discretionary powers of a
bankruptcy court, it is impossible to predict how long payments under the Notes
could be delayed following commencement of a bankruptcy case, whether or when
the Trustee could repossess or dispose of the collateral for the Notes or
whether or to what extent the Noteholders would be compensated for any delay in
payment or loss of value of the collateral for the Notes through the requirement
of "adequate protection."
FRAUDULENT TRANSFER CONSIDERATIONS
The obligation of each of the Guarantors of the Notes and the grant by each
such Guarantor of a security interest in its assets may be subject to review
under state or federal fraudulent transfer laws. Under such laws, if a court, in
a lawsuit by an unpaid creditor or representative of creditors of a Guarantor,
such as a trustee in bankruptcy or such Guarantor as debtor-in possession, were
to find that at the time such obligation was incurred or the security interest
granted, such Guarantor, among other things, (a) did not receive fair
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consideration or reasonably equivalent value therefore and (b) either (i) was
insolvent, (ii) was rendered insolvent, (iii) was engaged in a business or
transaction for which its remaining unencumbered assets constituted unreasonably
small capital, or (iv) intended to incur or believed that it would incur debts
beyond its ability to pay as such debts matured, such court could avoid such
Guarantor's obligation under its guarantee and the grant of the security
interest, and direct the return of any payments made under the guarantee to such
Guarantor or to a fund for the benefit of its creditors. Moreover, regardless of
the factors identified in the foregoing clauses (i) through (iv), such court
could avoid such obligation and such security interest, and direct such
repayment, if it found that the obligation was incurred or the security interest
granted with intent to hinder, delay, or defraud such Guarantor's creditors. In
that event, the Noteholders would have to rely solely on the Company's pledge of
such Guarantor's capital stock, partnership interests and intercompany notes
owed to the Company, if any, and would have to look for repayment to other
Guarantors whose guarantee obligations had not been avoided.
The measure of insolvency for purposes of the foregoing will vary depending
upon the law of the jurisdiction being applied. Generally, however, an entity
would be considered insolvent if the sum of its debts is greater than all of its
property at a fair valuation or if the present fair salable value of its assets
is less than the amount that will be required to pay its probable liability on
its existing debts as they become absolute and matured.
COMPETITION
The casino gaming industry is characterized by intense competition from a
large number of participants, including riverboat casinos, dockside casinos,
land-based casinos, video lottery and poker machines in locations other than
casinos, Native American gaming and other forms of gaming in the United States.
Gaming industry competition is particularly intense in each of the markets where
the Company operates and is likely to increase as other operators open new or
expanded facilities in the future. Historically, the Company has been an early
entrant in each of its markets; however, as its competitors have opened
properties in these markets, the Company's operating results in these markets
have been negatively affected. The Company expects that many of its competitors
will have more gaming industry experience, will be larger and will have
significantly greater financial and other resources than the Company. In
addition, certain of its direct competitors may have superior facilities and or
operating conditions in terms of (i) dockside versus cruising riverboat gaming,
(ii) the amenities offered by the competing casino and its related support and
entertainment facilities, (iii) convenient parking facilities, (iv) ease of
accessibility to the casino site, and (v) favorable tax or regulatory factors.
Given these factors, substantial increased competition could have a material
adverse affect on the Company's existing and proposed operations.
The Company expects increasing competition at its existing gaming
operations, particularly in the St. Louis and Kansas City markets. As a result,
the Company expects the results of operations at its Alton and Riverside casinos
will be negatively affected as new competitors open or existing competitors
expand their facilities. Moreover, increased competition could limit new
opportunities for the Company or result in the saturation of certain gaming
markets. The Company also has competed with, and assumes it will continue to
compete with, a number of bidders for a limited number of licenses and permits
to conduct gaming. In any jurisdiction where the Company may commence
operations, it also will face competition for desirable sites and qualified
personnel. A summary of the current competitive environment in each of the
markets in which the Company has casino operations follows:
ALTON, ILLINOIS FACILITY. The Company's Alton riverboat casino faces
competition from three other riverboat casinos currently operating in the St.
Louis area and expects increasing levels of competition in the future. Two
casino facilities are located in the downtown St. Louis area, one providing
dockside gaming on the Mississippi riverfront in the Gateway Arch area of
downtown St. Louis and the other providing gaming on a cruising riverboat from
East St. Louis, Illinois. Another casino is located in the northwest St. Louis
suburb of St. Charles, Missouri and offers dockside gaming on two vessels with
staggered entry times. A fourth casino complex in the St. Louis market is under
construction in the northwest suburb of Maryland Heights, Missouri, which will
include two independently owned facilities, each of which are expected to
operate two dockside vessels. This casino complex is expected to open in the
first quarter of 1997. The operating results of the Company's Alton casino have
in the past been negatively impacted by additional
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competitors in the St. Louis market and will in the future be further negatively
impacted by the additional competition expected in St. Louis. Because Missouri
gaming law does not limit the number of licenses that may be granted, there
could be substantial increases in the number of gaming operations in the St.
Louis area. Specifically, the Company is aware of several casino operators that
are exploring gaming opportunities in the St. Louis area.
RIVERSIDE, MISSOURI FACILITY. The Argosy Casino in Riverside faces
competition from two other casinos currently operating in the Kansas City area
that offer dockside gaming. Two additional casino operators have commenced
construction of gaming facilities in Kansas City, both of which are expected to
open in the second half of 1996. In addition, one existing Kansas City
competitor has commenced construction of expanded facilities, including a second
gaming vessel that recently opened. The Company anticipates that its results of
operations in Riverside will be negatively impacted by the increased competition
expected in the Kansas City market. Because Missouri gaming law does not limit
the number of licenses that may be granted, there could be substantial increases
in the number of gaming operations in the Kansas City area. To a lesser extent,
the Argosy Casino also competes with a riverboat casino in St. Joseph, Missouri
and may also compete with potential casinos in other areas of Missouri where
local voters have or may approve gaming. In addition, the legalization of casino
gaming in Kansas would have a material adverse effect on the Company's Riverside
casino.
BATON ROUGE, LOUISIANA FACILITY. The Company's Baton Rouge riverboat casino
faces competition from one riverboat casino located in downtown Baton Rouge, a
land-based Native American casino located approximately 70 miles away and
multiple casinos throughout Louisiana. In Louisiana, licenses for 15 riverboat
gaming casinos and one New Orleans land-based casino have been granted, which is
the maximum number of licenses currently authorized in the state, and 12 vessels
are currently operating. Numerous Native American casinos are also operating
throughout Louisiana, as well as more than 15,000 video poker machines that are
located in bars, restaurants and truck stops. In addition to Baton Rouge,
riverboat casinos are currently operating in New Orleans, Shreveport/Bossier
City and Lake Charles, Louisiana. The land-based casino in New Orleans has filed
for bankruptcy, has closed its temporary gaming facility and has halted
construction on its permanent facility located adjacent to the French Quarter.
See "Risk Factors -- Louisiana Local Option Referendum to Restrict Gaming."
SIOUX CITY, IOWA FACILITY. The Company's Sioux City riverboat casino faces
competition from two nearby land-based Native American casinos, slot machines at
a pari-mutuel race track in Council Bluffs, Iowa, and from two riverboat casinos
in the Council Bluffs, Iowa/Omaha, Nebraska market, which opened in January
1996.
PROPOSED LAWRENCEBURG, INDIANA PROJECT. The Company expects to face
competition for gaming revenues in the Lawrenceburg, Indiana market upon the
opening of the Company's Lawrenceburg riverboat casino at a temporary facility,
which is anticipated in the fourth quarter of 1996, and at a permanent facility,
which is anticipated to open not later than twelve months thereafter, from a
gaming operator in Rising Sun, Indiana, which is located on the Ohio River in
Ohio County approximately 15 miles south of Lawrenceburg. The Rising Sun casino
is currently under development, has received its permit from the U.S. Army Corps
of Engineers, and is likely to open prior to the Company's Lawrenceburg Casino.
Indiana gaming law currently limits the number of licenses to operate riverboat
casinos on the Ohio River to five in total and a maximum of one per county. A
riverboat owner's license was issued on December 4, 1995 to an operator in
Evansville, Indiana, which is located in Vanderburgh County, Indiana,
approximately 200 miles southwest of Lawrenceburg. Of the remaining two licenses
designated for Ohio River counties, a certificate of suitability was recently
awarded to an operator in Harrison County, which is west of Louisville,
Kentucky, approximately 100 miles from Lawrenceburg. The final Ohio River
license is being pursued by several operators of proposed gaming projects in (i)
Switzerland County, which is approximately 40 miles south of Lawrenceburg, (ii)
other Indiana counties located west of Louisville, Kentucky in which local
referenda to authorize gaming have passed, and (iii) the two Indiana counties
adjacent to Louisville, Kentucky; however, local referenda seeking to authorize
gaming in these two counties have failed. Although casino gaming is not
currently
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permitted under the laws of neighboring Ohio and Kentucky, the legalization of
casino gaming in these states or the expansion of the number of gaming licenses
in Indiana could significantly increase competition and have a material adverse
effect upon the Company's proposed Lawrenceburg Casino.
MARION COUNTY, INDIANA GRAND JURY DOCUMENT SUBPOENA
On or after March 15, 1996, the Company, its partners in the Lawrenceburg
Casino project and certain other individuals and entities were served with
document request subpoenas issued by the Office of the Prosecuting Attorney of
Marion County, Indiana in connection with a grand jury investigation entitled:
STATE OF INDIANA V. ORIGINAL INVESTIGATION-OFFICIAL MISCONDUCT. Indiana law
requires that at the time a target of an investigation is determined, that
entity or person must be so advised by the Office of the Prosecuting Attorney.
On March 23, 1996 the Company was advised by the Marion County prosecutor that
no target subpoenas had been issued by the grand jury in its investigation as of
that date. However, there can be no assurance that targets will not be
identified as further information and documents are obtained and considered by
the grand jury. Due to the confidential nature of grand jury proceedings, the
Company is not aware of the specific subject matter or matters of the
investigation. The Company believes it has fully complied with its subpoena, and
has been informed by its partners that they will do the same.
The subpoenas requested information regarding the current or prior ownership
interest in the Company and the partners of Indiana Gaming L.P. by the
individuals or entities described below. The subpoenas also requested that the
Company and its partners produce a broad category of documents including
documents regarding employment and other agreements, gifts, payments and
correspondence between the Company and any of its partners on the one hand and
several business entities and individuals, including an Indiana state
legislator, certain Indiana lobbyists, and certain Lawrenceburg, Indiana city
officials and businessmen, on the other hand. The Company has learned that this
legislator has served as an employee of a subsidiary of Conseco, Inc., the
parent company of the 29% limited partner in Indiana Gaming L.P., since
September 1995. Additionally, the Company has learned that such state legislator
has served since September 1993 as a consultant to a major Indiana engineering
firm that is engaged in many state and local government funded construction
projects. That engineering firm also serves as lead engineer for the
Lawrenceburg Casino project. On May 24, 1996, the Indiana House Legislative
Ethics Committee voted to reprimand, but take no further action against, this
legislator for failing to properly report the foregoing employment and
consulting arrangements on his 1993, 1994 and 1995 statements of economic
interests. On June 27, 1996, the legislator announced his resignation as
chairman of the Indiana House Ways and Means Committee and that he would not
seek reelection in November 1996.
The Company believes that neither it nor any entity controlled by or person
employed by the Company has engaged, and has been informed by representatives of
its partners that they have not engaged, in any unlawful conduct in the pursuit
by or granting to Indiana Gaming L.P. of the Lawrenceburg gaming license.
Because the grand jury proceedings are unlikely to be concluded quickly, on
March 25, 1996, a former U.S. Attorney and his law firm were retained to
conduct, as special independent counsel (the "special independent counsel"), an
internal investigation into the activities and actions of the Company and the
entities controlled by and persons employed by the Company with respect to (i)
the hiring by Conseco, Inc. and the Indiana engineering firm of the state
legislator, (ii) the endorsement of Indiana Gaming L.P. by the City of
Lawrenceburg and the financial affairs of certain Lawrenceburg officials with
respect to such endorsement and the awarding of the certificate of suitability
by the Indiana Gaming Commission, and (iii) their lobbying efforts in
furtherance of the Indiana legislature's enactment of legislation authorizing
gaming and limiting gaming licenses to one per county. In June 1996, Indiana
Gaming L.P. retained the Company's special independent counsel to conduct a
similar investigation of its limited partners (other than Conseco, Inc.). A
special committee of independent directors of the Company has been appointed to
supervise and coordinate the special independent counsel's investigations. The
special independent counsel has not investigated Conseco, Inc., however,
Conseco, Inc. has retained its own special independent counsel to conduct an
investigation of matters that may be the subject of the grand jury proceedings.
From March 25 to April 15, 1996, the special independent counsel conducted
its investigation of the Company and issued an interim report in which it
concluded that it found no evidence that the Company or any entity controlled by
or person employed by the Company had any involvement in, or knowledge of, the
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relationship between the state legislator and Conseco, Inc. or the Indiana
engineering firm, or attempted to improperly influence any City of Lawrenceburg
official, state legislator or Indiana Gaming Commission member or staff member
in connection with the endorsement of the partnership by the City of
Lawrenceburg and the awarding of the certificate of suitability to Indiana
Gaming L.P. With regard to lobbying, including the lobbying with respect to one
gaming license per county legislation, the special independent counsel found no
evidence that either the Company or any entity controlled by or person employed
by the Company attempted to unduly influence any legislator in any way. However,
no investigation was made of any lobbyist's records, activities or expenditures,
nor were any outside lobbyists interviewed. The special independent counsel also
audited the Company's compliance with the lobbying disclosure statute in Indiana
and found only technical errors in the Company's lobbying disclosure statements.
No evidence was found that these technical errors were intentional or designed
to hide any lobbying activity. In conducting its investigation, the special
independent counsel, among other things, reviewed numerous boxes of documents
produced by the executive and Lawrenceburg offices of the Company and
extensively interviewed the nine Company officers and employees most closely
related to the Lawrenceburg Casino project, as well as the principal of R.J.
Investments, Inc., a 4% limited partner of Indiana Gaming L.P.
During June and July 1995, the special independent counsel conducted a
similar investigation of the limited partners of Indiana Gaming L.P. (other than
Conseco, Inc.) and found no evidence of any wrongdoing with respect to the
matters investigated. Also, in August 1996, Conseco, Inc.'s special independent
counsel concluded its investigation of Conseco, Inc. and its affiliates and
found no evidence of any wrongdoing.
No assurance can be given, however, that the nature and scope of the
investigations conducted by the special independent counsels retained by the
Company, Indiana Gaming L.P. and Conseco, Inc., which among other things, were
conducted under severe time pressure and were limited to the entities controlled
by and the persons employed by the Company, Indiana Gaming L.P. and Conseco,
Inc., were sufficient to uncover conduct that might be considered unlawful. In
the event that the Company, any entity controlled by the Company, any person
employed by the Company, Indiana Gaming L.P. or any of its partners is found by
the Marion County prosecutor to have engaged in unlawful conduct, there is no
assurance what effect such action would have on Indiana Gaming L.P.'s
certificate of suitability or, after issuance, the Indiana gaming license. In
the event Conseco or one of the Company's other partners in the Lawrenceburg
Casino project is determined by the Indiana Gaming Commission to be unsuitable
for the ownership of a gaming license or to have engaged in unlawful conduct,
the terms of Indiana Gaming L.P.'s partnership agreement provide that Indiana
Gaming L.P. shall redeem 100% of such unsuitable partner's interest in the
partnership for an amount equal to such partner's capital account. In the event
that a partner is determined by the Indiana Gaming Commission to be unsuitable
for ownership after the issuance of the gaming license, the terms of Indiana
Gaming L.P.'s partnership agreement provide that Indiana Gaming L.P. shall
redeem 100% of such unsuitable partner's interest for an amount equal to 90% of
the "appraised value" of that partner's interest, determined in accordance with
the terms of the partnership agreement. The purchase price is payable in five
annual installments, only from available cash flow or sale or financing proceeds
of the partnership, and bears interest at "prime." If such event were to occur
with respect to Conseco prior to the completion of the Lawrenceburg Casino
project, the Company would have to fund any remaining construction costs of the
Lawrenceburg Casino project which were to have been funded by Conseco. No
assurance can be given that the Company would be able to obtain funds sufficient
for this purpose. Also, there can be no assurance that the Indiana Gaming
Commission will not take other actions such as suspending or revoking Indiana
Gaming L.P.'s certificate of suitability, delaying the issuance of or failing to
issue Indiana Gaming L.P. a gaming license or, after issuance, revoking or
suspending such gaming license. Therefore, there can be no assurance that the
grand jury investigation will not lead to events having a material adverse
effect on the Company.
PROJECT DEVELOPMENT RISKS
As part of its growth strategy, the Company is undertaking significant
development projects at its Baton Rouge and Lawrenceburg properties.
Construction projects, such as the Company's, entail significant risks,
including shortages of materials or skilled labor, unforeseen engineering,
environmental or geological problems, difficulties arising from statutes,
regulations or actions of governmental bodies having jurisdiction
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or authority with regard to certain aspects of the project, work stoppages,
weather interferences, floods, unanticipated cost increases and other problems.
In addition, the number and scope of the licenses and approvals required to
complete the construction of any project, particularly those pertaining to
riverboat and dockside casino, hotel and other destination resort facilities,
are extensive. The anticipated completion and opening dates of these projects
are based on budgets, conceptual design documents and schedule estimates
prepared by the Company and its consultants that are subject to change, which
could result in significant variances to the currently anticipated scope and
costs of the development projects and the anticipated completion dates.
Unexpected concessions required by local, state, or federal regulatory
authorities could involve significant additional costs and delay scheduled
openings of facilities, including either the temporary or permanent facilities
in Lawrenceburg. Moreover, the estimated total costs of the Lawrenceburg Casino
project of $210 million, which is significantly larger in size and scope than
any of the Company's previous development projects, are based upon initial
budgets that are more susceptible to change. While the Company has selected an
architect and general contractor for the Lawrenceburg Casino project and has
entered into a maximum price contract for, and begun construction of, a
riverboat casino, it has not yet entered into a guaranteed maximum price
contract for the remaining development. In addition, site development activities
have not commenced at the permanent facility and cannot commence until Indiana
Gaming L.P. receives a variety of permits. Therefore, the planned opening of the
Lawrenceburg Casino at the temporary facility in the fourth quarter of 1996, as
well as the opening of the permanent facility 12 months thereafter, require the
timely receipt of permits and prompt commencement of construction of the land
based, berthing, and support facility improvements upon receipt of required
permits and no substantial delays in the construction schedule. Significant cost
overruns or delays in the scheduled openings of the Company's current projects,
or the inability of the Lawrenceburg gaming market to meet the Company's
operating expectations, would have a material adverse effect on the Company.
Pursuant to the Lawrenceburg partnership agreement, the Company is obligated to
fund 57.5% of any project costs between the budgeted $210 million total project
cost and $225 million. The Company is obligated to fund the entire amount of any
project costs over $225 million. The Company's inability to satisfy its funding
obligations for the Lawrenceburg Casino project could result in a significant
dilution of its interest in Indiana Gaming L.P. and its possible removal as the
general partner. See "Risk Factors -- Certain Risks Under the Lawrenceburg
Casino Partnership Agreement" and "Lawrenceburg Casino Partnership Agreement."
Development of the Lawrenceburg Casino project will require the Company to
(i) acquire access to water, sewer, gas, electric and other necessary utility
services which presently do not provide services to the site and which may
require extension of existing utility service facilities across existing rights
of way and other property owned by third parties, and (ii) acquire permits from
the U.S. Army Corps of Engineers (the "Corps") and the Indiana Department of
Natural Resources ("IDNR") to modify the existing riverfront to accommodate
large scale riverboat gaming activities. In particular, prior to securing the
Corps permit for the permanent site, Indiana Gaming L.P., as a part of the
process, has prepared and submitted significant archaeological studies that have
revealed that cultural remains may be located on the site, and simulation
studies regarding the effect of the Lawrenceburg Casino on the historic district
of the City of Lawrenceburg. Any delays in review of the studies by the Corps or
in implementation of corrective measures to address conditions revealed by such
studies could delay the issuance of the permit from the Corps. Further, the
ultimate permit received from the Corps could include conditions that could have
a material adverse effect on the costs of or result in a material delay in the
commencement and/or completion of the construction of the temporary or permanent
facilities. The Company's permit for the temporary site includes a condition
that riverboat gambling may not commence at the temporary site until the permit
for the permanent site has been issued. The Company anticipates that
construction of the temporary facilities will be completed in November 1996.
Further, in order for the Company to complete the permanent facility within 12
months after opening the temporary facility, as required by Indiana law, the
Company will be required to commence construction of certain portions of the
permanent facility prior to issuance of the final permit for the permanent site
from the Corps. Although any such preliminary construction would be within the
parameters preliminarily set forth by the Corps, there can be no assurance that
the final permit would not require modification to all or any portion of such
preliminary construction, or that a final permit from the Corps will be issued.
The docking site for the temporary casino is controlled by the City of
Lawrenceburg. The City of
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Lawrenceburg and Indiana Gaming L.P. have entered into a Development Agreement
which, among other things, provides for the City to lease the docking site for
the temporary casino to Indiana Gaming L.P. The City of Lawrenceburg obtained
the IDNR permit on March 29, 1996; however, an adjacent landowner has filed an
appeal to the issuance of the permit with the IDNR alleging that he has an
interest in the City of Lawrenceburg property that is the subject of the permit.
The Company believes that the challenge is without merit as the disputed
property lies within a public street right of way that dates back to the time of
the original city plat. Any stay or revocation of the IDNR permit, could delay
construction of the temporary facility and such delay could increase the costs
of, or result in a delay in, the commencement of gaming operations at the
temporary facility. In addition, the Lawrenceburg site is potentially located in
protected wetlands areas. Indiana Gaming L.P. has agreed to an extensive
wetlands mitigation plan in Lawrenceburg and is taking appropriate steps to
further investigate the Lawrenceburg Casino site. Although the Company does not
believe that the existence of wetlands or other protected areas will prohibit or
have a significant adverse impact on the Company's ability to develop its
temporary and permanent sites, there can be no assurance that further
investigation will not reveal adverse conditions or that claims relating to such
matters may not arise in the future, which could have a material adverse effect
on the costs of, or result in a material delay in opening either temporary or
permanent gaming facilities at such site. Indiana Gaming L.P. is a defendant,
along with the City of Lawrenceburg, in a lawsuit seeking to invalidate a street
vacation proceeding for a portion of the permanent casino site. The plaintiffs
in the lawsuit have requested alternate relief which would require Indiana
Gaming L.P. to provide direct access across the permanent casino site to certain
adjacent land owners. The Company does not believe that the impact to the
project or the costs of providing such alternative relief are significant.
However, invalidation of the street vacation and corresponding denial of access
to certain portions of the permanent casino site could increase the costs of, or
result in a delay in, the commencement of gaming operations at the permanent
facility. In addition, the opening of the Lawrenceburg Casino is subject to the
issuance of a gaming license in Indiana and while Indiana Gaming L.P. has been
awarded a certificate of suitability, no assurance can be given that Indiana
Gaming L.P. will be awarded its final gaming licence or the other approvals
necessary to open the Lawrenceburg Casino. See "Risk Factors -- Gaming
Regulation -- Licensing and Regulation by Gaming and Local Authorities."
There can be no assurance that the Company will obtain the rights, utility
services, licenses, permits and approvals necessary to undertake or complete any
of its development plans, or that such rights, utility services, licenses,
permits and approvals will be obtained within the anticipated time frame or will
be sufficient to conduct its business as currently anticipated.
An example of a project development risk of a nature described above
occurred on April 12, 1996, when the Company received a letter from the Corps
notifying the Company that the Corps had suspended the processing of Indiana
Gaming L.P.'s permit application for the permanent site for the Lawrenceburg
Casino project pending the conclusion of the Corps investigation of whether the
placement of job trailers on the project site without prior Corps authorization
adversely impacted subsurface archeology. The Company was able to timely respond
to the Corps request because all pertinent work had previously been completed by
the Company's archeological and engineering consultants and professionals and on
May 16, 1996, the Corps lifted the suspension and resumed processing of Indiana
Gaming L.P.'s permit application. The Company believes that the five week
suspension of its permanent site Corps permit application has not affected the
timing of the opening of the Company's temporary and permanent gaming facilities
in Lawrenceburg. No assurance can be given, however, that other events will not
arise that could result in significant delays or increased costs in the opening
of its temporary or permanent Lawrenceburg Casino.
The building trades organization in the Lawrenceburg area, the umbrella
labor group representing the various construction labor unions, has requested
that Indiana Gaming L.P. enter into a project agreement which would require that
construction work at the Lawrenceburg site be performed by union contractors.
The Company has indicated a willingness to enter into an agreement providing
that some portion of the construction work at the Lawrenceburg site would be
performed by union contractors. However, the building trades organization has
insisted upon 100% utilization of union contractors. To date, Indiana Gaming
L.P. has not retained any non-union contractors, but anticipates that non-union
contractors will be engaged to perform certain work at the Lawrenceburg site.
The Company cannot predict the effect of
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undertaking construction at the Lawrenceburg site without a project agreement or
the impact of hiring non-union contractors to perform any portion of that work.
Any labor action by the building trades organization or any individual labor
union or other group, including strikes, work stoppages, pickets, or other
campaigns, could delay construction and the opening of the temporary and
permanent gaming facilities in Lawrenceburg.
CERTAIN RISKS UNDER THE LAWRENCEBURG CASINO PARTNERSHIP AGREEMENT
The Lawrenceburg Casino partnership agreement provides that the Company's
wholly-owned subsidiary, The Indiana Gaming Company, can be removed as general
partner of the partnership by the limited partners under certain limited
circumstances, including: (i) a material breach (after notice and expiration of
applicable cure periods) of certain material provisions of the partnership
agreement dealing with such things as distributions to partners or the failure
to obtain the required consent of the limited partners for certain major
decisions; (ii) conviction of embezzlement or fraud; (iii) certain bankruptcy
events; (iv) if The Indiana Gaming Company's partnership interest is less than
40% due to sales or dilution for failure to pay required capital; (v) a final
unappealable judgment against The Indiana Gaming Company in excess of $25
million which is uninsured and remains unsatisfied, unreleased or unstayed for
180 days; (vi) certain acts constituting "gross mismanagement;" (vii) if The
Indiana Gaming Company fails to fund project costs in excess of $215 million
(after expiration of applicable notice and cure periods); and (viii) if the
Trustee under the Notes were to foreclose on the Company's pledge of its
partnership interest in the partnership. Upon removal as general partner, the
general partnership interest of The Indiana Gaming Company becomes a "special
limited partner" interest with rights to partner distributions but only limited
voting rights on partnership matters. Also, if the reason for the removal is an
event described in clause (i), (ii), (iii), (v), (vi) or (viii) above, the
limited partners may acquire all, but not less than all, of The Indiana Gaming
Company's interest for the fair market value thereof determined by an appraisal
process.
The Lawrenceburg partnership agreement provides that: (i) after the third
anniversary date of commencement of operations at the Lawrenceburg Casino, each
limited partner has the right to sell its interest to the other partners (pro
rata in accordance with their respective percentage interests) or (ii) at any
time after a deadlock by the parties with respect to significant items in any
annual operating budget of the partnership for budget year 1999 and thereafter,
any partner has a right to sell its interest to the other partners (the limited
partner pursuant to clause (i) and the partner desiring to sell pursuant to
clause (ii) are hereinafter referred to as a "Selling Partner" and the
non-selling partners are hereinafter referred to as the "Non-Selling Partners").
The partnership agreement provides that after the Selling Partner gives notice
of its intent to sell, the Selling Partner and Non-Selling Partners shall have
60 days to attempt in good faith to agree to a purchase price. If within such
period of time no such agreement is reached, then the Selling Partner's interest
shall be appraised pursuant to an appraisal process to determine the fair market
value thereof. After the fair market value of the Selling Partner's interest is
determined by the appraisal process, the Non-Selling Partners have 60 days to
reject such sale at that price, and if the Non-Selling Partners decline to
purchase the interest of the Selling Partner at the appraisal price, then the
general partner is to solicit bids and sell all of the assets of the Partnership
within twelve months to the highest bidder and Indiana Gaming L.P. will be
dissolved. No assurances can be given that The Indiana Gaming Company, if it is
a Non-Selling Partner, will have or will be able to obtain sufficient funds to
acquire any Selling Partner's interests in the circumstances provided for above
or that The Indiana Gaming Company will choose to make such purchase and
therefore the assets of the partnership would have to be sold to the highest
bidder as provided above. In addition, the partnership agreement provides all
partners with a right of first refusal on transfers of partnership interest. A
foreclosure by the Trustee on the Company's pledge of its partnership interest
shall be deemed a transfer giving rise to a right of first refusal. See
"Lawrenceburg Casino Partnership Agreement."
GAMING REGULATION
LICENSING AND REGULATION BY GAMING AND LOCAL AUTHORITIES. The ownership and
operation of casino gaming facilities are subject to extensive state and local
regulation. The states of Illinois, Missouri, Louisiana, Iowa and Indiana and
the applicable local authorities require various licenses, findings of
suitability, registrations, permits and approvals to be held by the Company and
its subsidiaries as well as the officers and
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directors of the Company and its subsidiaries. The Illinois Gaming Board, the
Missouri Gaming Commission, the Louisiana Gaming Control Board, the Iowa Racing
and Gaming Commission and the Indiana Gaming Commission (herein collectively
referred to as "Applicable Gaming Commissions") may, among other things, limit,
condition, suspend, fail to renew or revoke a license or approval to own an
equity interest in the Company or any of its subsidiaries, for any cause deemed
reasonable by such licensing authority. The suspension, failure to renew or
revocation of any of the Company's licenses or the levy on the Company of
substantial fines or forfeiture of assets would have a material adverse effect
on the business of the Company. In certain circumstances, the Applicable Gaming
Commissions have the authority to approve certain distributions from the
Subsidiaries to the Company.
To date, the Company has obtained all governmental licenses, registrations,
permits and approvals necessary for the operation of its current gaming
activities. However, gaming licenses and related approvals are deemed to be
privileges under Illinois, Missouri, Louisiana, Iowa and Indiana law, and no
assurances can be given that any new licenses, permits and approvals that may be
required in the future will be given or that existing ones will not be revoked
or fail to be renewed. In addition, the loss of a license in one jurisdiction
could trigger the loss of a license or effect the Company's eligibility for a
license in another jurisdiction.
On June 30, 1995, Indiana Gaming L.P. received a certificate of suitability
from the Indiana Gaming Commission to develop and operate the Lawrenceburg
Casino. The certificate of suitability was initially extended by the Indiana
Gaming Commission until June 28, 1996 and has been further temporarily extended,
effective August 20, 1996, for 180 days. A riverboat casino license will be
issued only upon satisfaction of the conditions of the certificate of
suitability and the requirements of the Indiana Gaming Commission and other
applicable law, which include, among other things, completion of the vessel,
acquisition of necessary permits or approvals from federal, state and local
authorities and readiness to commence operations. Indiana law permits the
Indiana Gaming Commission to permit a riverboat to dock at a temporary site for
a period not exceeding one year after award of the license at which point the
permanent facility must be opened. The certificate of suitability requires
expenditures of at least $200 million and further requires Indiana Gaming L.P.
to make additional payments to the City of Lawrenceburg equal to a percentage of
annual gross gaming receipts ranging in amount from five percent (for up to $150
million in adjusted gross receipts) to 14 percent (for adjusted gross receipts
over $300 million). Failure to comply with the foregoing conditions and/or
failure to commence riverboat excursions (at either the temporary or permanent
facilities) at such time as required by the Indiana Gaming Commission could
result in the revocation of the certificate of suitability or the license.
Further, the Indiana Gaming Commission may place restrictions, conditions, or
requirements on the permanent riverboat owner's license. There can be no
assurance that Indiana Gaming L.P. will be able to comply with the terms of the
certificate of suitability, that the permanent and temporary facilities will
open in a timely fashion or that a riverboat casino license for Lawrenceburg,
Indiana will ultimately be granted to Indiana Gaming L.P. Before the
Lawrenceburg Casino becomes operational, additional definitive agreements must
be negotiated and executed, gaming facilities must be constructed, and a number
of further conditions must be satisfied (including the licensing of Indiana
Gaming L.P. and their respective employees and the receipt of all requisite
permits). There can be no assurance that the Lawrenceburg Casino will become
operational.
The approval of the Applicable Gaming Commissions is required for any
material debt or equity financing. No assurance can be given that the Company
will obtain the required approvals for future financings.
RISK OF ADVERSE CHANGES IN LAWS AND REGULATIONS. As described below, in
1996, legislation was adopted in Louisiana requiring local electoral
confirmations of gaming activities. No assurance can be given that the voters of
East Baton Rouge Parish will not vote to prohibit riverboat gaming or that
another jurisdiction where the Company conducts gaming operations will not
introduce similar or otherwise restrictive legislation. In addition, regulations
with respect to the conduct of gaming activities and the obligations of gaming
companies in any jurisdiction in which the Company has gaming operations are
subject to change and could
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impose additional operating, financial or other burdens on the conduct of the
Company's business. Moreover, legislation to prohibit or limit gaming may be
introduced in the future in states where gaming has been legalized. The
enactment of any such legislation or regulatory changes in jurisdictions where
the Company operates gaming facilities could have a material adverse effect on
the Company.
MISSOURI GAMING COMMISSION LAWSUIT. On August 29, 1996, certain residents
of St. Louis County (the "St. Louis Plaintiffs") filed a lawsuit in Cole County,
Missouri seeking declaratory and injunctive relief generally against the
Missouri Gaming Commission and specifically against the granting of licenses by
the Missouri Gaming Commission to Harrah's Maryland Heights Corp. ("Harrah's")
and Players Maryland Heights, LP ("Players") with respect to their casino
development in Maryland Heights, Missouri. The suit alleges that (i) the
Missouri legislature lacks the constitutional authority to authorize the
Missouri Gaming Commission to license casinos except on excursion gambling boats
and floating facilities "upon" the Mississippi and Missouri Rivers, (ii) the
Missouri Gaming Commission has wrongly construed a statute to permit it to grant
gaming licenses to excursion gambling boats or floating facilities placed within
artificial spaces and (iii) the Missouri Gaming Commission is not authorized to
regulate gaming operations conducted upon floating facilities. The St. Louis
Plaintiffs assert that the enclosed basin being constructed by Harrah's and
Players, on which they would float their casino barge facilities and which is
not contiguous to the Missouri River, exceeds a Missouri constitutional
limitation authorizing gaming only "upon" the Missouri and Mississippi Rivers.
The St. Louis Plaintiffs also seek to declare unconstitutional those portions of
Missouri law and actions of the Missouri Gaming Commission that permit casino
gaming in artificially constructed basins. Finally, the St. Louis Plaintiffs
assert that although the Missouri constitution grants the Missouri legislature
the authority to authorize casino gaming on excursion gambling boats and
floating facilities, when the Missouri legislature enacted its gaming law, it
only authorized gaming on excursion gambling boats. Therefore, because the
Harrah's/Players facility is within an enclosed basin that prevents excursions
upon the Missouri River and will be conducted upon barge facilities that lack an
engine or other means of propulsion, the Missouri Gaming Commission lacks the
statutory authority to license the project.
Although the St. Louis Plaintiffs' action relates specifically to the
Harrah's/Players Maryland Heights casino project, if their claim is successful,
it could have a material adverse effect on other Missouri casino operators,
particularly those that conduct operations on floating barges from artificially
constructed basins. The Company, however, conducts its gaming operations at the
Argosy Casino in Riverside on a docked, excursion riverboat from a constructed
harbor that is open to the Missouri River. The Company believes that, if
necessary, it could modify its operations in Riverside so as to be in compliance
with even the strictest construction of the St. Louis Plaintiffs' interpretation
of Missouri gaming law. The Company is unable at this time to determine what
effect, if any, this action would have on its business, results of operations,
competitive position in the Kansas City and St. Louis markets or the merits of
the St. Louis Plaintiffs' action.
RISK OF LEGALIZATION OF GAMING IN JURISDICTIONS ADJACENT TO THE COMPANY'S
OPERATIONS. Casino gaming is currently prohibited in several jurisdictions
adjacent to Missouri, Iowa and Indiana. As a result, residents of these
jurisdictions, principally Kansas, Nebraska, Ohio and Kentucky, comprise or are
expected to comprise a significant portion of the patrons of the Company's
casino in Riverside, Missouri, Sioux City, Iowa and proposed Lawrenceburg
Casino. The legalization of casino gaming in Kansas would have a material
adverse effect on the Company because the Company's Riverside casino is
currently the only casino located in the western portion of the Kansas City
market and therefore, residents of Kansas comprise a significant target market.
The legalization of casino gaming in Ohio or Kentucky would have a material
adverse effect on the Company's proposed Lawrenceburg Casino because a
substantial portion of the Lawrenceburg Casino's customers are anticipated to be
residents of Ohio and Kentucky. A recent voter petition drive in Ohio has
successfully placed a casino gaming referendum on Ohio's November 1996 ballot.
The referendum would legalize gaming in Ohio and require the Ohio legislature to
pass laws to facilitate the development and maintenance of an industry
competitive with gaming in other areas of the country. Recently, there have been
two voter petition drives in Nebraska to expand gaming. If these petition drives
are successful in collecting enough valid signatures, which must be determined
by September 13, 1996, a referendum will be placed on Nebraska's November 1996
ballot. See "Regulatory Matters -- Legislative and Regulatory Considerations in
Certain Adjacent Jurisdictions."
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LOUISIANA LOCAL OPTION REFERENDUM TO RESTRICT GAMING
On April 19, 1996, the Louisiana legislature approved legislation mandating
local option elections on a parish-by-parish basis to determine whether to
prohibit or continue to permit three individual types of gaming in Louisiana.
The referendum will be brought before the Louisiana voters at the time of the
November 1996 presidential election and will determine whether each of the
following types of gaming will be prohibited or permitted in the following
described Louisiana parishes: (i) the operation of video draw poker devices in
each parish; (ii) the conduct of riverboat gaming in each parish that is
contiguous to a statutorily designated river or waterway or (iii) the conduct of
land-based casino gaming operations in Orleans Parish. If a majority of the
voters in a parish elect to prohibit one or more of the above-described gaming
activities in such parish, then no license or permit shall be issued to conduct
such prohibited gaming activity in such parish and no such gaming activity may
be permitted in that parish. If, however, riverboat gaming was previously
permitted in such parish, the legislation permits the current gaming operator to
continue riverboat gaming in that parish until the expiration of its gaming
license.
Further, in parishes where riverboat gaming is currently authorized and
voters elect to prohibit riverboat gaming, the legislation provides that the
gaming license shall not be reissued or transferred to any parish other than a
parish in which a riverboat upon which gaming is conducted is berthed. In
addition, the Louisiana legislature approved a joint resolution to submit to
Louisiana voters at the time of the November 1996 presidential election for
their approval a proposed constitutional amendment that, among other things,
would require the voters in a parish where riverboat gaming exists to approve
additional riverboat gaming in that parish. If approved, this constitutional
amendment would represent a further impediment to the Company's ability to move
the Belle of Baton Rouge to another Louisiana parish in the event that the
voters of East Baton Rouge Parish vote to prohibit riverboat gaming.
There can be no assurance that the voters of the Belle of Baton Rouge's
parish, East Baton Rouge Parish, will not vote to prohibit riverboat gaming on
November 5, 1996. If a vote to prohibit riverboat gaming occurred, the Company
would be required to discontinue gaming activity upon expiration of its current
gaming license in September 1999. The discontinuance of gaming operations in
East Baton Rouge Parish would have a material adverse effect on the Company,
both in terms of the loss of revenues and cash flow generated by the Belle of
Baton Rouge and the impairment of the significant capital investment that the
Company has in its riverboat casino and related facilities, including the
Catfish Town development. In addition, if the Company were unable to move its
riverboat casino to another Louisiana parish and therefore lost its Louisiana
gaming license, under the terms of the Indenture, the Company would be required
to repurchase a principal amount of Notes equal to four times the contribution
of the Belle of Baton Rouge to the consolidated EBITDA of the Company during the
four full fiscal quarters preceding the loss of the Louisiana gaming license.
See "Description of Exchange Notes -- Certain Covenants -- Repurchase on Loss of
Material Casino."
Further, the current legislation does not provide for any moratorium that
must expire before future local elections on gaming could be mandated or
allowed. Even if the voters of East Baton Rouge Parish elected to continue to
permit riverboat gaming at the time of the 1996 presidential election, there can
be no assurance that future local elections on gaming activities will not occur,
that East Baton Rouge Parish voters will not subsequently vote to discontinue
riverboat gaming in that parish or that Louisiana will not mandate other
electoral confirmations or otherwise limit, restrict or prohibit gaming in
Louisiana.
The uncertainty resulting from the upcoming local option election on the
continuance of riverboat gaming in East Baton Rouge Parish will also have a
negative impact on the ability of the Company to lease the retail space in
Catfish Town and to obtain financing for its planned hotel development in
Catfish Town.
LOSS OF A RIVERBOAT OR DOCKSIDE FACILITY FROM SERVICE; FLOODING
The Company's revenues to date have been generated primarily by its gaming
operations conducted on riverboat casinos, which are supplemented by dockside
entertainment and support facilities. A riverboat or dockside facility could be
lost from service for a variety of reasons, including casualty, forces of
nature, mechanical failure or extended or extraordinary maintenance or
inspection. In addition, U.S. Coast Guard regulations require a hull inspection
for all riverboats at five-year intervals. To comply with this inspection
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requirement, which could take a substantial amount of time, the riverboats must
be taken to a U.S. Coast Guard approved dry docking facility. The Belle of Sioux
City riverboat was removed from service on April 13, 1996 for such a hull
inspection. The riverboat arrived at an approved dry docking facility on April
16, 1996, passed its inspection and returned to service on May 9, 1996. No
interruption in gaming operations occurred in Sioux City as a result of the hull
inspection process, as the Company temporarily transferred gaming operations to
the original Alton Belle prior to removing the Belle of Sioux City from service.
The current Alton Belle riverboat is due for this inspection in mid-1998 and
both the Belle of Baton Rouge and Argosy Casino in Riverside riverboats in
mid-1999.
The severe flooding which occurred along the Mississippi River in
metropolitan St. Louis during the summer of 1993 caused the Company to
experience decreased attendance and increased operating expenses. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The Company again experienced flooding in May 1995 at both the
Alton, Illinois and Riverside, Missouri sites; however, the flooding did not
result in any significant decrease in attendance or increase in expenses at
either site. All of the Company's riverboat casino sites are vulnerable to the
risk of future flooding. Any flood or other severe weather condition that might
occur in the future could adversely affect attendance and increase expenses, and
could lead to the loss of use of a riverboat or dockside facility for an
extended period. The loss of any riverboat from service, the inability to use a
dockside facility or the loss of parking or land-based facilities could have a
material adverse effect on the Company's financial results.
POTENTIAL INCOME TAX LIABILITY
As a result of a certain shareholder loan transaction, a predecessor entity
to the Company (the "Predecessor") could be subject to federal and certain state
income taxes (plus interest and penalties, if any) because it may have failed to
satisfy all of the requirements of the S Corporation provisions of the Internal
Revenue Code (the "Code") relating to the prohibition concerning a second class
of stock. An audit is currently being conducted by the Internal Revenue Service
(the "IRS") of the Company's federal income tax returns for the 1992 and 1993
tax years and the IRS has asserted the S Corporation status of the Predecessor
as an issue. Although the IRS has yet to make a formal claim of deficiency, if
the IRS successfully challenges the Predecessor's S Corporation status, the
Company would be required to pay federal and certain state income tax taxes on
the Predecessor's taxable income from the commencement of its operations until
February 25, 1993 (plus interest and penalties, if any, thereon until the date
of payment). The Company estimates that this potential tax liability could be up
to approximately $12.0 million, including interest through June 30, 1996, but
excluding penalties, if any, none of which has been reserved on the books of the
Company. While the Company believes the Predecessor has legal authority for its
position that it is not subject to federal and certain state income taxes
because it met the S Corporation requirements, no assurances can be given that
the Predecessor's position will be upheld. This contingent tax liability could
have a material adverse effect on the Company's results of operations, financial
position and cash flows. No provision has been made for this contingency in the
Company's consolidated financial statements appearing elsewhere in this Offering
Memorandum.
HOTEL AND RETAIL REAL ESTATE DEVELOPMENT BUSINESS RISKS
As part of its current expansion program, the Company is pursuing the
development of hotels in Baton Rouge, Riverside and Lawrenceburg. In addition,
the Company is also currently developing a retail real estate project as part of
its Catfish Town development in Baton Rouge. The Company has no experience in
hotel or retail real estate development or management and each of these projects
will be subject to all of the risks inherent in the establishment of a new
enterprise. In addition, numerous permits and approvals are required for the
development of hotel and retail real estate projects, and no assurance can be
given that such permits and approvals can or will be obtained. Although the
Company may enter into management and/or development contracts with experienced
hotel management companies with respect to certain or all of its proposed
hotels, there can be no assurance that such contracts will be entered into or
entered into on terms favorable to the Company. In addition, the uncertainty
resulting from the upcoming local option election on the continuance of
riverboat gaming in East Baton Rouge Parish will have a negative impact on the
ability of the Company to lease the retail space in Catfish Town and to obtain
financing for its planned hotel development in Catfish Town.
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JOINT VENTURE RISKS
The Company is pursuing its Lawrenceburg Casino project and, as part of its
growth strategy, is likely to pursue additional expansion opportunities by
entering into joint ventures. The development and opening of the Lawrenceburg
Casino project is dependent upon the ability of the Company's joint venture
partner to contribute or loan to the joint venture its share of the necessary
funds. In addition, any management dispute between the Company and a joint
venture partner or the failure of any such partner to become licensed or to meet
its obligations, with respect to the development of the Lawrenceburg or any
other potential joint venture project, may have a material adverse effect on the
Company's business.
GAMING TAXATION AND FEES
The Company believes that the prospect of significant additional tax revenue
is one of the primary reasons why new jurisdictions have legalized gaming. As a
result, gaming operators are typically subject to significant taxes and fees in
addition to normal federal and state corporate income taxes. Such taxes and fees
are subject to increase at any time. For example, a number of bills have been
introduced in the Illinois legislature proposing a graduated gaming tax that
would impose a maximum tax on Illinois casinos far in excess of the current 20%
wagering tax on adjusted gaming receipts. The Governor of Illinois has publicly
supported such a graduated gaming tax and has proposed a state budget which is
in part predicated on additional revenues being generated from an increase in
the gaming taxes. The proposed bills are still pending and no assurance can be
given that one or a combination of these bills will not become law or that
similar legislation will not be introduced, in Illinois or in other
jurisdictions, in the future.
The Company pays substantial taxes and fees with respect to its operations
and will likely incur similar burdens in any other jurisdiction in which it
conducts gaming operations in the future. Any material increase, or the adoption
of additional taxes or fees, could have a material adverse effect on the
Company's future financial results.
POTENTIAL CHALLENGE TO CERTIFICATE OF SUITABILITY FOR LAWRENCEBURG CASINO BY
UNSUCCESSFUL APPLICANT
On March 6, 1996 Indiana Gaming Company received a letter from counsel to
Schilling Casino Corporation, d/b/a Empire Casino & Resort ("Empire") advising
the Company that Empire intended to take legal action to seek a revocation or
cancellation of the certificate of suitability issued by the Indiana Gaming
Commission to Indiana Gaming L.P. on June 30, 1995 to develop and operate the
Lawrenceburg Casino. Empire was one of the 10 unsuccessful applicants competing
for the Lawrenceburg gaming license. Empire advised Indiana Gaming L.P. that it
intended to file an application with the Indiana Gaming Commission seeking
revocation of the certificate of suitability and that if such application is
unsuccessful, Empire has stated that it intends to file a civil action
challenging the Indiana Gaming Commission's authority to issue the certificate
of suitability and finally, if any such civil action is unsuccessful, to file an
appeal from the denial of Empire's application, which denial Empire deems to
occur upon the issuance of the gaming license to Indiana Gaming L.P.
On July 19, 1996, Empire filed with the Indiana Gaming Commission an
application for revocation of the certificate of suitability awarded to the
Indiana Partnership for a riverboat owners license for Lawrenceburg, Indiana.
Among the grounds stated by Empire in their application as filed were: (i) the
application process followed by the Indiana Gaming Commission did not afford
Empire due process and violated Indiana law; (ii) the Indiana Partnership has
failed to comply with the conditions in the Certificate because the temporary
vessel has not opened and certain permits have not been obtained; (iii) the
Indiana Partnership made misrepresentations to the Indiana Gaming Commission
during the licensing hearings; (iv) the Indiana Gaming Commission could not
lawfully extend the Certificate beyond June 30, 1996 without reconsidering all
other applications; and (v) the endorsement of the Indiana Partnership by the
City of Lawrenceburg was without legal authority. On August 20, 1996, the
Indiana Gaming Commission unanimously rejected Empire's application for
revocation. There can be no assurance that any further actions of Empire will
not result in a delay in the opening of the temporary gaming facility in
Lawrenceburg presently scheduled for the fourth quarter of 1996 or the opening
of the permanent gaming facility scheduled twelve months later.
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CONTROL BY DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company presently own or control
in the aggregate approximately 40% of the outstanding shares of Common Stock.
Accordingly, the directors and executive officers will effectively be able to
control the outcome of all matters requiring stockholder approval, including the
election of the Company's directors, thereby controlling the management,
policies and business operations of the Company. Such control could have the
effect of entrenching current management and delaying or discouraging a takeover
of the Company.
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CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Prospectus contains certain forward-looking statements that involve
substantial risks and uncertainties. When used in this Prospectus, the words
"anticipate," "believe," "estimate," and "expect" and similar expressions as
they relate to the Company or its management are intended to identify such
forward-looking statements. The Company's actual results, performance or
achievements could differ materially from the results expressed in, or implied
by, these forward-looking statements. Factors that could cause or contribute to
such differences include those discussed in "Risk Factors."
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USE OF PROCEEDS
There will be no cash proceeds to the Company resulting from the Exchange
Offer. The Company used the net proceeds received from the offering of the Old
Notes (approximately $225.6 million, after deducting the estimated expenses of
the offering of the Old Notes) (i) to fund the Company's share of the estimated
remaining construction costs of the Lawrenceburg Casino project, including the
development and opening of a temporary gaming facility ($94.3 million), (ii) to
repay all indebtedness outstanding under the Former Bank Credit Facility ($91.4
million), which facility was terminated upon such repayment and (iii) for
general corporate purposes ($39.9 million). Borrowings under the Former Credit
Facility were incurred to fund (a) a portion of the costs incurred in connection
with the Company's acquisition of Jazz Enterprises, Inc., (b) a portion of the
construction costs of the recent expansion projects at the Company's Riverside
and Baton Rouge casinos, and (c) the Company's share of the initial costs of
developing the Lawrenceburg Casino project. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources." For a more complete discussion of the Company's expansion
and development projects, see "Business."
The portion of the proceeds used for funding the construction costs of the
Lawrenceburg Casino project are being held in a disbursement account. Pursuant
to the terms of the disbursement agreement governing the disbursement account,
there are certain conditions and limitations affecting the ability of the
Company to draw upon such funds. See "Description of Exchange Notes -- Cash
Collateral and Disbursement Agreement."
Until required for the foregoing purposes, the net proceeds of the offering
of the Old Notes are being invested in short-term, investment grade, interest
bearing securities.
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The sole purpose of the Exchange Offer is to fulfill the obligations of the
Company and the Guarantors with respect to the registration of the Old Notes.
The Old Notes were originally issued and sold on June 5, 1996 (the "Issue
Date"). Such sales were not registered under the Securities Act in reliance upon
the exemption provided by Section 4(2) of the Securities Act and Rule 144A
promulgated under the Securities Act. In connection with the sale of the Old
Notes, the Company, the Guarantors and the Initial Purchasers entered into a
registration rights agreement dated June 5, 1996 (the "Registration Rights
Agreement") pursuant to which the Company and the Guarantors agreed, for the
benefit of the holders of Old Notes, that they will, at their cost, (i) within
30 days after the date of original issue of the Old Notes use their respective
reasonable best efforts to file a registration statement in accordance with the
Securities Act (an "Exchange Offer Registration Statement") with the Commission
with respect to a registered offer to exchange the Old Notes for the Exchange
Notes, which will have terms substantially identical in all material respects to
the Old Notes and (ii) use their reasonable best efforts to cause such Exchange
Offer Registration Statement to be declared effective under the Securities Act
within 120 days after such issue date. Upon such Exchange Offer Registration
Statement being declared effective, the Company agreed to offer to holders of
Old Notes who are able to make certain representations an opportunity to
exchange properly tendered Old Notes for Exchange Notes. The Company has agreed
to keep the Exchange Offer open for not less than 30 days (or longer if required
by applicable law) after the date notice of such Exchange Offer is mailed to the
holders of Old Notes.
In the event that applicable interpretations of the staff of the Commission
do not permit the Company to effect the Exchange Offer, or if for any other
reason the Exchange Offer is not consummated within 165 days of the date of
original issue of the Old Notes, the Company and the Guarantors will, at their
own expense, use their reasonable best efforts to (a) as promptly as
practicable, file a shelf registration statement covering resales of the Old
Notes (a "Shelf Registration Statement"), (b) cause such Shelf Registration
Statement to be declared effective under the Securities Act and (c) keep
effective such Shelf Registration Statement until the earlier of 36 months
following the date of original issue of the Old Notes and such time as all of
the Old Notes have been sold thereunder or otherwise cease to be a Transfer
Restricted Security (as
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defined in the Registration Rights Agreement). The Company and the Guarantors
will, in the event a Shelf Registration Statement is required to be filed by
them, provide to each holder of Old Notes copies of the prospectus which is a
part of such Shelf Registration Statement, notify each such holder of Old Notes
when such Shelf Registration Statement for the Old Notes has become effective
and take certain other actions as are required to permit unrestricted resales of
the Old Notes. A holder of Old Notes who sells such Old Notes pursuant to the
Shelf Registration Statement generally would be required to be named as a
selling security holder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreement which is applicable to such a
holder (including certain indemnification and contribution rights and
obligations).
If (a) neither the Exchange Offer Registration Statement nor a Shelf
Registration Statement is declared effective by the Commission on or prior to
the 120th day after the date of original issuance of the Notes (the
"Effectiveness Target Date"), (b) an Exchange Offer Registration Statement
becomes effective and the Company and the Guarantors fail to consummate the
Exchange Offer within 45 days of the earlier of the effectiveness of such
registration statement or the Effectiveness Target Date, or (c) the Shelf
Registration Statement is declared effective but thereafter ceases to be
effective or usable in connection with resales of Old Notes during the period
specified in the Registration Rights Agreement (each such event referred to in
clauses (a) through (c) above a "Registration Default"), then the Company and
the Guarantors will be required to pay Liquidated Damages to each Noteholder.
See "Old Notes Registration Rights; Liquidated Damages."
TERMS OF THE EXCHANGE
The Company hereby offers to exchange, upon the terms and subject to the
conditions set forth herein and the Letter of Transmittal accompanying the
Registration Statement of which this Prospectus is a part (the "Letter of
Transmittal"), $1,000 in principal amount of Exchange Notes for each $1,000 in
principal amount of Old Notes. The Terms of the Exchange Notes are substantially
identical to the terms of the Old Notes for which they may be exchanged pursuant
to this Exchange Offer, except that the Exchange Notes will generally be freely
transferable by holders thereof, and the holders of the Exchange Notes (as well
as remaining holders of any Old Notes) are not entitled to certain registration
rights and certain liquidated damages provisions which are applicable to the Old
Notes under the Registration Rights Agreement. The Exchange Notes will evidence
the same debt as the Old Notes and will be entitled to the benefits of the
Indenture. See "Description of Exchange Notes."
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Old Notes being tendered or accepted for exchange.
Based on its view of interpretations set forth in no-action letters issued
by the Staff to third parties, the Company believes that Exchange Notes issued
pursuant to the Exchange Offer in exchange for the Old Notes may be offered for
resale, resold and otherwise transferred by holders thereof (other than any
holder which is (i) an Affiliate of the Company, (ii) a broker-dealer who
acquired Old Notes directly from the Company or (iii) a broker-dealer who
acquired Old Notes as a result of market making or other trading activities)
without compliance with the registration and prospectus delivery provisions of
the Securities Act provided that such Exchange Notes are acquired in the
ordinary course of such holders' business, and such holders are not engaged in,
and do not intend to engage in, and have no arrangement or understanding with
any person to participate in, a distribution of such Exchange Notes. Any
broker-dealer that resells Exchange Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. The Letter of
Transmittal states that by so acknowledging, and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. Broker-dealers who acquired Old Notes as a result
of market making or other trading activities may use
32
<PAGE>
this Prospectus, as supplemented or amended, in connection with resales of
Exchange Notes. The Company has agreed that, for a period of 180 days after the
Registration Statement is declared effective, it will make this Prospectus
available to any broker-dealer for use in connection with any such resale. Any
holder who tenders in the Exchange Offer for the purpose of participating in a
distribution of the Exchange Notes or any other holder that cannot rely upon
such interpretations must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction.
Tendering holders of Old Notes will not be required to pay brokerage
commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the exchange of the Old Notes
pursuant to the Exchange Offer.
The Exchange Notes will bear interest from June 5, 1996. Holders of Old
Notes whose Old Notes are accepted for exchange will be deemed to have waived
the right to receive any payment in respect of interest on the Old Notes accrued
from June 5, 1996 to the date of the issuance of the Exchange Notes. The
Exchange Notes will bear interest at a rate of 13 1/4% per annum, payable
semi-annually on June 1 and December 1 of each year, commencing December 1,
1996.
EXPIRATION DATE; EXTENSIONS; TERMINATION; AMENDMENTS
The Exchange Offer expires on the Expiration Date. The term "Expiration
Date" means 5:00 p.m., New York City time, on October 11, 1996 unless the
Company in its sole discretion extends the period during which the Exchange
Offer is open, in which event the term "Expiration Date" means the latest time
and date on which the Exchange Offer, as so extended by the Company, expires.
The Company reserves the right to extend the Exchange Offer at any time and from
time to time prior to the Expiration Date by giving written notice to First
National Bank of Commerce (the "Exchange Agent") and by timely public
announcement communicated by no later than 5:00 p.m. on the next business day
following the Expiration Date, unless otherwise required by applicable law or
regulation, by making a release to the Dow Jones News Service. During any
extension of the Exchange Offer, all Old Notes previously tendered pursuant to
the Exchange Offer will remain subject to the Exchange Offer.
The initial Exchange Date will be the first business day following the
Expiration Date. The Company expressly reserves the right to (i) terminate the
Exchange Offer and not accept for exchange any Old Notes for any reason,
including if any of the events set forth below under "Conditions to the Exchange
Offer" shall have occurred and shall not have been waived by the Company and
(ii) amend the terms of the Exchange Offer in any manner, whether before or
after any tender of the Old Notes. If any such termination or amendment occurs,
the Company will notify the Exchange Agent in writing and will either issue a
press release or give written notice to the holders of the Old Notes as promptly
as practicable. Unless the Company terminates the Exchange Offer prior to 5:00
p.m., New York City time, on the Expiration Date, the Company will exchange the
Exchange Notes for Old Notes on the Exchange Date.
If the Company waives any material condition to the Exchange Offer, or
amends the Exchange Offer in any other material respect, and if at the time that
notice of such waiver or amendment is first published, sent to given to holders
of Old Notes in the manner specified above, the Exchange Offer is scheduled to
expire at any time earlier than the expiration of a period ending on the fifth
business day from, and including, the date that such notice is first so
published, sent or given, then the Exchange Offer will be extended until the
expiration of such period of five business days.
This Prospectus and the related Letter of Transmittal and other relevant
materials will be mailed by the Company to record holders of Old Notes and will
be furnished to brokers, banks and similar persons whose names, or the names of
whose nominees, appear on the lists of holders for subsequent transmittal to
beneficial owners of Old Notes.
HOW TO TENDER
The tender to the Company of Old Notes by a holder thereof pursuant to one
of the procedures set forth below will constitute an agreement between such
holder and the Company in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal.
33
<PAGE>
GENERAL PROCEDURES
A holder of an Old Note may tender the same by (i) properly completing and
signing the Letter of Transmittal or a facsimile thereof (all references in this
Prospectus to the Letter of Transmittal shall be deemed to include a facsimile
thereof) and delivering the same, together with the certificate or certificates
representing the Old Notes being tendered and any required signature guarantees
(or a timely confirmation of a book-entry transfer (a "Book-Entry Confirmation")
pursuant to the procedure described below), to the Exchange Agent at its address
set forth on the back cover of this Prospectus on or prior to the Expiration
Date or (ii) complying with the guaranteed delivery procedures described below.
If tendered Old Notes are registered in the name of the signer of the Letter
of Transmittal and the Exchange Notes to be issued in exchange therefor are to
be issued (and any untendered Old Notes are to be reissued) in the name of the
registered holder, the signature of such signer need not be guaranteed. In any
other case, the tendered Old Notes must be endorsed or accompanied by written
instruments of transfer in form satisfactory to the Company and duly executed by
the registered holder and the signature on the endorsement or instrument of
transfer must be guaranteed by a bank, broker, dealer, credit union, savings
association, clearing agency or other institution (each an "Eligible
Institution") that is a member of a recognized signature guarantee medallion
program within the meaning of Rule 17Ad-15 under the Exchange Act. If the
Exchange Notes and/or Old Notes not exchanged are to be delivered to an address
other than that of a registered holder appearing on the note register for the
Old Notes, the signature on the Letter of Transmittal must be guaranteed by an
Eligible Institution.
Any beneficial owner whose Old Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to tender
Old Notes should contact such holder promptly and instruct such holder to tender
Old Notes on such beneficial owner's behalf. If such beneficial owner wishes to
tender such Old Notes himself, such beneficial owner must, prior to completing
and executing the Letter of Transmittal and delivering such Old Notes, either
make appropriate arrangements to register ownership of the Old Notes in such
beneficial owner's name or follow the procedures described in the immediately
preceding paragraph. The transfer of record ownership may take considerable
time.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at The Depository Trust Company (the "Book-Entry Transfer
Facility") for purposes of the Exchange Offer within two business days after
receipt of this Prospectus, and any financial institution that is a participant
in the Book-Entry Transfer Facility's systems may make book-entry delivery of
Old Notes by causing the Book-Entry Transfer Facility to transfer such Old Notes
into the Exchange Agent's account at the Book-Entry Transfer Facility in
accordance with the Book-Entry Transfer Facility's procedures for transfer.
However, although delivery of Old Notes may be effected through book-entry
transfer at the Book-Entry Transfer Facility, the Letter of Transmittal, with
any required signature guarantees and any other required documents, must, in any
case, be transmitted to and received by the Exchange Agent at the address
specified on the back cover of this Prospectus on or prior to the Expiration
Date or the guaranteed delivery procedures described below must be complied
with.
THE METHOD OF DELIVERY OF OLD NOTES AND ALL OTHER DOCUMENTS IS AT THE
ELECTION AND RISK OF THE HOLDER. IF SENT BY MAIL, IT IS RECOMMENDED THAT
REGISTERED MAIL, RETURN RECEIPT REQUESTED, BE USED, PROPER INSURANCE BE
OBTAINED, AND THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE
TO PERMIT DELIVERY TO THE EXCHANGE AGENT ON OR BEFORE THE EXPIRATION DATE.
Unless an exemption applies under the applicable law and regulations
concerning "backup withholding" of federal income tax, the Exchange Agent will
be required to withhold, and will withhold, 31% of the gross proceeds otherwise
payable to a holder pursuant to the Exchange Offer if the holder does not
provide his taxpayer identification number (social security number or employer
identification number, as applicable) and certify that such number is correct.
Each tendering holder should complete and sign the main signature form and the
Substitute Form W-9 included as part of the Letter of Transmittal, so as to
provide the information and certification necessary to avoid backup withholding,
unless an applicable exemption exists and is proved in a manner satisfactory to
the Company and the Exchange Agent.
34
<PAGE>
GUARANTEED DELIVERY PROCEDURES
If a holder desires to accept the Exchange Offer and time will not permit a
Letter of Transmittal or Old Notes to reach the Exchange Agent before the
Expiration Date, a tender may be effected if the Exchange Agent has received at
its office listed on the Letter of Transmittal on or prior to the Expiration
Date a letter, telegram or facsimile transmission from an Eligible Institution
setting forth the name and address of the tendering holder, the principal amount
of the Old Notes being tendered, the names in which the Old Notes are registered
and, if possible, the certificate numbers of the Old Notes to be tendered, and
stating that the tender is being made thereby and guaranteeing that within three
New York Stock Exchange trading days after the date of execution of such letter,
telegram or facsimile transmission by the Eligible Institution, the Old Notes,
in proper form for transfer, will be delivered by such Eligible Institution
together with a properly completed and duly executed Letter of Transmittal (and
any other required documents). Unless Old Notes being tendered by the
above-described method (or a timely Book-Entry Confirmation) are deposited with
the Exchange Agent within the time period set forth above (accompanied or
preceeded by a properly completed Letter of Transmittal and any other required
documents), the Company may, at its option, reject the tender. Copies of a
Notice of Guaranteed Delivery which may be used by Eligible Institutions for the
purposes described in this paragraph are available from the Exchange Agent.
A tender will be deemed to have been received as of the date when the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Old Notes (or a timely Book-Entry Confirmation) is received
by the Exchange Agent. Issuances of Exchange Notes in exchange for Old Notes
tendered pursuant to a Notice of Guaranteed Delivery or letter, telegram or
facsimile transmission to similar effect (as provided above) by an Eligible
Institution will be made only against deposit of the Letter of Transmittal (and
any other required documents) and the tendered Old Notes (or a timely Book-Entry
Confirmation).
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for exchange of any tender of Old Notes will be
determined by the Company, whose determination will be final and binding. The
Company reserves the absolute right to reject any or all tenders not in proper
form or the acceptances for exchange of which may, in the opinion of counsel to
the Company, be unlawful. The Company also reserves the absolute right to waive
any of the conditions of the Exchange Offer or any defect or irregularities in
tenders of any particular holder whether or not similar defects or
irregularities are waived in the case of other holders. Neither the Company, the
Exchange Agent nor any other person will be under any duty to give notification
of any defects or irregularities in tenders or shall incur any liability for
failure to give any such notification. The Company's interpretation of the terms
and conditions of the Exchange Offer (including the Letter of Transmittal and
the instructions thereto) will be final and binding.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the following terms
and conditions, which are part of the Exchange Offer.
The party tendering Old Notes for exchange (the "Transferor") exchanges,
assigns and transfers the Old Notes to the Company and irrevocably constitutes
and appoints the Exchange Agent as the Transferor's agent and attorney-in-fact
to cause the Old Notes to be assigned, transferred and exchanged. The Transferor
represents and warrants that it has full power and authority to tender,
exchange, assign and transfer the Old Notes and to acquire Exchange Notes
issuable upon the exchange of such tendered Old Notes, and that, when the same
are accepted for exchange, the Company will acquire good and unencumbered title
to the tendered Old Notes, free and clear of all liens, restrictions, charges
and encumbrances and not subject to any adverse claim. The Transferor also
warrants that it will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
exchange, assignment and transfer of tendered Old Notes. The Transferor further
agrees that acceptance of any tendered Old Notes by the Company and the issuance
of Exchange Notes in exchange therefor shall constitute performance in full by
the Company of its obligations under the Registration Rights Agreement and that
the Company shall have no further obligations or liabilities thereunder (except
in certain limited circumstances). All authority
35
<PAGE>
conferred by the Transferor will survive the death or incapacity of the
Transferor and every obligation of the Transferor shall be binding upon the
heirs, legal representatives, successors, assigns, executors and administrators
of such Transferor.
By tendering Old Notes and executing the Letter of Transmittal, the
Transferor certifies that (i) any Exchange Notes to be received by it will be
acquired in the ordinary course of its business, (ii) it has no arrangement with
any person to participate in the distribution of the Exchange Notes and (iii) it
is not an "affiliate," as defined in Rule 405 of the Securities Act, of the
Company, or if it is an affiliate of the Company, it will comply with the
registration and prospectus delivery requirements of the Securities Act to the
extent applicable. In addition, if the Transferor is not a broker-dealer, it
will be required to represent that it is not engaged in, and does not intend to
engage in, the distribution of the Exchange Notes. If the holder is a
broker-dealer that will receive Exchange Notes for its own account in exchange
for Old Notes that were acquired as a result of market making activities or
other trading activities, it will be required to acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Notes.
WITHDRAWAL RIGHTS
Old Notes tendered pursuant to the Exchange Offer may be withdrawn at any
time prior to the Expiration Date.
For a withdrawal to be effective, a written or facsimile transmission notice
of withdrawal must be timely received by the Exchange Agent at its address set
forth on the back cover of this Prospectus prior to the Expiration Date. Any
such notice of withdrawal must specify the person named in the Letter of
Transmittal as having tendered Old Notes to be withdrawn, the certificate
numbers of Old Notes to be withdrawn, the principal amount of Old Notes to be
withdrawn, a statement that such holder is withdrawing his election to have such
Old Notes exchanged, and the name of the registered holder of such Old Notes,
and must be signed by the holder in the same manner as the original signature on
the Letter of Transmittal (including any required signature guarantees) or be
accompanied by evidence satisfactory to the Company that the person withdrawing
the tender has succeeded to the beneficial ownership of the Old Notes being
withdrawn. The Exchange Agent will return the properly withdrawn Old Notes
promptly following receipt of notice of withdrawal. All questions as to the
validity of notices of withdrawals, including time of receipt, will be
determined by the Company, and such determination will be final and binding on
all parties.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon the terms and subject to the conditions of the Exchange Offer, the
acceptance for exchange of Old Notes validly tendered and not withdrawn and the
issuance of the Exchange Notes will be made on the Exchange Date. For the
purposes of the Exchange Offer, the Company shall be deemed to have accepted for
exchange validly tendered Old Notes when, as and if the Company has given
written notice thereof to the Exchange Agent.
The Exchange Agent will act as agent for the tendering holders of Old Notes
for the purposes of receiving Exchange Notes from the Company and causing the
Old Notes to be assigned, transferred and exchanged. Upon the terms and subject
to conditions of the Exchange Offer, delivery of Exchange Notes to be issued in
exchange for accepted Old Notes will be made by the Exchange Agent promptly
after acceptance of the tendered Old Notes. Old Notes not accepted for exchange
by the Company will be returned without expense to the tendering holders (or in
the case of Old Notes tendered by book-entry transfer into the Exchange Agent's
account at the Book-Entry Transfer Facility pursuant to the procedures described
above, such non-exchanged Old Notes will be credited to an account maintained
with such Book-Entry Transfer Facility) promptly following the Expiration Date
or, if the Company terminates the Exchange Offer prior to the Expiration Date,
promptly after the Exchange Offer is so terminated.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, or any extension
of the Exchange Offer, the Company will not be required to issue Exchange Notes
in respect of any properly tendered Old Notes not previously accepted and may
terminate the Exchange Offer (by oral or written notice to the Exchange Agent
and by timely public announcement communicated by no later than 5:00 p.m. on the
next business day following the Expiration Date, unless otherwise required by
applicable law or regulation, by making a release
36
<PAGE>
to the Dow Jones News Service) or, at its option, modify or otherwise amend the
Exchange Offer, if (a) there shall be threatened, instituted or pending any
action or proceeding before, or any injunction, order or decree shall have been
issued by, any court or governmental agency or other governmental regulatory or
administrative agency or commission, (i) seeking to restrain or prohibit the
making or consummation of the Exchange Offer or any other transaction
contemplated by the Exchange Offer, (ii) assessing or seeking any damages as a
result thereof or (iii) resulting in a material delay in the ability of the
Company to accept for exchange or exchange some or all of the Old Notes pursuant
to the Exchange Offer; (b) any statute, rule, regulation, order or injunction
shall be sought, proposed, introduced, enacted, promulgated or deemed applicable
to the Exchange Offer or any of the transactions contemplated by the Exchange
Offer by any government or governmental authority, domestic or foreign, or any
action shall have been taken, proposed or threatened, by any government,
governmental authority, agency or court, domestic or foreign, that in the
reasonable judgment of the Company might directly or indirectly result in any of
the consequences referred to in clauses (a)(i) or (ii) above or, in the
reasonable judgment of the Company, might result in the holders of Exchange
Notes having obligations with respect to resales and transfers of Exchange Notes
which are greater than those described in the interpretations of the Staff
referred to on the cover page of this Prospectus, or would otherwise make it
inadvisable to proceed with the Exchange Offer; or (c) a material adverse change
shall have occurred in the business, condition (financial or otherwise),
operations, or prospects of the Company.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by it with respect to all or any portion of the Exchange Offer
regardless of the circumstances (including any action or inaction by the
Company) giving rise to such condition or may be waived by the Company in whole
or in part at any time or from time to time in its sole discretion. The failure
by the Company at any time to exercise any of the foregoing rights will not be
deemed a waiver of any such right, and each right will be deemed an ongoing
right which may be asserted at any time or from time to time. In addition, the
Company has reserved the right, notwithstanding the satisfaction of each of the
foregoing conditions, to terminate or amend the Exchange Offer.
Any determination by the Company concerning the fulfillment or
nonfulfillment of any conditions will be final and binding upon all parties.
In addition, the Company will not accept for exchange any Old Notes tendered
and no Exchange Notes will be issued in exchange for any such Old Notes, if at
such time any stop order shall be threatened or in effect with respect to the
Registration Statement of which this Prospectus constitutes a part or
qualification of the Indenture under the Trust Indenture Act of 1939, as amended
(the "Trust Indenture Act").
EXCHANGE AGENT
First National Bank of Commerce has been appointed as the Exchange Agent for
the Exchange Offer. Letters of Transmittal must be addressed to the Exchange
Agent at:
<TABLE>
<S> <C> <C>
BY MAIL: BY OVERNIGHT DELIVERY: BY HAND DELIVERY:
Corporate Trust Services Corporate Trust Services First National Bank of Commerce
First National Bank of Commerce First National Bank of Commerce c/o Chase Manhattan Bank
P.O. Box 60030 210 Baronne Street 55 Water Street
New Orleans, Louisiana 70160-0030 Basement Level Room 234
Attention: Rebecca Norton New Orleans, Louisiana 70112 New York, New York 10041
Attention: Rebecca Norton
</TABLE>
Telephone: (504) 623-7581
Facsimile: (504) 623-1095
37
<PAGE>
Delivery to an address other than as set forth herein, or transmissions of
instructions via a facsimile or telex number other than the ones set forth
herein, will not constitute a valid delivery.
SOLICITATION OF TENDERS; EXPENSES
The Company has not retained any dealer-manager or similar agent in
connection with the Exchange Offer and will not make any payments to brokers,
dealers or others for soliciting acceptances of the Exchange Offer. The Company
will, however, pay the Exchange Agent reasonable and customary fees for its
services and will reimburse it for reasonable out-of-pocket expenses in
connection therewith. The Company will also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding tenders for their customers. The expenses to be
incurred in connection with the Exchange Offer, including the fees and expenses
of the Exchange Agent and printing, accounting, legal fees and miscellaneous
expenses will be paid by the Company and are estimated to be approximately
$250,000.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those contained
in this Prospectus. If given or made, such information or representations should
not be relied upon as having been authorized by the Company. Neither the
delivery of this Prospectus nor any exchange made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the respective dates as of which information is
given herein. The Exchange Offer is not being made to (nor will tenders be
accepted from or on behalf of) holders of Old Notes in any jurisdiction in which
the making of the Exchange Offer or the acceptance thereof would not be in
compliance with the laws of such jurisdiction. However, the Company may, at its
discretion, take such action as it may deem necessary to make the Exchange Offer
in any such jurisdiction and extend the Exchange Offer to holders of Old Notes
in such jurisdiction. In any jurisdiction the securities laws or blue sky laws
of which require the Exchange Offer to be made by a licensed broker or dealer,
the Exchange Offer is being made on behalf of the Company by one or more
registered brokers or dealers that are licensed under the laws of such
jurisdiction.
APPRAISAL RIGHTS
HOLDERS OF OLD NOTES WILL NOT HAVE DISSENTERS' RIGHTS OR APPRAISAL RIGHTS IN
CONNECTION WITH THE EXCHANGE OFFER.
FEDERAL INCOME TAX CONSEQUENCES
The exchange of Old Notes for Exchange Notes by tendering holders will not
be a taxable exchange for federal income tax purposes, and such holders should
not recognize any taxable gain or loss or any interest income as a result of
such exchange.
OTHER
Participation in the Exchange Offer is voluntary and holders of Old Notes
should carefully consider whether to accept the terms and conditions thereof.
Holders of the Old Notes are urged to consult their financial and tax advisors
in making their own decisions on what action to take with respect to the
Exchange Offer.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Old Notes pursuant to the terms of this Exchange Offer, the
Company will have fulfilled a covenant contained in the terms of the Old Notes
and the Registration Rights Agreement. Holders of the Old Notes who do not
tender their Old Notes in the Exchange Offer will continue to hold such Old
Notes and will be entitled to all the rights, and limitations applicable
thereto, under the Indenture, except for any such rights under the Registration
Rights Agreement which by their terms terminate or cease to have further effect
as a result of the making of this Exchange Offer. See "Description of Exchange
Notes." All untendered Old Notes will continue to be subject to the restriction
on transfer set forth in the Indenture. To the extent that Old Notes are
tendered and accepted in the Exchange Offer, the trading market, if any, for any
remaining Old Notes could be adversely affected. See "Risk Factors --
Consequences of Failure to Exchange Old Notes."
The Company may in the future seek to acquire untendered Old Notes in open
market or privately negotiated transactions, through subsequent exchange offers
or otherwise. The Company has no present plan to acquire any Old Notes that are
not tendered in the Exchange Offer.
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<PAGE>
CAPITALIZATION
The following table sets forth the cash and cash equivalents, short-term
indebtedness and total capitalization of the Company as of June 30, 1996, which
reflects the issuance and sale of the Old Notes and the application of the net
proceeds therefrom.
<TABLE>
<CAPTION>
AT JUNE 30,
1996
---------------
(IN THOUSANDS)
<S> <C>
Cash and cash equivalents.............................................................. $ 158,374(a)
---------------
---------------
Total debt (b):
Old Notes............................................................................ $ 235,000
Note payable......................................................................... 9,202
Convertible Subordinated Notes....................................................... 115,000
---------------
Total debt......................................................................... 359,202
Stockholders' equity:
Preferred stock; $.01 par value per share; 10,000,000 shares authorized; none
outstanding......................................................................... --
Redeemable common stock; $.01 par value per share; 85 shares authorized; none
outstanding......................................................................... --
Common stock; $.01 par value per share; 60,000,000 shares authorized; 24,333,333
shares outstanding (c).............................................................. 243
Capital in excess of par value....................................................... 71,865
Retained earnings.................................................................... 19,564
---------------
Total stockholders' equity......................................................... 91,672
---------------
Total capitalization................................................................... $ 450,874
---------------
---------------
</TABLE>
- ---------------
(a) Includes restricted cash in the amount of $94.5 million that is held in a
disbursement account under the control of a disbursement agent solely for
use in connection with developing the Lawrenceburg Casino project. Pursuant
to the terms of the disbursement agreement governing the disbursement
account, there are certain conditions and limitations affecting the ability
of the Company to draw upon such funds. See "Description of Exchange Notes
-- Cash Collateral and Disbursement Agreement" and "-- Certain Covenants --
Limitation on Use of Proceeds."
(b) For a further description of the Company's debt, see "Description of
Certain Indebtedness" and Note 3 of Notes to Consolidated Financial
Statements. In March 1995, the Company entered into the Former Bank Credit
Facility pursuant to which the Company could borrow up to $20 million under
a revolving line of credit and up to an additional $80 million which would
be available under an expansion line for the Company's expansion projects.
The total indebtedness outstanding under the Former Bank Credit Facility
was $91.4 million on the closing date of the offering of the Old Notes. In
connection with the offering of the Old Notes, all amounts outstanding
under the Former Bank Credit Facility were repaid in full and the Company
terminated the facility.
(c) Does not include 2,500,000 shares of common stock available under the
Company's 1993 Employee Stock Option Plan (of which options covering
2,445,253 shares are outstanding, options covering 569,705 shares of which
are exercisable as of the date of this Offering Memorandum) and 50,000
shares of common stock available under the Company's 1993 Directors Option
Plan (of which options covering 21,000 shares are outstanding, options
covering 17,000 shares of which are exercisable as of the date of this
Offering Memorandum).
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<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data for the Company presented below
under the captions "Income Statement Data" and "Balance Sheet Data" for and as
of the end of each of the five years ended December 31, 1995 are derived from
the Consolidated Financial Statements of the Company which have been audited by
Ernst & Young LLP, independent auditors. The selected income statement data for
the six months ended June 30, 1995 and 1996 and the selected balance sheet data
at June 30, 1995 and 1996 have been derived from the unaudited condensed
consolidated financial statements which are also included in this Prospectus and
include all adjustments, consisting of normal recurring accruals, that the
Company considers necessary for a fair presentation of its consolidated
financial position and results of operations for such periods. The following
information should be read in conjunction with the consolidated financial
statements and notes thereto, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
Prospectus.
The Company believes that the results of operations for each of the five
years in the period ended December 31, 1995, are not readily comparable to each
other because (i) the Alton Belle Casino commenced operations in September 1991,
was substantially expanded in May 1993, was affected by severe flooding
experienced in the St. Louis area in the summer of 1993 and was the only casino
that operated until June 1993, (ii) the Argosy Casino in Riverside commenced
operations on June 22, 1994 on a riverboat that offered only the limited forms
of casino gaming then permitted under Missouri law and on December 9, 1994
expanded its operations to offer additional casino gaming, including slot
machines, (iii) the Belle of Baton Rouge commenced operations on September 30,
1994 through a 90% interest in a joint venture, which became a 100% subsidiary
of the Company on June 6, 1995 (effective May 30, 1995), and (iv) the Company
became the manager of the Belle of Sioux City on October 4, 1994 and on December
1, 1994 became the 70% general partner of the Belle of Sioux City, L.P.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------- --------------------
1991(A) 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Casino..................................... $ 10,703 $ 49,742 $ 60,182 $ 138,425 $ 237,613 $ 117,791 $ 118,147
Admissions................................. 2,975 5,990 6,440 12,177 15,300 8,344 1,995
Food, beverage and other................... 1,267 3,544 4,381 12,036 18,537 8,136 12,853
Less: promotional allowances............... (826) (1,257) (3,478) (9,593) (18,759) (8,735) (7,041)
--------- --------- --------- --------- --------- --------- ---------
Net revenues........................... 14,119 58,019 67,525 153,045 252,691 125,536 125,954
Costs and expenses:
Casino..................................... 5,478 19,521 25,308 64,997 117,725 58,753 59,264
Food, beverage and other................... 1,009 2,827 4,490 11,876 17,242 7,977 11,329
Other operating expenses................... 1,203 3,346 5,078 9,897 16,910 7,802 8,732
Selling, general and administrative........ 1,634 5,207 8,903 23,674 45,814 23,579 26,231
Depreciation and amortization.............. 656 2,089 3,333 9,846 20,450 10,038 11,085
Development and preopening................. 1,569 -- 4,609 9,761 6,888 1,138 3,790
Flood costs (b)............................ -- -- 1,477 -- -- -- --
Retirement benefit (c)..................... -- 1,595 -- -- -- -- --
Lease termination costs.................... -- -- -- -- -- -- 3,508
--------- --------- --------- --------- --------- --------- ---------
11,549 34,585 53,198 130,051 225,029 109,287 123,939
--------- --------- --------- --------- --------- --------- ---------
Income from operations................. 2,570 23,434 14,327 22,994 27,662 16,249 2,015
Other income (expense):
Interest income............................ -- -- 1,254 1,081 436 214 640
Interest expense:
Amortization of accommodation fee...... (1,549) (6,951) -- -- -- -- --
Other.................................. (328) (931) (800) (8,182) (14,708) (7,917) (11,546)
--------- --------- --------- --------- --------- --------- ---------
Income before income taxes, minority
interests, and extraordinary item........... 693 15,552 14,781 15,893 13,390 8,546 (8,891)
Income tax benefit (expense)................. (34) (338) (3,956) (6,453) (6,621) (3,711) 3,200
Minority interests........................... -- -- -- 195 184 (54) 713
Income (loss) before extraordinary item...... 659 15,214 10,825 9,635 6,953 4,781 (4,978)
Extraordinary loss on extinguishment of debt
(net of income tax benefit of $594)......... -- -- -- -- -- -- (890)
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)...................... $ 659 $ 15,214 $ 10,825 $ 9,635 $ 6,953 $ 4,781 $ (5,868)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEARS ENDED DECEMBER 31, 30,
----------------------------------------------------- -----------------------
1991(A) 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- ------------ ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before extraordinary item
per share................................ -- -- -- $ 0.40 $ 0.29 $ 0.20 $ (0.20)
Extraordinary loss on extinguishment of
debt per share (net of income tax benefit
of $0.02)................................ -- -- -- -- -- -- $ (0.04)
Net income (loss) per share............... -- -- -- $ 0.40 $ 0.29 $ 0.20 $ (0.24)
Shares outstanding........................ -- -- -- 24,333 24,333 24,333 24,333
Ratio of earnings to fixed charges (d).... 1.2x 3.0x 16.0x 2.3x 1.5x 1.9x --(d)
Pro forma ratio of earnings to fixed
charges (d).............................. -- -- -- -- 1.3x --(d)
Pro forma net income per share (e)........ $ .36 $ .38 $ -- $ .23
Pro forma shares outstanding (e).......... 20,552 23,764 -- 24,333
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents................. $ 2,088 $ 2,749 $ 7,404 $ 18,291 $ 16,159 $ 14,011 $ 158,374(f)
Total assets.............................. 23,596 21,022 94,635 232,831 309,882 267,675 509,897
Long-term debt including current
maturities............................... 10,452 4,693 4,332 115,431 169,702 135,120 359,202
Total stockholders' equity................ 547 2,812 80,952 90,587 97,540 95,368 91,672
</TABLE>
- ---------------
(a) The income statement data for the year ended December 31, 1991 includes
preopening expenses associated with the developmental stage of the Company
through September 10, 1991, the date the Company was granted a gaming
license by the Illinois Gaming Board. The Company received no operating
revenues prior to September 10, 1991.
(b) During the early summer and early fall of 1993, the St. Louis metropolitan
area experienced severe flooding along the Mississippi river front. While
the Company remained operational during the flooding, it experienced an
increase in expenses to remain operational and its attendance during the
period declined. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(c) Represents a fully vested retirement benefit that is payable to an officer
of the Company and was expensed in its entirety during 1992.
(d) The ratio of earnings to fixed charges has been computed by dividing
earnings available for fixed charges (income before income taxes plus fixed
charges less capitalized interest) by fixed charges (interest expense plus
capitalized interest and one third of rental expense (the portion deemed
representative of the interest factor)). The Company's earnings were
inadequate to cover fixed charges for the six months ended June 30, 1996 by
approximately $11.1 million. The pro forma ratio of earning to fixed charges
reflects the net increase in interest expense related to the issuance of
that portion of the Old Notes necessary to retire amounts outstanding under
the Former Bank Credit Facility as of December 31, 1995 and June 30, 1996.
The Company's earnings were inadequate to cover pro forma fixed charges for
the six months ended June 30, 1996 by approximately $12.1 million.
(e) From their inception until a reorganization that was effected on February
25, 1993, certain predecessor entities of the Company elected to be treated
as S Corporations under the Internal Revenue Code and were not generally
subject to corporate income taxes. The pro forma net income amount for the
years ended December 31, 1992 and 1993 have been determined assuming the
reorganization had occurred on January 1, 1992 resulting in the Company
being treated as a C Corporation for tax purposes as of that date and to
reflect the use of a portion of the net proceeds of the Company's initial
public offering to retire debt. The pro forma tax provision for 1993 has
been computed using an effective tax rate of 39%. The pro forma tax
provision for 1992 has been computed using an effective tax rate of 51%,
which differs from the statutory rate principally due to an an assumed
difference between book and tax treatment of amortization of the $8.5
million accomodation fee paid to a stockholder of a predecessor entity of
the Company. See Notes 1, 4, 8 and 11 of the Notes to the Consolidated
Financial Statements. In addition, pro forma net income per share for the
year ended December 31, 1995 reflects the Jazz Acquisition as if it had
occurred on January 1, 1995. The Company's pro forma net revenue, income
from operations, interest expense and net income giving such effect to the
Jazz Acquisition for the year ended December 31, 1995 is $252.7 million,
$26.8 million, $15.5 million and $5.7 million, respectively. The Company's
pro forma net revenue, income from operations, interest expense and net
income giving such effect to the Jazz Acquisition for the six months ended
June 30, 1995 is $125.6 million, $15.3 million, $8.7 million and $3.5
million, respectively. See Note 7 of the Notes to Consolidated Financial
Statements and Note 3 of the Notes to Condensed Consolidated Financial
Statements.
(f) Includes $94.5 million of cash that is held in a cash collateral and
disbursement account under the control of a disbursement agent solely for
use in connection with developing the Lawrenceburg Casino project. See
"Description of Exchange Notes -- Cash Collateral and Disbursement
Agreement."
41
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH, AND IS
QUALIFIED IN ITS ENTIRETY BY, THE CONSOLIDATED FINANCIAL STATEMENTS AND THE
NOTES THERETO INCLUDED ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
The Company opened its first riverboat casino, the Alton Belle Casino, in
Alton, Illinois in September 1991. Subsequently, the Company opened the Argosy
Casino in Riverside, Missouri in June 1994; the Belle of Baton Rouge in Baton
Rouge, Louisiana in September 1994; and through a management agreement, the
Belle of Sioux City in Sioux City, Iowa in October 1994. The Company, through a
70% general partnership interest, began consolidating the results of the Belle
of Sioux City on January 1, 1995. In addition, the Company, through its 57.5%
equity interest in Indiana Gaming L.P., is developing the Lawrenceburg Casino
project, which the Company anticipates opening with a temporary gaming facility
in the fourth quarter of 1996 and with a permanent gaming facility, not later
than 12 months thereafter. The Company's results of operations for the year
ended December 31, 1993 reflect only the operations of the Alton Belle Casino.
The results of operations for the year ended December 31, 1994 reflect a full
year of operations of the Alton Belle Casino, and reflect operations from the
Argosy Casino in Riverside, Belle of Baton Rouge and Belle of Sioux City from
their respective opening dates. The results of operations for the year ended
December 31, 1995 reflect a full year of operations for each of the Company's
four existing gaming properties.
The Company believes that the results of operations for the years ended
December 31, 1993, 1994 and 1995, are not readily comparable to each other, and
may not be indicative of results of operations for future periods, due to the
operational impact at the Alton Belle Casino of the severe flooding in the St.
Louis area in 1993, the timing of the opening of the Company's properties,
certain changes in Missouri gaming regulations, and substantial present and
expected future increases in gaming competition in all of the Company's gaming
markets. The Company will face increased competition in the St. Louis and Kansas
City areas as new riverboat casinos are expected to open in these markets.
Accordingly, the Company belives that it may be more difficult in the future to
sustain historical levels of operating revenues and profitability at certain of
its properties.
The Company's results of operations for the six months ended June 30, 1996
were adversely affected by increased competition at its Alton and Riverside
properties and the Company expects to face further increased competition in the
St. Louis and Kansas City areas as new riverboat casinos are expected to open in
these markets. Accordingly, the Company believes that it may be more difficult
in the future to sustain historical levels of operating revenues and
profitability at certain of its properties. Increasing competitive pressures
have also resulted in the Company eliminating, in January 1996, admissions fees
at its current gaming operations. In addition, the Company is incurring
significant costs and capital expenditures in developing the Lawrenceburg casino
project. These increased costs, and the increased interest expense associated
with the Notes, will continue to adversely affect the Company's results of
operations until such time as the Lawrenceburg casino is opened and generating
revenues.
42
<PAGE>
The following table highlights the results of operations for the Company's
operating casinos (amounts in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
--------------------------------- ----------------------
1993 1994 (1) 1995 1995 1996
--------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
GROSS REVENUES
Alton Belle Casino........................ $ 71,003 $ 104,038 $ 89,262 $ 44,125 $ 41,135
Argosy Casino Riverside................... 37,224 106,946 53,486 51,339
Belle of Baton Rouge Casino............... 20,976 52,729 25,517 29,769
Belle of Sioux City Casino................ 22,500 11,058 10,497
--------- ---------- ---------- ---------- ----------
Total Properties........................ $ 71,003 $ 162,238 $ 271,437 $ 134,186 $ 132,740
--------- ---------- ---------- ---------- ----------
--------- ---------- ---------- ---------- ----------
NET REVENUES
Alton Belle Casino........................ $ 67,525 $ 96,983 $ 85,992 $ 42,578 $ 39,942
Argosy Casino Riverside................... 35,351 94,058 47,306 47,329
Belle of Baton Rouge Casino............... 20,319 50,639 24,742 28,274
Belle of Sioux City Casino................ 21,994 10,831 10,167
--------- ---------- ---------- ---------- ----------
Total Properties........................ $ 67,525 $ 152,653 $ 252,683 $ 125,457 $ 125,712
--------- ---------- ---------- ---------- ----------
--------- ---------- ---------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS
Alton Belle Casino (2).................... $ 19,909 $ 28,817 $ 22,446 $ 11,380 $ 7,965
Argosy Casino Riverside (3)............... 2,472 22,057 12,437 2,744
Belle of Baton Rouge Casino (4)(5)........ 2,843 2,434 (264) 3,658
Belle of Sioux City Casino (2)............ 3,137 2,066 578
--------- ---------- ---------- ---------- ----------
Total Properties........................ $ 19,909 $ 34,132 $ 50,074 $ 25,619 $ 14,945
--------- ---------- ---------- ---------- ----------
--------- ---------- ---------- ---------- ----------
EBITDA (6)
Alton Belle Casino (2).................... $ 23,225 $ 32,728 $ 26,734 $ 13,446 $ 10,036
Argosy Casino Riverside (3)............... 6,450 29,452 15,938 6,996
Belle of Baton Rouge Casino (4)(5)........ 3,995 7,863 2,459 6,387
Belle of Sioux City Casino (2)............ 3,610 2,201 961
--------- ---------- ---------- ---------- ----------
Total Properties........................ $ 23,225 $ 43,173 $ 67,659 $ 34,044 $ 24,380
--------- ---------- ---------- ---------- ----------
--------- ---------- ---------- ---------- ----------
</TABLE>
- ------------
(1) The operations of the Belle of Sioux City have not been included as they
are not material.
(2) Income from operations is presented before consideration of management fees
or intercompany charges paid to the Company and, in the case of the Belle
of Sioux City, before the 30% minority interest.
(3) Income from operations and EBITDA for the Argosy Casino in Riverside
reflect (i) for the year ended December 31, 1994, the incurrence of $2.5
million of preopening expenses and (ii) for the six months ended June 30,
1996, the incurrence of $3.5 million of lease termination costs related to
assets formerly used at the Riverside temporary facility. The Argosy Casino
in Riverside opened on June 22, 1994. The land-based entertainment pavilion
at the Riverside casino opened on January 15, 1996.
(4) Income from operations and EBITDA for the Belle of Baton Rouge for the year
ended December 31, 1994 reflect the incurrence of $2.6 million of
preopening expenses. The Belle of Baton Rouge opened September 30, 1994.
(5) Does not reflect the results of operations of the Catfish Town land based
development in Baton Rouge.
(6) EBITDA is defined as earnings before interest, taxes, depreciation and
amortization and is presented before any management fees or intercompany
charges paid to the Company. EBITDA should not be construed as an
alterative to operating income, or net income (as determined in accordance
with generally accepted accounting principles) as an indicator of the
Company's operating performance, or as an alternative to cash flows
generated by operating, investing and financing activities (as determined
in accordance with generally accepted accounting principles) as an
indicator of cash flow or a measure of liquidity. EBITDA is presented
solely as a supplemental disclosure because management believes that it is
a widely used measure of operating performance in the gaming industry and
for companies with a significant amount of depreciation and amortization.
The Company has other significant uses of cash flows, including capital
expenditures, which are not reflected in EBITDA.
43
<PAGE>
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
CASINO -- Casino revenues for the six months ended June 30, 1996 increased
to $118.1 million from $117.8 million for the six months ended June 30, 1995.
Alton casino revenues decreased from $40.5 million to $37.4 million due to
severe weather conditions in January and February 1996. The decrease is also
attributed to flooding in 1995 as Alton benefitted when two competing riverboat
casinos were temporarily closed in the St. Louis area. Riverside casino revenues
increased from $42.9 million to $44.0 million due to the opening of the
Company's permanent land based entertainment pavilion on January 15, 1996,
offset by the severe weather conditions experienced in January and February 1996
and additional competition in the Kansas City market. Baton Rouge casino
revenues increased $3.0 million from $24.0 million to $27.0 million. Sioux City
casino revenues decreased $.7 million to $9.7 million due to severe weather
conditions in January and February 1996 and the effects of increased competition
from two riverboat casinos which opened in January 1996.
Casino expenses increased from $58.8 million for the six months ended June
30, 1995 to $59.3 million for the six months ended June 30, 1996 primarily
related to increases in gaming taxes and admission taxes which increased
proportionately with the increases in casino revenues and customer boardings
respectively.
ADMISSIONS -- Admissions revenue (net of complimentary admissions) decreased
from $3.4 million for the six months ended June 30, 1995 to $.2 million for the
six months ended June 30, 1996. This decrease is due to the Company's
elimination of admission fees in January 1996 in Riverside in reaction to
competitive pressures in the Kansas City market.
FOOD, BEVERAGE AND OTHER -- Food, beverage and other revenues increased $4.8
million to $12.9 million for the six month period ended June 30, 1996 primarily
due to increased food, beverage and other sales at the expanded Riverside and
Baton Rouge facilities. Riverside revenues increased from $2.3 million to $5.3
million while Baton Rouge revenues increased from $1.3 million to $2.5 million.
Alton's food, beverage and other revenues remained stable with the six month
period ending June 30, 1995 while Sioux City's food, beverage and other revenues
increased .2 million over the prior six month period. Food beverage and other
net profit improved $1.3 million to $1.5 million for the six months ended June
30, 1996 due primarily to improved operating efficiencies in the Company's food
and beverage operations.
OTHER OPERATING EXPENSES -- Other operating expenses increased $.9 million
to $8.7 million for the six months ended June 30, 1996. This increase is
primarily due to the opening of the permanent land based entertainment pavilion
at Riverside, the addition of expanded entertainment facilities in Sioux City
and the additional services needed for the severe weather conditions in January
and February 1996 experienced at the Alton, Riverside and Sioux City casinos.
SELLING, GENERAL AND ADMINISTRATIVE -- Selling, general and administrative
expenses increased $2.6 million to $26.2 million for the six months ended June
30, 1996. Increases of $1.8 million and $.9 million, respectively, in Alton and
Riverside relate primarily to increases in advertising and promotional expenses
due to increased competition and the opening of the Riverside permanent
facility. Additionally, the Company recorded a charge of approximately $1.5
million, in 1996, in professional and other fees related to its response to a
Marion County, Indiana grand jury document subpoena and the related termination
of a private placement of first mortgage notes. These increases were offset
somewhat by lower general and administrative costs in Baton Rouge.
DEPRECIATION AND AMORTIZATION -- Depreciation and amortization increased
$1.1 million from $10.0 million for the six months ended June 30, 1995 to $11.1
million for the six months ended June 30, 1996. This increase is primarily due
to increased depreciation in Riverside in connection with the Company's land
based entertainment pavilion which opened on January 15, 1996 at an approximate
cost of $45 million.
DEVELOPMENT AND PREOPENING COSTS -- Development and preopening costs
increased from $1.1 million for the six month period ending June 30, 1995 to
$3.8 million for the six month period ending June 30, 1996. The primary increase
is due to expenses related to developing the casino in Lawrenceburg, Indiana,
which has an anticipated opening date of the fourth quarter of 1996.
44
<PAGE>
INTEREST EXPENSE -- Net interest expense increased $3.2 million to $10.9
million for the six months ended June 30, 1996. The increase is attributable to
interest expense on the increased borrowings, used to fund the Company's
expansion and development program, on the $100 million Line of Credit through
June 5, 1996 and interest expense related to the $235 million First Mortgage
Notes issued June 5, 1996.
NET INCOME (LOSS) -- Net income decreased from $4.8 million for the six
months ended June 30, 1995 to a net loss of $5.9 million for the six months
ended 1996 primarily for the reasons discussed above. In addition the Company
recorded a pretax charge of $3.5 million related to lease termination costs in
connection with assets formerly used at its temporary facility in Riverside.
Further, the company recorded an extraordinary loss of $.9 million (net of tax)
related to the write off of deferred finance costs associated with
extinguishment of its revolving secured line of credit in 1996.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Consolidated net revenues rose to $252.7 million for the year ended December
31, 1995 from $153.0 million for the year ended December 31, 1994. Net revenues
in Alton decreased to $86.0 million from $97.0 million due primarily to the full
year effect of increased competition in the St. Louis market beginning in May
1994 and by the addition of slot machines in Missouri casinos in December 1994.
Additionally, due to competitive circumstances the Company ceased charging
admissions in Alton in November 1994. Admission revenue in Alton was $7.1
million during the year ended December 31, 1994. Net revenues in Riverside
increased $58.7 million to $94.1 million as the casino was open for a full year
with full scale gaming compared with offering games of skill in 1994. Net
revenues contributed in Baton Rouge were $50.3 million, for the year ended
December 31, 1995 versus $20.3 million in 1994.
CASINO -- Casino revenues for the year ended December 31, 1995 increased to
$237.6 million from $138.4 million for the year ended December 31, 1994.
Riverside, Baton Rouge and Sioux City contributed casino revenues of $86.4
million, $48.9 million and $20.9 million, respectively, for the year ended
December 31, 1995 verses a combined $49.6 million in 1994. Alton casino revenues
decreased from $88.9 million to $81.4 million due to increased competition in
the St. Louis area.
Casino and other operating expenses increased approximately $59.7 million
over 1994 due to the operating expenses of the Riverside, Baton Rouge and Sioux
City casinos. Of this increase, gaming taxes and admissions taxes increased
$18.9 million and $8.8 million, respectively, which is proportionate with the
increases in casino revenues and customer boardings. The remaining casino and
other operating expenses were $17.5 million and $7.6 million in Baton Rouge and
Sioux City, respectively for the year ended December 31, 1995. The remaining
casino and other operating expenses at Riverside increased $12.1 million to
$23.1 million as a result of the casino being open for a full year in 1995
compared with six months in 1994.
FOOD, BEVERAGE AND OTHER -- Food, beverage and other revenues increased $6.5
million over the prior year to $18.5 million. Alton's food, beverage and other
revenues decreased slightly to $7.8 million as compared to $8.1 million for the
year ended December 31, 1994. Riverside, Baton Rouge and Sioux City contributed
$5.2 million, $3.5 million and $1.6 million, respectively, for the year ended
December 31, 1995 versus a combined $3.5 million in 1994. Food, beverage and
other net profit margin improved from $.2 million for the year ended December
31, 1994 to $1.3 million for the year ended December 31, 1995.
SELLING, GENERAL AND ADMINISTRATIVE -- Selling, general and administrative
expenses increased $22.1 million to $45.8 million for the year ended December
31, 1995. Alton's selling, general and administrative expenses decreased $1.2
million to $9.6 million for the year ended December 31, 1995 due to a
concentrated effort to refocus marketing strategies. The additional increase is
due to the Company operating three additional casinos for a full year in 1995
and other costs associated with the Company's substantial growth during this
period.
DEPRECIATION AND AMORTIZATION -- Depreciation and amortization expense
increased from $9.8 million to $20.4 million primarily as a result of opening
three new casinos in 1994.
DEVELOPMENT AND PREOPENING COSTS -- Development and preopening costs
decreased from $9.8 million to $6.9 million for the year ended December 31,
1995, due primarily to costs related to the opening of the three new casinos in
1994. During the year ended December 31, 1995 the Company recorded a $3.5
million
45
<PAGE>
charge primarily related to loans made pursuant to a lease option related to the
development of a downtown St. Louis casino. Preopening costs for the year ended
December 31, 1994 for Riverside and Baton Rouge were $2.5 million and $2.6
million, respectively.
INTEREST EXPENSE -- Net interest expense increased to $14.3 million for the
year ended December 31, 1995, compared to $7.1 million for the year ended
December 31, 1994. The primary reason for the increase was the full year effect
of the 12% Convertible Subordinated Notes which were issued in June 1994 and
increased borrowings on the line of credit in the year ended December 31, 1995.
The increased borrowings were used by the Company to fund its expansion projects
in Baton Rouge, Riverside and Lawrenceburg.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993.
Consolidated net revenues rose from $67.5 million for the year ended
December 31, 1993 to $153.0 million for the year ended December 31, 1994. Net
revenues in Alton increased from $67.5 million to $97.0 million due to operating
the larger Alton Belle II for a full year in 1994. In addition, the Riverside
and Baton Rouge casinos, generated net revenues of $35.4 million and $20.3
million, respectively.
CASINO -- Casino revenues for the year ended December 31, 1994 increased to
$138.4 million from $60.2 million in 1993. Riverside and Baton Rouge contributed
$29.6 million and $20.0 million, respectively for the year ended December 31,
1994. Casino revenues in Alton increased to $88.9 million from $60.2 million
mainly due to the full year of operations of the larger Alton Belle II which
opened in May 1993.
Casino and other operating expenses increased approximately $44.5 million
due to the opening of the Riverside and Baton Rouge casinos in 1994. Of this
increase, gaming taxes and admission taxes increased $15.4 and $6.5 million,
respectively, which is proportionate with the increases in casino revenues and
customer boardings. The remaining casino and other operating expenses were $11.0
million and $5.6 million in Riverside and Baton Rouge, respectively for the year
ended December 31, 1994. The remaining Alton casino and other operating expenses
increased to $21.7 million for the year ended December 31, 1994 from $15.8
million in 1993 due to the full year of operations of the Alton Belle II in
1994.
FOOD, BEVERAGE AND OTHER -- Food, beverage and other revenue increased $7.7
million over the prior year to $12.0 million. Alton's food, beverage and other
revenue increased from $4.4 in 1993 to $8.1 million in 1994 due to the expanded
food and beverage facilities at the Alton Belle II being open for an entire year
and severe flooding during 1993. Riverside and Baton Rouge contributed $2.5
million and $1.0 million, respectively for the year ended December 31, 1994.
Food, beverage and other net profit margin improved from ($.1) million for the
year ended December 31, 1993 to $.2 million for the year ended December 31,
1994.
SELLING, GENERAL AND ADMINISTRATIVE -- Selling, general and administrative
expenses increased $14.8 million to $23.7 million for the year ended December
31, 1994. This increase is due primarily to the Company opening two new casinos
in Riverside and Baton Rouge, expanded advertising, promotional and bus programs
as a result of increased competition from three casino in the St. Louis area,
and increased corporate personnel, legal and professional, insurance and other
costs associated with the Company's growth efforts.
DEPRECIATION AND AMORTIZATION -- Depreciation and amortization expense
increased $6.5 million in 1994 to $9.8 million primarily as a result of opening
the Riverside and Baton Rouge casinos and the purchase of a gaming vessel which
was in use in Sioux City, Iowa.
DEVELOPMENT, PREOPENING AND RELATED COSTS -- Development and preopening
costs increased $5.2 million to $9.8 million for the year ended December 31,
1994 due to approximately $2.6 and $2.5 million of preopening expenses
associated with the Company's Baton Rouge and Riverside casinos, respectively as
well as costs associated with unsuccessful gaming opportunities and related
referenda costs.
INTEREST EXPENSE -- Net interest expense increased to $7.1 million for the
year ended December 31, 1994 compared to net interest income of $0.5 million in
1993. The primary reason for the increase is the issuance of the 12% Convertible
Subordinated Notes in June 1994 and the interest incurred on a revolving line of
credit, which was outstanding from January 29, 1994 through June 6, 1994.
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LIQUIDITY AND CAPITAL RESOURCES
In the six months ended June 30, 1996 the Company generated cash flows from
operating activities of $6.1 million compared to $24.5 million for the same
period in 1995. The decrease in cash flow is primarily attributed to decreased
operating margins and increased preopening and development expenses in 1996
compared to 1995 and, additionally, to the timing of expenditures related to
operating accounts payable.
In the six months ended June 30, 1996, the Company used cash flows for
investing activities of $157.2 million versus $34.1 million for the six months
ended June 30, 1995. The primary uses of funds in 1996 were the placement of
$94.3 million of the proceeds from the Company's First Mortgage Note offering
into a disbursement account, for the Lawrenceburg casino project, and the
investment of $62.1 million in property, plant and equipment. Riverside,
Lawrenceburg and the Catfish Town facility at Baton Rouge had capital
expenditures of $17.9 million, $28.2 million and $12.1 million, respectively,
for the six month period ended June 30, 1996. The primary use of funds for the
six month period ended June 30, 1995 were capital expenditures of $24.1 million
and goodwill associated with the purchase of Jazz of $9.4 million.
During the six months ended June 30, 1996, the Company generated $198.8
million in cash flows from financing activities compared to $5.3 million of cash
flows from financing activities for the same period in 1995. The primary sources
of cash flows in 1996 were $235 million of proceeds from the Company's First
Mortgage Note Offering and $19.7 million in capital contributions from the
Company's partner in Lawrenceburg offset by the repayment of $90 million on the
company's senior secured line of credit.
In the year ended December 31, 1995, the Company generated cash flows from
operating activities of $49.9 million compared to $24.8 million for 1994 due
primarily to the full year effect of the opening of the Argosy Casino in
Riverside on June 22, 1994, the opening of the Belle of Baton Rouge on September
30, 1994 and the opening of the Belle of Sioux City on October 4, 1994.
In the year ended December 31, 1995, the Company used cash flows for
investing activities of $86.6 million, compared to $118.7 million in 1994. The
primary uses for the year ended December 31, 1995 were the investment of
approximately $23.4 million for the construction of the Company's project in
Baton Rouge, approximately $36.0 million in connection with the Company's
permanent facility in Riverside, Missouri and $9.4 million relating to the
acquisition of Jazz Enterprises, Inc. on June 6, 1995. The primary uses in 1994
were capital expenditures of $112.0 million, and advances of $9.6 million in
notes receivable to certain of its investment partners offset by sales of $4.3
million of marketable securities.
During the year ended December 31, 1995, the Company generated $34.6 million
of cash flows from financing activities compared to $104.8 million for 1994. In
1995 the primary sources of funds were borrowings under the Company's line of
credit of $45.5 million offset by $6.5 million in payments of debt and
installment contracts and $2.4 million of deferred finance costs. The primary
source of these funds in 1994 was $115 million in proceeds from the sale of its
12% Convertible Subordinated Notes in June 1994 offset by $7.0 million in
payments on long-term debt and installment contracts and a $4.8 million increase
in other assets.
As of June 30, 1996, the Company had approximately $63.9 million of cash and
cash equivalents and $1.9 million of marketable securities which can be used for
general working capital purposes. In addition the Company has $94.5 million in a
disbursement account to be used to fund the Company's portion of the remaining
Lawrenceburg construction costs. The $94.5 million cannot be used for any other
purposes. On June 5, 1996 the Company issued $235 million of first mortgage
notes which are due June 2004. $91 million of the proceeds of the first mortgage
note offering were used to retire the Company's senior secured line of credit
and accrued interest. $94.3 million were placed in the Indiana disbursement
account with the balance used to pay expenses of the offering and available for
general corporate purposes. The Company has $115 million of Convertible
Subordinated Notes outstanding which were issued in June 1994 and are due June
2001.
The Company has made a significant investment in property and equipment and
plans to make significant additional investments at certain of its existing
properties and into additional jurisdictions, particularly Lawrenceburg,
Indiana. As a result of its June 1995 acquisition of Jazz, the Company is now
the
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developer of the Catfish Town real estate project in Baton Rouge, Louisiana. The
Company estimates that the completion of the Catfish Town project will cost an
additional approximately $5 million (primarily tenant allowance) as of June 30,
1996. Further, if the Predecessor's status as an S Corporation, which has been
asserted as an issue by the IRS during an ongoing audit, is successfully
challenged, the Company currently estimates that it would require up to
approximately $12 million (excluding penalties) to fund the potential income tax
liability.
The Company estimates that the total costs of opening a temporary gaming
facility and completing the permanent Lawrenceburg Casino and entertainment
project is approximately $210 million. As of June 30, 1996, approximately $44
million had been expended by the partnership, on the project. Of the remaining
$166 million in Lawrenceburg construction costs, approximately $25 million is
anticipated to be funded through equipment financing from third party lenders
and approximately $141 million will be funded by the Company and a partner,
57.5% of which will be funded by the Company and 42.5% of which will be funded
by its partner. In the event project costs exceed the budgeted $210 million
total project cost the Company and its partner will fund such costs on the same
percentages to a total project cost of $225 million. Any project costs in excess
of $225 million must be funded by the Company.
The Company believes that as a result of its recent offering of the Notes,
cash on hand will be sufficient to fund its current operations and its
obligations with respect to the Lawrenceburg casino development.
DESCRIPTION OF CERTAIN INDEBTEDNESS
FORMER BANK CREDIT FACILITY
The Company's Former Bank Credit Facility was a $100 million senior secured
line of credit consisting of a $20 million revolving line of credit and an $80
million expansion line of credit. The total indebtedness outstanding under the
Former Bank Credit Facility was $91.4 million on the closing date of the
offering of the Old Notes. In connection with the offering of the Old Notes, all
amounts outstanding under the Former Bank Credit Facility were paid in full and
the Company terminated the facility.
CONVERTIBLE SUBORDINATED NOTES
The Company's $115 million of aggregate outstanding 12% Convertible
Subordinated Notes due 2001 (the "Convertible Notes") bear interest, payable
semi-annually, at an annual rate of 12% per year. The Convertible Notes are
convertible into shares of Common Stock at any time at or prior to maturity at a
conversion price of $17.70 per share, subject to adjustment under certain
circumstances as described in the indenture governing the Convertible Notes.
Accordingly, each $1,000 principal amount of Convertible Notes is convertible
into 56.50 shares of Common Stock, subject to adjustment, for an aggregate of
6,497,500 shares. The Convertible Notes are redeemable, in whole or in part, at
the option of the Company at any time on or after June 1, 1997 at the redemption
price of 106% of the principal amount, declining ratably to par on June 1, 2000,
plus accrued and unpaid interest to the date of redemption. In addition, upon
the occurrence of a Change of Control (as defined in the indenture governing the
Convertible Notes), or if the Common Stock is not listed as required, each
holder of Convertible Notes will have the right to require the Company to
purchase all or any part of such holder's Convertible Notes, at 101% of the
principal amount thereof, plus accrued and unpaid interest to the date of
purchase. The Convertible Notes are subordinated in right of payment to all
existing and future senior indebtedness of the Company (including the Notes) and
will be structurally subordinated to all liabilities (including trade payables)
of the Company's subsidiaries. The indenture governing the Convertible Notes
does not include any covenants limiting or restricting the Company's or its
subsidiaries' ability to incur any additional indebtedness. The indenture
governing the Convertible Notes contains covenants which limit certain
transactions with affiliates of the Company and mergers, sales of all or
substantially all of the assets of the Company and consolidations.
NOTES PAYABLE --- JAZZ ACQUISITION
As of June 30, 1996, the Company had notes payable of $9.2 million to Jazz
Enterprises, Inc. ("Jazz"), which represents the present value of deferred
payments due to the shareholders of Jazz incurred in connection with the
Company's June 7, 1995 acquisition of 100% of the common stock of Jazz. Jazz was
the 10% limited partner in the Belle of Baton Rouge. The Company made initial
payments to the Jazz
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shareholders totaling $8.5 million, and is obligated to pay the former Jazz
shareholders $1.35 million annually for ten years and $500,000 for an additional
ten years thereafter. As a result of such transaction, the Company acquired
Jazz's 10% minority limited partnership interest in the Belle of Baton Rouge
casino and all of Jazz's interest in the Catfish Town retail real estate
development. The Company's acquisition of Jazz enabled the Company to cancel the
prior lease agreement between Jazz and the partnership pursuant to which the
partnership was obligated to pay a lease fee which ranged from 6% to 10% of
adjusted gross receipts. See Note 7 of Notes to Consolidated Financial
Statements. See "Business -- Legal Proceedings."
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BUSINESS
GENERAL
The Company is a leading multi-jurisdictional developer, owner and operator
of riverboat and dockside casinos and related entertainment facilities in the
midwestern and southern United States. The Company, through its subsidiaries,
owns and operates riverboat casinos in Alton, Illinois, Riverside, Missouri,
Baton Rouge, Louisiana and Sioux City, Iowa. In June 1995, Indiana Gaming
Company, L.P., a limited partnership ("Indiana Gaming L.P.") in which the
Company is the general partner and has a 57.5% partnership interest, received a
certificate of suitability from the Indiana Gaming Commission to develop and
operate a riverboat casino and related entertainment and support facilities in
Lawrenceburg, Indiana, which is located approximately 15 miles west of
Cincinnati, Ohio.
The Company's business strategy emphasizes the phased development of
attractive gaming and related entertainment facilities in gaming jurisdictions
that the Company believes possess favorable long-term demographic and
competitive characteristics. As part of this strategy, the Company endeavors to
be an early entrant in emerging gaming markets, to establish a customer base and
to develop its gaming properties in stages. The Company's casinos were the first
gaming facilities to open in each of the St. Louis, Kansas City and Baton Rouge
markets. By employing a phased development strategy, the Company believes it can
reduce its initial capital investment and adapt the nature and scope of
subsequent developments based on a continuing assessment of the size and
competitive outlook of each of the Company's gaming markets. The Company intends
to utilize management's proven ability to successfully open riverboat casino
properties in new markets by continuing to pursue opportunities to develop or
acquire (either independently or through joint ventures) riverboat, dockside
and/or land-based gaming operations.
The Company's operating strategy is to develop a loyal customer base by
offering a variety of gaming and non-gaming entertainment amenities at
attractive facilities that emphasize high standards of service and customer
satisfaction. In each of its gaming markets, the Company establishes marketing
programs that identify, target and attract local patrons typically residing
within a 100-mile radius of its gaming facilities. The Company's marketing
programs are designed to increase customer awareness, patronage and loyalty, as
well as to encourage repeat business. The Company focuses and evaluates its
marketing efforts through player tracking systems, slot clubs and preferred
player clubs and utilizes mass advertising, direct mail and special promotions
to attract customers within each of its gaming markets.
CURRENT OPERATIONS
ALTON BELLE CASINO, ALTON, ILLINOIS
The Company commenced operations in Alton, Illinois in September 1991 as the
first gaming facility to open in the St. Louis market and in the State of
Illinois. Following the success of the Company's original riverboat casino, the
Alton Belle, the Company built and opened a larger three-deck contemporary style
cruise liner that provides casino style gaming on the Mississippi River at
Alton, Illinois, approximately 20 miles northeast of downtown St. Louis.
The Alton Belle Casino features 21,000 square feet of gaming space with
approximately 650 slot machines and 41 table games for a total of approximately
950 gaming positions. The Alton Belle Casino can board up to approximately 1,500
passengers including a typical crew and casino staff of 180 employees. The Alton
Belle Casino also currently includes a 37,000-square foot, three-level floating
entertainment pavilion that features a sports and entertainment lounge, a
120-seat buffet, a 90-seat fine dining restaurant, conference facilities and a
food court. Additionally, the Company is the only gaming operator in the St.
Louis market that offers its customers off-track betting facilities. Parking is
available at an adjacent city-owned surface parking facility and at two sites in
the city of Alton, to and from which the Company provides valet parking as well
as free shuttle service. The Alton Belle Casino typically conducts ten two-hour
Mississippi River cruises seven days of the week. Since November 1994, the Alton
Belle Casino has not charged an admission fee. Illinois gaming law permits
dockside gaming only when inclement weather or mechanical failure prevents a
riverboat from cruising. At such times, the Alton Belle Casino remains dockside
and operates on its normal schedule.
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The Alton Belle Casino generally draws from a population of approximately
2.5 million within the St. Louis metropolitan area and an additional 1.2 million
within a 100-mile radius of the City of St. Louis. In particular, the primary
target market of the Alton Belle Casino is the northern and eastern regions of
the greater St. Louis metropolitan area, including certain regions of Illinois.
The Company's management believes that its early entry into the St. Louis market
has resulted in the development of a core base of customers, which, together
with its data base of over 300,000 active customers, has enabled the Alton Belle
Casino to remain competitive in the St. Louis market despite the significant
increase in the number of gaming operations.
During May 1995 the Alton, Illinois area experienced flooding; however the
flood waters did not reach the flood levels of 1993 and the operations of the
Alton Belle Casino were not negatively impacted. During the Great Flood of 1993
the Company developed an emergency flood plan that was implemented in response
to the May 1995 flooding.
Commencing September 5, 1996, the Company leased the original Alton Belle
riverboat casino and related equipment to the operators of the Silver Eagle
casino in East Dubuque, Illinois for a monthly rental fee of $110,000. The
riverboat will be redelivered to the Company on July 31, 1997.
ARGOSY CASINO, RIVERSIDE, MISSOURI
The Argosy Casino began operations in Riverside, Missouri on June 22, 1994
as the first gaming facility to open in the Kansas City market. The Argosy
Casino's riverboat is styled as a turn-of-the-century paddle wheel steamboat and
features 32,900 square feet of gaming space with approximately 950 slot machines
and 57 tables games for a total of approximately 1,375 gaming positions.
The Company has constructed a new land-based landing and entertainment
pavilion, which opened on January 15, 1996 at a cost of approximately $45
million. The 85,000-square foot, land-based entertainment pavilion features a
Mediterranean theme and includes over 14,000 square feet of banquet and
conference facilities, a 78-seat specialty restaurant, a sports and
entertainment lounge and a 350-seat buffet restaurant. A 624-space parking
garage and a 1,262-space surface parking area are located adjacent to the new
pavilion. The Company continues to pursue the development of a 200-room hotel at
its Riverside facility.
In August 1995, the Company began offering dockside gaming at the Argosy
Casino and is considering adding a second dockside gaming facility in Riverside
in order to increase the number of gaming positions and to offer its patrons
staggered boarding times, thereby maximizing customer convenience. The opening
of an additional gaming facility in Riverside would be subject to the approval
of the Missouri Gaming Commission.
The Argosy Casino typically conducts 9 two-hour Missouri River "cruises"
seven days a week, with an additional "cruise" on Friday and Saturday evenings.
The Argosy Casino offers dockside gaming throughout the entire year.
When Argosy first opened its Riverside casino, Missouri law only permitted
games of skill, specifically poker, craps and "twenty-one" (blackjack).
Subsequently, on December 9, 1994, the Argosy Casino began offering full-scale
casino gaming, including roulette, big six and slot machines, after approval by
Missouri voters in November 1994 of a proposition authorizing games of chance.
The Argosy Casino draws from a population of approximately 1.6 million in
the greater Kansas City metropolitan area and an additional 900,000 within a
100-mile radius of Kansas City. The Argosy Casino is situated on a 55-acre site
that is located approximately five miles from downtown Kansas City and offers
convenient access from two major highways. Once competing gaming facilities that
are currently under construction are completed, the Company believes that the
Argosy Casino, which currently is the only existing or planned casino in the
western Kansas City metropolitan area, will primarily attract customers who
reside in the northwestern, western and southwestern regions of the Kansas City
metropolitan area.
The Company leases a portion of its site from the City of Riverside,
Missouri, pursuant to a five-year land lease agreement with a minimum aggregate
rent of $5 million for the entire five-year lease period, payable in advance. In
addition to minimum rent, during the initial five-year lease term, percentage
rent will
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be payable in an amount equal to 2% of adjusted gross receipts over $100 million
annually. The Company will have the option to extend the lease agreement for
three successive five-year terms. In all extension periods, there will be no
minimum rent, and percentage rent will be payable as follow: (i) 2% on the first
$50 million of adjusted gross receipts; (ii) 3% on adjusted gross receipts
between $50 million and $100 million; and (iii) 4% on adjusted gross receipts in
excess of $100 million. If at any time during the initial lease term or any
extension thereof, the Company is permitted to operate a permanent dockside
gaming facility, the percentage rent will increase by one percentage point in
each of the above listed categories.
In May 1995, the Riverside site experienced flooding from the rising waters
of the Missouri River. The Company implemented its emergency flood plan which
included moving the temporary landing facilities to higher ground. The business
at the Riverside Casino remained at near normal levels during this period.
BELLE OF BATON ROUGE, BATON ROUGE, LOUISIANA
The Belle of Baton Rouge began operations in Baton Rouge, Louisiana in
September 1994 as the first riverboat gaming facility in the Baton Rouge market.
The Belle of Baton Rouge is a three-level, ante-bellum themed riverboat casino
that contains 28,900 square feet of gaming space with approximately 775 slot
machines and 46 table games, for a total of 1,125 gaming positions. The
riverboat casino is complemented by the Company's adjacent, land-based
entertainment development known as Catfish Town. The first phase of Catfish Town
opened during 1995 and features a 250-seat entertainment lounge and sports bar,
a 50-seat premium steakhouse, a 250-seat buffet/coffee shop and conference
facilities. The second phase of Catfish Town, an approximately 50,000-square
foot entertainment facility, opened in April 1996 and features a
climate-controlled, five-story glass atrium that will host a variety of
entertainment functions, including banquets, parties, festivals, concerts and
live entertainment events. The third phase of the Catfish Town project will
feature the build-out of approximately 150,000 square feet of leasable retail
space within the atrium complex which is expected to feature a variety of
entertainment-related tenants, including specialty restaurants and specialty
retail stores, entertainment venues, nightclubs and a microbrewery. The Company
has improved customer accessability to the Belle of Baton Rouge by completing
construction in October 1995 of a 733-space parking garage and by leasing in
December 1995 a 271-space surface parking lot adjacent to Catfish Town.
On April 19, 1996, the Louisiana legislature approved legislation mandating
local option elections to determine whether to prohibit or continue to permit
specified individual types of gaming, including riverboat gaming, in Louisiana
on a parish-by-parish basis. The referendum will be brought before the Louisiana
voters at the time of the November 1996 presidential election. There can be no
assurance that the voters of the Belle of Baton Rouge's parish, East Baton Rouge
Parish, will not vote to prohibit riverboat gaming on November 5, 1996. If such
a vote to prohibit riverboat gaming occurred, the Company would be required to
discontinue gaming activity in East Baton Rouge Parish upon the expiration of
its current gaming license in September 1999. The discontinuance of gaming
operations in East Baton Rouge Parish would have a material adverse effect on
the Company, both in terms of the loss of revenues and cash flow generated by
the Belle of Baton Rouge and the impairment of the significant capital
investment that the Company has in its riverboat casino and related facilities,
including the Catfish Town development. In addition, the uncertainty resulting
from the upcoming local option election on the continuance of riverboat gaming
in East Baton Rouge Parish will have a negative impact on the ability of the
Company to lease the retail space in Catfish Town. See "Risk Factors --
Louisiana Local Option Referendum to Restrict Gaming."
On September 21, 1995, the Company entered into a letter of intent with
DePalma Hotel Corporation and Southern Hospitality Corporation ("SHC") for the
ownership, construction and operation of a 300-room convention hotel at Catfish
Town. The agreement is subject to numerous conditions precedent including, but
not limited to, SHC obtaining separate non-recourse project financing. In the
event the Company does not commence construction of a 300-room hotel at Catfish
Town prior to September 30, 1996, pursuant to the Company's agreement with the
City of Baton Rouge, the Company's admission tax will increase by $1.25 per
passenger on that date. Construction of a hotel will not be commenced prior to
September 30, 1996. See "Risk Factors -- Louisiana Local Option Referendum to
Restrict Gaming."
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The Belle of Baton Rouge typically conducts eight 3-hour Mississippi River
cruises seven days of the week. The Belle of Baton Rouge operates throughout the
entire year. Louisiana gaming law provides that a gaming vessel need not cruise
if there is inclement weather or if the river conditions endanger the passengers
or crew. The local Baton Rouge States Attorney has been diligent in monitoring
the cruising schedule of the Belle of Baton Rouge and the competing riverboat
casino in the Baton Rouge market. During such times that the Belle of Baton
Rouge is prevented from cruising it operates on an unlimited ingress and egress
schedule.
Catfish Town is located adjacent to Baton Rouge's convention complex, the
Centroplex, which has a 12,000-seat arena and a 30,000-square foot exhibition
hall. The Belle of Baton Rouge draws from a population of approximately 540,000
in the Baton Rouge metropolitan area. The Company believes that the Belle of
Baton Rouge will benefit from the entertainment, retail and hotel amenities
expected to be offered at the Catfish Town development, from the facility's
proximity to the Baton Rouge convention center and from its convenient access
from Baton Rouges' two major interstate highways.
BELLE OF SIOUX CITY, SIOUX CITY, IOWA
The Company became the manager of the Belle of Sioux City on October 4, 1994
and on December 1, 1994 began operating the Belle of Sioux City through a
partnership in which the Company is a 70% general partner and Sioux City
Riverboat Corp., Inc. is a 30% limited partner. The Company is the manager of
the casino and receives a percentage management fee based upon the facility's
adjusted gross gaming revenues (as defined in the management agreement). This
fee was 4.5% through 1995 and increased to 6.5% in January 1996.
The Company has leased to the partnership a 27,900-square foot, three-level
historic themed riverboat casino with room for 1,400 passengers and crew. The
Belle of Sioux City features approximately 11,800 square feet of gaming space
with approximately 470 slot machines and 27 table games, for a total of
approximately 670 gaming positions. The casino facility is complemented by an
adjacent barge facility, which features buffet dining, a bar and a gift shop,
and 274 surface parking spaces.
On April 13, 1996 the Belle of Sioux City was removed from service for its
requisite five-year hull inspection. The riverboat arrived at a U.S. Coast Guard
approved dry docking facility on April 16, 1996, passed its inspection and
returned to service on May 9, 1996. No interruption in gaming operations
occurred in Sioux City as a result of the hull inspection process since, prior
to removing the Belle of Sioux City from service, the Company moved the original
Alton Belle to Sioux City and temporarily transferred gaming operations to it.
The original Alton Belle boards approximately 490 passengers and has
approximately 450 gaming positions.
The Belle of Sioux City typically conducts one two-hour Missouri River
cruise each day for 100 days per year. At other times the Belle of Sioux City
remains dockside. At such time, the Belle of Sioux City operates on an unlimited
ingress and egress schedule.
The Belle of Sioux City draws from a population of approximately 80,000 in
Sioux City and an additional 900,000 residents within a 100-mile radius of Sioux
City.
OPERATIONS UNDER DEVELOPMENT
LAWRENCEBURG CASINO, LAWRENCEBURG, INDIANA
On June 30, 1995, Indiana Gaming L.P., received a certificate of suitability
from the Indiana Gaming Commission to develop and operate a riverboat casino and
entertainment complex in Lawrenceburg, Indiana, which is located approximately
15 miles west of Cincinnati, Ohio. The Company is the sole general partner of,
and holds a 57.5% general partnership interest in, Indiana Gaming L.P. Conseco
Entertainment L.L.C. ("Conseco"), an indirect subsidiary of Conseco, Inc., holds
a 29% limited partnership interest and certain other investors, including H.
Steven Norton, Chief Operating Officer of the Company, who brought the
opportunity to the Company concurrent with his initial employment, hold the
remaining 13.5% limited partnership interest in Indiana Gaming L.P.
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Indiana Gaming L.P. operates pursuant to a partnership agreement entered
into among the partners as of April 11, 1994, as amended and restated as of
February 21, 1996. Under the provisions of this agreement, the Company will
manage the development, construction and operation of the Lawrenceburg Casino
project and will receive a management fee of 7.5% of EBITDA (as defined in the
partnership agreement) and Conseco will receive a financial advisory fee of 5%
of EBITDA. For a more complete description of the partnership agreement see
"Lawrenceburg Casino Partnership Agreement."
Indiana gaming law currently limits the number of gaming licenses to be
issued in the state to a total of 11, including a maximum of 5 licenses along
the Ohio River and a limit of one license per county. In addition, casino gaming
is not currently permitted under the laws of either Ohio or Kentucky. The next
closest Indiana gaming facility to the Cincinnati market will be located
approximately 15 miles south of Lawrenceburg and the principal traffic route
between the greater Cincinnati metropolitan area and the other facility passes
Lawrenceburg prior to reaching the other facility. In addition, Indiana gaming
law does not restrict the size of a licensee's gaming facility or place limits
on customer losses or betting levels.
Indiana Gaming L.P. is building what it believes to be one of the largest
riverboat casinos in the United States, featuring approximately 90,000 square
feet of gaming space on three levels. The permanent riverboat casino is expected
to initially have approximately 2,600 gaming positions and accommodate
approximately 4,400 passengers and crew members. In addition to the new
riverboat casino, it is anticipated that the permanent facility will include a
300-room hotel, a 1,750-space parking garage, 2,000 additional surface parking
spaces and a 120,000-square foot land-based entertainment pavilion and support
facility featuring specialty restaurants, meeting and banquet rooms and a sports
bar and entertainment lounge. The Company estimates that the total cost to open
a temporary facility and to construct the proposed permanent riverboat casino,
land-based facilities and 300-room hotel will be approximately $210 million. As
of June 30, 1996, approximately $44 million had been expended on the project. Of
the remaining $166 million in Lawrenceburg construction costs, approximately $25
million is anticipated to be funded through equipment financing from third party
lenders and approximately $141 million will be funded by the Company and
Conseco, 57.5% of which will be funded by the Company and 42.5% of which will be
funded by Conseco. In the event project costs exceed the budgeted $210 million
total project cost, the Company and Conseco will fund such costs on the same
percentages up to a total project cost of $225 million. Any project costs in
excess of $225 million must be funded solely by the Company. The Company will
use $94.3 million of the net proceeds of the offering of the Old Notes to
finance its share of remaining Lawrenceburg construction costs including the
development and opening of both the temporary and permanent gaming facilities up
to a total project cost of $225 million. See "Lawrenceburg Casino Partnership
Agreement."
The Company plans to open a temporary gaming facility in Lawrenceburg in the
fourth quarter of 1996 and anticipates opening the permanent gaming facility not
later than twelve months thereafter. In order to accommodate the expected
opening of the temporary facility in the fourth quarter of 1996, Indiana Gaming
L.P. obtained on August 20, 1996 from the Indiana Gaming Commission a 180 day
extension of its certificate of suitability. Further, Indiana law permits the
Indiana Gaming Commission to permit a riverboat to dock at a temporary site for
a period not exceeding one year after award of the license at which point the
permanent facility must be opened. The certificate of suitability requires
expenditures of at least $200 million and further requires Indiana Gaming L.P.
to make additional payments to the City of Lawrenceburg as a percentage of
annual gross gaming receipts ranging in amount from five percent (for up to $150
million in adjusted gross receipts) to 14 percent (for adjusted gross receipts
over $300 million). Failure to comply with the foregoing conditions and/or
failure to commence riverboat excursions (at either the temporary or permanent
facilities) at such time as required by the Indiana Gaming Commission could
result in the revocation of the certificate of suitability or the license.
Further, the Indiana Gaming Commission may place restrictions, conditions, or
requirements on the permanent riverboat owner's license. The temporary facility
will feature a leased 1,200-passenger gaming vessel with approximately 870 slot
machines and 52 table games and an entertainment barge featuring ticketing,
restaurant and bar facilities. The temporary facility will not include on-site
parking, but will include off-site parking with shuttle bus service that will
transport customers between the parking areas and the temporary facility. Before
the Lawrenceburg Casino becomes operational additional definitive agreements
must be negotiated and executed, gaming facilities must be constructed,
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and a number of further conditions must be satisfied (including the licensing of
Indiana Gaming L.P. and their respective employees and the receipt of all
requisite permits). There can be no assurance that the Lawrenceburg Casino will
become operational. See "Risk Factors -- Project Development Risks."
The Lawrenceburg Casino is expected to draw from a population of
approximately 1.6 million residents in the Cincinnati metropolitan area and an
additional 5.4 million people who reside within 100 miles of Lawrenceburg,
including the major metropolitan markets of Dayton and Columbus, Ohio;
Indianapolis, Indiana; and, to a lesser extent, Lexington, Kentucky. The City of
Lawrenceburg has major interstate highway access from each of these metropolitan
areas.
MARKETING
The Company's management has developed a corporate marketing plan initially
based on the experience gained in developing, marketing and operating the
Company's Alton facility and further refined since opening three additional
casinos in 1994. The plan is designed to identify, target and attract initial
and return visits from the following segments of the gaming market: (i) diverse
local patrons (typically customers from within a 100-mile radius of the casino);
(ii) premium wagerers (bettors who typically wager $25 or more per bet) within
the local patrons market; and (iii) local groups and bus tours. To aggressively
pursue its customer base, the Company has upgraded and expanded both its
marketing department and sales force. In order to address each market segment,
the Company has developed and implemented a balanced marketing strategy that
emphasizes advertising, casino marketing, promotions and direct sales. The
Company utilizes television, radio, print and billboard advertising, database
marketing, players clubs and direct sales programs to market its operations to
each segment. All programs are designed to effectively tailor each specific
promotion to meet the Company's goals of increased awareness and repeat
patronage.
DIVERSE LOCAL PATRONS. The diverse local patrons market segment is
comprised of middle market recreational gaming customers from within a 100-mile
radius of its casinos in Alton, Illinois, Riverside, Missouri, Baton Rouge,
Louisiana and Sioux City, Iowa. The Company believes that its casinos have high
recognition level among patrons in the local market, in part due to each being
the first riverboat casino to open in its market. The Company has developed a
multi-level marketing approach and advertising program comprised of radio and
television commercials, billboards, newspaper insertions and public relations
efforts. In order to maintain its high level of customer awareness and fill its
off-peak capacity, the Company has begun a promotional campaign which includes
merchandising giveaways, double jackpot cruises, discount tickets and meal, trip
and car prizes. Within the broader advertising campaign, management has designed
a more focused radio promotion strategy. Specifically, the Company conducts
promotions with certain radio stations in the local market, in which a disc
jockey generally broadcasts live on-board. The Company believes that this
promotion has enabled the Company to better target specific types of customers.
The Company's state-of-the-art reservation system allows it to accommodate
increased demand and in turn to handle calls promptly, professionally and
proactively, treating each potential customer with courtesy while
enthusiastically describing the Company's product and converting calls into
confirmed advance bookings. To assist in its marketing efforts, the Company
continues to develop a database of names and addresses of customers based upon
the Company's computerized player tracking system that is equipped on all of the
Company's slot machines. In addition, database information is collected from
telephone reservations, credit card sales and manual player tracking. The
Company recently began to use this information to identify and direct-market to
its customers through mailings (including two to three direct mailings per
month) and on other promotions. The Company uses information obtained with this
technology to refine its database and develop gaming profiles of its slot
customers. The Company plans to continue to run special promotions rewarding its
slot customers for using slot cards and has established a VIP Slot Club as a
means of enhancing this effort.
PREMIUM WAGERERS. The Company's casino marketing efforts are also focused
on identifying and developing strong relationships with its premium wagerers to
build customer loyalty. Relationships with these wagerers are initially
established by the floor managers and pit bosses. These relationships are then
extended to include the upper levels of the Company's management team. The
Company has implemented a
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host system to cater to and better recognize premium wagerers, thereby providing
them with more personalized service. In order to identify and develop special
marketing programs for premium slot players, the Company utilizes a computerized
player tracking system on its slot machines. The Company has also established
several clubs for its most valued premium wagerers, which entitle the premium
wagerer to participate in special promotions. Because many premium wagerers tend
not to make advance reservations, a certain number of complimentary tickets are
typically set aside for these customers up to 10 minutes before a cruise
embarks. The Company has also established Platinum and Gold Clubs to recognize,
reward and differentiate among its premium wagerers. The Gold and Platinum Clubs
reward premium wagerers with complimentary gifts and special services. The
Company believes these special programs stimulate greater customer loyalty and
generate repeat business.
LOCAL GROUP AND BUS TOURS. The Company's sales force markets to groups of
patrons from the local market and bus tours which come from outside this area.
The Company's marketing efforts to these groups is focused on attracting such
groups to cruises during off-peak hours. The Company's marketing plan includes
providing discount packages, banquet facilities and other services to attract
local civic, corporate and social groups as well as bus tours. The Company's
sales force markets to the local group and bus tour segments through its direct
relationships with local and out-of-town tour operators, businesses,
organizations and other groups.
COMPETITION
The casino gaming industry is characterized by intense competition from a
large number of participants, including riverboat casinos, dockside casinos,
land-based casinos, video lottery and poker machines in locations other than
casinos, Native American gaming and other forms of legalized gaming in the
United States. Gaming industry competition is particularly intense in each of
the markets where the Company operates and is likely to increase as other
operators open new or expanded facilities in the future. Historically, the
Company has been an early entrant in each of its markets; however, as its
competitors have opened properties in these markets, the Company's operating
results in these markets have been negatively affected. The Company expects that
many of its competitors will have more gaming industry experience, will be
larger and will have significantly greater financial and other resources than
the Company. In addition, certain of its direct competitors may have superior
facilities and/or operating conditions in terms of (i) dockside versus cruising
riverboat gaming, (ii) the amenities offered by the competing casino and its
related support and entertainment facilities, (iii) convenient parking
facilities, and (iv) ease of accessibility to the casino site. Given these
factors, substantial increased competition could have a material adverse affect
on the Company's existing and proposed operations.
The Company's Alton riverboat casino currently faces competition from three
other riverboat casinos currently operating in the St. Louis area and a fourth
casino complex is under construction in the northwest suburb of Maryland
Heights, Missouri, which will include two independently owned facilities, each
of which are expected to operate two dockside vessels. Further, because Missouri
gaming law does not limit the number of licenses that may be granted, there
could be substantial increases in the number of gaming operations in the St.
Louis area. The Company's Riverside riverboat casino currently faces competition
from two other casinos in the Kansas City area that offer dockside gaming and
two additional casino operators have commenced construction of gaming facilities
in Kansas City, both of which are expected to open in the second half of 1996,
and the Missouri Gaming Commission is conducting reviews of their license
applications. In addition, one existing Kansas City competitor has commenced
construction of expanded facilities, including a second gaming vessel that
recently opened. The Company's Baton Rouge riverboat casino currently faces
competition from one riverboat casino in downtown Baton Rouge, a land-based
Native American casino located approximately 70 miles away and multiple casinos
throughout Louisiana. The Company's Sioux City riverboat casino currently faces
competition from two nearby land-based Native American casinos and slot machines
at nearby pari-mutuel race tracks and from two riverboat casinos in the Council
Bluffs, Iowa/Omaha, Nebraska market, which opened in January 1996. See "Risk
Factors -- Competition."
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EMPLOYEES
As of December 31, 1995, the Company had approximately 2,822 full-time
employees. Approximately 1,186 employees are represented by the Seafarers
International Union of North America. The collective bargaining agreement with
that union expires in June, 2001. Eleven employees are represented by the
International Brotherhood of Electrical Workers. The Company has not experienced
any work stoppages and believes its relations with its employees are generally
satisfactory.
LEGAL PROCEEDINGS
The Company is from time to time a party to legal proceedings arising in the
ordinary course of business. The Company does not believe that the results of
such ordinary course of business legal proceedings, even if the outcome were
unfavorable to the Company, would have a material adverse impact on either its
financial condition or results of operations. Certain other legal proceedings
are described below.
MARION COUNTY, INDIANA GRAND JURY DOCUMENT SUBPOENA
On or after March 15, 1996, the Company, its partners in the Lawrenceburg
Casino project and certain other individuals and entities were served with
document request subpoenas issued by the Office of the Prosecuting Attorney of
Marion County, Indiana in connection with a grand jury investigation entitled:
STATE OF INDIANA V. ORIGINAL INVESTIGATION-OFFICIAL MISCONDUCT. Indiana law
requires that at the time a target of an investigation is determined, that
entity or person must be so advised by the Office of the Prosecuting Attorney.
On March 23, 1996 the Company was advised by the Marion County prosecutor that
no target subpoenas had been issued by the grand jury in its investigation as of
that date. However, there can be no assurance that targets will not be
identified as further information and documents are obtained and considered by
the grand jury. Due to the confidential nature of grand jury proceedings, the
Company is not aware of the specific subject matter or matters of the
investigation. The Company believes it has fully complied with its subpoena, and
has been informed by its partners that they will do the same.
The subpoenas requested information regarding the current or prior ownership
interest in the Company and the partners of Indiana Gaming L.P. by the
individuals or entities described below. The subpoenas also requested that the
Company and its partners produce a broad category of documents including
documents regarding employment and other agreements, gifts, payments and
correspondence between the Company and any of its partners on the one hand and
several business entities and individuals, including an Indiana state
legislator, certain Indiana lobbyists, and certain Lawrenceburg, Indiana city
officials and businessmen on the other hand. The Company has learned that this
legislator has served as an employee of a subsidiary of Conseco, Inc., the
parent company of the 29% limited partner in Indiana Gaming L.P., since
September 1995. Additionally, the Company has learned that such state legislator
has served since September 1993 as a consultant to a major Indiana engineering
firm that is engaged in many state and local government funded construction
projects. That engineering firm also serves as lead engineer for the
Lawrenceburg Casino project. On May 24, 1996, the Indiana House Legislative
Ethics Committee voted to reprimand, but take no further action against, this
legislator for failing to properly report the foregoing employment and
consulting arrangements on his 1993, 1994 and 1995 statements of economic
interests. On June 27, 1996, the legislator announced his resignation as
chairman of the Indiana House Ways and Means Committee and that he would not
seek reelection in November 1996.
The Company believes that neither it nor any entity controlled by or person
employed by the Company has engaged, and has been informed by representatives of
its partners that they have not engaged, in any unlawful conduct in the pursuit
by or granting to Indiana Gaming L.P. of the Lawrenceburg gaming license.
Because the grand jury proceedings are unlikely to be concluded quickly, on
March 25, 1996, a former U.S. Attorney and his law firm were retained to
conduct, as special independent counsel (the "special independent counsel"), an
internal investigation into the activities and actions of the Company and the
entities controlled by and persons employed by the Company with respect to (i)
the hiring by Conseco, Inc. and the Indiana engineering firm of the state
legislator, (ii) the endorsement of Indiana Gaming L.P. by the City of
Lawrenceburg and the financial affairs of certain Lawrenceburg officials with
respect to such endorsement and the awarding of the certificate of suitability
by the Indiana Gaming Commission, and (iii) their lobbying efforts in
furtherance of the Indiana legislature's enactment of legislation authorizing
gaming and limiting
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gaming licenses to one per county. In June 1996, Indiana Gaming L.P. retained
the Company's special independent counsel to conduct a similar investigation of
its limited partners (other than Conseco, Inc.). A special committee of
independent directors of the Company has been appointed to supervise and
coordinate the special independent counsel's investigations. The special
independent counsel has not investigated Conseco, Inc., however, Conseco, Inc.
has retained its own special independent counsel to conduct an investigation of
matters that may be the subject of the grand jury proceedings.
From March 25 to April 15, 1996, the special independent counsel conducted
its investigation of the Company and issued an interim report in which it
concluded that it found no evidence that the Company or any entity controlled by
or person employed by the Company had any involvement in, or knowledge of, the
relationship between the state legislator and Conseco, Inc. or the Indiana
engineering firm, or attempted to improperly influence any City of Lawrenceburg
official, state legislator or Indiana Gaming Commission member or staff member
in connection with the endorsement of the partnership by the City of
Lawrenceburg and the awarding of the certificate of suitability to Indiana
Gaming L.P. With regard to lobbying, including the lobbying with respect to one
gaming license per county legislation, the special independent counsel found no
evidence that the Company or any entity controlled by or person employed by the
Company attempted to unduly influence any legislator in any way. However, no
investigation was made of any lobbyist's records, activities or expenditures,
nor were any outside lobbyists interviewed. The special independent counsel also
audited the Company's compliance with the lobbying disclosure statute in Indiana
and found only technical errors in the Company's lobbying disclosure statements.
No evidence was found that these technical errors were intentional or designed
to hide any lobbying activity. In conducting its investigation, the special
independent counsel, among other things, reviewed numerous boxes of documents
produced by the executive and Lawrenceburg offices of the Company and
extensively interviewed the nine Company officers and employees most closely
related to the Lawrenceburg Casino project, as well as the principal of R.J.
Investments, Inc., a 4% limited partner of Indiana Gaming L.P.
During June and July 1995, the special independent counsel conducted a
similar investigation of the limited partners of Indiana Gaming L.P. (other than
Conseco, Inc.) and found no evidence of any wrongdoing with respect to the
matters investigated. Also, in August 1996, Conseco, Inc.'s special independent
counsel concluded its investigation of Conseco, Inc. and its affiliates and
found no evidence of any wrongdoing.
No assurance can be given, however, that the nature and scope of the
investigation conducted by the special independent counsels retained by the
Company, Indiana Gaming L.P. and Conseco, Inc., which among other things, were
conducted under severe time pressure and were limited to the entities controlled
by and the persons employed by the Company, Indiana Gaming L.P., and Conseco,
Inc., were sufficient to uncover conduct that might be considered unlawful. In
the event that the Company, any entity controlled by the Company, any person
employed by the Company, Indiana Gaming L.P. or any of its partners is found by
the Marion County prosecutor to have engaged in unlawful conduct, there is no
assurance what effect such action would have on Indiana Gaming L.P.'s
certificate of suitability or, after issuance, the Indiana gaming license. In
the event Conseco or one of the Company's other partners in the Lawrenceburg
Casino project is determined by the Indiana Gaming Commission to be unsuitable
for the ownership of a gaming license or to have engaged in unlawful conduct,
the terms of Indiana Gaming L.P.'s partnership agreement provide that Indiana
Gaming L.P. shall redeem 100% of such unsuitable partner's interest in the
partnership for an amount equal to such partner's capital account. In the event
that a partner is determined by the Indiana Gaming Commission to be unsuitable
for ownership after the issuance of the gaming license, the terms of Indiana
Gaming L.P.'s partnership agreement provide that Indiana Gaming L.P. shall
redeem 100% of such unsuitable partner's interest for an amount equal to 90% of
the "appraised value" of that partner's interest, determined in accordance with
the terms of the partnership agreement. The purchase price is payable in five
annual installments, only from available cash flow or sale or financing proceeds
of the partnership, and bears interest at "prime." If such event were to occur
with respect to Conseco prior to the completion of the Lawrenceburg Casino
project, the Company would have to fund any remaining construction costs of the
Lawrenceburg Casino project which were to have been funded by Conseco. No
assurance can be given that the Company would be able to obtain funds sufficient
for this purpose. Also, there can be no assurance that
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the Indiana Gaming Commission will not take other actions such as suspending or
revoking Indiana Gaming L.P.'s certificate of suitability, delaying the issuance
of or failing to issue Indiana Gaming L.P. a gaming license or, after issuance,
revoking or suspending such gaming license. Therefore, there can be no assurance
that the grand jury investigation will not lead to events having a material
adverse effect on the Company.
H. STEVEN NORTON V. JOHN T. CONNORS, ET AL.
In September, 1993, H. Steven Norton, who was then and is now the President
of the Company, filed a cause of action against John T. Connors, a significant
shareholder of the Company and a former officer, director and shareholder of J.
Connors Group Inc., a predecessor entity of the Company ("JCG"), seeking $50
million in damages. Mr. Norton alleged that Mr. Connors failed to fulfill his
promise made in the summer of 1991 to establish a partnership with Mr. Norton in
which each would have an equal 50% interest in JCG, which had a 25% partnership
interest in the Company's predecessor entity that owned the Alton Belle Casino.
As a result of the reorganization effected immediately prior to its initial
public offering, the Company succeeded to all the rights, properties and assets,
and assumed all the liabilities, of all of its predecessor entities, including
JCG. Subsequent to the filing of the lawsuit, Mr. Connors advised the Company
that his dealings with Mr. Norton, which are the subject of the litigation, were
in his capacity as an officer of JCG, and that the Company should assume the
defense and reimburse Mr. Connors for the approximately $130,000 spent to date
on legal fees, and that any liability resulting from the litigation was assumed
by the Company as a result of Company's reorganization. The Company responded to
Mr. Connors that it believed that his actions and dealings with Mr. Norton were
solely in his individual capacity as a shareholder of JCG, and the Company
declined to assume the defense or reimburse him for previously incurred legal
fees, and the Company denied that it has any liability with respect to such
matter. If, however, JCG were to have been found liable to Mr. Norton as a
result of the actions of Mr. Connors, then the Company could under certain
circumstances be liable to Mr. Norton for any damages awarded against JCG.
In April 1995, Mssrs. Norton and Connors agreed to voluntarily dismiss the
lawsuit without prejudice. However, on May 22, 1996, Mr. Norton refiled the suit
against Mr. Connors and is again seeking $50 million in damages. The Company
believes that Mr. Connors will again seek to cause the Company to indemnify and
reimburse him from liability thereunder. Therefore, there can be no assurance
that the lawsuit will not lead to events having a material adverse effect on the
Company.
GAMING INDUSTRY CLASS ACTIONS
The Company has been named, along with two gaming equipment suppliers, 41 of
the country's largest gaming operators and four gaming distributors (the "Gaming
Industry Defendants") in three class action lawsuits pending in Las Vegas,
Nevada. The suits allege that the Gaming Industry Defendants violated the
Racketeer Influenced and Corrupt Organizations Act ("RICO") by engaging in a
course of fraudulent and misleading conduct intended to induce people to play
their gaming machines based upon a false belief concerning how those gaming
machines actually operate, as well as the extent to which there is actually an
opportunity to win on any given play. The suits sought unspecified compensatory
and punitive damages. The Company is unable at this time to determine what
effect, if any, the suit would have on its business or operations.
On August 23, 1995, a class action suit was filed in the United States
District Court for the District of New Jersey against the Company and
approximately 80 other major casinos located throughout the United States. The
suit alleges that the defendants violated federal antitrust and consumer credit
reporting laws by engaging in a conspiracy to refuse to deal to skilled
blackjack players who are capable of winning money at the casinos' blackjack
tables. The suit seeks unspecified compensatory and punitive damages. The
Company is unable at this time to determine what effect, if any, the suit would
have on its business or results of operations.
CAPITAL HOUSE PRESERVATION COMPANY, L.L.C. V. JAZZ ENTERPRISES, INC., ET AL.
In July 1995, Capital House Preservation Company, L.L.C. ("Capital House")
filed a cause of action in the U.S. District Court of the Middle District of
Louisiana against Jazz, the former shareholders of Jazz ("Former Jazz
Shareholders"), Catfish Queen Partnership (the "Partnership"), Argosy of
Louisiana, Inc. ("Argosy Louisiana") and the Company alleging that Jazz and
Argosy obtained the gaming license for Baton
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Rouge based upon false and fraudulent pretenses and declarations and financial
misrepresentations. The complaint alleges tortious conduct as well as violations
of RICO and seeks damages of $130,900,000 plus court costs and attorneys' fees.
The plaintiff was an applicant for a gaming license in Baton Rouge whose
application was denied by the Louisiana Enforcement Division. The Company
believes the allegations of the plaintiff are without merit and intends to
vigorously defend such cause of action.
On June 7, 1995, the Company consummated its purchase of all of the
outstanding capital stock of Jazz from the Former Jazz Shareholders. The Company
intends to seek indemnification from the Former Jazz Shareholders for any
liability the Company, Argosy Louisiana or Jazz suffers as a result of such
cause of action. As part of the consideration payable by the Company to the
Former Jazz Shareholders for the acquisition of Jazz, the Company agreed at the
time of such acquisition to annual deferred purchase price payments of
$1,350,000 for each of the first ten years after closing and $500,000 for each
of the next ten years. Payments are to be made quarterly by the Company. The
definitive acquisition documents provide the Company with off-set rights against
such deferred purchase price payments for indemnification claims of the Company
against the Former Jazz Shareholders and for liabilities that the Former Jazz
Shareholders contractually agreed to retain. There can be no assurance that the
Former Jazz Shareholders will have assets sufficient to satisfy any claim in
excess of the Company's off-set rights.
DISPUTE WITH FORMER SHAREHOLDERS OF JAZZ ENTERPRISES, INC.
On March 15, 1996, a judgment for approximately $2.2 million plus continuing
interest, attorney's fees and court costs was rendered against Jazz in the cause
of action entitled MARTHA MYATT BOWLUS ET. AL. V. JAZZ ENTERPRISES, INC. filed
in the Ninteenth Judicial District Court, Parish of East Baton Rouge, State of
Louisiana ("Bowlus Lawsuit"). The plaintiffs sued Jazz to recover amounts due
under a promissory note issued by Jazz and secured by a mortgage on certain
property owned by Jazz located several miles south of Catfish Town. The delay
for filing for a new trial in the Bowlus Lawsuit has elapsed and under Louisiana
law a suspensive appeal from a judgment must be filed within 30 days thereafter
and any such appeal requires the posting of an appeal bond in an amount at least
equal to the amount of the judgment. The judgment rendered in the Bowlus Lawsuit
has been recorded in the mortgage records of East Baton Rouge Parish, and
therefore the judgment now constitutes a judicial mortgage on Jazz's Catfish
Town property.
Pursuant to the definitive acquisition documents any and all amounts due by
Jazz under the Bowlus Lawsuit are the obligations of the Former Jazz
Shareholders. Prior to March 31, 1996, the Company requested, in writing, that
the Former Jazz Shareholders satisfy the obligations and satisfy the judgment.
Thereafter, Jazz was advised that the Former Jazz Shareholders hoped to settle
the Bowlus Lawsuit prior to the expiration of the suspensive appeal delay and if
not so settled, they intended to suspensively appeal the judgment. As a result
of the Former Jazz Shareholders' obligations, one of the Former Jazz
Shareholders, Mr. Steve Urie, posted an unsecured personal appeal bond in the
amount of $2,246,187.31, and filed a suspensive appeal. Under Louisiana law, if
it is determined that the suspensive appeal is proper and that the suspensive
appeal bond is valid, sufficient and proper, then after a contradictory hearing
the court may order the judgement cancelled from the mortgage records during the
pendency of the suspensive appeal. The Bowlus plaintiffs filed pleadings to
contest the validity, sufficiency, and propriety of the suspensive appeal bond.
Accordingly, since the Former Jazz Shareholders allowed the judgment to be
entered against Jazz, and allowed said judgment to remain in the mortgage
records, such that the judgment creates a judicial mortgage on Jazz's immovable
property, the Company withheld two scheduled payments of $337,500 each to the
Former Jazz Shareholders representing the March 31, 1996 and June 30, 1996
quarterly installments of the deferred purchase price. The Company believes that
withholding such payment, as well as withholding future payments, until the
Former Jazz Shareholders satisfy the Bowlus Lawsuit is within the Company's
rights as provided for in the definitive acquisition documents.
In response to the Company's withholding the March 31, 1996 payment, Mr.
Steve Urie has filed an action in the District Court of East Baton Rouge seeking
payment of the withheld amount and has also threatened, among other things, to
file a class action on behalf of the shareholders of the Company against the
Company and its directors and officers for mismanagement. The Company believes
such threatened claims are without merit and would vigorously pursue the defense
of any lawsuit filed by the Former Jazz Shareholders.
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In July 1996, the court ruled Mr. Urie's bond insufficient and the Company
paid the $2.2 million judgment on behalf of the Former Jazz Shareholders and
will offset future payments against this amount.
POTENTIAL CHALLENGE TO CERTIFICATE OF SUITIBILITY FOR LAWRENCEBURG CASINO BY
UNSUCCESSFUL APPLICANT
On March 6, 1996 Indiana Gaming Company received a letter from counsel to
Schilling Casino Corporation, d/b/a Empire Casino & Resort ("Empire") advising
the Company that Empire intended to take legal action to seek a revocation or
cancellation of the certificate of suitability issued by the Indiana Gaming
Commission to Indiana Gaming L.P. on June 30, 1995 to develop and operate the
Lawrenceburg Casino. Empire was one of the 10 unsuccessful applicants competing
for the Lawrenceburg gaming license. Empire advised Indiana Gaming L.P. that it
intended to file an application with the Indiana Gaming Commission seeking
revocation of the certificate of suitability and that if such application is
unsuccessful, Empire has stated that it intends to file a civil action
challenging the Indiana Gaming Commission's authority to issue the certificate
of suitability and finally, if any such civil action is unsuccessful, to file an
appeal from the denial of Empire's application, which denial Empire deems to
occur upon the issuance of the gaming license to Indiana Gaming L.P.
On July 19, 1996, Empire filed with the Indiana Gaming Commission an
application for revocation of the certificate of suitability awarded to the
Indiana Partnership for a riverboat owners license for Lawrenceburg, Indiana.
Among the grounds stated by Empire in their application as filed were: (i) the
application process followed by the Indiana Gaming Commission did not afford
Empire due process and violated Indiana law; (ii) the Indiana Partnership has
failed to comply with the conditions in the Certificate because the temporary
vessel has not opened and certain permits have not been obtained; (iii) the
Indiana Partnership made misrepresentations to the Indiana Gaming Commission
during the licensing hearings; (iv) the Indiana Gaming Commission could not
lawfully extend the Certificate beyond June 30, 1996 without reconsidering all
other applications; and (v) the endorsement of the Indiana Partnership by the
City of Lawrenceburg was without legal authority. On August 20, 1996, the
Indiana Gaming Commission unanimously rejected Empire's application for
revocation. There can be no assurances, however, that any actions of Empire will
not result in a delay in the opening of the temporary gaming facility in
Lawrenceburg presently scheduled for the fourth quarter of 1996 or the opening
of the permanent gaming facility scheduled twelve months later. Any such delay
could have a material adverse effect on the Company.
LOUISIANA GAMING MATTERS
In April 1995, the Company received a notice of violation from the Louisiana
Enforcement Division alleging certain violations of the Louisiana gaming law
principally related to compliance with reporting and internal control procedures
and initially assessing fines and penalties of approximately $440,000. In April
1996, this amount was reduced to $88,400. The Company has taken the necessary
actions to correct the matters alleged in the notice of violation.
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LAWRENCEBURG CASINO PARTNERSHIP AGREEMENT
GENERAL
On June 30, 1995, Indiana Gaming L.P., received a certificate of suitability
from the Indiana Gaming Commission to develop and operate the Lawrenceburg
Casino project. The Company is the sole general partner of, and holds a 57.5%
general partnership interest in, Indiana Gaming L.P. Conseco holds a 29% limited
partnership interest and certain other investors, including H. Steven Norton,
Chief Operating Officer of the Company, who brought the opportunity to the
Company concurrent with his initial employment, hold the remaining 13.5% limited
partnership interests in Indiana Gaming L.P.
Indiana Gaming L.P. operates pursuant to a partnership agreement entered
into among the partners as of April 11, 1994, as amended and restated as of
February 21, 1996. The Indiana Gaming Company manages the partnership pursuant
to a management agreement and as general partner, subject only to certain
actions or major decisions requiring the consent of a majority in interest of
the limited partners. Under the provisions of the partnership agreement and the
management agreement, the Company will manage the development, construction and
operation of the Lawrenceburg Casino project and will receive a management fee
of 7.5% of EBITDA (as defined in the partnership agreement) and Conseco will
receive a financial advisory fee of 5% of EBITDA. The Company estimates the
total cost to open the temporary gaming facility and to construct the proposed
permanent riverboat casino, land-based facilities and 300-room hotel will be
approximately $210 million.
PROJECT FUNDING
It is currently anticipated that the budgeted $210 million total project
cost will be funded as follows: $52.5 million by capital contributions by the
partners of which $16.75 million will constitute common equity and $35.75
million will constitute preferred equity. The Company has contributed 57.5% of
the common equity, in the amount of approximately $9.6 million, and has
contributed or will contribute 57.5% of the preferred equity, in the amount of
approximately $20.6 million. The remainder of the common equity has been and the
remainder of the preferred equity will be contributed by Conseco. The remainder
of the cost of the Lawrenceburg Casino is expected to be funded by third party
financing and capital loans from the Company and Conseco. Any capital loans are
to be funded 57.5% by the Company and 42.5% by Conseco, pursuant to agreements
under which Conseco will fund both its and such other limited partners' share of
such capital loans. Conseco is obligated to fund 42.5% of any capital loans
until project costs exceed the budgeted $210 million total project cost.
If project costs exceed $210 million, the Company and Conseco will make
capital loans up to $15 million in the aggregate, 57.5% of which will be funded
by the Company and 42.5% by of which will be funded Conseco; provided that
Conseco will receive an interest rate 700 basis points higher than the Company
on the last $10 million contributed. Any project costs over $225 million will be
funded solely by the Company without a return or compensation.
PARTNER DISTRIBUTIONS
The Lawrenceburg Casino partnership agreement sets forth the manner in which
cash flow of Indiana Gaming L.P. will be distributed. Pursuant to the agreement,
capital loans will be repaid on an eight-year amortizing schedule and cash flow
(after repayment of principal of, and interest on, capital loans) will be
distributed by the general partner not less frequently than quarterly: (i)
first, to the partners pro rata for tax payments in an amount equal to the
product of an assumed tax rate times their estimated taxable income for such
period; (ii) second, to the partners as a prepayment of principal on capital
loans to be applied in the inverse order of maturity, up to 75% of the remaining
cash flow; (iii) third, in payment of a preferred return of 14% on any preferred
equity contributed by the partners; (iv) fourth, as a return of the preferred
equity contributed by the partners; (v) fifth, as a return of common equity
contributed by the partners; and (vi) sixth, to the partners in accordance with
their respective percentage interests. The partnership agreement provides that
the net cash proceeds from a sale or refinancing are distributed by the general
partner in the same order as cash flow except that the proceeds will be used to
repay 100% of outstanding capital loans by the partners.
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GENERAL PARTNER REMOVAL
The Lawrenceburg Casino partnership agreement provides that the Company's
wholly-owned subsidiary, The Indiana Gaming Company, can be removed as general
partner of the partnership by the limited partners under certain limited
circumstances, including: (i) a material breach (after notice and expiration of
applicable cure periods) of certain material provisions of the partnership
agreement dealing with such things as distributions to partners or the failure
to obtain the required consent of the limited partners for certain major
decisions; (ii) conviction of embezzlement or fraud; (iii) certain bankruptcy
events; (iv) if The Indiana Gaming Company's partnership interest is less than
40% due to sales or dilution for failure to pay required capital; (v) a final
unappealable judgment against The Indiana Gaming Company in excess of $25
million which is uninsured and remains unsatisfied, unreleased or unstayed for
180 days; (vi) certain acts constituting "gross mismanagement"; (vii) if The
Indiana Gaming Company fails to fund project costs in excess of $215 million
(after expiration of applicable notice and cure periods); and (viii) if the
Trustee under the Notes forecloses on The Indiana Gaming Company's pledge of its
partnership interest in Indiana Gaming L.P. Upon removal as general partner, the
general partnership interest of The Indiana Gaming Company becomes a "special
limited partner" interest with rights to partner distributions but only limited
voting rights on partnership matters. Also, if the reason for the removal is an
event described in clause (i), (ii), (iii), (v), (vi) or (viii) above the
limited partners may acquire all, but not less than all, of The Indiana Gaming
Company's interest for the fair market value thereof determined by an appraisal
process.
LIMITED PARTNERS' SALE RIGHTS
The Lawrenceburg Casino partnership agreement provides that: (i) after the
third anniversary date of commencement of operations at the Lawrenceburg Casino,
each limited partner has the right to sell its interest to the other partners
(pro rata in accordance with their respective percentage interests) or (ii)
after a deadlock by the parties with respect to significant items in any annual
operating budget of the partnership for budget year 1999 and thereafter, any
partner has a right to sell its interest to the other partners (the limited
partner pursuant to clause (i) and the partner desiring to sell pursuant to
clause (ii) is hereinafter referred to as a "Selling Partner" and the
non-selling partners are hereinafter referred to as the "Non-Selling Partners").
The partnership agreement provides that after the Selling Partner gives notice
of its intent to sell the Selling Partner and Non-Selling Partners shall have 60
days to attempt in good faith to agree to a purchase price. If within such
period of time no such agreement is reached, then the Selling Partner's interest
shall be appraised pursuant to an appraisal process to determine the fair market
value thereof. After the fair market value of the Selling Partner's interest is
determined by the appraisal process, the Non-Selling Partners have 60 days to
reject such sale at that price, and if the Non-Selling Partners decline to
purchase the interest of the Selling Partner at the appraisal price then the
general partner is to solicit bids and sell all of the assets of the partnership
within twelve months to the highest bidder and the partnership will be dissolved
within a 12-month period. No assurances can be given that The Indiana Gaming
Company, if it is a Non-Selling Partner, will have or will be able to obtain
sufficient funds to acquire any Selling Partner's interest in the circumstances
provided for above and therefore the assets of the partnership would have to be
sold to the highest bidder as provided above. In addition, the partnership
agreement provides all partners with a right of first refusal on transfers of
partnership interests. A foreclosure by the Trustee on the Company's pledge of
its partnership interest shall be deemed a transfer giving rise to the right of
first refusal.
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REGULATORY MATTERS
GAMING REGULATORY SUMMARY
The following table presents a comparative summary of certain key regulatory
issues as in effect as of the date of this Offering Memorandum in the
jurisdictions where the Company operates or proposes to operate casinos:
<TABLE>
<CAPTION>
ILLINOIS IOWA MISSOURI LOUISIANA INDIANA
--------------- ------------ --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
MANDATORY CRUISING Yes Limited (1) Yes (2) Yes Yes
CRUISE LENGTH (ACTUAL OR SIMULATED) Eight 2 hour 2 hours (1) Ten 2 hour Eight 3 hour Twelve 2 hour
cruises (30 cruises (45 cruises (45 cruises
min. board time min. board time min. board time anticipated (30
before and before and before and min. board time
after cruise) after cruise) after cruise) before and
after cruise)
MAXIMUM NUMBER OF GAMING POSITIONS 1,200 Unlimited Unlimited Unlimited Unlimited
MAXIMUM NUMBER OF LICENSES 10 Unlimited Unlimited 15 11
LICENSES OR CERTIFICATES OF 10 12 (3) 7 14 9
SUITABILITY ISSUED
STATE LICENSED CASINOS IN OPERATION 10 12 (3) 7 13 4
STATE GAMING TAX AS A PERCENTAGE OF 20% Graduated to 20% 18.5% 20%
GAMING REVENUES 20%
STATE ADMISSION TAX PER PASSENGER $2.00 (4) $2.00 $2.50 $3.00
LOSS LIMIT PER CRUISE None None $500 None None
</TABLE>
- ---------------
(1) Iowa law requires one cruise per day for 100 days per year. While an Iowa
riverboat is not cruising, customers are permitted unlimited ingress and
egress to the casino.
(2) The Missouri Gaming Commission is empowered to determine on a site by site
basis whether dockside gaming is in the best interest of Missouri and the
safety of the public and shall be permitted.
(3) Nine of the state-licensed casinos are riverboat casino operations. The
remaining three state-licensed casinos are land-based operations that are
only permitted to offer gaming in the form of slot machines.
(4) Admission fees are set annually on a per boat basis.
ILLINOIS
In February 1990, the State of Illinois pursuant to the Riverboat Gambling
Act (the "Riverboat Act") legalized riverboat gaming. The Riverboat Act
authorizes riverboat gaming upon any navigable stream within or forming a
boundary of the State of Illinois other than Lake Michigan. The Riverboat Act
does not, however, authorize riverboat gaming or the docking of a riverboat
conducting gaming within a county having a population in excess of 3,000,000.
The Riverboat Act grants the Illinois Gaming Board specific powers and duties,
and all other powers which are necessary and proper to effectuate the Riverboat
Act. The Illinois Gaming Board's jurisdiction extends to every person,
association, corporation, partnership and trust involved in riverboat gaming
operations in the State of Illinois.
The Riverboat Act authorized a five member Illinois Gaming Board to issue up
to ten owner's licenses statewide. Each owner's license permits the operation of
up to two boats as a part of a single riverboat gaming operation with a combined
maximum of 1,200 gaming positions (as defined by the Illinois Gaming Board). No
person, firm or corporation may be licensed as the owner of more than one
riverboat gaming operation in Illinois, although a licensed owner may hold up to
10% of a second riverboat gaming operation in Illinois. In addition to the ten
owner's licenses which may be authorized under the Riverboat Act, the Illinois
Gaming Board may issue special event licenses allowing persons who are not
otherwise licensed to conduct riverboat gaming and to conduct such gaming on a
specified date or series of dates. Riverboat gaming under such a license may
take place on a riverboat not normally used for riverboat gaming.
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An owner's license is issued for an initial period of three years (with a
fee of $25,000 for the first year and $5,000 for each of the following two
years) and must be renewed annually thereafter (with a fee of $5,000 for each
year). The Company's Illinois gaming license is subject to renewal on October
24, 1996. An owner's license is eligible for renewal upon payment of the
applicable fee and a determination by the Illinois Gaming Board that the
licensee continues to meet all of the requirements of the Riverboat Act. The
Illinois Gaming Board also requires that officers, directors and employees of a
gaming operation be licensed. Licenses issued by the Illinois Gaming Board may
not be transferred to another person or entity. All licensees must maintain
their suitability for licensure and have a continuing duty to disclose any
material changes in information provided to the Illinois Gaming Board.
Pursuant to its rulemaking authority under the Illinois Riverboat Act, the
Illinois Gaming Board has adopted certain regulations that provide that any
beneficial owner of the legal or beneficial interests of a gaming company may be
required, and in the case of a beneficial owner of 5% or more of the legal or
beneficial interests (a "5% Holder") is required, to furnish a detailed personal
disclosure form to the Illinois Gaming Board. The Illinois Gaming Board uses the
personal disclosure form as the basis for its investigation to determine such
holder's suitability as a stockholder of the company. In the case of a 5%
Holder, the Illinois Gaming Board conducts such an investigation. The Illinois
Gaming Board's decisions as to suitability are based on the same criteria used
for a finding of preliminary suitability for licensure including character,
reputation, experience and financial integrity of such holder. If the Illinois
Gaming Board determines that a holder is not suitable, the holder is entitled to
request a hearing; however, if no hearing is requested after such determination
or such finding is upheld after a hearing, the holder is required to divest his
shares of common stock of the company. After a holder is required to divest and
until divestiture, the licensee is unable to distribute profits to such
stockholder. The Illinois Gaming Board has adopted a regulation that provides
that a licensee can only make distributions to shareholders to the extent such
distributions would not impair the financial viability of the licensee. Factors
which would be considered by the Illinois Gaming Board include working capital
requirements, debt service requirements, requirements for repairs and
maintenance and capital expenditure requirements. Illinois Gaming Board approval
is required for certain changes, including, among other things, to the type of
entity, debt and equity offerings by a company, issuances of debt, riverboat
capacity or significant design changes, changes in the number of gaming
positions and pro forma budgets and financial statements.
Minimum and maximum wagers on games are set by the licensee. Wagering may
not be conducted with money or negotiable currency. No person under the age of
21 is permitted to wager in Illinois, and wagers may only be taken from a person
present on a licensed riverboat. With respect to electronic gaming devices, the
payout percentage may not be less than 80% nor more than 100%.
Under the Riverboat Act, vessels must have the capacity to hold a minimum of
500 persons if operating on the Mississippi River or the Illinois River south of
Marshall County, and a minimum of 400 persons on any other waterway. In
addition, all riverboats must be accessible to disabled persons, must be either
a replica of a 19th century Illinois riverboat or be a casino cruise ship design
and must comply with applicable federal and state laws, including but not
limited to U.S. Coast Guard regulations.
Gaming may only be conducted on a gaming excursion, which is limited to a
maximum period of four hours. A gaming excursion is deemed to have started upon
the commencement of gaming. For the purpose of orderly ingress of passengers to
a riverboat, gaming is deemed to commence when the first passenger boards a
riverboat for an excursion and may continue while other passengers are boarding
for a period not to exceed thirty minutes, at which time the gangplank or its
equivalent must be pulled up and further boarding is not permitted. For the
purpose of orderly egress of passengers from a riverboat at the end of an
excursion, gaming may continue for a period not to exceed thirty minutes after
the gangplank or its equivalent is lowered. During this thirty minute period of
egress, new passengers may not board a riverboat. These periods of time do not
extend the four-hour maximum. Special event extended cruises may be authorized
by the Illinois Gaming Board.
Although the Riverboat Act provides that no gambling may be conducted while
a riverboat is docked, an Illinois Gaming Board rule currently permits dockside
gaming during the 30-minute time periods prior to
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and following a cruise. Furthermore, if the captain of the riverboat reasonably
determines that for reasons of safety, although seaworthy, the riverboat should
not leave the dock or should return immediately thereto due to inclement
weather, mechanical or structural problems, or river icing, then a gaming
excursion may commence or continue while the gang plank or its equipment is
raised and remains raised, and ingress is prohibited until completion of the
excursion, in which case the riverboat is not considered docked. If such a
situation occurs, the holder of the owner's license must promptly file a report
with the administrator of the Illinois Gaming Board detailing the basis for its
decision not to cruise. Recent pronouncements by the Illinois Gaming Board
indicate that the explanations for failure to cruise pursuant to the rule will
be scrutinized and that any abuse of the rule will result in disciplinary
actions, which may include, among other things, any of the following:
cancellation of future cruises, penalties, fines, suspension and/or revocation
of a license.
The Riverboat Act imposes a 20% wagering tax on adjusted gross receipts from
gambling games. The tax imposed is to be paid by the licensed owner to the
Illinois Gaming Board on the day after the day when the wagers were made. A
number of bills have been recently introduced in the Illinois legislature
proposing a graduated gaming tax that would impose a maximum tax on Illinois
casinos far in excess of the current 20% wagering tax on adjusted gaming
receipts. The Governor of Illinois has publicly supported such a graduated
gaming tax and has proposed a state budget which is in part predicated on
additional revenues being generated from an increase in gaming taxes. The
proposed bills are still pending and no assurance can be given that one or a
combination of these bills will not become law or that similar legislation will
not be introduced in the future. The Riverboat Act also requires that licensees
pay a $2.00 admission tax for each person admitted to a gaming cruise. In
addition, all use, occupancy and excise taxes that apply to food and beverages
and all taxes imposed on the sale or use of tangible property apply to sales
aboard riverboats. The Company also pays $.20 admission tax to the City of Alton
for each person admitted to the Alton Belle Casino.
The Illinois Gaming Board is authorized to conduct investigations into the
conduct of gaming as it may deem necessary and proper and into alleged
violations of the Riverboat Act. Employees and agents of the Illinois Gaming
Board have access to and may inspect any facilities relating to riverboat gaming
operations at all times.
A holder of any license is subject to the imposition of fines, suspension or
revocation of such license, or other action for any act or failure to act by
himself or his agents or employees, that is injurious to the public health,
safety, morals, good order and general welfare of the people of the State of
Illinois, or that would discredit or tend to discredit the Illinois gaming
industry or the State of Illinois. Any riverboat operation not conducted in
compliance with the Riverboat Act may constitute an illegal gaming place and
consequently may be subject to criminal penalties, which penalties include
possible seizure, confiscation and destruction of illegal gaming devices and
seizure and sale of riverboats and dock facilities to pay any unsatisfied
judgment that may be recovered and any unsatisfied fine that may be levied. The
Illinois Gaming Board may revoke or suspend licenses, as the Board may see fit
and in compliance with applicable laws of Illinois regarding administrative
procedures and may suspend an owner's license, without notice or hearing, upon a
determination that the safety or health of patrons or employees is jeopardized
by continuing a riverboat's operation. The suspension may remain in effect until
the Illinois Gaming Board determines that the cause for suspension has been
abated and it may revoke the owner's license upon a determination that the owner
has not made satisfactory progress toward abating the hazard.
The Illinois Gaming Board may waive any licensing requirement or procedure
provided by rule if it determines that such waiver is in the best interests of
the public and the gaming industry.
INDIANA
In June 1993, the Indiana legislature adopted legislation permitting
riverboat gambling in counties contiguous to Lake Michigan, the Ohio River and
Patoka Lake. The legislation granted authority to supervise gaming activities to
the seven-member Indiana Gaming Commission (the "Indiana Gaming Commission").
The Indiana Gaming Commission is empowered to administer, regulate and enforce
the system of riverboat gaming established under Indiana's Riverboat Gambling
Act (the "Riverboat Gambling
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Act") and has jurisdiction and supervision over all riverboat gaming operations
in Indiana, as well as all persons on riverboats where gaming operations are
conducted. The Indiana Gaming Commission has broad powers to regulate riverboat
gaming operations and to approve the form of ownership and financial structure
of not only riverboat owner licensees, but also their entity qualifiers, and
intermediary and holding companies. Indiana is a new gaming jurisdiction and the
emerging regulatory framework is not yet complete. The Indiana Gaming Commission
has adopted certain final rules and has published others in proposed or draft
form which are proceeding through the review and final adoption process. The
Indiana Gaming Commission also has indicated its intent to publish additional
proposed rules in the future. The Indiana Gaming Commission has broad rulemaking
power and it is impossible to predict what effect, if any, the rules might have
on the operations of the Lawrenceburg Casino. The following description reflects
both adopted and proposed rules. Further, the Indiana General Assembly has the
power to promulgate new laws and implement amendments to the Riverboat Gambling
Act, which can materially affect the operation or economic viability of the
gaming industry in Indiana.
No one may operate a riverboat gaming operation in Indiana without holding a
riverboat owner's license. The Indiana Gaming Commission has implemented strict
regulations with respect to the suitability of riverboat license owners, their
key personnel, and employees. The Indiana Gaming Commission utilizes a "class
based" licensing structure that subjects all individuals associated with a
riverboat licensee or a riverboat license applicant to varying degrees of
background investigations.
Under current Indiana law a maximum of 11 owner's licenses may be in effect
at any time with an aggregate of five licenses to be issued to owners whose home
port is a county which is contiguous to Lake Michigan, an aggregate of five
licenses to be issued to owners whose home port is a county which is contiguous
to the Ohio River and one license to be issued to an owner whose home port is a
county contiguous to Lake Patoka. For counties contiguous to the Ohio River, the
Indiana Gaming Commission may not issue a license unless an ordinance has been
passed permitting the docking of a riverboat by the specified local entity and
the voters of the county have approved riverboat gambling in the county.
A license holder is required to pay an initial license fee of $25,000, a
renewal of $5,000 per year thereafter and post a bond to guaranty performance of
the licensee's obligations under the legislation. Gaming will be permitted only
on riverboats which (i) have a valid certificate of inspection from the U.S.
Coast Guard for the carrying of at least 500 passengers, (ii) are at least 150
feet in length, and (iii) for riverboats operating on the Ohio River, replicate
historic Indiana steamboat passenger vessels of the 19th century. No person or
entity may simultaneously own an interest in more than two riverboat owner's
licenses. A person or entity may simultaneously own up to 100% in one riverboat
owner's license and no more than 10% in a second riverboat owner's license. A
riverboat owner's licensee must possess a level of skill, experience, or
knowledge necessary to conduct a riverboat gaming operation that will have a
positive economic impact on the host site, as well as the entire State of
Indiana. Additional representative, but not exclusive, qualification criteria
with respect to the holder of a riverboat owner's license include character,
reputation, financial integrity, the facilities or proposed facilities for the
conduct of riverboat gaming including related non-gaming projects such as hotel
development, and the good faith affirmative action plan to recruit, train and
upgrade minorities and women in all employment classifications. The Indiana
Gaming Commission shall require persons holding owner's licenses to adopt
policies concerning the preferential hiring of residents of the city in which
the riverboat docks for riverboat jobs. The Indiana Gaming Commission has broad
discretion in regard to the issuance, renewal, revocation and suspension of
licenses and approvals, and the Indiana Gaming Commission is empowered to
regulate a wide variety of gaming and non-gaming related activities, including
the licensing of suppliers to, and employees at, riverboat gaming operations,
and effectively to approve the form of ownership and financial structure of not
only riverboat owner and supplier licensees, but also their subsidiaries and
affiliates. A riverboat owner's licensee or any other person may not lease,
hypothecate, borrow money against or loan money against a riverboat owner's
license. An ownership interest in a riverboat owner's license may only be
transferred in accordance with the regulations promulgated under the Riverboat
Gambling Act. An applicant for the approval of the transfer of a riverboat
owner's license must comply with application procedures prescribed by the
Indiana Gaming Commission and present evidence that it meets or possesses the
standards, qualifications, and other criteria
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under Indiana gaming laws, and pay an investigative fee in the amount of $50,000
with the application. If the Indiana Gaming Commission denies the application to
transfer an ownership interest, it shall issue notice of denial to the
applicant. Unless specifically stated to the contrary, a notice of denial of an
application for transfer shall not constitute a finding that the applicant is
not suitable for licensure. A person who is served with notice of denial under
this rule may request an administrative hearing.
"Certificates of Suitability" are issued following selection by the Indiana
Gaming Commission. The "Certificate of Suitability" is valid for 180 days unless
extended by the Indiana Gaming Commission. During this period the prospective
riverboat licensee must among other things: obtain a permit to develop the
riverboat gaming operation from the United States Army Corps of Engineers;
obtain a valid certificate of inspection from the United States Coast Guard for
the vessel on which the riverboat gaming operation will be conducted; apply for
and receive the appropriate permits or certificates from the Indiana Alcoholic
Beverage Commission, fire marshall, and other appropriate local, state and
federal agencies which issue permits including, but not limited to, health
permits, building permits and zoning permits; closing the financing necessary to
complete the development of the gaming operation; post a bond in compliance with
the applicable law; obtain the insurance deemed necessary by the Indiana Gaming
Commission; receive licensure for electronic gaming devices and other gaming
equipment under applicable law; submit an emergency response plan in compliance
with applicable laws; and take any other action that the Indiana Gaming
Commission deems necessary for compliance under Indiana gaming laws. Further,
the Indiana Gaming Commission may place restrictions, conditions or requirements
on the permanent riverboat owner's license. An owner's initial license expires
five years after the effective date of the license, and unless the owner's
license is terminated, expires or is revoked, the owner's license may be renewed
annually by the Indiana Gaming Commission upon satisfaction of certain
conditions contained in the Riverboat Gambling Act.
Pursuant to rules promulgated by the Indiana Gaming Commission, any person
(other than an institutional investor) who individually, or in association with
others, acquires directly or indirectly the beneficial ownership of 5% or more
of any class of voting securities of a publicly-traded corporation that is a
riverboat licensee or 5% or more of the beneficial interest in a riverboat
licensee, directly or indirectly, through any class of the voting securities of
any holding or intermediary company of a riverboat licensee shall apply to the
Indiana Gaming Commission for finding of suitability within 45 days after
acquiring the securities. Each institutional investor who, individually or in
association with others, acquires, directly or indirectly, beneficial ownership
of 5% or more of any class of voting securities of a publicly-traded corporation
that is a riverboat licensee or 5% or more of the beneficial interest in a
riverboat licensee through any class of the voting securities of any holding or
intermediary company of a riverboat licensee shall notify the Indiana Gaming
Commission within 10 days after the institutional investor acquires the
securities and shall provide additional information and may be subject to a
finding of suitability as required by the Indiana Gaming Commission.
An institutional investor who would otherwise be subject to a suitability
finding shall, within 45 days, after acquiring the interests submit information
to the Indiana Gaming Commission including the following: a description of the
institutional investor's business and a statement as to why the institutional
investor satisfies the definitional requirements of an institutional investor
under Indiana gaming rule requirements; a certification made under oath that the
voting securities were acquired and are held for investment purposes only and
were acquired and are held in the ordinary course of business as an
institutional investor; the name, address, telephone number, social security
number or federal tax identification number of each person who has the power to
direct or control the institutional investor's exercise of its voting rights as
a holder of voting securities of the riverboat licensee; the name of each person
who beneficially owns 5% or more of the institutional investor's voting
securities or equivalent; a list of the institutional investor's affiliates; a
list of all securities of the riverboat licensee that are or were beneficially
owned by the institutional investor or its affiliates within the preceding one
year; a disclosure of all criminal and regulatory sanctions imposed during the
preceding ten years; a copy of any filing made under 16 U.S.C. 18(a); and any
other additional information the Indiana Gaming Commission may request to insure
compliance with Indiana gaming laws.
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Each institutional investor who, individually or in association with others,
acquires, directly or indirectly, the beneficial ownership of 15% or more of any
class of voting securities of a publicly-traded corporation that owns a
riverboat owner's license or 15% or more of the beneficial interest in a
riverboat licensee directly or indirectly through any class of voting securities
of any holding company or intermediary company of a riverboat licensee shall
apply to the Indiana Gaming Commission for a finding of suitability within 45
days after acquiring the securities.
An institutional investor means any of the following: a retirement fund
administered by a public agency for the exclusive benefit of federal, state or
local public employees; an investment company registered under the Investment
Company Act of 1940; a collective investment trust organized by banks under Part
9 of the Rules of the Comptroller of the Currency; a closed end investment
trust; a chartered or licensed life insurance company or property and casualty
insurance company; a banking, chartered or licensed lending institution; an
investment adviser registered under the Investment Advisers Act of 1940; and any
other entity the Indiana Gaming Commission determines constitutes an
institutional investor. The Indiana Gaming Commission may in the future
promulgate regulations with respect to the qualification of other financial
backers, mortgagees, bond holders, holders of indentures or other financial
contributors.
The Riverboat Gambling Act imposes a tax on admissions to gaming excursions
at a rate of $3.00 for each person admitted to the gaming excursion. This
admission tax is imposed upon the license owner conducting the gaming excursion
on a per-person basis without regard to the actual fee paid by the person using
the ticket, with the exception that no tax shall be paid by admittees who are
actual and necessary officials, employees of the licensee or other persons
actually working on the riverboat. A tax is imposed on the adjusted gross
receipts received from gaming games under the Riverboat Gambling Act at a rate
of twenty percent (20%) of the amount of the adjusted gross receipts. Adjusted
gross receipts is defined as the total of all cash and property (including
checks received by a licensee), whether collected or not, received by a licensee
from gaming operations less the total of all cash paid out as winnings to
patrons including a provision for uncollectible gaming receivables as is further
set forth in the Riverboat Gambling Act. The Indiana Gaming Commission may, from
time to time, impose other fees and assessments on riverboat owner licensees. In
addition, all use, excise and retail taxes apply to sales aboard riverboats.
In general, riverboat excursions are limited to a duration of four hours,
and no gaming may be conducted while the riverboat is docked, with the exception
of (i) the 30 minutes during passenger embarkation and disembarkation and (ii)
when weather, water or traffic prevent the riverboat from cruising. Minimum and
maximum wagers on games are set by the licensee, and wagering may not be
conducted with money or other negotiable currency. No person under the age of 21
is permitted to wager, and wagers may only be taken from a person present on a
licensed riverboat.
No riverboat licensee or riverboat license applicant may enter into or
perform any contract or transaction in which it transfers or receives
consideration which is not commercially reasonable or which does not reflect the
fair market value of the goods or services rendered or received as determined at
the time the contract is executed. Any contract entered into by a riverboat
licensee or riverboat license applicant that exceeds the total dollar amount of
$50,000 shall be a written contract. A riverboat license applicant means an
applicant for a riverboat owner's license that has been issued a certificate of
suitability.
Pursuant to proposed Indiana Gaming Commission rules, riverboat licensees
and riverboat license applicants must submit an internal control procedure
regarding purchasing transactions which must contain provisions regarding
ethical standards, compliance with state and federal laws, and prohibitions on
the acceptance of gifts and gratuities by purchasing and contracting personnel
from suppliers of goods or services. The proposed rules also require any
riverboat licensee or applicant to submit any contract, transaction or series of
transactions greater than $500,000 in any 12-month period to the Indiana Gaming
Commission within 10 days of execution, and to submit a summary of all contracts
or transactions greater than $50,000 in any 12-month period on a quarterly
basis. The proposed rules provide that contracts submitted to the Indiana Gaming
Commission are not submitted for approval, but grant the Indiana Gaming
Commission authority to cancel or terminate any contract not in compliance with
Indiana law and Indiana Gaming Commission rules.
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Indiana gaming laws provide that the opportunity for full minority and
women's business enterprise participation in the riverboat industry in Indiana
is essential to social and economic parity for minority and women business
persons. The Indiana Gaming Commission has the power to review compliance with
the goals of participation by minority and women business persons and impose
appropriate conditions on licensees to insure that goals for such business
enterprises are met.
Under proposed Indiana Gaming Commission rules, a riverboat licensee or a
riverboat license applicant shall designate certain minimum percentages of the
value of its contracts for goods and services to be expended with minority
business enterprises and womens' business enterprises such that 10% of the
dollar value of the riverboat licensee's or the riverboat license applicant's
contracts be expended with minority enterprises and 5% of the dollar value of
the riverboat licensee's or the riverboat license applicant's contracts be
expended with women's business enterprises. Expenditures with minority and women
business enterprises are not mutually exclusive.
All licensees subject to the jurisdiction of the Indiana Gaming Commission
have a continuing duty to maintain suitability for licensure. The Indiana Gaming
Commission may initiate an investigation or disciplinary action or both against
a licensee about whom the commission has reason to believe is not maintaining
suitability for licensure, is not complying with licensure conditions, and/or is
not complying with Indiana gaming laws or regulations. The Indiana Gaming
Commission may suspend, revoke, restrict or place conditions on the license of a
licensee; require the removal of a licensee or an employee of a licensee; impose
a civil penalty or take any other action deemed necessary by the Indiana Gaming
Commission to insure compliance with Indiana gaming laws.
IOWA
In 1989, the State of Iowa legalized riverboat gaming on the Mississippi and
Missouri Rivers and certain other waterways located in Iowa. The Excursion
Gambling Act grants the Iowa Racing and Gaming Commission (the "Iowa
Commission") jurisdiction over all gambling operations.
The legislation authorized the granting of licenses to conduct riverboat
gaming to not-for-profit corporations which, in turn, are permitted to enter
into operating agreements with persons who are licensed by the Iowa Commission
to operate riverboat casinos. The number of licenses which may be granted is not
limited by statute or regulation.
Gaming is permitted only on riverboats which recreate, as nearly as
practicable, Iowa's riverboat history and have a capacity for at least 250
persons with tickets. In addition the licensee must utilize Iowa resources,
goods and services in the operation of the riverboat. An excursion gambling boat
must operate at least one excursion each day for 100 days during the excursion
season which will be from April 1 through October 31. Excursions consist of a
minimum two hours. While an excursion gambling boat is docked, passengers may
embark or disembark at any time during its business hours. If during the
excursion season it is determined that it would be unsafe to complete any
portion of an excursion, or if mechanical problems prevent the completion of any
portion of an excursion, the boat may be allowed to remain dockside.
A gaming license will be issued for not more than three years and is subject
to annual renewals thereafter. The Iowa Commission has broad discretion with
regard to such renewals. The annual license fee to operate an excursion gambling
boat shall be based on the passenger carrying capacity, including crew, for
which the excursion gambling boat is registered. The annual fee shall be five
dollars per person capacity. Licenses issued by the Iowa Commission may not be
transferred to another person or entity. The Company must submit detailed
financial and operating reports to the Iowa Commission.
Minimum and maximum wagers on games are set by the licensee. Wagering may
only be conducted with chips, wagering debit cards or coins. Wagers may only be
made by persons 21 years of age and older. A licensee shall not accept a credit
card to purchase coins, tokens or other forms of credit to be wagered on
gambling games.
The legislation imposes a graduated tax based on adjusted gross receipts at
a rate of 5% on the first $1 million, 10% on the next $2 million and 20% on any
amount over $3 million. The tax is to be paid by the licensee within 10 days
after the close of business of the day when the wagers were made. The
legislation also
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permits the Iowa Commission to impose an admission fee for each person embarking
on an excursion vessel, and the city or county in which gaming is conducted is
permitted to impose an admission fee of not greater than 50 CENTS.
Pursuant to its rulemaking authority, the Iowa Commission requires officers,
directors and certain key employees of the Company to be licensed by the Iowa
Commission. In addition, anyone having a material relationship or involvement
with the Company may be required to be found suitable or to be licensed, in
which case those persons would be required to pay the costs and fees of the Iowa
Commission. The Iowa Commission has jurisdiction to disapprove a change in
position by such officers or key employees and the power to require the Company
to suspend or dismiss officers, directors or other key employees or sever
relationships with other persons who refuse to file appropriate applications or
whom the Iowa Commission finds suitable to act in such capacities. Any contract
in excess of $50,000 must be submitted to and approved by the Iowa Commission.
The Iowa Commission may also require any individual who has a material
relationship with the Company to be investigated and licensed or found suitable.
Any person who acquires 5% or more of the Company's equity securities must be
approved by the Iowa Commission prior to such acquisition. The applicant
stockholder is required to pay all costs of such investigation.
LOUISIANA
In July 1991, the Louisiana legislature adopted legislation permitting
certain types of gaming activity on certain rivers and waterways in Louisiana.
The legislation granted authority to supervise riverboat gaming activities to
the Louisiana Riverboat Gaming Commission and the Riverboat Gaming Enforcement
Division of the Louisiana State Police (the "Louisiana Enforcement Division").
The Louisiana Riverboat Gaming Commission was authorized to hear and determine
all appeals relative to the granting, suspension, revocation, condition or
renewal of all licenses, permits and applications. In addition, the Louisiana
Riverboat Gaming Commission was to establish rules providing for and
determining, among other things, authorized routes, duration of excursions and
the stops a riverboat may make, minimum levels of insurance, construction of
riverboats, periodic inspections and procedures for negotiable instrument
transactions involving patrons. The Louisiana Enforcement Division was
authorized, among other things, to investigate applicants and issue licenses,
investigate violations of the statute, conduct continuing reviews of gaming
activities and exercise other broad oversight powers.
In an April 1996 special session of the Louisiana legislature, Louisiana
lawmakers passed a measure which established the Louisiana Gaming Control Board
and provides that such board shall be the successor to all prior authorities,
and the sole and exclusive authority, with regard to the regulation and
supervision of gaming operations and activities in Louisiana except for the
regulation of horse racing and offtrack betting and the conducting of charitable
gaming operations. Effective May 1, 1996, the powers, duties, functions, and
responsibilities of the Louisiana Riverboat Gaming Commission and the Louisiana
Enforcement Division, including those with respect to riverboat gaming, are
transferred to the Louisiana Gaming Control Board.
The statute authorized issuance of up to 15 licenses to conduct gaming
activities on a riverboat of new construction in accordance with applicable law.
However, no more than six licenses may be granted to riverboats operating from
any one parish. An initial license to conduct riverboat gaming operations is
valid for a term of five years. The Louisiana gaming law provides that a renewal
application for the period succeeding the initial five year term of the
operator's license must be made to the Louisiana Gaming Control Board. The
application for renewal shall be accompanied with payment of a fee and shall
include a statement under oath of any and all changes in information, including
financial information, provided in the previous application.
The Louisiana gaming law specifies certain restrictions relating to the
operation of riverboat gaming, including the following: (i) gaming is not
permitted while a riverboat is docked, other than the forty-five minutes between
excursions, and during times when dangerous weather or water conditions exist;
(ii) each round-trip riverboat cruise may not be less than three nor more than
eight hours in duration, subject to specific exceptions; (iii) agents of the
Louisiana Gaming Control Board are permitted on board at any time
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during gaming operations; (iv) gaming devices, equipment and supplies may only
be purchased or leased from permitted suppliers; (v) gaming may only take place
in the designated gaming area while the riverboat is conducting an authorized
excursion upon a designated river or waterway; (vi) 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; (vii) wagers may be received only from a
person present on a licensed riverboat; (viii) persons under 21 are not
permitted in designated gaming areas; (ix) except for slot machine play, wagers
may be made only with tokens, chips or electronic cards purchased from the
licensee; (x) the riverboat may only board and discharge passengers at the
riverboat's licensed berth; (xi) licensees must have adequate protection and
indemnity insurance; (xii) licensees must have all necessary Federal and state
licenses, certificates and other regulatory approvals prior to operating a
riverboat; and (xiii) gaming may only be conducted in accordance with the terms
of the license and the rules and regulations adopted by the Louisiana Gaming
Control Board.
Certain persons affiliated with a riverboat gaming licensee, including
directors and officers of the licensee, directors and officers of any holding
company of the licensee involved in gaming operations, persons holding five
percent or greater interests in the licensee, and persons exercising influence
over a licensee ("Affiliated Gaming Persons"), are subject to the application
and suitability requirements of the Louisiana gaming law.
The transfer of a license or permit or an interest in a license or permit is
prohibited. The sale, purchase, assignment, transfer, pledge or other
hypothecation, lease, disposition or acquisition (a "Transfer") by any person of
securities which represents 5% or more of the total outstanding shares issued by
a corporation that holds a license is subject to Louisiana Gaming Control Board
disapproval. A security issued by a corporation that holds a license must
disclose these restrictions. Prior Louisiana Gaming Control Board approval is
required for the Transfer of any ownership interest of 5% or more in any
licensee or for the Transfer of any "economic interest" of 5% or more in any
licensee or Affiliated Gaming Person. No such prior approval is required for the
transfer of any ownership interest of 5% or more in any corporate licensee. An
"economic interest" is defined for purposes of a Transfer as any interest
whereby a person receives or is entitled to receive, by agreement or otherwise,
a profit, gain, thing of value, loss, credit, security interest, ownership
interest or other benefit.
A licensee must notify the Louisiana Gaming Control Board in writing within
five (5) days of the completion of the following transactions:
1. Withdrawal of capital in excess of five percent (5%) of the licensee's
net gaming proceeds for the preceding twelve month period;
2. The granting of a loan or any other extension of credit in excess of five
percent (5%) of the licensee's net gaming proceeds for the preceding
twelve month period;
3. Any advance or other distribtuion of any type of asset in excess of five
percent (5%) of the licensee's net gaming proceeds for the preceding
twelve month period;
No prior approval of any such withdrawal, loan, advance or distribution is
required, but such transaction is ineffective if subsequently disapproved by the
Louisiana Gaming Control Board. In addition, the Louisiana Gaming Control Board
may issue an emergency order for not more than 10 days prohibiting payment of
profits, income or accruals by, or investments in, a licensee.
Riverboat gaming licensees and their Affiliated Gaming Persons are required
to notify the Louisiana Gaming Control Board within 30 days after any such
person applies for, receives or accepts a loan, or makes use of any cash,
property, credit, loan or line of credit, or guarantees, or grants other form of
security for a loan (a "Loan") unless such transaction involves publicly
registered debt and securities (in which event such person shall file the
registration statement and other materials with the Louisiana Gaming Control
Board), unless more stringent conditions are imposed by the Louisiana Gaming
Control Board, or the amount of the Loan is below certain specified thresholds.
The Louisiana Gaming Control Board is required to investigate the reported Loan,
and to either approve or disapprove the transaction. If disapproved, the Loan
must be
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rescinded by the Licensee or Affiliated Gaming Person. The Company has obtained
the approval of the Louisiana Enforcement Division in connection with the
Offering. The Louisiana Enforcement Division, however, has reserved the right to
review all Louisiana security documents.
Fees for conducting gaming activities on a riverboat include (i) $50,000 per
riverboat for the first year of operation and $100,000 per year per riverboat
thereafter; (ii) a state franchise fee of 15% of net gaming proceeds; (iii) a
state license fee of 3.5% of net gaming proceeds; and (iv) a local fee of up to
$2.50 per passenger.
On April 19, 1996, the Louisiana legislature approved legislation mandating
local option elections to determine whether to prohibit or continue to permit
three individual types of gaming in Louisiana on a parish-by-parish basis. The
referendum will be brought before the Louisiana voters at the time of the
November 1996 presidential election and will determine whether each of the
following types of gaming will be prohibited or permitted in the following
described Louisiana parishes: (i) the operation of video draw poker devices in
each parish; (ii) the conduct of riverboat gaming in each parish that is
contiguous to a statutorily designated river or waterway or (iii) the conduct of
land-based casino gaming operations in Orleans Parish. If a majority of the
voters in a parish elect to prohibit one or more of the above-described gaming
activities in such parish, then no license or permit shall be issued to conduct
such prohibited gaming activity in such parish and no such gaming activity may
be permitted in that parish. If, however, riverboat gaming was previously
permitted in such parish, the legislation permits the current gaming operator to
continue riverboat gaming in that parish until the expiration of its gaming
license. However, the current legislation does not provide for any moratorium
that must expire before future local elections on gaming could be mandated or
allowed.
Further, in parishes where riverboat gaming is currently authorized and
voters elect to prohibit riverboat gaming, the legislation provides that the
gaming license shall not be reissued or transferred to any parish other than a
parish in which a riverboat upon which gaming is conducted is berthed. In
addition, the Louisiana legislature approved a joint resolution to submit to
Louisiana voters at the time of the November 1996 presidential election for
their approval a proposed constitutional amendment which, among other things,
would require the voters in a parish where riverboat gaming exists to approve
additional riverboat gaming in that parish.
MISSOURI
Gaming was originally authorized in the State of Missouri on November 3,
1992, although no governmental action was taken to enforce or implement the
original law. On April 29, 1993, Missouri enacted the Missouri Gaming Law which
replaced the original law and established the Missouri Gaming Commission, which
is responsible for the licensing and regulation of riverboat gaming in Missouri.
The number of licenses which may be granted is not limited by statute or
regulation. The Missouri Gaming Law grants specific powers and duties to the
Missouri Gaming Commission to supervise riverboat gaming and implement the
Missouri Gaming Law and take any other action as may be reasonable or
appropriate to enforce the Missouri Gaming Law. The Missouri Gaming Commission
has discretion to approve permanently moored ("dockside") riverboat casinos if
it finds that the best interest of Missouri and the safety of the public
indicate the need for continuous docking of an excursion gambling boat.
Under the Missouri Gaming Law, the ownership and operation of riverboat
gaming facilities in Missouri are subject to extensive state and local
regulation. If a company is granted a gaming license in Missouri, such company,
any subsidiaries it may form and its officers, directors, significant
shareholders and employees will be subject to regulations. The initial license
and first subsequent license renewal of an excursion gambling boat operator
shall be for a period of one year. Thereafter, license renewal periods shall be
two years. However, the Missouri Gaming Commission may reopen license hearings
at any time. In addition to the owners license and operators license for the
riverboat, every individual participating in gaming operations in any capacity
is required to have an occupational license from the Missouri Gaming Commission.
Applicants and licensees are responsible to keep the application and any
requested materials current at all times, and this responsibility shall continue
throughout any period of licensure granted by the Missouri Gaming Commission. In
addition, Missouri has extensive licensing disclosure requirements.
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The Missouri Gaming Commission may revoke or suspend gaming licenses and
impose other penalties for violation of the Missouri Gaming Law and the rules
and regulations which may be promulgated thereunder. Penalties include, but are
not limited to, forfeiture of all gaming equipment used in the conduct of
unauthorized gambling games and fines of up to three times a licensee's highest
daily gross receipts derived from wagering on the gambling games, whether
authorized or unauthorized, conducted during the preceding twelve months. In
addition, the Missouri Gaming Commission requires 60 days notice of, and may
disapprove or require delay pending further investigation of, transactions in
excess of the greater of $500,000 or 30% of licensee's net worth, up to
$1,000,000, which transactions involve or relate to the gaming licensee.
The Missouri Gaming Law imposes operational requirements on riverboat
operators, including a charge of two dollars per gaming customer per excursion
that licensees must pay to the Missouri Gaming Commission, a minimum payout
requirement of 80% for slot machines, a 20% tax on adjusted gross receipts,
prohibitions against providing credit to gaming customers (except for the use of
credit cards and cashing checks) and a requirement that each licensee reimburse
the Missouri Gaming Commission for all costs of any Missouri Gaming Commission
staff necessary to protect the public on the licensee's riverboat. Licensees
must also submit to the Commission on a quarterly basis an audit of compliance
and of the financial transactions and condition of the licensee's total
operations for the calendar quarter and pay the associated auditing fees. The
Missouri Gaming Law provides for a loss limit of $500 per person per excursion.
Although the Missouri Gaming Law provides no limit on the amount of riverboat
space that may be used for gaming, the Missouri Gaming Commission is empowered
to impose such space limitations through the adoption of rules and regulations.
Additionally, United States Coast Guard safety regulations could affect the
amount of riverboat space that may be devoted to gaming. The Missouri Gaming Law
also includes requirements as to the form of riverboats, which must resemble
Missouri's riverboat history to the extent practicable and include certain
non-gaming amenities.
The licensee may receive wagers only from a person present on a licensed
excursion gambling boat. Wagering shall not be conducted with money or other
negotiable currency. A person under 21 years of age shall not make a wager on an
excursion gambling boat and shall not be allowed in the area of the excursion
boat where gambling is being conducted.
With respect to the availability of dockside gaming, which may be more
profitable than cruise gaming, the Missouri Gaming Commission is empowered to
determine on a site by site basis where such gaming is in the best interest of
Missouri and the safety of the public and shall be permitted.
Pursuant to its rulemaking authority, the Missouri Gaming Commission has
adopted certain regulations which provide, among other things, that: (i)
riverboat excursions are limited to a duration of four hours, and gaming may be
conducted at any time during the excursion; (ii) no gaming licensee or
occupational licensee may pledge, hypothecate or transfer in any way any
license, or any interest in a license, issued by the Missouri Gaming Commission;
(iii) without first notifying the Missouri Gaming Commission at least 60 days
prior to such consummation of any of the following transactions (and during such
period the Missouri Gaming Commission may disapprove the transaction or require
the transaction to be delayed pending further investigation) (a) a gaming
licensee or a holding company affiliated with a gaming licensee may not make a
public issuance of debt, (b) a publicly held gaming licensee or a publicly held
holding company may not make any issuance of an ownership interest equaling 5%
or greater of the gaming licensee or holding company or (c) a person or entity
may not pledge or hypothecate an ownership interest in a gaming licensee that is
not a publicly held company or a holding company that is not a publicly held
company provided that no such ownership interest may be transferred voluntarily
or involuntarily pursuant to any pledge without separate notice to the Missouri
Gaming Commission as required by the regulations; (iv) not later than 7 days
after the consummation of any transfer of ownership interest in a publicly held
gaming licensee, if such transfer would result in an entity or group of entities
acting in concert owning, directly or indirectly, a total amount of ownership
interest equaling 5% or greater of the ownership interest in the gaming
licensee, the transferee must report such consummation to the Missouri Gaming
Commission; (v) no withdrawals of capital, loans, advances or distribution of
any type of assets in excess of 5% of accumulated earnings of a licensee to
anyone
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with an ownership interest in the licensee may occur without prior Missouri
Gaming Commission approval; and (vi) the Missouri Gaming Commission may take
action against a licensee or other person who has been disciplined in another
jurisdiction for gaming related activity.
The Missouri Gaming Commission is authorized to enter the premises of
excursion gambling boats, facilities, or other places of business of a licensee
in Missouri to determine compliance with the Missouri Gaming Law and to
investigate alleged violations of the Missouri Gaming Law or Missouri Gaming
Commission rules, orders or final decisions. A holder of any license shall be
subject to imposition of penalties, suspension or revocation of such license, or
other action for any act or failure to act by himself or his agents or employees
that is injurious to the public health, safety, morals, good order and general
welfare of the people of the state of Missouri, or that would discredit the
Missouri gaming industry or the state of Missouri. The Missouri Gaming
Commission may waive any licensing requirement or procedure for any type of
license if it determines that the waiver is in the best interests of the public.
In addition, a supplier's license is required of persons who sell or lease
gambling equipment, gambling supplies or both to any licensee. A licensee
licensed to conduct gambling games shall acquire all gambling games or
implements of gambling from a licensed supplier.
On August 29, 1996, certain residents of St. Louis County (the "St. Louis
Plaintiffs") filed a lawsuit in Cole County, Missouri seeking declaratory and
injunctive relief generally against the Missouri Gaming Commission and
specifically against the granting of licenses by the Missouri Gaming Commission
to Harrah's Maryland Heights Corp. ("Harrah's") and Players Maryland Heights, LP
("Players") with respect to their casino development in Maryland Heights,
Missouri. The suit alleges that (i) the Missouri legislature lacks the
constitutional authority to authorize the Missouri Gaming Commission to license
casinos except on excursion gambling boats and floating facilities "upon" the
Mississippi and Missouri Rivers, (ii) the Missouri Gaming Commission has wrongly
construed a statute to permit it to grant gaming licenses to excursion gambling
boats or floating facilities placed within artificial spaces and (iii) the
Missouri Gaming Commission is not authorized to regulate gaming operations
conducted upon floating facilities. The St. Louis Plaintiffs assert that the
enclosed basin being constructed by Harrah's and Players, on which they would
float their casino barge facilities and which is not contiguous to the Missouri
River, exceeds a Missouri constitutional limitation authorizing gaming only
"upon" the Missouri and Mississippi Rivers. The St. Louis Plaintiffs also seek
to declare unconstitutional those portions of Missouri law and actions of the
Missouri Gaming Commission that permit casino gaming in artificially constructed
basins. Finally, the St. Louis Plaintiffs assert that although the Missouri
constitution grants the Missouri legislature the authority to authorize casino
gaming on excursion gambling boats and floating facilities, when the Missouri
legislature enacted its gaming law, it only authorized gaming on excursion
gambling boats. Therefore, because the Harrah's/Players facility is within an
enclosed basin that prevents excursions upon the Missouri River and will be
conducted upon barge facilities that lack an engine or other means of
propulsion, the Missouri Gaming Commission lacks the statutory authority to
license the project.
Although the St. Louis Plaintiffs' action relates specifically to the
Harrah's/Players Maryland Heights casino project, if their claim is successful,
it could have a material adverse effect on other Missouri casino operators,
particularly those that conduct operations on floating barges from artificially
constructed basins. The Company, however, conducts its gaming operations at the
Argosy Casino in Riverside on a docked, excursion riverboat from a constructed
harbor that is open to the Missouri River. The Company believes that, if
necessary, it could modify its operations in Riverside so as to be in compliance
with even the strictest construction of the St. Louis Plaintiffs' interpretation
of Missouri gaming law. The Company is unable at this time to determine what
effect, if any, this action would have on its business, results of operations,
competitive position in the Kansas City and St. Louis markets or the merits of
the St. Louis Plaintiffs' action.
LEGISLATIVE AND REGULATORY CONSIDERATIONS IN CERTAIN ADJACENT JURISDICTIONS
KANSAS. Casino gaming is currently illegal in Kansas as a constitutionally
prohibited form of lottery. In order to amend the Kansas constitution,
two-thirds of the members of each house of the Kansas legislature and a majority
of Kansas voters would have to approve a proposed amendment. Resolutions seeking
to amend the Kansas constitution to authorize limited forms of gaming have been
proposed. Kansas Governor
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Graves has stated that he is in favor of the legalization of slot machines at
racing locations. He has expressed his desire to put a proposed amendment before
the voters by November 1996. The Kansas senate recently voted to allow specified
racetracks, including the Woodlands Racetrack in Kansas City, to install instant
bingo dispensers that resemble slot machines. The legislation must still be
approved by the Kansas house of representatives and signed by the governor.
The State of Kansas has approved Class III Indian compacts with four
separate tribes authorizing the tribes to conduct table and keno games, but not
slot machines, on their respective reservation lands. The reservations on which
these tribes propose to offer gaming in Kansas are located from approximately
120 to 150 miles from downtown Kansas City.
KENTUCKY. Casino gaming is illegal in Kentucky as a constitutionally
prohibited form of lottery. In order to amend the Kentucky constitution,
three-fifths of the members of each house of the Kentucky legislature and a
majority of Kentucky voters would have to approve a proposed amendment. Several
Kentucky racetracks have publicly lobbied for the right to conduct casino games.
OHIO. Casino gaming is illegal in Ohio as a constitutionally prohibited
form of lottery. In order to amend the Ohio constitution, three-fifths of the
members of each house of the Ohio legislature and a majority of Ohio voters
would have to approve the proposed amendment. There have been efforts to amend
the Ohio constitution to allow for casino gaming, but these efforts have been
rejected. As recently as 1994, a proposed amendment was introduced to amend the
constitution to allow as many as four casino vessels but it remained in
committee until the end of the legislative session. In 1990, Ohio voters
defeated a proposed constitutional amendment to allow a pilot casino gaming
project.
Recently, a voter petition drive has successfully placed a casino gaming
referendum on the November 1996 ballot. The referendum would legalize gaming and
require the Ohio legislature to pass laws to facilitate the development and
maintenance of an industry competitive with gaming in other areas of the
country. Ohio Governor Voinovich has publicly opposed the legalization of casino
gaming in Ohio and supports a challenge to the referendum that has been filed
with the Ohio Supreme Court.
NEBRASKA. Recently, there have been two voter petition drives in Nebraska
to expand gaming. If these petition drives are successful in collecting enough
valid signatures, which must be determined by September 13, 1996, a referendum
will be placed on Nebraska's November 1996 ballot.
FEDERAL AND NON-GAMING REGULATIONS
The Company and its subsidiaries are subject to certain federal, state and
local safety and health laws, regulations and ordinances that apply to
businesses generally, such as the Clean Air Act, Clean Water Act, Occupational
Safety and Health Act, Resource Conservation Recovery Act and Comprehensive
Environmental Response, Compensation and Liability Act. The Company has not
made, and does not anticipate making, material expenditures with respect to such
environmental laws and regulations. However, the coverage and attendant
compliance costs associated with such laws, regulations and ordinances may
result in additional costs to the Company. For example, in 1990 the U.S.
Congress enacted the Oil Pollution Act to consolidate and reconcile mechanisms
under various oil spill response laws. The Department of Transportation has
proposed regulations requiring owners and operators of certain vessels to
establish through the U.S. Coast Guard evidence of financial responsibility in
the amount of $5.5 million for clean-up of oil pollution. This requirement would
be satisfied by either proof of adequate insurance (including self-insurance) or
the posting of a surety bond or guaranty.
All vessels operated by the Company must comply with U.S. Coast Guard
requirements as to safety and must hold a Certificate of Seaworthiness. These
requirements set limits on the operation of the vessels and require individual
licensing of all personnel involved with the operation of the vessel. Loss of
the Certificate of Seaworthiness of a vessel would preclude its use as a
riverboat. Every five years, vessels must be drydocked for an inspection of the
outside of the hull resulting in a loss of service for a period of time. The
Belle of Sioux City riverboat was removed from service on April 13, 1996 for
such a hull inspection. The riverboat arrived at an approved dry docking
facility on April 16, 1996, passed its inspection and returned to service on
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May 9, 1996. No interruption in gaming operations occurred in Sioux City as a
result of the hull inspection process, as the Company temporarily transferred
gaming operations to the original Alton Belle prior to removing the Belle of
Sioux City from service.
All shipboard employees of the Company employed on U.S. Coast Guard
regulated vessels, including those who have nothing to do with the actual
operation of the vessel, such as dealers, waiters and security personnel, may be
subject to the Jones Act which, among other things, exempts these employees from
state limits on workers' compensation awards.
The Company is subject to the provisions of the Americans With Disabilities
Act but does not anticipate incurring significant expenses to bring its
facilities or procedures into compliance with such Act.
The Bank Secrecy Act (the "BSA"), enacted by Congress in 1985, requires
banks, other financial institutions and casinos to monitor receipts and
disbursements of currency in excess of $10,000 and report them to the United
States Department of the Treasury (the "Treasury"). In management's opinion, the
BSA may have resulted in a reduction in the volume of play by high level
wagerers. The Treasury has proposed tentative amendments to the BSA which would
apply solely to casinos and their reporting of currency transactions. The most
significant proposed change in the BSA is a reduction in the threshold at which
customer identification data must be obtained and documented by the casino, from
$10,000 to $3,000 (which may include the aggregation of smaller denomination
transactions). Additionally, the amendments would substantially increase the
record-keeping requirements imposed upon casinos relating to customer data,
currency and non-currency transactions. Management believes the proposed
amendments, if enacted in their current form, could result in a further
reduction in the volume of play by upper- and middle-level wagerers while adding
operating costs associated with the more extensive record-keeping requirements.
However, the effect of the Company's operations is not expected to be material.
The proposed riverboat casino sites in Lawrenceburg, Indiana and Riverside,
Missouri are located in potential wetlands or other protected areas. Although
the Company does not believe that the existence of wetlands or other protected
areas will prohibit or have a significant adverse impact on the Company's
ability to develop any of its current sites, there can be no assurance that such
a claim or other claims relating to such matters may not arise in the future,
which may have a material adverse effect on the costs of opening a casino at
such sites or result in a material delay in opening a gaming facility at such
sites.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names and ages of the Company's directors
and executive officers and the positions they hold with the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------- --- ---------------------------------------------------------
<S> <C> <C>
J. Thomas Long (a) 46 Chief Executive Officer, General Counsel and Vice
Chairman of the Board of Directors
H. Steven Norton 62 President and Chief Operating Officer
Joseph G. Uram 38 Executive Vice President, Treasurer and Chief Financial
Officer
William F. Cellini (a) 61 Chairman of the Board of Directors
George L. Bristol (c) 56 Director
Jimmy F. Gallagher (c) 68 Director
William McEnery (a) 54 Director
F. Lance Callis (b) 61 Director
John B. Pratt, Sr. (b) 73 Director
Edward F. Brennan (b) 55 Director
Walter I. Rogers 63 Vice President -- Casino Development
Patsy S. Hubbard 52 Secretary
</TABLE>
- ------------
(a) Messrs. Long, Cellini and McEnery comprise a class of directors whose term
expires in 1999.
(b) Messrs. Callis, Pratt and Brennan comprise a class of directors whose term
expires in 1998.
(c) Messrs. Bristol and Gallagher comprise a class of directors whose term
expires in 1997.
J. THOMAS LONG has been employed by the Company since March 1991 and is
currently Chief Executive Officer, General Counsel and Vice Chairman of the
Board of Directors of the Company. Prior to the hiring of Mr. Uram in January
1993, Mr. Long also served as Chief Financial Officer of the Company. Mr. Long
was an active partner in the law firm of Farrell & Long, P.C., Godfrey, Illinois
from 1985 to 1991. Mr. Long remains of counsel to The Farrell Law Firm, the
successor firm of Farrell & Long. From 1980 to 1984, Mr. Long served as
Assistant States Attorney in Madison County, Illinois.
H. STEVEN NORTON has been President and Chief Operating Officer of the
Company since January 1993. From April 1991 to December 1992, Mr. Norton was
President and Chief Executive Officer of Gold River Gambling Hall and Resort in
Laughlin, Nevada. From August 1990 to April 1991, Mr. Norton was President and
Chief Operating Officer of the Sands Hotel and Casino, Las Vegas, Nevada and
from August 1967 to August 1990, Mr. Norton was employed by Resorts
International, Inc., a hotel and casino concern based in Atlantic City, New
Jersey in numerous positions including Executive Vice President.
JOSEPH G. URAM has been Executive Vice President, Treasurer and Chief
Financial Officer of the Company since January 1993. From September 1989 to
January 1993, Mr. Uram was Vice President and Chief Financial Officer of
Creative Data Services, Inc., a national manufacturing concern headquartered in
St. Louis, Missouri. Mr. Uram is a certified public accountant and, from 1979 to
August 1989, he was employed by Arthur Andersen & Co. in St. Louis where he
served as an audit manager.
GEORGE L. BRISTOL has been President of GLB, Inc., a consulting firm, since
1977. He has been a member of the Board of Directors of the Company since
January 1995 and is a member of its Audit Committee.
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WILLIAM F. CELLINI has been Chairman of the Company's Board of Directors
since February 1993. Mr. Cellini has served as Chief Executive Officer of New
Frontier Group, a real estate development, management and construction concern
with offices in Chicago and Springfield, Illinois, since 1977. Mr. Cellini is a
member of the Nominating Committee of the Board of Directors.
JIMMY F. GALLAGHER has been a director of the Company since February 1993
and is currently a member of its Compensation Committee and Audit Committee. Mr.
Gallagher retired from the gaming industry in March 1991. From March 1990 to
March 1991, he was Supervisor of Casino Games for the Park Hotel and Casino in
Las Vegas, Nevada.
WILLIAM MCENERY has served as the president of Gas City, Ltd., an operator
of gasoline stations and convenience stores in Illinois and Florida
headquartered in Frankfort, Illinois, since 1965. Since 1982, Mr. McEnery has
served as the president of A.D. Connor, Inc., a petroleum products hauling
concern located in Frankfort, Illinois. Since 1975, Mr. McEnery has served as
president of Bell Valley Farms, Inc., an owner and operator of harness racing
training facilities located in Lockport, Illinois. Since 1992, Mr. McEnery has
been a Director and investor in the Empress Riverboat Casino Corporation, the
owner and operator of riverboat casino operations in Joliet, Illinois and
Hammond, Indiana. Mr. McEnery has been a member of the Company's Board of
Directors since February 1993 and is a member of its Audit Committee and
Nominating Committee.
F. LANCE CALLIS has been a partner with the law firm of Callis, Papa, Hale,
Jensen, Jackstadt, Bailey & Halloran P.C. (formerly Pratt & Callis, P.C.), with
offices in St Louis, Missouri and Granite City, Illinois, since 1986. Mr. Callis
has been a member of the Board of Directors of the Company since February 1993
and is a member of its Compensation and Nominating Committees.
JOHN B. PRATT, SR. has practiced law in White Hall, Illinois as a sole
practitioner since 1986. He has been a member of the Board of Directors of the
Company since February 1993 and is a member of its Compensation and Audit
Committees.
EDWARD F. BRENNAN has been a principal in the law firm of Brennan, Cates &
Constance in Belleville, Illinois since 1987. He has been a member of the Board
of Directors of the Company since January 1995.
WALTER I. ROGERS has been Vice President of Casino Development for the
Company since March 1993. From 1973 to 1977, Mr. Rogers was Vice President of
Casino Operations of Resorts International for its facilities in the Bahamas.
From 1977 to 1988, Mr. Rogers served as Resorts International's Corporate Vice
President of Casino Operations and Development and later represented Resorts
International in Europe, North and Central Africa, and Central and South
America. Mr. Rogers was retired between 1988 and 1993.
PATSY S. HUBBARD has been employed by the Company since September 1991 and
currently serves as Secretary of the Company. From 1978 through 1991, Ms.
Hubbard was an Enrolled Agent/Paralegal at the law firm of Farrell & Long, P.C.,
Godfrey, Illinois. Prior to the initial public offering, Ms. Hubbard also served
as Assistant Corporate Secretary to one of the corporate partners of the
predecessor entity of the Company.
Each director of the Company is currently required to be licensed to serve
as a director of the Company by the applicable gaming regulatory authorities in
Illinois, Missouri, Louisiana, Iowa and Indiana and may be subject to similar
requirements in other jurisdictions in which the Company may conduct business.
The nominees have met these requirements in the required jurisdictions. However,
should any director be found no longer suitable by any regulatory authority
having jurisdiction over the Company, that individual shall become ineligible to
serve on the Board of Directors and a majority of the remaining directors may
appoint a qualified replacement to serve as director for the remaining term of
the disqualified director.
William McEnery, a director and shareholder of the Company, owns Gas City,
Ltd. which since June 1, 1995 has been the exclusive operator of the service
stations on the Indiana East-West Toll Road. Since December 1995, Gas City, Ltd.
has responded to certain document subpoenas for, and produced certain employees
to testify before, a grand jury convened in the United States District Court,
Northern District of Indiana. The document subpoenas have related to Gas City,
Ltd.'s relationship with the Indiana Toll Road
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Authority. None of Gas City, Ltd., Mr. McEnery or any employees of Gas City,
Ltd. have been advised that they are targets of the grand jury investigation.
The Company believes that the grand jury investigation is unrelated to the
gaming industry and is focused on actions by, and dealings with, the Indiana
Toll Road Authority. The Company has been advised by Gas City, Ltd. that it
understands that other suppliers to the Indiana East-West Toll Road have also
received document subpoenas.
The Company has been advised that on May 14, 1996, a document subpoena was
issued by the Assistant U.S. Attorney for the United States District Court,
Northern District of Indiana to the Company in connection with the
abovementioned grand jury. The document subpoena issued to the Company seeks
certain documents relating to (i) contributions, gifts or donations to political
persons or entities, (ii) requests to the Company for contributions, gifts or
donations by political persons or entities and (iii) communications with
employees of the Indiana Toll Road Authority. Mr. McEnery and other companies in
which Mr. McEnery has investments also received similar document subpoenas. The
Company has never made any contribution, gift or donation to any political
person or entity on behalf of Mr. McEnery, Gas City, Ltd. or any entity
controlled by him, nor has the Company had any dealings or communications with
any employees of the Indiana Toll Road Authority.
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DESCRIPTION OF EXCHANGE NOTES
Set forth below is a summary of certain provisions of the Exchange Notes and
the Old Notes (collectively referred to as, the "Notes"). The Exchange Notes
will be, and the Old Notes were, issued pursuant to an indenture (the
"Indenture") dated as of June 5, 1996, by and among Argosy Gaming Company (the
"Company"), Alton Gaming Company, The Missouri Gaming Company, The St. Louis
Gaming Company, Iowa Gaming Company, Jazz Enterprises, Inc., Argosy of
Louisiana, Inc., Catfish Queen Partnership in Commendam and The Indiana Gaming
Company (the "Guarantors") and First National Bank of Commerce, as trustee (the
"Trustee"). The following summary does not purport to be complete and is subject
to, and is qualified in its entirety by, reference to all of the provisions of
the Notes, the Indenture and the Collateral Documents (as defined below). The
terms of the Exchange Notes are the same in all respects (including principal
amount, interest rate, maturity, security and ranking) as the terms of the Old
Notes for which they may be exchanged pursuant to the Exchange Offer, except
that the Exchange Notes (i) are freely transferable by holders thereof (except
as provided below) and (ii) are not entitled to certain registration rights and
certain liquidated damages which are applicable to the Old Notes under the
Registration Rights Agreement. The Exchange Notes will be issued under the
Indenture governing the Old Notes.
The terms of the Indenture are also governed by certain provisions contained
in the Trust Indenture Act of 1939, as amended. Capitalized terms used herein
and not otherwise defined shall have the meanings assigned to them in the
Indenture. Wherever particular provisions of the Indenture are referred to in
this summary, such provisions are incorporated by reference as a part of the
statements made and such statements are qualified in their entirety by such
reference.
GENERAL
The Notes are senior secured obligations of the Company, limited in
aggregate principal amount to $235 million. The Notes rank pari passu in right
of payment with all present and future Indebtedness of the Company and senior to
all future subordinated indebtedness of the Company and the existing Convertible
Notes. The Notes are secured by certain property and assets as described below
(sometimes referred to herein as the "Collateral"). References herein to the
"Collateral Documents" include all documents to be entered into to create or
perfect the security interests in the Collateral. The Exchange Notes will be
issued only in fully registered form, without coupons, in denominations of
$1,000 and integral multiples thereof.
The Exchange Notes will mature on June 1, 2004. The Exchange Notes will bear
interest from June 5, 1996. Holders of Old Notes whose Old Notes are accepted
for exchange will be deemed to have waived the right to receive any payment in
respect of interest on the Old Notes accrued from June 5, 1996 to the date of
the issuance of the Exchange Notes. The Exchange Notes will bear interest at the
rate of 13 1/4% per annum, payable semi-annually on June 1 and December 1 of
each year, commencing December 1, 1996, to the persons in whose names such
Exchange Notes are registered at the close of business on the May 15 or November
15 immediately preceding such Interest Payment Date. Interest will be calculated
on the basis of a 360-day year consisting of twelve 30-day months.
Principal of, premium, if any, and interest on the Exchange Notes will be
payable, and the Exchange Notes may be presented for registration of transfer or
exchange, at the office or agency of the Company maintained for such purpose,
which office or agency shall be maintained in the Borough of Manhattan, The City
of New York. At the option of the Company, payment of interest may be made by
check mailed to the Noteholders at the addresses set forth upon the registry
books of the Company; PROVIDED, that all payments with respect to Global Notes,
and Certificated Securities the holders of which have given wire transfer
instructions to the Company, will be required to be made by wire transfer of
immediately available funds to the accounts specified by the holders thereof. No
service charge will be made for any registration of transfer or exchange of the
Exchange Notes, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith. Until
otherwise designated by the Company, the Company's office or agency will be the
correspondent office of the Trustee presently located at First National Bank of
Commerce, c/o Chase Manhattan Bank, 55 Water Street, Room 234, New York, New
York, 10041.
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SECURITY FOR THE NOTES
Except as provided below under the caption "Limitation on Liens Securing
Indebtedness" and to the extent permitted by applicable law, the Notes are
secured by a Lien, evidenced by pledge agreements, real estate mortgages, ship
mortgages and security agreements executed by the Company and each of the
Guarantors, as applicable, in favor of the Trustee for the benefit of the
Noteholders creating, subject to certain prior liens and other limitations and
exceptions, a first priority security interest in substantially all of the
present assets of the Company and each of the current Guarantors (collectively,
the "Collateral"). The Collateral includes (i) substantially all the assets
owned by the Company and the Guarantors and used in the Company's Alton,
Riverside, Baton Rouge and Sioux City properties, excluding their gaming
licenses, (ii) a pledge of all the capital stock of and partnership interests in
the Company's operating subsidiaries (including Indiana Gaming L.P.) owned by
the Company and the Guarantors, except for the Company's partnership interest in
the Belle of Sioux City, L.P., which operates the Sioux City property, (iii) a
pledge of intercompany notes, if any, payable to the Company or the Guarantors
from their subsidiaries, and (iv) an assignment of the proceeds payable pursuant
to the management agreement between The Indiana Gaming Company and Indiana
Gaming L.P. with respect to the Lawrenceburg Casino. The Collateral does not
include assets of the Lawrenceburg Casino and assets owned by the Belle of Sioux
City, L.P; however, the Collateral includes the riverboat owned by the Company
and leased to Belle of Sioux City, L.P. The Collateral does not include the
assets of any future projects of the Company and any Subsidiaries formed or
acquired after the date hereof and their related assets, unless acquired with
the proceeds of the sale of Collateral or out of any distributions made by
Indiana Gaming L.P. to the Company or any of its Subsidiaries (excluding
managements fees, interest income and preferred dividends) up to the amount of
the Lawrenceburg Investment to the extent not used to purchase Notes pursuant to
the covenant "Repurchase of Notes in Connection With Sale of Lawrenceburg
Interest or Repayment of Indebtedness." The Collateral does not include two
parcels of property at the Riverside and Baton Rouge properties, which will be
released from the Collateral and contributed to Unrestricted Subsidiaries of the
Company subsequent to the execution of the Indenture. Such parcels may only be
used to construct hotels, parking garages, restaurants or other businesses
directly related to the hotel business at such properties. The Company and the
Guarantors will be required to deliver to the Trustee, at their expense, one or
more insurance policies from insurance companies of favorable national
reputation having capital and surplus greater than $100,000,000, providing for
title insurance for certain fee or leasehold interests naming the Trustee as
insured on behalf of the Noteholders.
No assurance can be provided by the Company or the Guarantors as to the
priority of any security interest created by the Collateral Documents, and there
may exist significant limitations on the ability of the Noteholders to exercise
certain remedies with respect to certain of the Collateral, including the right
to foreclose on, or take possession of, certain Collateral. See "Risk Factors --
Foreclosure Restrictions" and "-- Certain Bankruptcy Considerations."
RELEASE OF COLLATERAL
Collateral may be released in certain circumstances, including: (a) in the
event the Company or a Guarantor incurs FF&E Indebtedness or working capital
Indebtedness with respect to any Material Casino in accordance with the
provisions of clauses (v) or (vi), respectively, of the covenant "Limitation on
Incurrence of Additional Indebtedness and Disqualified Capital Stock," then such
fixtures and equipment, or accounts receivable and inventory, respectively,
securing such Indebtedness no longer need constitute Collateral, (b) in
accordance with release and substitution provisions set forth in the Indenture
and the release of obsolete property, in accordance with the terms of the
Indenture, (c) in connection with the sale of assets and subsidiary stock in
accordance with the provisions of the covenant "Limitation on Sale of Assets and
Subsidiary Stock," provided the proceeds thereof are used to purchase Notes in
accordance with an Asset Sale Offer or to purchase substitute Collateral in
accordance with such covenant, and (d) in connection with the contribution of
the Specified Parcels to joint ventures formed to develop and operate hotels at
the Company's Riverside and Baton Rouge properties.
As described below in "Limitations on Liens Securing Indebtedness," the
Company and its Subsidiaries may have or permit Liens ranking junior to or pari
passu with the Liens created by the Collateral Documents, provided that the
Indebtedness secured is Indebtedness permitted by clause (ii) of the covenant
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described below under "Limitation on Incurrence of Additional Indebtedness and
Disqualified Capital Stock." The Company and its Subsidiaries may have or permit
Liens on property that is not Collateral, provided that the Indebtedness secured
is permitted by clause (iii) of such covenant.
GUARANTEES
The Notes are guaranteed irrevocably and unconditionally as to principal,
premium, if any, and interest jointly and severally by the Guarantors and any
future Subsidiaries of the Company. The term "Subsidiaries" is defined to
exclude Unrestricted Subsidiaries. Accordingly, Indiana Gaming L.P., the
subsidiary of the Company that will operate the Lawrenceburg Casino, will not be
a Guarantor of the Notes.
The Indenture contains provisions the intent of which is to provide that the
obligations of each Guarantor will be limited to the maximum amount that will,
after giving effect to all other contingent and fixed liabilities of such
Guarantor and after giving effect to any collections from, rights to receive
contribution from, or payments made by or on behalf of any other Guarantor in
respect of the obligations of such other Guarantor under its Guarantee or
pursuant to its contribution obligations under the Indenture, result in the
obligations of such Guarantor under its Guarantee not constituting a fraudulent
conveyance or fraudulent transfer under any applicable federal, state or foreign
law. Each Guarantor that makes a payment or distribution under a Guarantee shall
be entitled to contribution from each other Guarantor so long as the exercise of
such right does not impair the rights of the Noteholders under the Guarantees or
any of the Collateral Documents. See "Risk Factors -- Fraudulent Transfer
Considerations."
The Indenture provides that in the event of (i) a sale or other disposition
of all or substantially all of the assets of any Guarantor or the sale of a
Guarantor, by way of merger, consolidation or otherwise, (ii) a Subsidiary
becoming an Unrestricted Subsidiary pursuant to terms of the Indenture or (iii)
or a sale or other disposition of all of the Capital Stock of any Guarantor,
then such Guarantor or the corporation acquiring the property, as applicable,
shall be released and relieved of any obligations under its guarantee, provided
that the Company complies with the provisions of the covenant "Limitation on
Sales of Assets and Subsidiary Stock."
The Indenture provides that the Company shall cause each Subsidiary
hereafter formed or acquired or any Unrestricted Subsidiary designated a
Subsidiary to (i) execute and deliver to the Trustee a supplemental indenture in
form reasonably satisfactory to the Trustee pursuant to which such Subsidiary
shall unconditionally guarantee all of the Company's obligations under the Notes
on the terms set forth in the Indenture and (ii) deliver to the Trustee an
opinion of counsel that, subject to customary assumptions and exclusions, such
supplemental indenture and Collateral Documents, if any, have been duly executed
and delivered by such Subsidiary.
OPTIONAL REDEMPTION
Except as set forth below, the Company does not have the right to redeem any
Notes prior to June 1, 2000. The Notes will be redeemable at the option of the
Company, in whole or in part, at any time on or after June 1, 2000, upon not
less than 30 days nor more than 60 days notice to each Noteholder, at the
following redemption prices (expressed as percentages of the principal amount)
if redeemed during the 12-month period commencing June 1 of the years indicated
below, in each case (subject to the right of Noteholders of record on a Record
Date to receive interest due on an Interest Payment Date that is on or prior to
such Redemption Date) together with accrued and unpaid interest and Liquidated
Damages, if any, thereon to the Redemption Date:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ------------------------------------------------------------- -----------
<S> <C>
2000......................................................... 106.625%
2001......................................................... 104.417%
2002......................................................... 102.208%
2003 and thereafter.......................................... 100.000%
</TABLE>
If a Noteholder or a beneficial owner of a Note is required by any
regulatory body responsible for a gaming license (a "Gaming Authority") to be
found suitable, the Noteholder shall apply for a finding of suitability within
30 days after a Gaming Authority request or sooner if so required by such Gaming
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Authority. The applicant for a finding of suitability must pay all costs of the
investigation for such finding of suitability. If a Noteholder or beneficial
owner is required to be found suitable and is not found suitable by a Gaming
Authority, the Noteholder shall, to the extent required by applicable law,
dispose of his Notes within 30 days or within that time prescribed by a Gaming
Authority, whichever is earlier. If the Noteholder fails to dispose of its Notes
within such time period, the Company may, at its option, redeem the Noteholder's
Notes at, depending on applicable law, (i) the principal amount thereof,
together with accrued and unpaid interest [and Liquidated Damages, if any,] to
the date of the finding of unsuitability by a Gaming Authority, (ii) the amount
that such Noteholder paid for the Notes, (iii) the fair market value of the
Notes, (iv) the lowest of clauses (i), (ii) and (iii), or (v) such other amount
as may be determined by the appropriate Gaming Authority.
The Notes will not have the benefit of any sinking fund.
Except as required by a Gaming Authority with respect to a redemption
described in the second preceding paragraph, notice of any redemption will be
sent, by first class mail, at least 30 days and not more than 60 days prior to
the date fixed for redemption to each Noteholder to be redeemed to such
Noteholder's last address as then shown upon the registry books of the
Registrar. Any notice which relates to a Note to be redeemed in part only must
state the portion of the principal amount equal to the unredeemed portion
thereof and must state that on and after the date of redemption, upon surrender
of such Note, a new Note or Notes in a principal amount equal to the unredeemed
portion thereof will be issued. On and after the date of redemption, interest
and Liquidated Damages, if any, will cease to accrue on the Notes or portions
thereof called for redemption.
In the case of a partial redemption, the Trustee shall select the Notes or
portions thereof for redemption on a PRO RATA basis, by lot or in such other
manner it deems appropriate and fair. The Notes may be redeemed in part in
multiples of $1,000 only.
CERTAIN COVENANTS RELATING TO THE LAWRENCEBURG CASINO
LIMITATION ON ACTIVITIES OF THE INDIANA GAMING COMPANY
The Indenture prohibits The Indiana Gaming Company from conducting any
business whatsoever other than (i) investing in and serving as general partner
of Indiana Gaming L.P., including executing agreements on behalf of Indiana
Gaming L.P., (ii) if removed as general partner of Indiana Gaming L.P. pursuant
to the terms of such partnership's partnership agreement, serving as a limited
partner thereof and (iii) complying with its obligations under the Indenture and
the Notes and acting as a Guarantor of the Notes. The Indenture also prohibits
the transfer of any of The Indiana Gaming Company's interest in Indiana Gaming
L.P. to the Company or any of its Subsidiaries, unless such Subsidiary is a
direct wholly owned Subsidiary of the Company and is bound by this provision and
all other provisions of the Indenture and the Notes specifically relating to The
Indiana Gaming Company.
LIMITATION ON CERTAIN ACTIVITIES OF INDIANA GAMING L.P.
The Indenture provides that as long as The Indiana Gaming Company is the
general partner of Indiana Gaming L.P., the Company will not permit Indiana
Gaming L.P. to incur any Indebtedness other than Indebtedness under the terms of
which (a) no recourse shall be had against any other person (other than The
Indiana Gaming Company solely in its capacity as general partner of Indiana
Gaming L.P.) for the payment of the principal of or interest or premium on such
Indebtedness or for any claim based on such Indebtedness, and (b) no
restrictions of the type prohibited by "Limitation on Dividends and Other
Payment Restrictions Affecting Subsidiaries" shall be permitted. The Indenture
provides that as long as The Indiana Gaming Company is the general partner of
Indiana Gaming L.P., the Company will not permit Indiana Gaming L.P. to amend
the provision of its partnership agreement dealing with distributions in a
manner which is adverse to the Noteholders or the provision with respect to
partnership purpose, which is limited to the operation of the Lawrenceburg
Casino.
REPURCHASE OF NOTES ON CERTAIN PROJECT DELAYS
The Indenture provides that in the event of a Project Delay each Noteholder
will have the right, at such Noteholder's option, pursuant to an irrevocable and
unconditional offer by the Company (the "Project
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Delay Offer"), to require the Company to repurchase all or any part of such
Noteholder's Notes (PROVIDED, that the principal amount of such Notes must be
$1,000 or an integral multiple thereof) on a date (the "Project Delay Purchase
Date") that is no later than 40 Business Days after the date on which a Project
Delay occurs, at a cash price equal to 101% of the principal amount thereof,
together with accrued interest and Liquidated Damages, if any, to the Project
Delay Purchase Date, PROVIDED, HOWEVER, that in no event shall the Company be
required to purchase more than an aggregate principal amount of Notes equal to
the amount remaining in the disbursement account on the date of the Project
Delay (the "Project Delay Offer Amount") in connection with such Project Delay
Offer. The Project Delay Offer shall remain open for at least 20 Business Days
following its commencement (the "Project Delay Offer Period"). Upon expiration
of the Project Delay Offer Period, the Company shall purchase all Notes properly
tendered in response to the Project Delay Offer (on a PRO RATA basis if the
Project Delay Offer Amount is insufficient to purchase all Notes so tendered).
In no event shall the Company be required to make more than one offer to
purchase pursuant to this provision, assuming all Notes tendered into such offer
are purchased by the Company in accordance with the terms thereof.
To the extent applicable and if required by law, the Company will comply
with Section 14 of the Exchange Act and the provisions of Regulation 14E and any
other tender offer rules under the Exchange Act and any other securities laws,
rules and regulations which may then be applicable to any offer by the Company
to purchase the Notes at the option of the Noteholders upon such failure to
open.
REPURCHASE OF NOTES IN CONNECTION WITH SALE OF LAWRENCEBURG INTEREST OR
REPAYMENT OF LAWRENCEBURG INVESTMENT
The Indenture provides that the Company and its Subsidiaries will not, and
will not permit any of their Subsidiaries to, in one or a series of related
transactions, sell or otherwise transfer any of the Company's interest in
Indiana Gaming L.P., whether directly by a sale of such interest or indirectly
by the sale, issuance or transfer of Capital Stock of any Subsidiary of the
Company directly or indirectly owning such interest (a "Lawrenceburg Sale"),
unless (1) within 40 Business Days of the date of such Lawrenceburg Sale, the
Net Cash Proceeds therefrom, less the pro rata portion of such amount
distributed to any lender holding Indebtedness secured by the Collateral on a
PARI PASSU basis, are applied to the repurchase of the Notes pursuant to an
irrevocable, unconditional cash offer to repurchase Notes at a purchase price of
101% of the principal amount, plus accrued interest and Liquidated Damages, if
any, to the date of payment, made within 15 Business Days following any such
Lawrenceburg Sale, (2) at least 85% of the consideration received for such
Lawrenceburg Sale or series of related Lawrenceburg Sales consists of cash, (3)
no Default or Event of Default shall have occurred and be continuing at the time
of, or would occur after giving effect on a PRO FORMA basis to, such
Lawrenceburg Sale, (4) the Board of Directors of the Company determines in good
faith that the Company or such Subsidiary receives fair market value for such
Lawrenceburg Sale and (5) the Board of Directors of the Company receives a
favorable written opinion as to the fairness of the transaction to the Company
from a financial point of view issued by an investment banking firm of
nationally recognized standing. The Indenture provides that the offer remain
open for at least 20 Business Days after its commencement. Upon expiration of
the offer, the Company shall apply the Net Cash Proceeds plus an amount equal to
accrued interest and Liquidated Damages, if any, to the purchase of all Notes
properly tendered (on a PRO RATA basis if the Net Cash Proceeds are insufficient
to purchase all the Notes so tendered). Pending application of Net Cash
Proceeds, such proceeds shall be maintained by the Trustee in the collateral
account in Permitted Investments. After the purchase of all Notes properly
tendered, all remaining Net Cash Proceeds shall be available for general
corporate purposes, provided, that as reinvested, the assets acquired shall
become Collateral.
The Company shall cause distributions from Indiana Gaming L.P. to The
Indiana Gaming Company to be promptly distributed to the Company. At least once
in every twelve-month period commencing on the anniversary of the date of
original issuance of the Notes (and not later than 40 Business Days after any
Property Sale, as described below), the Company shall apply 50% of any
distributions from Indiana Gaming L.P. (excluding management fees, interest
income, preferred dividends or provision for taxes) up to the total amount of
the Lawrenceburg Investment, less the pro rata portion of such amount
distributed to any lender holding Indebtedness secured by the Collateral on a
PARI PASSU basis, to the optional redemption of Notes in
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accordance with the terms of the Indenture or to the repurchase of the Notes
pursuant to an irrevocable, unconditional cash offer to purchase Notes at a
purchase price of 101% of the principal amount, plus accrued interest and
Liquidated Damages, if any, to the date of payment. In no event shall the
Company be required to make offers in an aggregate amount in excess of the
Lawrenceburg Investment. In the event of a Property Sale, as defined below, 100%
of the Company's pro rata share of the Net Cash Proceeds shall be applied in the
next such offer. The Indenture provides that, except in the case of a Property
Sale, such offer may be deferred until a following twelve month period in which
such accumulated distributions exceed $10 million and that each offer shall
remain open for at least 20 Business Days following its commencement. Upon
expiration of the offer, the Company shall apply such distributions to the
purchase of all Notes properly tendered (on a PRO RATA basis if the
distributions are insufficient to purchase all the Notes so tendered). After the
purchase of all Notes properly tendered, all remaining amounts of such
distributions shall be available for general corporate purposes, provided, that
as reinvested, the assets acquired shall become Collateral.
As long as The Indiana Gaming Company serves as general partner of Indiana
Gaming L.P., Indiana Gaming L.P. will not engage in a sale of all or
substantially all its assets, by way of merger, consolidation or otherwise (a
"Property Sale") unless (i) at least 85% of the consideration received consists
of cash, (ii) the Board of Directors of the Company determines in good faith
that Indiana Gaming L.P. receives fair market value therefor, (iii) the Board of
Directors of the Company receives a favorable written opinion as to the fairness
of the transaction to Indiana Gaming L.P. from a financial point of view issued
by an investment bank of nationally recognized standing, and (iv) the Company's
pro rata share of the Net Cash Proceeds, less the pro rata portion of such
amount distributed to any lender holding Indebtedness secured by Collateral on a
PARI PASSU basis, are distributed to the Company and held by the Trustee in the
collateral account in Permitted Investments pending application in accordance
with the preceding paragraph.
To the extent applicable and if required by law, the Company will comply
with Section 14 of the Exchange Act and the provisions of Regulation 14E and any
other tender offer rules under the Exchange Act and any other securities laws,
rules and regulations which may then be applicable to any offer to purchase
Notes at the option of the Noteholders.
CERTAIN COVENANTS
REPURCHASE OF NOTES AT THE OPTION OF THE NOTEHOLDER UPON A CHANGE OF CONTROL
The Indenture provides that in the event that a Change of Control has
occurred, each Noteholder will have the right, at such Noteholder's option,
pursuant to an irrevocable and unconditional offer by the Company (the "Change
of Control Offer"), to require the Company to repurchase all or any part of such
Noteholder's Notes (PROVIDED, that the principal amount of such Notes must be
$1,000 or an integral multiple thereof) on a date (the "Change of Control
Purchase Date") that is no later than 45 Business Days after the occurrence of
such Change of Control, at a cash price (the "Change of Control Purchase Price")
equal to 101% of the principal amount thereof, together with accrued interest
and Liquidated Damages, if any, to the Change of Control Purchase Date. The
Change of Control Offer shall be made within 20 Business Days following a Change
of Control and shall remain open for at least 20 Business Days following its
commencement (the "Change of Control Offer Period"). Upon expiration of the
Change of Control Offer Period, the Company shall purchase all Notes properly
tendered in response to the Change of Control Offer.
As used herein, a "Change of Control" means (i) any merger or consolidation
of the Company with or into any person or any sale, transfer or other
conveyance, whether direct or indirect, of all or substantially all of the
assets of the Company, on a consolidated basis, in one transaction or a series
of related transactions, if, immediately after giving effect to such
transaction, any "person" or "group" (as such terms are used for purposes of
Sections 13(d) and 14(d) of the Exchange Act, whether or not applicable), other
than Excluded Persons, is or becomes the "beneficial owner," directly or
indirectly, of more than 50% of the total voting power in the aggregate normally
entitled to vote in the election of directors, managers, or trustees, as
applicable, of the transferee or surviving entity, (ii) any "person" or "group"
(as such terms are used for purposes of Sections 13(d) and 14(d) of the Exchange
Act, whether or not applicable), other than Excluded Persons, is or becomes the
"beneficial owner," directly or indirectly, of more than 50% of the total voting
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power in the aggregate of all classes of Capital Stock of the Company then
outstanding normally entitled to vote in elections of directors, or (iii) during
any period of 12 consecutive months after the Issue Date, individuals who at the
beginning of any such 12-month period constituted the Board of Directors of the
Company (together with any new directors whose election by such Board or whose
nomination for election by the shareholders of the Company 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) cease for any reason to constitute a
majority of the Board of Directors of the Company then in office.
On or before the Change of Control Purchase Date, the Company will (i)
accept for payment Notes or portions thereof properly tendered pursuant to the
Change of Control Offer, (ii) deposit with the Paying Agent cash sufficient to
pay the Change of Control Purchase Price (together with accrued and unpaid
interest and Liquidated Damages, if any) of all Notes so tendered and (iii)
deliver to the Trustee Notes so accepted together with an Officers' Certificate
listing the Notes or portions thereof being purchased by the Company. The Paying
Agent will promptly mail to the Noteholders so accepted payment in an amount
equal to the Change of Control Purchase Price (together with accrued and unpaid
interest and Liquidated Damages, if any), and the Trustee will promptly
authenticate and mail or deliver to such Noteholders a new Note equal in
principal amount to any unpurchased portion of the Note surrendered. Any Notes
not so accepted will be promptly mailed or delivered by the Company to the
Noteholder thereof. The Company will publicly announce the results of the Change
of Control Offer on or as soon as practicable after the Change of Control
Purchase Date.
The phrase "all or substantially all of the assets" of the Company will
likely be interpreted under applicable state law and will be dependent upon
particular facts and circumstances. As a result, there may be a degree of
uncertainty in ascertaining whether a sale or transfer of "all or substantially
all" of the assets of the Company has occurred. In addition, no assurances can
be given that the Company will be able to acquire Notes tendered upon the
occurrence of a Change of Control.
For purposes of this definition, (i) the terms "person" and "group" shall
have the meaning used for purposes of Rules 13d-3 and 13d-5 of the Exchange Act
as in effect on the Issue Date, whether or not applicable; and (ii) the term
"beneficial owner" shall have the meaning used in Rules 13d-3 and 13d-5 under
the Exchange Act as in effect on the Issue Date, whether or not applicable,
except that a "person" shall be deemed to have "beneficial ownership" of all
shares that any such person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time or upon the occurrence
of certain events.
The Change of Control purchase feature of the Notes may make more difficult
or discourage a takeover of the Company, and, thus, the removal of incumbent
management.
To the extent applicable and if required by law, the Company will comply
with Section 14 of the Exchange Act and the provisions of Regulation 14E and any
other tender offer rules under the Exchange Act and any other securities laws,
rules and regulations which may then be applicable to any offer by the Company
to purchase the Notes at the option of the Noteholders upon a Change of Control.
LIMITATION ON USE OF PROCEEDS
The proceeds (net of the Initial Purchasers' discounts and commissions and
other transaction expenses) received by the Company from the sale of the Old
Notes were used as follows: (i) $91.4 million to pay in full all outstanding
indebtedness under the Former Bank Credit Facility, (ii) $94.3 million to make
capital contributions and capital loans to Indiana Gaming L.P. for the
development of the Lawrenceburg Casino and (iii) all remaining amounts for
general corporate purposes. The portion of the proceeds to be used for funding
the construction costs of the Lawrenceburg Casino project are being held in a
disbursement account. Pursuant to the terms of the disbursement agreement
governing the disbursement account, there are certain conditions and limitations
affecting the ability of the Company to draw upon such funds. See "Description
of Exchange Notes -- Cash Collateral and Disbursement Agreement." Any funds
remaining in the disbursement account will be released to the Company upon final
completion of the Lawrenceburg Casino project for general corporate purposes,
PROVIDED that, as reinvested, the assets acquired shall become Collateral. A
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portion of the funds may also be released from the disbursement account if
third-party financing for the hotel development is obtained and funded, PROVIDED
that, as reinvested, the assets acquired with such released funds become
Collateral.
LIMITATION ON INCURRENCE OF ADDITIONAL INDEBTEDNESS AND DISQUALIFIED CAPITAL
STOCK
The Indenture provides that, except as set forth below in this covenant, the
Company and its Subsidiaries will not, and will not permit any of their
Subsidiaries to, directly or indirectly, issue, assume, guaranty, incur, become
directly or indirectly liable with respect to (including as a result of an
Acquisition), or otherwise become responsible for, contingently or otherwise
(individually and collectively, to "incur" or, as appropriate, an "incurrence"),
any Indebtedness or any Disqualified Capital Stock (including Acquired
Indebtedness). Notwithstanding the foregoing:
(i)
if (a) no Default or Event of Default shall have occurred and be
continuing at the time of, or would occur after giving effect on a PRO
FORMA basis to, such incurrence of Indebtedness or Disqualified Capital
Stock and (b) on the date of such incurrence (the "Incurrence Date"), the
Consolidated Coverage Ratio of the Company for the Reference Period
immediately preceding the Incurrence Date, after giving effect on a PRO
FORMA basis to such incurrence of such Indebtedness or Disqualified
Capital Stock and, to the extent set forth in the definition of
Consolidated Coverage Ratio, the use of proceeds thereof, would be at
least 2.0 to 1.0, then the Company or any Guarantor may incur unsecured
Subordinated Indebtedness;
(ii)
if (a) no Default or Event of Default shall have occurred and be
continuing at the time of, or would occur after giving effect on a pro
forma basis to, such incurrence of Indebtedness and (b) on the Incurrence
Date, the Consolidated Coverage Ratio of the Company for the Reference
Period immediately preceding the Incurrence Date, after giving effect on
a pro forma basis to such incurrence of such Indebtedness and, to the
extent set forth in the definition of Consolidated Coverage Ratio, the
use of proceeds thereof, would be at least 2.5 to 1.0 (or, in the event
the sole use of proceeds of such Indebtedness is to purchase any or all
of the partnership interests in Indiana Gaming L.P. not owned by the
Company and its Subsidiaries, 2.25 to 1.0), then the Company or any
Guarantor may incur Indebtedness secured by the Collateral, PROVIDED that
such Indebtedness (x) is PARI PASSU in right of payment with the Notes or
the guarantee of the Notes, as applicable, (y) has an Average Life to
Stated Maturity greater than or equal to the Average Life to Stated
Maturity of the Notes and (z) has a final scheduled maturity later than
or equal to the Stated Maturity, and provided further that (t) such
Indebtedness is incurred to develop or acquire a Material Casino or make
a Casino Improvement, (u) not more than 80% of the cost of such
acquisition, development or improvement is funded by such Indebtedness,
(v) such Material Casino or Casino Improvements and all its assets become
Collateral for the Notes, and (w) such Indebtedness is subject to an
intercreditor agreement with the Trustee in the form attached to the
Indenture;
(iii)
if (a) no Default or Event of Default shall have occurred and be
continuing at the time of, or would occur after giving effect on a pro
forma basis to, such incurrence of Indebtedness and (b) on the Incurrence
Date, the Consolidated Coverage Ratio of the Company for the Reference
Period immediately preceding the Incurrence Date, after giving effect on
a pro forma basis to such incurrence of such Indebtedness and, to the
extent set forth in the definition of Consolidated Coverage Ratio, the
use of proceeds thereof, would be at least 2.5 to 1.0, then the Company
or any Guarantor may incur Indebtedness secured by property that is not
Collateral, PROVIDED that such Indebtedness (y) has an Average Life to
Stated Maturity greater than the Average Life to Stated Maturity of the
Notes and (z) has a final scheduled maturity later than the Stated
Maturity;
(iv)
the Company may incur Indebtedness evidenced by the Notes and represented
by the Indenture up to the amounts specified therein as of the date
thereof;
(v)
the Company and the Guarantors may incur FF&E Indebtedness, PROVIDED that
the amount of such Indebtedness in the aggregate outstanding at any time
pursuant to this paragraph (v) (including
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any Indebtedness, whether or not Refinancing Indebtedness, issued to
refinance, replace or refund such Indebtedness) shall not exceed $5
million multiplied by the number of Material Casinos then operated by the
Company or Guarantors;
(vi)
the Company and the Guarantors may incur Indebtedness for working capital
purposes, PROVIDED that the amount of such Indebtedness in the aggregate
outstanding at any time pursuant to this paragraph (vi) (including any
Indebtedness, whether or not Refinancing Indebtedness, issued to
refinance, replace or refund such Indebtedness) may not exceed $4 million
multiplied by the number of Material Casinos then operated by the Company
or Guarantors;
(vii)
the Company and the Guarantors, as applicable, may incur Refinancing
Indebtedness with respect to any Indebtedness or Disqualified Capital
Stock, as applicable, described in clauses (i), (ii), (iii), (v) and (vi)
of this covenant or Indebtedness which is outstanding on the Issue Date
so long as, in the case of secured Indebtedness used to refinance,
refund, or replace secured Indebtedness, such Refinancing Indebtedness is
secured only by the assets that secured the Indebtedness so refinanced;
and
(viii)
the Company and the Guarantors may incur Permitted Indebtedness.
LIMITATION ON RESTRICTED PAYMENTS
The Indenture provides that the Company and the Subsidiaries will not, and
will not permit any of their Subsidiaries to, directly or indirectly, make any
Restricted Payment if, after giving effect to such Restricted Payment on a PRO
FORMA basis, (l) a Default or an Event of Default shall have occurred and be
continuing, (2) the Company is not permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Indebtedness incurrence ratio in
paragraph (i) of the covenant "Limitation on Incurrence of Additional
Indebtedness and Disqualified Capital Stock," or (3) the aggregate amount of all
Restricted Payments made by the Company and its Subsidiaries, including after
giving effect to such proposed Restricted Payment, from and after the Issue
Date, would exceed the sum, without duplication, of (a) 50% of the aggregate
Consolidated Net Income of the Company and its Consolidated Subsidiaries for the
period (taken as one accounting period), commencing on the first day of the
first full fiscal quarter commencing after the Issue Date, to and including the
last day of the fiscal quarter ended immediately prior to the date of each such
calculation (or, in the event Consolidated Net Income for such period is a
deficit, then minus 100% of such deficit), plus (b) 50% of all cash
distributions (excluding management fees, interest income, preferred dividends
or provision for taxes received from Indiana Gaming L.P.) made by The Indiana
Gaming Company to the Company or another Guarantor after the Lawrenceburg
Investment Return and after opening of the permanent Lawrenceburg Casino, plus
(c) the aggregate Net Cash Proceeds received by the Company from the sale of its
Qualified Capital Stock (other than (i) to a Subsidiary of the Company and (ii)
to the extent applied in connection with a Qualified Exchange) after the Issue
Date.
The immediately preceding paragraph, however, will not prohibit (s)
Investments not to exceed $10 million in the aggregate made on or after the
Issue Date, (t) Investments in Qualified Gaming Ventures, PROVIDED that, after
giving PRO FORMA effect to such Investment, the aggregate amount of all such
Investments made on or after the Issue Date (after giving effect to 50% of any
cash, including management fees, returned without restriction from such
Investments to the Company or the wholly owned Subsidiary that made such prior
Investment on or prior to the date of any such calculation) at any time does not
exceed $15 million, (u) Investments in Indiana Gaming L.P. to fund construction
and preopening costs until the permanent Lawrenceburg Casino is completed,
PROVIDED that, after giving PRO FORMA effect to such Investment, the aggregate
amount of all such Investments made on or after the Issue Date does not exceed
$135 million, (v) a Qualified Exchange, (w) Investments received by the Company
or its Subsidiaries as consideration for Asset Sales to the extent not otherwise
prohibited by the Indenture, (x) Investments by the Company or any of its
Subsidiaries in Interest Swap and Hedging Obligations provided that such
Interest Swap and Hedging Obligations are related to payment obligations on
Indebtedness otherwise permitted under the Indenture, (y) the contribution of a
Specified Parcel to an Unrestricted Subsidiary or any other person for the
development and operation of a hotel on such Specified Parcel, or (z) the
payment of any dividend on Qualified Capital Stock within 60 days after the date
of its declaration if such dividend could have been made on the date of such
declaration in compliance with the foregoing provisions. The full amount of any
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Restricted Payments made pursuant to the foregoing clause (z) of the immediately
preceding sentence, however, will be deducted in the calculation of the
aggregate amount of Restricted Payments available to be made referred to in
clause (3) of the immediately preceding paragraph.
LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING
SUBSIDIARIES
The Indenture provides that the Company and the Subsidiaries will not, and
will not permit any of their Subsidiaries or Indiana Gaming L.P. or its
subsidiaries (as long as The Indiana Gaming Company is the general partner of
Indiana Gaming L.P.) to, directly or indirectly, create, assume or suffer to
exist any consensual restriction on the ability of any Subsidiary of the Company
to pay dividends or make other distributions to or on behalf of, or to pay any
obligation to or on behalf of, or otherwise to transfer assets or property to or
on behalf of, or make or pay loans or advances to or on behalf of, the Company
or any Subsidiary of the Company, except (a) restrictions imposed by the Notes
or the Indenture, (b) restrictions imposed by applicable law, (c) existing
restrictions under specified Indebtedness outstanding on the Issue Date, (d)
restrictions under any Acquired Indebtedness not incurred in violation of the
Indenture or any agreement relating to any property, asset, or business acquired
by the Company or any of its Subsidiaries, which restrictions in each case
existed at the time of acquisition, were not put in place in connection with or
in anticipation of such acquisition and are not applicable to any person, other
than the person acquired, or to any property, asset or business, other than the
property, assets and business so acquired and such acquisition was not made, in
whole or in part, with any Collateral or from the proceeds of the sale of any
Collateral or out of distributions made by Indiana Gaming L.P. not in the nature
of management fees, interest income or preferred dividends up to the amount of
the Lawrenceburg Investment, (e) restrictions with respect solely to a
Subsidiary of the Company imposed pursuant to a binding agreement which has been
entered into for the sale or disposition of all or substantially all of the
Capital Stock or assets of such Subsidiary, provided such restrictions apply
solely to the Capital Stock or assets of such Subsidiary which are being sold,
(f) restrictions on transfer contained in FF&E Indebtedness incurred pursuant to
paragraph (v) of the covenant "Limitation on Incurrence of Additional
Indebtedness and Disqualified Capital Stock," provided such restrictions relate
only to the transfer of the property acquired with the proceeds of such FF&E
Indebtedness, and (g) in connection with and pursuant to any Permitted
Refinancing, replacements of restrictions imposed pursuant to clauses (c) and
(d) of this paragraph that are not more restrictive than those being replaced
and do not apply to any other person or assets than those that would have been
covered by the restrictions in the Indebtedness so refinanced. Notwithstanding
the foregoing, neither (a) customary provisions restricting subletting or
assignment of any lease entered into in the ordinary course of business,
consistent with industry practice, (b) Liens permitted under the terms of the
Indenture on assets securing FF&E Indebtedness incurred in accordance with the
covenant "Limitation on Incurrence of Additional Indebtedness and Disqualified
Capital Stock," nor (c) provisions ordering distributions of cash flow from
Indiana Gaming L.P. shall in and of themselves be considered a restriction on
the ability of the applicable Subsidiary to transfer such agreement or assets,
as the case may be.
LIMITATION ON LIENS SECURING INDEBTEDNESS
The Company and its Subsidiaries will not, and will not permit any of their
Subsidiaries to, create, incur, assume or suffer to exist any Lien of any kind
upon any of their respective assets now owned or acquired on or after the date
of the Indenture or upon any income or profits therefrom other than (a)
Permitted Liens; (b) Liens incurred under the Indenture to secure the Notes; (c)
Liens incurred in support of any FF&E Indebtedness permitted by clause (v) of
the covenant "Limitation on Incurrence of Additional Indebtedness and
Disqualified Capital Stock," which Liens may be exclusive; (d) Liens incurred in
connection with Indebtedness for working capital purposes permitted by clause
(vi) of the covenant "Limitation on Incurrence of Additional Indebtedness and
Disqualified Capital Stock" on accounts receivable and inventory of the property
to which such Indebtedness relates, which Liens may be exclusive; (e) Liens
incurred in connection with Indebtedness permitted by clause (ii) of the
covenant "Limitation on Incurrence of Additional Indebtedness and Disqualified
Capital Stock," which Liens may be junior or PARI PASSU to the Lien securing the
Notes; and (f) Liens incurred in connection with Indebtedness permitted by
clause (iii) of the covenant "Limitation on Incurrence of Additional
Indebtedness and Disqualified Capital Stock," which Liens may be exclusive.
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LIMITATION ON SALE OF ASSETS AND SUBSIDIARY STOCK
The Indenture provides that the Company and the Subsidiaries will not, and
will not permit any of their Subsidiaries to, in one or a series of related
transactions, convey, sell, transfer, assign or otherwise dispose of, directly
or indirectly, any of its property, business or assets, including by merger or
consolidation (in the case of a Subsidiary of the Company), and including any
sale or other transfer or issuance of any Capital Stock of any Subsidiary of the
Company (except any Subsidiary directly or indirectly owning an interest in
Indiana Gaming L.P., which transaction is governed by the covenant "Repurchase
of Notes in Connection with Sale of Lawrenceburg Interest or Repayment of
Lawrenceburg Investment") whether by the Company or a Subsidiary or through the
issuance, sale or transfer of Capital Stock by a Subsidiary of the Company (an
"Asset Sale"), unless (l)(a) within 210 days after the date of such Asset Sale,
the Net Cash Proceeds therefrom, less the pro rata portion of such amount
distributed to any lender holding indebtedness secured by the Collateral on a
PARI PASSU basis (the "Asset Sale Offer Amount") are applied to the repurchase
of the Notes pursuant to an irrevocable, unconditional cash offer (the "Asset
Sale Offer") to repurchase Notes at a purchase price (the "Asset Sale Offer
Price") of 100% of principal amount, plus accrued interest and Liquidated
Damages, if any, to the date of payment, made within 180 days of such Asset Sale
or (b) within 180 days following such Asset Sale, the Asset Sale Offer Amount is
invested in assets and property (other than notes, bonds, obligation and
securities, except with respect to an Acquisition of an entity whose business
consists solely of Related Businesses) which in the good faith reasonable
judgment of the Board will immediately constitute or be a part of a Related
Business of the Company or such Subsidiary immediately following such
transaction and which shall become Collateral if acquired with Collateral or the
proceeds of Collateral, (2) at least 85% of the consideration received (as
defined below) for such Asset Sale or series of related Asset Sales consists of
cash or cash equivalents, PROVIDED that (x) the amount of any liabilities (as
shown on the Company's or such Subsidiary's most recent balance sheet or in the
notes thereto) of the Company or any Subsidiary (other than liabilities that are
by their terms subordinated to the Notes or any Guarantee thereof) that are
assumed by the transferee of any such assets and (y) the amount of any notes or
other obligations received by the Company or any such Subsidiary from such
transferee that are immediately converted by the Company or such Subsidiary into
cash or as to which the Company or such Subsidiary has received at or prior to
the consummation of the Asset Sale a commitment from a nationally recognized
investment, merchant or commercial bank to convert into cash within 90 days of
the consummation of such Asset Sale unless not actually converted into cash
within such 90-day period (to the extent of the cash received or receivable
pursuant to any such commitment) will be deemed cash or cash equivalents for
purposes of this provision, (3) no Default or Event of Default shall have
occurred and be continuing at the time of, or would occur after giving effect on
a PRO FORMA basis to, such Asset Sale, and (4) the Board of Directors of the
Company determines in good faith that the Company or such Subsidiary, as
applicable, receives fair market value for such Asset Sale. Pending the
application of Net Cash Proceeds resulting from an Asset Sale, such proceeds
shall be maintained by the Trustee in a collateral account and invested in
Permitted Investments. The Indenture provides that an Asset Sale Offer may be
deferred until the accumulated Net Cash Proceeds from Asset Sales not applied to
the uses set forth in (l)(b) above exceeds $5 million and that each Asset Sale
Offer shall remain open for at least 20 Business Days following its
commencement. Upon expiration of the offer, the Company shall apply the Asset
Sale Offer Amount plus an amount equal to accrued interest and Liquidated
Damages, if any, to the purchase of all Notes properly tendered (on a PRO RATA
basis if the Asset Sale Offer Amount is less than the principal amount of all
Notes so tendered) at the Asset Sale Offer Price (together with accrued interest
and Liquidated Damages, if any). After the purchase of all Notes properly
tendered, any remaining Net Cash Proceeds shall be available for general
corporate purposes, PROVIDED that, as reinvested, the assets acquired with
Collateral or the proceeds of Collateral shall become Collateral.
Notwithstanding the foregoing provisions of the prior paragraph:
(i)
the Company and its Subsidiaries may, in the ordinary course of
business, convey, sell, transfer, assign or otherwise dispose of
inventory acquired and held for resale in the ordinary course of business;
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(ii)
the Company and its Subsidiaries may convey, sell, transfer, assign
or otherwise dispose of assets pursuant to and in accordance with the
limitation on mergers, sales or consolidations provisions in the Indenture;
(iii)
the Company and its Subsidiaries may sell or dispose of damaged, worn
out or other obsolete property in the ordinary course of business so
long as such property is no longer necessary for the proper conduct of the
business of the Company or such Subsidiary, as applicable;
(iv)
the Company and its Subsidiaries may convey, sell, transfer, assign
or otherwise dispose of assets to the Company or any of its wholly
owned Subsidiaries;
(v)
the Company and its Subsidiaries may convey, sell, transfer, assign
or otherwise dispose of assets with an aggregate fair market value of
$5 million in any fiscal year; and
(vi)
the Company may make a like kind exchange for the Company's Alton
barge, provided that the Board of Directors of the Company determines
in good faith that the Company receives fair market value for such exchange
and the Company receives an appraisal valuing the property received as
having a value at least as great as the value of the Alton barge.
To the extent applicable and if required by law, the Company will comply
with Section 14 of the Exchange Act and the provisions of Regulation 14E and any
other tender offer rules under the Exchange Act and any other securities laws,
rules and regulations which may then be applicable to any offer by the Company
to purchase the Notes at the option of the Noteholders upon an Asset Sale Offer.
All Net Cash Proceeds from an Event of Loss shall be invested or used to
repurchase Notes, all within the period and as otherwise provided above in
clause (1) of the first paragraph of this covenant.
Notwithstanding the foregoing, the Company will not, and will not permit any
Subsidiary to, directly or indirectly make any Asset Sale of any of the Capital
Stock of a Subsidiary except (i) pursuant to an Asset Sale of all the Capital
Stock of such Subsidiary or (ii) pursuant to an Asset Sale of shares of common
stock with no preferences or special rights or privileges and with no redemption
or prepayment provisions, provided that after such sale the Company or its
Subsidiaries own at least 50.1% of the voting and economic interests of the
Capital Stock of such Subsidiary.
The Indenture provides that promptly on the sale of any real or personal
property owned by Iowa Development Corp., the net proceeds will be promptly
distributed to the Company and, as reinvested, the assets acquired shall become
Collateral. Iowa Development Corp. shall not conduct any business other than the
sale of its assets.
REPURCHASE ON LOSS OF MATERIAL CASINO
The Indenture provides that, in the event of the loss of the legal right to
operate a Material Casino, which Material Casino represented more than 10% of
the Consolidated EBITDA of the Company for and as of the end of the Reference
Period immediately preceding such loss, and such loss continues for more than 90
days (a "License Loss"), the Company shall, within 40 Business Days of such
ninetieth day, apply an amount equal to four times the contribution of such
Material Casino to such Consolidated EBITDA during the Reference Period to the
repurchase of a like principal amount of the Notes in accordance with an
irrevocable, unconditional cash offer to purchase Notes at a purchase price of
101% of the principal amount, plus accrued interest and Liquidated Damages, if
any, to the date of payment. The Indenture provides that each offer shall remain
open for at least 20 Business Days following its commencement. The Company need
not make such offer if, giving effect to the License Loss on a PRO FORMA basis,
the Company's Consolidated Coverage Ratio would be at least 2.25 to 1. Upon
expiration of the offer, the Company shall apply such amount to the purchase of
all Notes properly tendered (on a PRO RATA basis if the amount is less than the
principal amount the Notes so tendered).
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To the extent applicable and if required by law, the Company will comply
with Section 14 of the Exchange Act and the provisions of Regulation 14E and any
other tender offer rules under the Exchange Act and any other securities laws,
rules and regulations which may then be applicable to any offer to purchase
Notes at the option of the Noteholders.
LIMITATION ON TRANSACTIONS WITH AFFILIATES
The Indenture provides that the Company and its Subsidiaries will not, and
will not permit any of their Subsidiaries to, enter into any contract,
agreement, arrangement, understanding or transaction with an Affiliate (an
"Affiliate Transaction"), or series of related Affiliate Transactions, involving
consideration to either party in excess of $1 million, except for transactions
approved by a majority of the disinterested (as to such transaction) directors
of the Company and evidenced by an Officers' Certificate addressed and delivered
to the Trustee stating that such Affiliate Transaction has been so approved and
is made in good faith and that the terms of such Affiliate Transaction are no
less favorable than could have been obtained in an arm's length transaction with
a non-Affiliate and are otherwise fair and reasonable to the Company; PROVIDED
that with respect to any Affiliate Transaction (including any series of related
transactions) involving consideration to either party in excess of $10 million
(except as otherwise permitted by "Limitation on Restricted Payments") the
Company also must, prior to the consummation thereof, obtain a written favorable
opinion as to the fairness of such transaction to the Company from a financial
point of view from an independent investment banking firm of national
reputation. Transactions solely between or amongst the Company and any wholly
owned Subsidiary of the Company and Belle of Sioux City L.P. or between or
amongst wholly owned Subsidiaries of the Company and Belle of Sioux City L.P.
shall not be deemed to be Affiliate Transactions.
LIMITATION ON MERGER, SALE OR CONSOLIDATION
The Indenture provides that neither the Company nor any Guarantor (to the
extent not permitted by the sale provisions under the heading "Guarantees"
above) will directly or indirectly consolidate with or merge with or into
another person or sell, lease, convey or transfer all or substantially all of
its assets (computed on a consolidated basis), whether in a single transaction
or a series of related transactions, to another Person or group of affiliated
Persons, unless (i) either (a) in the case of a merger or consolidation, the
Company or such Guarantor, as the case may be, is the continuing entity or (b)
the resulting, surviving or transferee entity is a corporation organized under
the laws of the United States, any state thereof or the District of Columbia and
expressly assumes by supplemental indenture all of the obligations of the
Company or such Guarantor, as applicable, in connection with the Notes and the
Indenture; (ii) no Default or Event of Default shall exist or shall occur
immediately after giving effect on a PRO FORMA basis to such transaction; (iii)
immediately after giving effect to such transaction on a PRO FORMA basis, the
Consolidated Net Worth of the consolidated surviving or transferee entity is at
least equal to the Consolidated Net Worth of the Company or such Guarantor, as
applicable, immediately prior to such transaction; (iv) other than in the case
of a transaction solely between the Company and a wholly owned Guarantor or
solely between wholly owned Guarantors, immediately after giving effect to such
transaction on a PRO FORMA basis, the consolidated resulting, surviving or
transferee entity would immediately thereafter be permitted to incur at least
$1.00 of additional Indebtedness pursuant to the ratio set forth in paragraph
(i) of the covenant "Limitation on Incurrence of Additional Indebtedness and
Disqualified Capital Stock;" and (v) such transaction will not result in the
loss of a material gaming license.
Upon any consolidation or merger or any transfer of all or substantially all
of the assets of the Company or a Guarantor in accordance with the foregoing,
the successor corporation formed by such consolidation or into which the Company
or such Guarantor, as the case may be, is merged or to which such transfer is
made, shall succeed to, and be substituted for, and may exercise every right and
power of, the Company or such Guarantor, as the case may be, under the Indenture
with the same effect as if such successor corporation had been named therein as
the Company or such Guarantor, as the case may be, and, except in the case of a
lease, the Company or such Guarantor, as the case may be, shall be released from
the obligations under the Notes and the Indenture except with respect to any
obligations that arise from, or are related to, such transaction.
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LIMITATION ON LINES OF BUSINESS
The Indenture provides that neither the Company nor any of its Subsidiaries
or Unrestricted Subsidiaries shall directly or indirectly engage to any
substantial extent in any line or lines of business activity other than that
which, in the reasonable good faith judgment of the Board of Directors of the
Company, is a Related Business, including, in the case of an Acquisition,
immediately upon such Acquisition.
LIMITATION ON STATUS AS INVESTMENT COMPANY
The Indenture prohibits the Company and its Subsidiaries from being required
to register as an "investment company" (as that term is defined in the
Investment Company Act of 1940, as amended) or from otherwise becoming subject
to regulation under the Investment Company Act.
REPORTS
The Indenture provides that whether or not the Company is subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
shall deliver to the Trustee and, to each Noteholder within 15 days after it is
or would have been required to file such with the Commission, annual and
quarterly financial statements substantially equivalent to financial statements
that would have been included in reports filed with the Commission, if the
Company were subject to the requirements of Section 13 or 15(d) of the Exchange
Act, including, with respect to annual information only, a report thereon by the
Company's certified independent public accountants as such would be required in
such reports to the Commission, and, in each case, together with a management's
discussion and analysis of financial condition and results of operations which
would be so required. The Company shall simultaneously with such delivery
deliver to the Trustee annual and quarterly condensed financial statements for
Indiana Gaming L.P.
EVENTS OF DEFAULT AND REMEDIES
The Indenture defines an Event of Default as (i) the failure by the Company
to pay any installment of interest or Liquidated Damages on the Notes as and
when the same becomes due and payable and the continuance of any such failure
for 30 days, (ii) the failure by the Company to pay all or any part of the
principal, or premium, if any, on the Notes when and as the same becomes due and
payable at maturity, redemption, by acceleration or otherwise, including,
without limitation, redemptions or purchase offers in connection with a Property
Sale, Asset Sale, Change of Control, Lawrenceburg Sale, License Loss, failure to
open the Lawrenceburg Casino or Annual Obligation or otherwise, (iii) the
failure by the Company or any Subsidiary to observe or perform any other
covenant or agreement contained in the Notes or the Indenture and, subject to
certain exceptions, the continuance of such failure for a period of 30 days
after written notice is given to the Company by the Trustee or to the Company
and the Trustee by the holders of at least 25% in aggregate principal amount of
the Notes outstanding, (iv) certain events of bankruptcy, insolvency or
reorganization in respect of the Company or any of its Significant Subsidiaries,
(v) a default in the payment of principal, premium or interest when due which
extends beyond any stated period of grace applicable thereto or any acceleration
for any other reason of the maturity of any Indebtedness of the Company or any
of its Subsidiaries with an aggregate principal amount in excess of $5 million,
(vi) final unsatisfied judgments not covered by insurance aggregating in excess
of $5 million, at any one time rendered against the Company or any of its
Subsidiaries and not stayed, bonded or discharged within 45 days, (vii) an event
of default specified in any of the Collateral Documents not cured within the
applicable grace period or (viii) a default in the payment of principal, premium
or interest on the Convertible Notes at the final maturity on June 1, 2001,
regardless of any consent or waiver to such nonpayment given by any holder
thereof. The Indenture provides that if a Default occurs and is continuing, the
Trustee must, within 90 days after the occurrence of such default, give to the
Noteholders notice of such default.
If an Event of Default occurs and is continuing (other than an Event of
Default specified in clause (iv), above, relating to the Company or any
Subsidiary,) then in every such case, unless the principal of all of the Notes
shall have already become due and payable, either the Trustee or the holders of
25% in aggregate principal amount of the Notes then outstanding, by notice in
writing to the Company (and to the Trustee if given by Noteholders) (an
"Acceleration Notice"), may declare all principal, determined as set forth
below, and accrued interest thereon to be due and payable immediately. If an
Event of Default specified in clause (iv) above relating to the Company or any
Subsidiary occurs, all principal and accrued interest thereon will
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be immediately due and payable on all outstanding Notes without any declaration
or other act on the part of Trustee or the Noteholders. The holders of a
majority in aggregate principal amount of Notes generally are authorized to
rescind such acceleration if all existing Events of Default, other than the
non-payment of the principal of, premium, if any, and interest on the Notes
which have become due solely by such acceleration, have been cured or waived,
except a default with respect to any provision requiring a supermajority to
amend, which default may only be waived by such supermajority.
Prior to the declaration of acceleration of the maturity of the Notes, the
holders of a majority in aggregate principal amount of the Notes at the time
outstanding may waive on behalf of all the Noteholders any default, except a
default in the payment of principal of or interest on any Note not yet cured or
a default with respect to any covenant or provision which cannot be modified or
amended without the consent of the each Noteholder affected, and except a
default with respect to any provision requiring a supermajority to amend, which
default may only be waived by such supermajority. Subject to the provisions of
the Indenture relating to the duties of the Trustee, the Trustee will be under
no obligation to exercise any of its rights or powers under the Indenture at the
request, order or direction of any of the Noteholders, unless such Noteholders
have offered to the Trustee reasonable security or indemnity. Subject to all
provisions of the Indenture and applicable law, the holders of a majority in
aggregate principal amount of the Notes at the time outstanding will have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust or power conferred on
the Trustee.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Indenture provides that the Company may, at its option and at any time,
elect to have its obligations discharged with respect to the outstanding Notes
("Legal Defeasance"). Such Legal Defeasance means that the Company shall be
deemed to have paid and discharged the entire indebtedness represented, and the
Indenture shall cease to be of further effect as to all outstanding Notes and
guarantees, except as to (i) rights of Noteholders to receive payments in
respect of the principal of, premium, if any, and interest on such Notes when
such payments are due from the trust funds; (ii) the Company's obligations with
respect to such Notes concerning issuing temporary Notes, registration of Notes,
mutilated, destroyed, lost or stolen Notes, and the maintenance of an office or
agency for payment and money for security payments held in trust; (iii) the
rights, powers, trust, duties, and immunities of the Trustee, and the Company's
obligations in connection therewith; and (iv) the Legal Defeasance provisions of
the Indenture. In addition, the Company may, at its option and at any time,
elect to have its obligations released with respect to certain covenants that
are described in the Indenture ("Covenant Defeasance") and thereafter any
omission to comply with such obligations shall not constitute a Default or Event
of Default with respect to the Notes. In the event Covenant Defeasance occurs,
certain events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "Events of Default" will
no longer constitute an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit of
the Noteholders, U.S. legal tender, non-callable government securities or a
combination thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest on such Notes on the stated date for
payment thereof or on the redemption date of such principal or installment of
principal of, premium, if any, or interest on such Notes, and the Noteholders
must have a valid, perfected, exclusive security interest in such trust; (ii) in
the case of the Legal Defeasance, the Company shall have delivered to the
Trustee an opinion of counsel in the United States reasonably acceptable to
Trustee confirming that (A) the Company has received from, or there has been
published by the Internal Revenue Service, a ruling or (B) since the date of the
Indenture, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such opinion of counsel shall
confirm that, the Noteholders will not recognize income, gain or loss for
federal income tax purposes as a result of such Legal Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Legal Defeasance had not
occurred; (iii) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to such Trustee confirming that the Noteholders will not
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recognize income, gain or loss for federal income tax purposes as a result of
such Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such Covenant Defeasance had not occurred; (iv) no Default or Event of Default
shall have occurred and be continuing on the date of such deposit or insofar as
Events of Default from bankruptcy or insolvency events are concerned, at any
time in the period ending on the 91st day after the date of deposit; (v) such
Legal Defeasance or Covenant Defeasance shall not result in a breach or
violation of, or constitute a default under the Indenture or any other material
agreement or instrument to which the Company or any of its Subsidiaries is a
party or by which the Company or any of its Subsidiaries is bound; (vi) the
Company shall have delivered to the Trustee an Officers' Certificate stating
that the deposit was not made by the Company with the intent of preferring the
Noteholders over any other creditors of the Company or with the intent of
defeating, hindering, delaying or defrauding any other creditors of the Company
or others; and (vii) the Company shall have delivered to the Trustee an
Officers' Certificate and an opinion of counsel, each stating that the
conditions precedent provided for in, in the case of the officers' certificate,
(i) through (vi) and, in the case of the opinion of counsel, clauses (i), (with
respect to the validity and perfection of the security interest) (ii), (iii) and
(v) of this paragraph have been complied with. Upon the occurrence of legal or
covenant defeasance, the Lien of the Collateral Documents will be released only
if the Company delivers to the Trustee an opinion of counsel as to certain
matters, including the legal status of the trust. In addition, the Lien of the
Collateral Documents will remain in place for 91 days, unless the Company
delivers to the Trustee an appraisal of the Collateral and an opinion of counsel
as to certain bankruptcy matters both as further described in the Indenture.
AMENDMENTS AND SUPPLEMENTS
The Indenture contains provisions permitting the Company and the Trustee to
enter into a supplemental indenture for certain limited purposes without the
consent of the Noteholders. With the consent of the holders of not less than a
majority in aggregate principal amount of the Notes at the time outstanding, the
Company and the Trustee are permitted to amend or supplement the Indenture or
any supplemental indenture or modify the rights of the Noteholders; provided,
that no such modification may, without the consent of at least 66 2/3% of the
aggregate principal amount of Notes outstanding, alter the provisions of the
covenants "Repurchase of Notes of the Option of the Holder upon a Change of
Control," "Repurchase of Notes in Connection with Sale of Lawrenceburg Interest
or Repayment of Lawrenceburg Investment," "Repurchase on Loss of Material
Casino," "Limitation on Sale of Assets and Subsidiary Stock," "Use of Proceeds"
or "Repurchase of Notes on Certain Project Delays" in a manner adverse to the
Noteholders or modify the Guarantees; and that no such modification may, without
the consent of the Holders of at least 85% of the aggregate principal amount of
outstanding Securities, release or grant additional liens on the Collateral,
except as otherwise specifically provided in the Indenture; and that no such
modification may without the consent of each Noteholder affected thereby: (i)
change the Stated Maturity on any Note, or reduce the principal amount thereof
or the rate (or extend the time for payment) of interest thereon or any premium
payable upon the redemption thereof, or change the place of payment where, or
the coin or currency in which, any Note or any premium or the interest thereon
is payable, or impair the right to institute suit for the enforcement of any
such payment on or after the Stated Maturity thereof (or, in the case of
redemption, on or after the Redemption Date), or reduce the price paid in any
purchase offer or alter the redemption provisions in a manner adverse to the
Noteholders, or (ii) reduce the percentage in principal amount of the
outstanding Notes, the consent of whose Noteholders is required for any such
amendment, supplemental indenture or waiver provided for in the Indenture, or
(iii) modify any of the waiver provisions, except to increase any required
percentage or to provide that certain other provisions of the Indenture cannot
be modified or waived without the consent of the Noteholder of each outstanding
Note affected thereby, or (iv) cause the Notes or any guarantee to rank junior
in right of payment to any other Indebtedness of the Company or any guarantee,
as applicable.
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NO PERSONAL LIABILITY OF PARTNERS, STOCKHOLDERS, OFFICERS, DIRECTORS
The Indenture provides that no direct or indirect stockholder, employee,
officer or director, as such, past, present or future of the Company or any
successor entity shall have any personal liability in respect of the obligations
of the Company under the Indenture or the Notes by reason of his or its status
as such stockholder, employee, officer or director.
CERTAIN DEFINITIONS
"ACQUIRED INDEBTEDNESS" means, with respect to any person, (i) Indebtedness
or Disqualified Capital Stock of any person existing at the time such person
becomes a Subsidiary of the Company or is merged or consolidated into or with
the Company or one of its Subsidiaries or (ii) Indebtedness encumbering any
asset acquired by such person. Acquired Indebtedness shall be deemed to have
been incurred at the time such person becomes a Subsidiary of the Company
(including upon the designation of a subsidiary or any other person as a
Subsidiary) or is merged or consolidated into or with the Company or one of its
Subsidiaries or the time of the Acquisition of such assets.
"ACQUISITION" means the purchase or other acquisition of any person or
substantially all the assets of any person by any other person, whether by
purchase, merger, consolidation, or other transfer, and whether or not for
consideration.
"AFFILIATE" means (i) any person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company, (ii)
any spouse, immediate family member or other relative who has the same principal
residence of any person described in clause (i) above, and (iii) any trust in
which any person described in clause (i) or (ii) above has a beneficial
interest. For purposes of this definition, the term "control" means (a) the
power to direct the management and policies of a person, directly or through one
or more intermediaries, whether through the ownership of voting securities, by
contract, or otherwise, or (b) the beneficial ownership of 10% or more of the
voting power of a person (on a fully diluted basis) or of warrants or other
rights to acquire shares of such class of Capital Stock (whether or not
presently exercisable).
"AVERAGE LIFE TO STATED MATURITY" means, as of the date of determination,
with respect to any indebtedness, the quotient obtained by dividing (i) the sum
of the products of (a) the number of years from the date of determination to the
date or dates of each successive scheduled principal payment of such
Indebtedness multiplied by (b) the amount of each such principal payment by (ii)
the sum of all such principal payments.
"BUSINESS DAY" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in New York, New York are
authorized or obligated by law or executive order to close.
"CAPITAL STOCK" means, with respect to any person, any and all shares,
interests, rights to purchase (other than convertible or exchangeable
Indebtedness), warrants, options, participations or other equivalents of or
interests (however designated) in stock or equity issued by that person.
"CASINO IMPROVEMENTS" means the acquisition of, or development and
construction of, any addition to or expansion of the Company's Riverside, Alton,
Sioux City or Baton Rouge properties in connection with any expansion of casino
floor space, and any addition to or expansion of any gaming, hotel, parking,
dining, entertainment, retail, promotional, storage, patron services,
transportation or similar facilities related thereto, in each case, after the
date of the Indenture.
"CONSOLIDATED COVERAGE RATIO" of any person on any date of determination
(the "Transaction Date") means the ratio, on a PRO FORMA basis, of (a) the
aggregate amount of Consolidated EBITDA of such person attributable to
continuing operations and businesses exclusive of amounts attributable to
operations and businesses permanently discontinued or disposed of during the
Reference Period, to (b) the aggregate Consolidated Fixed Charges of such person
(exclusive of amounts attributable to operations and businesses permanently
discontinued or disposed of, but only to the extent that the obligations giving
rise to such Consolidated Fixed Charges would no longer be obligations
contributing to such person's Consolidated Fixed Charges subsequent to the
Transaction Date) during the Reference Period; PROVIDED,that for purposes
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of such calculation, (i) Acquisitions which occurred during the Reference Period
or subsequent to the Reference Period and on or prior to the Transaction Date
shall be assumed to have occurred on the first day of the Reference Period, (ii)
transactions giving rise to the need to calculate the Consolidated Coverage
Ratio shall be assumed to have occurred on the first day of the Reference
Period, (iii) the incurrence of any Indebtedness or issuance of any Disqualified
Capital Stock during the Reference Period or subsequent to the Reference Period
and on or prior to the Transaction Date (and the application of the proceeds
therefrom to the extent used to refinance or retire other Indebtedness) shall be
assumed to have occurred on the first day of such Reference Period, and (iv) the
Consolidated Fixed Charges of such person attributable to interest on any
Indebtedness or dividends on any Disqualified Capital Stock bearing a floating
interest (or dividend) rate shall be computed on a PRO FORMA basis as if the
average rate in effect from the beginning of the Reference Period to the
Transaction Date had been the applicable rate for the entire period, unless such
Person or any of its Subsidiaries is a party to an Interest Swap or Hedging
Obligation (which shall remain in effect for the 12-month period immediately
following the Transaction Date) that has the effect of fixing the interest rate
on the date of computation, in which case such rate (whether higher or lower)
shall be used.
"CONSOLIDATED EBITDA" means, with respect to any person, for any period, the
Consolidated Net Income of such person for such period adjusted to add thereto
(to the extent deducted from net revenues in determining Consolidated Net
Income), without duplication, the sum of (i) consolidated income tax expense,
(ii) consolidated depreciation and amortization expense, provided that
consolidated depreciation and amortization of a Subsidiary that is a less than
wholly owned Subsidiary shall only be added to the extent of the equity interest
of the Company in such Subsidiary, (iii) Consolidated Fixed Charges, and (iv)
with respect to the Company, all cash distributions made by The Indiana Gaming
Company to the Company or another Guarantor, except for payments in the nature
of management fees, interest income or preferred dividends from Indiana Gaming
L.P.
"CONSOLIDATED FIXED CHARGES" of any person means, for any period, the
aggregate amount (without duplication and determined in each case in accordance
with GAAP) of (a) interest expensed or capitalized, paid, accrued, or scheduled
to be paid or accrued (including, in accordance with the following sentence,
interest attributable to Capitalized Lease Obligations) of such person and its
Consolidated Subsidiaries during such period, including (i) original issue
discount and non-cash interest payments or accruals on any Indebtedness, (ii)
the interest portion of all deferred payment obligations, and (iii) all
commissions, discounts and other fees and charges owed with respect to bankers'
acceptances and letters of credit financings and currency and Interest Swap and
Hedging Obligations, in each case to the extent attributable to such period, and
(b) the amount of dividends accrued or payable by such person or any of its
Consolidated Subsidiaries in respect of Preferred Stock (other than by
Subsidiaries of such person to such person or such person's wholly owned
Subsidiaries). For purposes of this definition, (x) interest on a Capitalized
Lease Obligation shall be deemed to accrue at an interest rate reasonably
determined by the Company to be the rate of interest implicit in such
Capitalized Lease Obligation in accordance with GAAP and (y) interest expense
attributable to any Indebtedness represented by the guaranty by such person or a
Subsidiary of such person of an obligation of another person shall be deemed to
be the interest expense attributable to the Indebtedness guaranteed.
"CONSOLIDATED NET INCOME" means, with respect to any person for any period,
the net income (or loss) of such person and its Consolidated Subsidiaries
(determined on a consolidated basis in accordance with GAAP) for such period,
adjusted to exclude (only to the extent included in computing such net income
(or loss) and without duplication): (a) all gains (but not losses) which are
either extraordinary (as determined in accordance with GAAP) or are either
unusual or nonrecurring (including any gain from the sale or other disposition
of assets outside the ordinary course of business or from the issuance or sale
of any capital stock), (b) any gains (but not losses) from currency exchange
transactions, (c) the net income, if positive, of any person, other than a
wholly owned Consolidated Subsidiary, in which such person or any of its
Consolidated Subsidiaries has an interest, except to the extent of the amount of
any dividends or distributions actually paid in cash to such person or a wholly
owned Consolidated Subsidiary of such person during such period, but in any case
not in excess of such person's PRO RATA share of such person's net income for
such period, (d) the net income or loss of any person acquired in a pooling of
interests transaction for any period prior to the date of
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such acquisition, (e) cash distributions from Indiana Gaming L.P. and the net
income of The Indiana Gaming Company, except for net income in the nature of
management fees, interest income or preferred dividends actually paid to the
Company or a Guarantor other than The Indiana Gaming Company, so long as Indiana
Gaming L.P. is an Unrestricted Subsidiary, (f) the net income, if positive, of
any of such person's Consolidated Subsidiaries to the extent that the
declaration or payment of dividends or similar distributions is not at the time
permitted by operation of the terms of its charter or bylaws or any other
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to such Consolidated Subsidiary PROVIDED, HOWEVER, that
statutory or regulatory requirements of gaming authority approval prior to
distribution shall not be considered such a limitation and (g) any noncash
extraordinary charge relating to the repayment of the Existing Bank Credit
Facility in connection with this Offering.
"CONSOLIDATED NET WORTH" of any person at any date means the aggregate
consolidated stockholders' equity of such person (plus amounts of equity
attributable to preferred stock) and its Consolidated Subsidiaries, as would be
shown on the consolidated balance sheet of such person prepared in accordance
with GAAP, adjusted to exclude (to the extent included in calculating such
equity), (a) the amount of any such stockholders' equity attributable to
Disqualified Capital Stock or treasury stock of such person and its Consolidated
Subsidiaries, (b) all upward revaluations and other write-ups in the book value
of any asset of such person or a Consolidated Subsidiary of such person
subsequent to the Issue Date, and (c) all investments in Subsidiaries that are
not Consolidated Subsidiaries and in persons that are not Subsidiaries.
"CONSOLIDATED SUBSIDIARY" means, for any person, each Subsidiary of such
person (whether now existing or hereafter created or acquired) the financial
statements of which are consolidated for financial statement reporting purposes
with the financial statements of such person in accordance with GAAP. So long as
Indiana Gaming L.P. is an Unrestricted Subsidiary, the results of operation of
Indiana Gaming L.P. shall not be included in the calculation of Consolidated Net
Income of the Company, other than management fees, interest income and preferred
dividends paid to the Company or a Guarantor other than The Indiana Gaming
Company.
"DISQUALIFIED CAPITAL STOCK" means (a) except as set forth in (b), with
respect to any person, Capital Stock of such person that, by its terms or by the
terms of any security into which it is convertible, exercisable or exchangeable,
is, or upon the happening of an event or the passage of time would be, required
to be redeemed or repurchased (including at the option of the holder thereof) by
such person or any of its Subsidiaries, in whole or in part, on or prior to the
Stated Maturity of the Notes and (b) with respect to any Subsidiary of such
person (including with respect to any Subsidiary of the Company), any Capital
Stock other than any common stock with no preference, privileges, or redemption
or repayment provisions.
"EVENT OF LOSS" means, with respect to any property or asset, any (i) loss,
destruction or damage of such property or asset or (ii) any condemnation,
seizure or taking, by exercise of the power of eminent domain or otherwise, of
such property or asset, or confiscation or requisition of the use of such
property or asset.
"EXCHANGE NOTES" means first mortgage notes offered for exchange hereby and
issued pursuant to the Registration Rights Agreement and the Indenture.
"EXCLUDED PERSONS" means J. Thomas Long and William F. Cellini, each of such
person's immediate family or a trust or similar entity existing solely for the
benefit of such person or such person's immediate family.
"FF&E INDEBTEDNESS" means any Indebtedness of the Company and its
Subsidiaries and Indiana Gaming L.P. to any seller or other person incurred to
finance any gaming or gaming related fixtures, furniture or equipment which, in
the reasonable good faith judgment of the Board of Directors of the Company or
the general partner of Indiana Gaming L.P., is incurred for a Material Casino,
is directly related to a Related Business and is secured only by the assets so
financed.
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"GAAP" means United States 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 approved by a significant segment of the
accounting profession as in effect on the Issue Date.
"GUARANTOR" means the Guarantors named as such on the cover of this Offering
Memorandum, and any future newly created, acquired or designated Subsidiary of
the Company.
"INDEBTEDNESS" of any person means, without duplication, (a) all liabilities
and obligations, contingent or otherwise, of such person, (i) in respect of
borrowed money (whether or not the recourse of the lender is to the whole of the
assets of such person or only to a portion thereof), (ii) evidenced by bonds,
notes, debentures or similar instruments, (iii) representing the balance
deferred and unpaid of the purchase price of any property or services, except
such as would constitute accrued expenses or trade payables to trade creditors
in the ordinary course of business that are not more than ninety (90) days past
their original due date unless being contested in good faith, (iv) evidenced by
bankers' acceptances or similar instruments issued or accepted by banks, (v) for
the payment of money relating to a capitalized lease obligation, or (vi)
evidenced by a letter of credit or a reimbursement obligation of such person
with respect to any letter of credit; (b) all net obligations of such person
under Interest Swap and Hedging Obligations; (c) all liabilities and obligations
of others of the kind described in the preceding clause (a) or (b) that such
person has guaranteed or that is otherwise its legal liability and all
obligations to purchase, redeem or acquire any Capital Stock; and (d) any and
all deferrals, renewals, extensions, refinancing and refundings (whether direct
or indirect) of, or amendments, modifications or supplements to, any liability
of the kind described in any of the preceding clauses (a), (b) or (c), or this
clause (d), whether or not between or among the same parties, PROVIDED that, in
calculating Indebtedness of the Company and its Consolidated Subsidiaries,
Indebtedness of Indiana Gaming L.P. attributable to The Indiana Gaming Company
solely because of its legal status as general partner of Indiana Gaming L.P.
shall not be deemed such Indebtedness.
"INDIANA GAMING L.P." means the Indiana Gaming Company, L.P. or any
successor acquired to develop the proposed casino in Lawrenceburg, Indiana.
"INTEREST SWAP AND HEDGING OBLIGATION" means any obligation of any person
pursuant to any interest rate swap agreement, interest rate cap agreement,
interest rate collar agreement, interest rate exchange agreement, currency
exchange agreement or any other agreement or arrangement designed to protect
against fluctuations in interest rates or currency values, including, without
limitation, any arrangement whereby, directly or indirectly, such person is
entitled to receive from time to time periodic payments calculated by applying
either a fixed or floating rate of interest on a stated notional amount in
exchange for periodic payments made by such person calculated by applying a
fixed or floating rate of interest on the same notional amount.
"INVESTMENT" by any person in any other person means (without duplication)
(a) the acquisition (whether by purchase, merger, consolidation or otherwise) by
such person (whether for cash, property, services, securities or otherwise) of
capital stock, bonds, notes, debentures, partnership or other ownership
interests or other securities, including any options or warrants, of such other
person or any agreement to make any such acquisition; (b) the making by such
person of any deposit with, or advance, loan or other extension of credit to,
such other person (including the purchase of property from another person
subject to an understanding or agreement, contingent or otherwise, to resell
such property to such other person) or any commitment to make any such advance,
loan or extension (but excluding (a) accounts receivable or deposits arising in
the ordinary course of business and (b) advances, loans or other extensions of
credit by the Company or any of its Subsidiaries to the Company or any
Subsidiary of the Company); (c) other than guarantees of Indebtedness of the
Company to the extent permitted by the covenant "Limitation on Incurrence of
Additional Indebtedness and Disqualified Capital Stock," the entering into by
such person of any guarantee of, or other credit support or contingent
obligation with respect to, Indebtedness or other liability of such other
person; (d) the making of any capital contribution by such person to such other
person, other than to the Company or a wholly owned Subsidiary of the Company;
and (e) the designation by the
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Board of Directors of the Company of any person to be an Unrestricted
Subsidiary. The Company shall be deemed to make an Investment in an amount equal
to the fair market value of the net assets of any subsidiary (or, if neither the
Company nor any of its Subsidiaries has theretofore made an Investment in such
subsidiary, in an amount equal to the Investments being made), at the time that
such subsidiary is designated an Unrestricted Subsidiary, and any property
transferred to an Unrestricted Subsidiary from the Company or a Subsidiary shall
be deemed an Investment valued at its fair market value at the time of such
transfer.
"ISSUE DATE" means the date of first issuance of the Notes under the
Indenture.
"JUNIOR INDEBTEDNESS" means Indebtedness of the Company or a Guarantor, as
applicable, that is subordinated in right of payment to the Notes or such
Guarantor's guarantee of the Notes, as applicable, or has a scheduled
installment of principal due, by maturity, redemption, sinking fund payment or
otherwise after the Stated Maturity of the Notes, except that the amount payable
to the former Jazz shareholders shall not be deemed Junior Indebtedness if
repaid in full at a discount for an amount not to exceed $3 million.
"LAWRENCEBURG INVESTMENT" means the total aggregate Investment by the
Company and the Guarantors in Indiana Gaming L.P.
"LAWRENCEBURG INVESTMENT RETURN" means the complete repayment to the Company
and the Guarantors (other than The Indiana Gaming Company) of the Lawrenceburg
Investment, without credit for management fees, interest income, preferred
dividends or provision for taxes.
"MATERIAL CASINO" means any gaming establishment possessing at least 400
slot machines and at least 20 table games.
"NET CASH PROCEEDS" means the aggregate amount of cash received by the
Company in the case of a sale of Qualified Capital Stock, by the Company and its
Subsidiaries in respect of an Asset Sale or an Event of Loss, by the Company and
its Subsidiaries in respect of a Lawrenceburg Sale and by Indiana Gaming L.P. in
respect of a Property Sale plus, in the case of an issuance of Qualified Capital
Stock upon any exercise, exchange or conversion of securities (including
options, warrants, rights and convertible or exchangeable debt) of the Company
that were issued for cash on or after the Issue Date, the amount of cash
originally received by the Company upon the issuance of such securities
(including options, warrants, rights and convertible or exchangeable debt) less,
in each case, the sum of all payments, fees, commissions and reasonable and
customary expenses (including, without limitation, the fees and expenses of
legal counsel and investment banking fees and expenses) incurred in connection
with such Asset Sale, an Event of Loss, Lawrenceburg Sale, Property Sale or sale
of Qualified Capital Stock, and, in the case of an Asset Sale, Lawrenceburg
Sale, Property Sale or an Event of Loss only, less the amount (estimated
reasonably and in good faith by the Company) of income, franchise, sales and
other applicable taxes required to be paid by the Company or any of its
respective Subsidiaries in connection with such Asset Sale, Lawrenceburg Sale,
Property Sale or Event of Loss and, in the case of an Asset Sale, Property Sale
or Event of Loss only, less the amounts required to be applied to the repayment
of Indebtedness secured by a Lien otherwise permitted herein on the asset or
assets that were the subject of such event and which Indebtedness is required by
its terms to be repaid upon such event, and in the case of any Asset Sale,
Property Sale or Lawrenceburg Sale only, less any reserve established by the
Company or any of its Subsidiaries in accordance with GAAP against any
liabilities associated with such sale and retained by the Company or any of its
Subsidiaries, as the case may be, after such sale.
"PERMITTED INDEBTEDNESS" means any of the following:
(a) The Company and the Guarantors may incur Indebtedness solely in
respect of bankers acceptances and performance, appeal or bid bonds
(to the extent that such incurrence does not result in the incurrence of any
obligation to repay any obligation relating to borrowed money of others) in
a principal amount not to exceed $10 million, all in the ordinary course of
business in accordance with customary industry practices, in amounts and for
the purposes customary in the Company's industry;
(b) The Company may incur Indebtedness to any Guarantor, and any
Guarantor may incur Indebtedness to any other Guarantor or to the
Company; PROVIDED that, in the case of Indebtedness of
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the Company, such obligations shall be unsecured and subordinated in all
respects to the Company's obligations pursuant to the Notes and any event
that causes such Guarantor to no longer be a Subsidiary shall be an
incurrence of Indebtedness; and
(c) The Company may incur Indebtedness in the form of a guarantee of
hotel construction in Baton Rouge in an amount not to exceed $5
million and otherwise permitted under clause (s) under "Limitation on
Restricted Payments."
"PERMITTED INVESTMENT" means (i) certificates of deposit and bank accounts
with final maturities of one year or less issued by United States commercial
banks having capital and surplus in excess of $100,000,000; (ii) commercial
paper with a grade of no less than A1 or P1; (iii) direct obligations of the
United States Government or a United States agency with a maturity of one year
or less; and (iv) shares of money market mutual or similar funds having assets
in excess of $500,000,000.
"PERMITTED LIENS" means (i) Liens existing on the date of the Indenture as
specifically identified in the Offering Memorandum or securing Indebtedness not
to exceed $1 million incurred to purchase gaming and/ or office equipment; (ii)
Liens for taxes, assessments, governmental charges or claims which are being
contested in good faith by appropriate proceedings promptly instituted and
diligently conducted and if a reserve or other appropriate provision, if any, as
shall be required in conformity with GAAP shall have been made therefor; (iii)
statutory Liens of landlords and carriers, warehousemen, mechanics, suppliers,
materialmen, repairmen, or other like Liens arising in the ordinary course of
business and with respect to amounts not yet delinquent or being contested in
good faith by appropriate proceedings, and if a reserve or other appropriate
provision, if any, as shall be required in conformity with GAAP shall have been
made therefor; (iv) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance and
other types of social security; (v) Liens incurred or deposits made to secure
the performance of tenders, bids, leases, statutory obligations, surety and
appeal bonds, government contracts, performance and return-of-money bonds and
other obligations of a like nature incurred in the ordinary course of business
(exclusive of obligations for the payment of borrowed money); (vi) easements,
rights-of-way, restrictions, minor defects or irregularities in title and other
similar charges or encumbrances not interfering in any material respect with the
business of the Company or any of its Subsidiaries incurred in the ordinary
course of business; (vii) Liens in favor of customs and revenue authorities
arising as a matter of law to secure payment of customs duties in connection
with the importation of goods; (viii) judgment and attachment Liens not giving
rise to an Event of Default; (ix) leases or subleases granted to others not
interfering in any material respect with the business of the Company or any of
its Subsidiaries; (x) any interest or title of a lessor in the property subject
to any capital lease obligation or operating lease; (xi) Liens arising from
filing Uniform Commercial Code financing statements regarding leases; (xii)
Liens securing any Indebtedness which became Indebtedness of the Company
pursuant to a transaction subject to the provisions of the Indenture described
above under "Limitation on Merger, Sale or Consolidation" or which constitutes
Acquired Indebtedness and which Liens were in existence at the time of such
transaction (unless such Indebtedness was incurred or such Lien created in
connection with, or in contemplation of, such transaction), so long as such
Liens do not extend to or cover any property or assets of the Company or any
Subsidiary of the Company other than property or assets acquired in such
transaction; (xiii) Liens securing any assumption, guarantee or other liability
which constitutes Acquired Indebtedness and which Liens were in existence at the
time of such transaction (unless such assumption, guarantee or other liability
was incurred or such Lien created in connection with, or in contemplation of,
such person becoming a Subsidiary of the Company), so long as such Liens do not
extend to or cover any property or assets of the Company or any Subsidiary of
the Company other than the assets of such person; and (xiv) any renewal of or
substitution for any Lien permitted by any of the preceding clauses, PROVIDED,
HOWEVER, that the Indebtedness secured is not increased nor the Lien extended to
any additional property. Liens described under clauses (xii) and (xiii) above
shall not be Permitted Liens in connection with an Acquisition which is funded
in whole or part with Collateral or the proceeds of the sale of Collateral or
out of distributions made by Indiana Gaming L.P. up to the amount of the
Lawrenceburg Investment.
"PROJECT DELAY" means (i) the failure of the Lawrenceburg Casino to commence
operations on or prior to June 30, 1997 at either the temporary or the permanent
location (for purposes of the preceding,
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commencement of gaming operations shall be deemed to occur at such time as the
Lawrenceburg Casino is open to the public for gaming and is operating at least
950 gaming positions), (ii) the expiration or suspension of Indiana Gaming
L.P.'s certificate of suitability and the failure of the Indiana Gaming
Commission to renew such certificate prior to the issuance of a riverboat
owner's license, which failure continues for a period of 30 days from the date
of such expiration or suspension, (iii) the revocation or cancellation of
Indiana Gaming L.P.'s certificate of suitability by the Indiana Gaming
Commission, (iv) the denial of Indiana Gaming L.P.'s application for a permanent
riverboat owner's license by the Indiana Gaming Commission, (v) a finding of
unsuitability of Indiana Gaming L.P. by the Indiana Gaming Commission, (vi) the
revocation or suspension of Indiana Gaming L.P.'s riverboat owner's license by
the Indiana Gaming Commission which results in the loss of the legal right to
operate the Lawrenceburg Casino, which loss continues for a period of 90 days or
(vii) a finding of unsuitability of the Company or any of its subsidiaries by
the Indiana Gaming Commission.
"QUALIFIED CAPITAL STOCK" means any Capital Stock of the Company that is not
Disqualified Capital Stock.
"QUALIFIED EXCHANGE" means (i) any legal defeasance, redemption, retirement,
repurchase or other acquisition of Capital Stock or Indebtedness of the Company
issued on or after the Issue Date with the Net Cash Proceeds received by the
Company from the substantially concurrent sale of Qualified Capital Stock, (ii)
any exchange of Qualified Capital Stock for any Capital Stock or Indebtedness
issued on or after the Issue Date or (iii) any exchange of Qualified Capital
Stock for, or purchase with the net proceeds of a concurrent sale of Qualified
Capital Stock of, any equity interest in Indiana Gaming L.P. not owned by a
Subsidiary of the Company or an Unrestricted Subsidiary.
"QUALIFIED GAMING VENTURE" means any person (other than Indiana Gaming L.P.
and The Indiana Gaming Company) in which the Company owns an equity interest (a)
which operates a Material Casino and any Related Business (b) which pursuant to
contract or otherwise gives the right to direct or manage the day-to-day
operation of such Material Casino to the Company or a Subsidiary of the Company,
and (c) which either (i) does not have any consensual restriction on its ability
to pay dividends or make other distributions to or on behalf of, or to pay any
obligations to or on behalf of, or otherwise to transfer assets or property to
or on behalf of, or make or pay any loans or advance to or on behalf of the
Company or any Subsidiary, except for such exceptions generally contained in
"Limitation on Dividends and Other Payment Restrictions Affecting Subsidiaries"
or (ii) is operated pursuant to a management contract with the Company or one of
its Subsidiaries at a management fee of no less than 2% of net win.
"REFERENCE PERIOD" with regard to any person means the four full fiscal
quarters (or such lesser period during which such person has been in existence)
ended immediately preceding any date upon which any determination is to be made
pursuant to the terms of the Notes or the Indenture.
"REFINANCING INDEBTEDNESS" means Indebtedness or Disqualified Capital Stock
(a) issued in exchange for, or the proceeds from the issuance and sale of which
are used substantially concurrently to repay, redeem, defease, refund,
refinance, discharge or otherwise retire for value, in whole or in part, or (b)
constituting an amendment, modification or supplement to, or a deferral or
renewal of ((a) and (b) above are, collectively, a "Refinancing"), any
Indebtedness or Disqualified Capital Stock in a principal amount or, in the case
of Disqualified Capital Stock, liquidation preference, not to exceed (i) the
principal amount or, in the case of Disqualified Capital Stock, liquidation
preference, of the Indebtedness or Disqualified Capital Stock so Refinanced plus
the amount of any premium paid in connection with such refinancing in accordance
with the terms of documents governing the Indebtedness being refinanced and
reasonable and customary fees and expenses incurred in connection with the
Refinancing or (ii) if such Indebtedness being Refinanced was issued with an
original issue discount, the accreted value thereof (as determined in accordance
with GAAP) at the time of such Refinancing plus the amount of any premium paid
in connection with such refinancing in accordance with the terms of documents
governing the Indebtedness being refinanced and reasonable and customary fees
and expenses incurred in connection with the Refinancing; PROVIDED that (A) any
Refinancing Indebtedness incurred by any Subsidiary of the Company shall only be
used to refinance outstanding Indebtedness or Disqualified Capital Stock of such
Subsidiary, (B) Refinancing Indebtedness shall (x) not
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have an Average Life shorter than the Indebtedness or Disqualified Capital Stock
to be so refinanced at the time of such Refinancing (or, if such Refinancing
Indebtedness relates to the Convertible Notes, shorter than the Notes) and (y)
in all respects, be no less subordinated or junior, if applicable, to the rights
of the Noteholders than was the Indebtedness or Disqualified Capital Stock to be
refinanced and (C) such Refinancing Indebtedness shall have a final stated
maturity no earlier than the final stated maturity of the Indebtedness or
Disqualified Capital Stock to be so refinanced which was scheduled to come due
prior to the Stated Maturity (or, if such Refinancing Indebtedness relates to
the Convertible Notes, no earlier than the Stated Maturity).
"RELATED 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 or operating lodging facilities, sports or entertainment facilities,
retail facilities, restaurants, night clubs, transportation and communications
services or other related activities or enterprises and any additions or
improvements thereto) and potential opportunities in the gaming business.
"RESTRICTED PAYMENT" means, with respect to any person, (a) the declaration
or payment of any dividend or other distribution in respect of Capital Stock of
such person or any parent or Subsidiary of such person, (b) any payment on
account of the purchase, redemption or other acquisition or retirement for value
of Capital Stock of such person or any Subsidiary or parent of such person, (c)
other than with the proceeds from the substantially concurrent sale of, or in
exchange for, Refinancing Indebtedness any purchase, redemption, or other
acquisition or retirement for value of, any payment in respect of any amendment
of the terms of or any defeasance of, any Junior Indebtedness, directly or
indirectly, by such person or a parent or Subsidiary of such person prior to the
scheduled maturity, any scheduled repayment of principal, or scheduled sinking
fund payment, as the case may be, of such Indebtedness and (d) any Investment by
such person, other than a Permitted Investment; PROVIDED, HOWEVER, that the term
"Restricted Payment" does not include (i) any dividend, distribution or other
payment on or with respect to Capital Stock of an issuer to the extent payable
solely in shares of Qualified Capital Stock of such issuer; or (ii) any
dividend, distribution or other payment to the Company, or to any of its wholly
owned Subsidiaries, by any of its Subsidiaries.
"SIGNIFICANT SUBSIDIARY" means, at the time of determination, any Subsidiary
of the Company that (a) accounted for more than 10% of the consolidated net
income of the Company for the most recently completed fiscal year of the Company
or (b) was the owner of more than 10% of the consolidated assets of the Company
as of the end of such fiscal year, all as shown on the consolidated financial
statements of the Company for such fiscal year.
"SPECIFIED PARCELS" means either of the two defined parcels of real estate
at the Riverside or Baton Rouge properties set aside for hotel development.
"STATED MATURITY," when used with respect to any Note, means June 1, 2004.
"SUBORDINATED INDEBTEDNESS" means Indebtedness of the Company or a
Guarantor, as applicable, that is subordinated in right of payment to the Notes
or such Guarantor's guarantee of the Notes, as applicable, in all respects and
has no scheduled installment of principal due, by maturity, redemption, sinking
fund payment or otherwise, on or prior to the Stated Maturity of the Notes.
"SUBSIDIARY," with respect to any person, means (i) a corporation a majority
of whose Capital Stock with voting power, under ordinary circumstances, to elect
directors is at the time, directly or indirectly, owned by such person, by such
person and one or more Subsidiaries of such person or by one or more
Subsidiaries of such person, (ii) any other person (other than a corporation) in
which such person, one or more Subsidiaries of such person, or such person and
one or more Subsidiaries of such person, directly or indirectly, at the date of
determination thereof has at least majority ownership interest, or (iii) a
partnership in which such person or a Subsidiary of such person is, at the time,
a general partner. Notwithstanding the foregoing, no Unrestricted Subsidiary,
including Indiana Gaming L.P., shall be considered a Subsidiary of the Company
or of any Subsidiary of the Company.
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"UNRESTRICTED SUBSIDIARY" means any direct or indirect subsidiary of the
Company that does not own any Capital Stock of, or own or hold any Lien on any
property of, the Company or any other Subsidiary of the Company and that shall
be designated an Unrestricted Subsidiary by the Board of Directors of the
Company; PROVIDED that (i) such subsidiary shall not engage, to any substantial
extent, in any line or lines of business activity other than a Related Business
and (ii) neither immediately prior thereto nor after giving pro forma effect to
such designation would there exist a Default or Event of Default. The Board of
Directors of the Company may designate any Unrestricted Subsidiary to be a
Subsidiary, PROVIDED that (i) no Default or Event of Default is existing or will
occur as a consequence thereof and (ii) immediately after giving effect to such
designation, on a PRO FORMA basis, the Company could incur at least $1.00 of
Indebtedness pursuant to the Indebtedness Incurrence Ratio in paragraph (a) of
the covenant "Limitation on Incurrence of Additional Indebtedness and
Disqualified Capital Stock." Each such designation shall be evidenced by filing
with the Trustee a certified copy of the resolution giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing conditions. Indiana Gaming L.P. and Iowa Development
Corp. shall initially be designated Unrestricted Subsidiaries. Notwithstanding
anything herein to the contrary, no subsidiary of the Company with an interest
in Indiana Gaming L.P. may become an Unrestricted Subsidiary.
CASH COLLATERAL AND DISBURSEMENT AGREEMENT
Pursuant to the terms of the Indenture, the Company, the Trustee and LaSalle
National Trust, N.A., as disbursement agent, entered into a Cash Collateral and
Disbursement Agreement pursuant to which $94.3 million of the proceeds of the
offering of the Old Notes was deposited into a disbursement account subject to
the control of the disbursement agent. Funds in the disbursement account are
available to fund the Company's pro rata share of Lawrenceburg Casino project
disbursements. Funds may be released from the disbursement account upon
certification by the Company to the disbursement agent (i) as to the proposed
use of the project disbursement in the Lawrenceburg Casino project in conformity
with the construction budget, (ii) that the amounts held in the disbursement
account plus amounts contractually obligated to be contributed by Conseco and
third party equipment financing are sufficient to complete the Lawrenceburg
Casino project, (iii) that Conseco is no more than 90 days past due on any prior
capital call, PROVIDED, HOWEVER, that any amounts not funded by Conseco that
have been funded by the Company (other than through the disbursement account) in
an aggregate amount not to exceed $10 million at any one time will not be
considered past due and (iv) as to the satisfaction of certain other conditions.
A portion of the funds may also be released to the Company from the disbursement
account upon completion of the Lawrenceburg Casino project and upon funding of
hotel construction by third party lenders. No disbursements may be made at any
time if (i) Indiana Gaming L.P.'s certificate of suitability has been revoked or
canceled or has expired or been suspended and has not been renewed by the
Indiana Gaming Commission prior to issuance of a riverboat owner's license, (ii)
Indiana Gaming L.P.'s application for a permanent riverboat owner's license is
denied by the Indiana Gaming Commission, (iii) Indiana Gaming L.P. is found
unsuitable by the Indiana Gaming Commission, (iv) Indiana Gaming L.P. has its
riverboat owner's license revoked or suspended by the Indiana Gaming Commission,
(v) the Company or any of its subsidiaries is found unsuitable by the Indiana
Gaming Commission, or (vi) the Company, its subsidiaries or Indiana Gaming L.P.
shall have received notice from the Indiana Gaming Commission of the
commencement of proceedings by the Indiana Gaming Commission, the stated purpose
of which is to formally consider taking any of the foregoing actions. The
agreement grants the Trustee a first priority security interest in the
disbursement account, and permits the Trustee the right to access the
disbursement account for certain payments of principal and interest, including
the offer to purchase described under "Certain Covenants Relating to the
Lawrenceburg Casino -- Repurchase of Notes on Certain Project Delays."
BOOK ENTRY, DELIVERY AND FORM
Except as set forth below, the Exchange Notes will initially be issued in
the form of one or more registered Notes in global form (the "Global Notes").
Each Global Note will be deposited on the date of the acceptance for exchange of
the Old Notes and the issuance of the Exchange Notes (the "Closing Date") with,
or on behalf of, The Depository Trust Company (the "Depository") and registered
in the name of Cede & Co., as nominee of the Depository.
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The Depository has advised the Company that it is a limited-purpose trust
company that was created to hold securities for its participating organizations
(collectively, the "Participants") and to facilitate the clearance and
settlement of transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants. The Depository's
Participants include securities brokers and dealers (including the Initial
Purchasers), banks and trust companies, clearing corporations and certain other
organizations. Access to the Depository's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively, the
"Indirect Participants") that clear through or maintain a custodial relationship
with a Participant, either directly or indirectly.
The Company expects that pursuant to procedures established by the
Depository (i) upon deposit of the Global Notes, the Depository will credit the
accounts of Participants designated by the Initial Purchasers with an interest
in the Global Notes and (ii) ownership of the Exchange Notes will be shown on,
and the transfer of ownership thereof will be effected only through, records
maintained by the Depository (with respect to the interests of Participants),
the Participants and the Indirect Participants. The laws of some states require
that certain persons take physical delivery in definitive form of securities
that they own and that security interests in negotiable instruments can only be
perfected by delivery of certificates representing the instruments.
Consequently, the ability to transfer Exchange Notes or to pledge the Exchange
Notes as collateral will be limited to such extent.
So long as the Depository or its nominee is the registered owner of a Global
Note, the Depository or such nominee, as the case may be, will be considered the
sole owner or holder of the Exchange Notes represented by such Global Note for
all purposes under the Indenture. Except as provided below, owners of beneficial
interests in a Global Note will not be entitled to have Exchange Notes
represented by such Global Note registered in their names, will not receive or
be entitled to receive physical delivery of Certificated Securities, and will
not be considered the owners or holders thereof under the Indenture for any
purpose, including with respect to the giving of any directions, instructions or
approvals to the Trustee thereunder. As a result, the ability of a person having
a beneficial interest in Exchange Notes represented by a Global Note to pledge
such interest to persons or entities that do not participate in the Depository's
system, or to otherwise take actions with respect to such interest, may be
affected by the lack of a physical certificate evidencing such interest.
Accordingly, persons owning a beneficial interest in a Global Note must rely
on the procedures of the Depository and, if such person is not a Participant or
an Indirect Participant, on the procedures of the Participant through which such
person owns its interest to exercise any rights of a holder under the Indenture
or such Global Note. The Company understands that under existing industry
practice, in the event the Company requests any action of Noteholders or a
person that is an owner of a beneficial interest in a Global Note desires to
take any action that the Depository, as the holder of such Global Note, is
entitled to take, the Depository would authorize the Participants to take such
action and the Participants would authorize persons owning through such
Participants to take such action or would otherwise act upon the instructions of
such persons. Neither the Company nor the Trustee will have any responsibility
or liability for any aspect of the records relating to or payments made on
account of Exchange Notes by the Depository, or for maintaining, supervising or
reviewing any records of the Depository relating to such Exchange Notes.
Payments with respect to the principal of, premium, if any, and interest of
any Exchange Notes represented by a Global Note registered in the name of the
Depository or its nominee on the applicable record date will be payable by the
Trustee to or at the direction of the Depository or its nominee in its capacity
as the registered Holder of the Global Note representing such Exchange Notes
under the Indenture. Under the terms of the Indenture, the Company and the
Trustee may treat the persons in whose names the Exchange Notes, including the
Global Notes, are registered as the owners thereof for the purpose of receiving
such payments and for any and all other purposes whatsoever. Consequently,
neither the Company nor the Trustee has or will have any responsibility or
liability for the payment of such amounts to beneficial owners of Exchange Notes
(including principal, premium, if any, and interest), or to immediately credit
the accounts of the relevant Participants with such payment, in amounts
proportionate to their respective holdings in principal amount of beneficial
interest in the Global Note as shown on the records of the
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Depository. Payments by the Participants and the Indirect Participants to the
beneficial owners of Exchange Notes will be governed by standing instructions
and customary practice and will be the responsibility of the Participants or the
Indirect Participants.
CERTIFICATED SECURITIES
If (i) the Company notifies the Trustee in writing that the Depository is no
longer willing or able to act as a depository and the Company is unable to
locate a qualified successor within 90 days or (ii) the Company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of Exchange
Notes in definitive form under the Indenture, then, upon surrender by the
Depository of its Global Note, Certificated Securities will be issued to each
person that the Depository identifies as the beneficial owner of the Exchange
Notes represented by the Global Note. In addition, subject to certain
conditions, any person having a beneficial interest in a Global Note may, upon
request to the Trustee, exchange such beneficial interest for Certificated
Securities. Upon any such issuance, the Trustee is required to register such
Certificated Securities in the name of such person or persons (or the nominee of
any thereof), and cause the same to be delivered thereto.
Neither the Company nor the Trustee shall be liable for any delay by the
Depository or any Participant or Indirect Participant in identifying the
beneficial owners of the related Exchange Notes and each such person may
conclusively rely on, and shall be protected in relying on, instructions from
the Depository for all purposes (including with respect to the registration and
delivery, and the respective principal amounts, of the Exchange Notes to be
issued).
The information in this section concerning the Depository and the
Depository's book-entry system has been obtained from sources that the Company
believes to be reliable. The Company will have no responsibility for the
performance by the Depository or its Participants of their respective
obligations as described hereunder or under the rules and procedures governing
their respective operations.
SAME-DAY FUNDS SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the Exchange Notes
represented by the Global Notes (including principal, premium, if any, interest
and Liquidated Damages, if any) be made by wire transfer of immediately
available funds to the accounts specified by the Global Note holder. With
respect to Certificated Securities, the Company will make all payments of
principal, premium, if any, interest and Liquidated Damages, if any, by wire
transfer of immediately available funds to the accounts specified by the holders
thereof or, if no such account is specified, by mailing a check to each such
holder's registered address. Secondary trading in long-term notes and debentures
of corporate issuers is generally settled in clearing-house or next-day funds.
In contrast, the Exchange Notes represented by the Global Notes are expected to
trade in the Depositary's Same-Day Funds Settlement System, and any permitted
secondary market trading activity in such Exchange Notes will, therefore, be
required by the Depositary to be settled in immediately available funds. The
Company expects that secondary trading in the Certificated Securities will also
be settled in immediately available funds.
107
<PAGE>
OLD NOTES REGISTRATION RIGHTS; LIQUIDATED DAMAGES
In connection with the sale of the Old Notes, the Company, the Guarantors
and the Initial Purchasers entered into a registration rights agreement dated
June 5, 1996 (the "Registration Rights Agreement") pursuant to which the Company
and the Guarantors agreed, for the benefit of the holders of Old Notes, that
they will, at their cost, (i) within 30 days after the date of original issue of
the Old Notes use their respective reasonable best efforts to file a
registration statement in accordance with the Securities Act (a "Exchange Offer
Registration Statement") with the Commission with respect to a registered offer
to exchange the Old Notes for the Exchange Notes, which will have terms
substantially identical in all material respects to the Old Notes and (ii) use
their reasonable best efforts to cause such Exchange Offer Registration
Statement to be declared effective under the Securities Act within 120 days
after such issue date. Upon the Registration Statement being declared effective,
the Company will offer to holders of Old Notes who are able to make certain
representations an opportunity to exchange properly tendered Old Notes for
Exchange Notes. The Company has agreed to keep the Exchange Offer open for not
less than 30 days (or longer if required by applicable law) after the date
notice of such Exchange Offer is mailed to the holders of Old Notes. For each
Old Note surrendered to the Company, pursuant to such Exchange Offer, the holder
of such Old Notes will receive Exchange Notes having a principal amount at
maturity equal to that of the surrendered Old Note.
In the event that applicable interpretations of the staff of the Commission
do not permit the Company to effect the Exchange Offer, or if for any other
reason the Exchange Offer is not consummated within 165 days of the date of
original issue of the Old Notes, the Company and the Guarantors will, at their
own expense, use their reasonable best efforts to (a) as promptly as
practicable, file a shelf registration statement covering resales of the Old
Notes (a "Shelf Registration Statement"), (b) cause such Shelf Registration
Statement to be declared effective under the Securities Act and (c) keep
effective such Shelf Registration Statement until the earlier of 36 months
following the date of original issue and such time as all of the Old Notes have
been sold thereunder or otherwise cease to be a Transfer Restricted Security (as
defined in the Registration Rights Agreement). The Company and the Guarantors
will, in the event a Shelf Registration Statement is required to be filed by
them, provide to each holder of the Old Notes copies of the prospectus which is
a part of such Shelf Registration Statement, notify each such holder of the Old
Notes when such Shelf Registration Statement for the Old Notes has become
effective and take certain other actions as are required to permit unrestricted
resales of the Old Notes. A holder of the Old Notes who sells such Old Notes
pursuant to the Shelf Registration Statement generally would be required to be
named as a selling security holder in the related prospectus and to deliver a
prospectus to purchasers, will be subject to certain of the civil liability
provisions under the Securities Act in connection with such sales and will be
bound by the provisions of the Registration Rights Agreement which is applicable
to such a holder (including certain indemnification and contribution rights and
obligations).
If (a) neither the Exchange Offer Registration Statement nor a Shelf
Registration Statement is declared effective by the Commission on or prior to
the 120th day after the date of original issuance of the Old Notes (the
"Effectiveness Target Date"), (b) the Exchange Offer Registration Statement
becomes effective and the Company and the Guarantors fail to consummate the
Exchange Offer within 45 days of the earlier of the effectiveness of such
registration statement or the Effectiveness Target Date, or (c) the Shelf
Registration Statement is declared effective but thereafter ceases to be
effective or usable in connection with resales of Old Notes during the period
specified in the Registration Rights Agreement (each such event referred to in
clauses (a) through (c) above a "Registration Default"), then the Company and
the Guarantors will pay Liquidated Damages to each Noteholder, with respect to
the first 90-day period immediately following the occurrence of such
Registration Default in an amount equal to $.05 per week per $1,000 principal
amount of Notes held by such holder. Upon a Registration Default, Liquidated
Damages will accrue at the rate specified above until such Registration Default
is cured and the amount of the Liquidated Damages will increase by an additional
$.05 per week per $1,000 principal amount of Notes with respect to each
subsequent 90-day period until all Registration Defaults have been cured, up to
a maximum amount of Liquidated Damages of $.25 per week per $1,000 principal
amount of Notes (regardless of whether one or more than
108
<PAGE>
one Registration Default is outstanding). All accrued Liquidated Damages will be
paid by the Company and the Guarantors on each Interest Payment Date to the
Noteholders by wire transfer of immediately available funds or by mailing checks
to their registered addresses if no such accounts have been specified.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO HOLDERS OF EXCHANGE NOTES
The following summary of federal income tax consequences has been prepared
by Winston & Strawn. The summary is based on current law and certain proposed
regulations and is for general information only. Forthcoming legislative,
regulatory, judicial or administrative changes or interpretations could affect
the federal income tax consequences to holders of Exchange Notes. The tax
treatment of a holder may vary depending upon whether the holder is a
cash-method or accrual-method taxpayer and upon the holder's particular status.
For example, certain holders, including insurance companies, tax-exempt
organizations, financial institutions, broker-dealers and foreign persons may be
subject to special rules not discussed below.
EXCHANGE OFFER
The exchange of Exchange Notes for Old Notes pursuant to the Exchange Offer
will not be treated as an "exchange" for federal income tax purposes because the
Exchange Notes will not be considered to differ materially in kind or extent
from the Old Notes. Rather, the Exchange Notes received by a holder will be
treated as a continuation of the Old Notes in the hands of such holder. As a
result, there will be no federal income tax consequences to holders exchanging
the Old Notes for the Exchange Notes pursuant to the Exchange Offer. The holder
must continue to include stated interest in income as if the exchange (and
waiver of accrued interest on the Old Notes from June 5, 1996 to the date of
issuance of the Exchange Notes) had not occurred. If, however, the exchange of
the Old Notes for the Exchange Notes were treated as an "exchange" for federal
income tax purposes, such exchange would constitute a recapitalization for
federal income tax purposes. Holders exchanging the Old Notes pursuant to such
recapitalization would not recognize any gain or loss upon the exchange.
SALE OR OTHER DISPOSITION OF EXCHANGE NOTES
A holder of an Exchange Note will have a tax basis in the Exchange Note
equal to the holder's purchase price for the Old Note, increased by the amount
of interest (and market discount) that is included in the holder's gross income
and decreased by payments of cash interest received by the holder.
A holder of an Exchange Note will generally recognize gain or loss on the
sale, exchange, redemption or retirement of the Exchange Note equal to the
difference (if any) between the amount realized from such sale, exchange,
redemption or retirement and the holder's basis in the Exchange Note. Such gain
or loss will generally be long-term capital gain (except to the extent
attributable to market discount) or loss if the Exchange Note has been held more
than one year (including the period that such holder held the Old Note prior to
exchange).
BACKUP WITHHOLDING
A noncorporate holder of Exchange Notes that either (a) is (i) a citizen or
resident of the United States, (ii) a partnership or other entity created or
organized in or under the laws of the United States or of any political
subdivision thereof or (iii) an estate or trust the income of which is subject
to United States federal income taxation regardless of its source or (b) is not
described in the preceding clause (a), but whose income from interest with
respect to the Exchange Notes or proceeds from the disposition of the Exchange
Notes is effectively connected with such holder's conduct of a United States
trade or business, and that receives interest with respect to the Exchange Notes
or proceeds form the disposition of the Exchange Notes will generally not be
subject to backup withholding on such payments or distributions if it certifies,
under penalty of perjury, that it has furnished a correct Taxpayer
Identification Number ("TIN") and it is not subject to
109
<PAGE>
backup withholding either because it has not been notified by the Internal
Revenue Service that is subject to backup withholding or because the Internal
Revenue Service has notified it that it is no longer subject to backup
withholding. Such certification may be made on an Internal Revenue Service Form
W-9 or substantially similar form. However, backup withholding will apply to
such a holder if the holder (i) fails to furnish its TIN, (ii) furnishes an
incorrect TIN, (iii) is notified by the Internal Revenue Service that it has
failed to properly report payments of interest or dividends or (iv) under
certain circumstances, fails to make such certification.
The Company will withhold (at a rate of 31%) all amounts required by law to
be withheld from reportable payments made and with respect to the Exchange
Notes. Any amounts withheld from a payment to a holder under the backup
withholding rules will be allowed as a credit against such holder's United
States federal income tax liability and may entitle such holder to a refund,
provided that the required information is furnished to the Internal Revenue
Service.
Holders of the Exchange Notes should consult their tax advisors regarding
the application of backup withholding in their particular situations, the
availability of an exemption therefrom, and the procedure for obtaining such an
exemption, if available.
THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS FOR
GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, EACH HOLDER OF
EXCHANGE NOTES SHOULD CONSULT ITS OWN TAX ADVISOR AS TO PARTICULAR TAX
CONSEQUENCES OF HOLDING, EXCHANGING OR SELLING THE EXCHANGE NOTES INCLUDING THE
APPLICATION AND EFFECT OF ANY FEDERAL, STATE, LOCAL OR FOREIGN TAX LAWS, AND OF
ANY CHANGES IN APPLICABLE TAX LAWS.
PLAN OF DISTRIBUTION
Based on interpretations by the Staff set forth in no-action letters issued
to third parties, the Company believes that Exchange Notes issued pursuant to
the Exchange Offer in exchange for the Old Notes may be offered for resale,
resold and otherwise transferred by holders thereof (other than any holder which
is (i) an affiliate of the Company, (ii) a broker-dealer who acquired Old Notes
directly from the Company or (iii) a broker-dealer who acquired Old Notes as a
result of market-making or other trading activities) without compliance with the
registration and prospectus delivery provisions of the Securities Act provided
that such Exchange Notes are acquired in the ordinary course of such holders'
business, and such holders are not engaged in, and do not intend to engage in,
and have no arrangement or understanding with any person to participate in, a
distribution of such Exchange Notes; provided that broker-dealers
("Participating Broker-Dealers") receiving Exchange Notes in the Exchange Offer
will be subject to a prospectus delivery requirement with respect to resales of
such Exchange Notes. To date, the Staff has taken the position that
Participating Broker-Dealers may fulfill their prospectus delivery requirements
with respect to transactions involving an exchange of securities such as the
exchange pursuant to the Exchange Offer (other than a resale of an unsold
allotment from the sale of the Old Notes to the Initial Purchasers) with the
prospectus contained in the registration statement. Pursuant to the Registration
Rights Agreement, the Company has agreed to permit Participating Broker-Dealers
and other persons, if any, subject to similar prospectus delivery requirements
to use this Prospectus in connection with the resale of such Exchange Notes. The
Company has agreed that, for a period of 180 days after the Exchange Date, it
will make this Prospectus, and any amendment or supplement to this Prospectus,
available to any broker-dealer that requests such documents in the Letter of
Transmittal.
Each holder of the Old Notes who wishes to exchange its Old Notes for
Exchange Notes in the Exchange Offer will be required to make certain
representations to the Company as set forth in "The Exchange Offer -- Terms and
Conditions of the Letter of Transmittal." In addition, each holder who is a
broker-dealer and who receives Exchange Notes for its own account in exchange
for Old Notes that were acquired by it as a result of market-making activities
or other trading activities, will be required to acknowledge that it will
deliver a prospectus in connection with any resale by it of such Exchange Notes.
110
<PAGE>
The Company will not receive any proceeds from any sale of Exchange Notes by
broker-dealers. Exchange Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the Exchange Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or at negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealers and/ or the purchasers of any such Exchange Notes. Any
broker-dealer that resells Exchange Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that by acknowledging that it will deliver
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.
The Company has agreed to pay all expenses incidental to the Exchange Offer
other than commissions and concession of any brokers or dealers and will
indemnify holders of the Notes (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act, as set forth in the
Registration Rights Agreement.
LEGAL MATTERS
The validity of the Exchange Notes offered will be passed on for the Company
by Winston & Strawn, Chicago, Illinois.
EXPERTS
The consolidated financial statements of the Company and Alton Gaming
Company at December 31, 1995 and 1994, and for each of the three years in the
period ended December 31, 1995, the financial statements of The Missouri Gaming
Company as of December 31, 1995 and 1994, and for the period from March 31, 1993
(inception) through December 31, 1993 and for each of the two years in the
period ended December 31, 1995 and the financial statements of Argosy of
Louisiana, Inc. as of December 31, 1995 and 1994, and for the period from July
29, 1993 (inception) through December 31, 1993, and for each of the two years in
the period ended December 31, 1995, appearing in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon appearing elsewhere herein and
are included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing. The consolidated financial statements of
Jazz Enterprises, Inc. as of February 28, 1995 and 1994, and the related
statements of operations, stockholders' equity (deficit), and cash flows for the
years ended February 28, 1995 and 1994 and for the period from June 10, 1992
(date of inception) through February 28, 1993, included in this Prospectus have
been audited by Grant Thornton LLP, independent auditors, as stated in their
report appearing herein.
111
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF ARGOSY GAMING COMPANY
Report of Independent Auditors............................................................................. F-2
Consolidated Balance Sheets at December 31, 1995 and 1994.................................................. F-3
Consolidated Statements of Income for the years ended December 31, 1995, 1994 and 1993..................... F-4
Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993................. F-5
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1995, 1994 and 1993....... F-6
Notes to Consolidated Financial Statements................................................................. F-7
Condensed Consolidated Balance Sheet at June 30, 1996 (unaudited).......................................... F-17
Condensed Consolidated Statements of Operations for the six months ended June 30, 1996
and 1995 (unaudited)...................................................................................... F-18
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 1996
and 1995 (unaudited)...................................................................................... F-19
Notes to Condensed Consolidated Financial Statements (unaudited)........................................... F-20
FINANCIAL STATEMENTS OF THE ALTON GAMING COMPANY
Report of Independent Auditors............................................................................. F-25
Balance Sheets............................................................................................. F-26
Statements of Income....................................................................................... F-27
Statements of Cash Flows................................................................................... F-28
Statements of Stockholder's Equity......................................................................... F-29
Notes to Financial Statements.............................................................................. F-30
FINANCIAL STATEMENTS OF ARGOSY OF LOUISIANA, INC.
Report of Independent Auditors............................................................................. F-34
Consolidated Balance Sheets................................................................................ F-35
Consolidated Statements of Operations...................................................................... F-36
Consolidated Statements of Cash Flows...................................................................... F-37
Consolidated Statements of Stockholder's Equity............................................................ F-38
Notes to Consolidated Financial Statements................................................................. F-39
FINANCIAL STATEMENTS OF THE MISSOURI GAMING COMPANY
Report of Independent Auditors............................................................................. F-44
Balance Sheets............................................................................................. F-45
Statements of Operations................................................................................... F-46
Statements of Cash Flows................................................................................... F-47
Statements of Stockholder's Equity......................................................................... F-48
Notes to Financial Statements.............................................................................. F-49
FINANCIAL STATEMENTS OF JAZZ ENTERPRISES, INC.
Report of Independent Certified Public Accountants......................................................... F-53
Balance Sheets............................................................................................. F-54
Statements of Operations................................................................................... F-55
Statements of Stockholders Equity (Deficit)................................................................ F-56
Statements of Cash Flows................................................................................... F-57
Notes to Financial Statements.............................................................................. F-59
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Argosy Gaming Company
We have audited the accompanying consolidated balance sheets of Argosy
Gaming Company as of December 31, 1995 and 1994, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Argosy Gaming
Company at December 31, 1995 and 1994, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
Ernst & Young LLP
Chicago, Illinois
January 26, 1996
except for Note 13, as to
which the date is
July 1, 1996
F-2
<PAGE>
ARGOSY GAMING COMPANY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1994
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................ $ 16,159 $ 18,291
Marketable securities................................................................ 1,952 2,500
Accounts receivable.................................................................. 3,197 2,908
Income taxes receivable.............................................................. 2,197 1,374
Deferred income taxes................................................................ 1,372 1,469
Other current assets................................................................. 3,615 2,792
---------- ----------
Total current assets............................................................... 28,492 29,334
---------- ----------
Net property and equipment............................................................. 239,480 167,548
---------- ----------
Other assets:
Notes receivable..................................................................... 1,893 22,956
Deposits............................................................................. 2,051 2,640
Prepaid rent......................................................................... 2,917 4,000
Deferred finance costs, net of accumulated amortization of $1,813 in 1995 and $382 in
1994................................................................................ 5,404 4,393
Goodwill, net of accumulated amortization of $349.................................... 23,519
Other................................................................................ 6,126 1,960
---------- ----------
Total other assets................................................................. 41,910 35,949
---------- ----------
Total assets........................................................................... $ 309,882 $ 232,831
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................................................... $ 16,921 $ 4,863
Accrued payroll and related expenses................................................. 6,842 4,022
Other accrued liabilities............................................................ 7,364 4,348
Installment contracts payable........................................................ 1,147 7,415
Progressive jackpot liabilities...................................................... 2,656 1,427
Current maturities of long-term debt................................................. 399 431
---------- ----------
Total current liabilities.......................................................... 35,329 22,506
---------- ----------
Long-term debt......................................................................... 169,303 115,000
Deferred income taxes.................................................................. 5,167 1,750
Minority interests..................................................................... 2,543 2,988
Commitments and contingent liabilities (Note 11)
Stockholders' equity:
Common stock, $.01 par; 60,000,000 shares authorized; 24,333,333 shares issued and
outstanding in 1995 and 1994........................................................ 243 243
Capital in excess of par............................................................. 71,865 71,865
Retained earnings.................................................................... 25,432 18,479
---------- ----------
Total stockholders' equity......................................................... 97,540 90,587
---------- ----------
Total liabilities and stockholders' equity............................................. $ 309,882 $ 232,831
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
ARGOSY GAMING COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1995 1994 1993
---------- ---------- ---------
<S> <C> <C> <C>
REVENUES:
Casino....................................................................... $ 237,613 $ 138,425 $ 60,182
Admissions................................................................... 15,300 12,177 6,440
Food, beverage and other..................................................... 18,537 12,036 4,381
---------- ---------- ---------
271,450 162,638 71,003
Less promotional allowances.................................................. (18,759) (9,593) (3,478)
---------- ---------- ---------
Net revenues................................................................... 252,691 153,045 67,525
---------- ---------- ---------
COSTS AND EXPENSES:
Casino....................................................................... 117,725 64,997 25,308
Food, beverage and other..................................................... 17,242 11,876 4,490
Other operating expenses..................................................... 16,910 9,897 5,078
Selling, general and administrative.......................................... 45,814 23,674 8,903
Depreciation and amortization................................................ 20,450 9,846 3,333
Development and preopening costs............................................. 3,411 9,761 4,609
Notes receivable writeoff.................................................... 3,477
Flood costs.................................................................. 1,477
---------- ---------- ---------
225,029 130,051 53,198
---------- ---------- ---------
Income from operations......................................................... 27,662 22,994 14,327
---------- ---------- ---------
OTHER INCOME (EXPENSE):
Interest income.............................................................. 436 1,081 1,254
Interest expense............................................................. (14,708) (8,182) (800)
---------- ---------- ---------
(14,272) (7,101) 454
---------- ---------- ---------
Income before income taxes and minority interest............................... 13,390 15,893 14,781
Income tax expense............................................................. (6,621) (6,453) (3,956)
Minority interest.............................................................. 184 195
---------- ---------- ---------
Net income..................................................................... $ 6,953 $ 9,635 $ 10,825
---------- ---------- ---------
---------- ---------- ---------
Net income per share........................................................... $ .29 $ .40
---------- ----------
---------- ----------
Pro forma net income per share (Note 8)........................................ $ .38
---------
---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
ARGOSY GAMING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1995 1994 1993
---------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................................. $ 6,953 $ 9,635 $ 10,825
Adjustments to reconcile net income to net cash provided from operating
activities:................................................................
Depreciation and amortization............................................. 21,880 10,452 3,486
Deferred income taxes..................................................... 4,381 830 (699)
Notes receivable writeoff................................................. 3,477
Minority interests........................................................ 184
Changes in operating assets and liabilities net of the effects of the
purchase of Jazz Enterprises, Inc.:
Accounts receivable..................................................... (289) (2,387) (422)
Other current assets.................................................... (699) (1,198) (345)
Accounts payable........................................................ 12,058 1,761 2,698
Accrued liabilities..................................................... 2,810 5,405 1,535
Income taxes receivable................................................. (823) 285 (1,659)
---------- ----------- -----------
Net cash provided from operating activities............................. 49,932 24,783 15,419
---------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales of marketable securities............................................ 548 4,250 122,975
Purchases of marketable securities........................................ (129,725)
Increase in notes receivable.............................................. (5,178) (9,606) (13,350)
Purchases of property and equipment....................................... (71,854) (112,013) (36,027)
Acquisition of business................................................... (9,388)
Deposits.................................................................. (772) (1,345) (9,307)
---------- ----------- -----------
Net cash used in investing activities................................... (86,644) (118,714) (65,434)
---------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit.............................................. 49,500 44,400
Repayment of line of credit............................................... (4,000) (44,400)
Payments on installment contracts......................................... (6,268) (3,124) (3,009)
Proceeds from issuance of long-term debt.................................. 115,000
Payments on long-term debt................................................ (186) (3,901) (17,093)
Increase in deferred finance costs........................................ (2,441) (4,775)
Proceeds from public offering, net of expenses of $7,657.................. 74,676
Capital contribution from partner......................................... 1,718
Other..................................................................... (3,743) 1,618 96
---------- ----------- -----------
Net cash provided from financing activities............................. 34,580 104,818 54,670
---------- ----------- -----------
Net (decrease) increase in cash and cash equivalents........................ (2,132) 10,887 4,655
Cash and cash equivalents, beginning of year................................ 18,291 7,404 2,749
---------- ----------- -----------
Cash and cash equivalents, end of year...................................... $ 16,159 $ 18,291 $ 7,404
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
ARGOSY GAMING COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CAPITAL IN TOTAL
COMMON EXCESS OF RETAINED STOCKHOLDERS'
SHARES STOCK PAR EARNINGS EQUITY
------------ ----------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992....................... 20,000,000 $ 200 $ 13 $ 2,599 $ 2,812
Sale of common stock........................... 4,333,333 43 74,633 74,676
Distributions to stockholders.................. (7,361) (7,361)
Termination of S-Corporation election.......... (2,781) 2,781
Net income..................................... 10,825 10,825
------------ ----- ------------ --------- ------------
Balance, December 31, 1993....................... 24,333,333 243 71,865 8,844 80,952
Net income..................................... 9,635 9,635
------------ ----- ------------ --------- ------------
Balance, December 31, 1994....................... 24,333,333 243 71,865 18,479 90,587
Net income..................................... 6,953 6,953
------------ ----- ------------ --------- ------------
Balance, December 31, 1995....................... 24,333,333 $ 243 $ 71,865 $ 25,432 $ 97,540
------------ ----- ------------ --------- ------------
------------ ----- ------------ --------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Argosy Gaming Company (collectively with its subsidiaries, "Argosy" or
"Company") is engaged in the business of providing casino style gaming and
related entertainment to the public and, through its subsidiaries, operates
riverboat casinos in Alton, Illinois; Riverside, Missouri; Baton Rouge,
Louisiana; and Sioux City, Iowa. Indiana Gaming Company, L.P., a limited
partnership in which the Company is general partner and holds a 57.5%
partnership interest, holds a preliminary certificate of suitability from the
Indiana Gaming Commission and is developing a riverboat casino and related
entertainment and support facilities in Lawrenceburg, Indiana ("Lawrenceburg
Project").
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates. The
consolidated financial statements include the accounts of Argosy and its
controlled subsidiaries and partnerships. All significant intercompany
transactions have been eliminated. Under certain conditions subsidiaries are
required to obtain approval of state gaming authorities before making
distributions to Argosy.
CASH AND CASH EQUIVALENTS -- The Company considers cash and all highly
liquid investments with an original maturity of three months or less to be cash
equivalents.
MARKETABLE SECURITIES -- Marketable securities, classified as available for
sale, are recorded at fair market value which approximates cost.
PROPERTY AND EQUIPMENT -- Property and equipment is recorded at cost.
Depreciation and amortization is computed on the straight-line method over the
following estimated useful lives:
Leasehold improvements: 5 to 31 years
Riverboats, docks and improvements: 5 to 20 years
Furniture, fixtures and equipment: 5 to 10 years
DEFERRED FINANCE COSTS -- Deferred finance costs are amortized over the life
of the respective loans using the effective interest method.
GOODWILL -- Goodwill represents the cost in excess of fair value of net
assets acquired and is being amortized over 40 years.
CASINO REVENUES AND PROMOTIONAL ALLOWANCES -- The Company recognizes as
casino revenues the net win from gaming activities, which is the difference
between gaming wins and losses. The retail value of admissions and food and
beverage, which were provided to customers without charge, has been included in
revenues, and a corresponding amount has been deducted as promotional
allowances. The estimated cost of providing promotional allowances has been
included in costs and expenses as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Admissions....................................................... $ 4,601 $ 3,399 $ 1,015
Food, beverage and other......................................... 2,989 2,775 213
</TABLE>
ADMISSIONS REVENUE -- Admissions revenue is recognized at the time the
related service is performed.
ADVERTISING COSTS -- The Company expenses advertising costs as incurred.
Advertising expense was $7,908, $4,448 and $2,149 in 1995, 1994, and 1993
respectively.
DEVELOPMENT AND PREOPENING COSTS -- Development costs incurred in an effort
to identify and develop new gaming locations are expensed as incurred, as there
can be no assurance that such costs, if capitalized, would be realizable.
Preopening costs are expensed as incurred.
F-7
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
INCOME TAXES -- Prior to a reorganization that occurred on February 25, 1993
(in connection with the Company's initial public offering), the Company's
predecessor entities elected to be taxed as S-Corporations. Therefore, all
federal and certain state taxes were obligations of the individual stockholders
of the predecessor companies. The predecessor entities were, however, subject to
Illinois Replacement Tax, which is an S-Corporation level tax based on income.
The replacement tax rate was 1.5 percent for the period prior to the
reorganization.
Effective with the reorganization, the Company became subject to applicable
federal and state income taxes and, as a result, adopted the liability method in
accounting for income taxes. The effect of this change in tax status was to
increase net income for the year ended December 31, 1993, by $632.
RECLASSIFICATIONS -- Certain amounts in prior years' financial statements
have been reclassified to conform to the 1995 presentation.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1994
---------- ----------
<S> <C> <C>
Land.................................................................. $ 18,828 $ 6,555
Leasehold and shore improvements...................................... 14,449 14,561
Riverboats, docks and improvements.................................... 113,707 109,957
Furniture, fixtures and equipment..................................... 48,936 40,249
Construction in progress.............................................. 77,188 11,892
---------- ----------
273,108 183,214
Less accumulated depreciation and amortization........................ (33,628) (15,666)
---------- ----------
Net property and equipment.......................................... $ 239,480 $ 167,548
---------- ----------
---------- ----------
</TABLE>
3. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1994
---------- ----------
<S> <C> <C>
Senior secured line of credit......................................... $ 45,500 $
Convertible subordinated notes due June 1, 2001, convertible into
common stock at $17.70 per share, interest payable semi-annually at
12%.................................................................. 115,000 115,000
Notes payable, principal and interest payments due quarterly through
September 2015, discounted at 10.5%.................................. 9,202
Other................................................................. 431
---------- ----------
169,702 115,431
Less: Current maturities.............................................. 399 431
---------- ----------
Long-term debt, less current maturities............................... $ 169,303 $ 115,000
---------- ----------
---------- ----------
</TABLE>
On March 8, 1995, the Company entered into a $100 million bank revolving
senior secured line of credit ("Credit Facility"). The Credit Facility accrues
interest, at the Company's option, at prime plus 1 1/4% or the London Eurodollar
lending rate plus 2.5% and expires on December 31, 1997. The weighted average
interest rate at December 31, 1995 was 8.5%. The Company also pays a commitment
equal to the sum of 50
F-8
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
3. LONG-TERM DEBT (CONTINUED)
basis points per annum on the unused portions of the Credit Facility. The Credit
Facility is secured by substantially all of the assets of the Company. The
Credit Facility is senior to the Company's other long-term debt.
Terms of the Credit Facility allow for a $20 million revolving line of
credit, to be used for working capital and general corporate purposes and an $80
million expansion line of credit to be used for expansion projects. Availability
under the $80 million expansion line decreases quarterly beginning January 1,
1997. At December 31, 1995 outstanding borrowings under the $20 million
revolving line of credit were $12 million and borrowings under the $80 million
expansion line were $33.5 million. The outstanding principal balance under the
Credit Facility of $45,500 at December 31, 1995 approximates fair value.
The Credit Facility contains restrictions on the payment of dividends on the
Company's common stock and a requirement that any future joint ventures shall be
deemed subsidiaries of the Company and, will therefore, be required to be
additional secured guarantors under the Credit Facility, as well as other
covenants customary in a senior secured financing. The Company anticipates that
as of March 31, 1996 it will be unable to comply with certain financial
covenants contained in the credit agreement governing the Credit Facility. The
Company plans, however, to repay all borrowings outstanding and terminate the
Credit Facility with a portion of the net proceeds from a financing which is
underway. In the event the financing is not consummated prior to the anticipated
covenant violation, the Company believes that the requisite number of banks
participating in the Credit Facility will agree to waive the Company's
non-compliance with these financial covenants.
The convertible subordinated notes ("Notes") are convertible into common
stock at anytime and may be redeemed by the Company on or after June 1, 1997, in
whole or in part at specified percentages of principal plus accrued and unpaid
interest to the date of redemption. The Notes are subordinated to prior payment
in full of all senior indebtedness as defined, including such indebtedness
incurred in the future. The aggregate fair value of the notes based on the
closing NASDAQ Smallcap Market price was approximately $104,075 at December 31,
1995.
Interest expense for the years ended December 31, 1995, 1994, and 1993 was
$14,708 (net of $3,203 capitalized) $8,182 (net of $1,665 capitalized), and
$800, respectively.
Maturies of long-term debt at December 31, 1995 for each of the next five
fiscal years are as follows:
<TABLE>
<S> <C>
1996............................................... $ 399
1997............................................... 45,943
1998............................................... 491
1999............................................... 545
2000............................................... 604
</TABLE>
F-9
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
4. INCOME TAXES
Income tax expense for the years ended December 31, 1995, 1994 and 1993
consists of the following:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal.................................................................. $ 1,522 $ 4,316 $ 3,918
State.................................................................... 760 1,307 587
--------- --------- ---------
2,282 5,623 4,505
--------- --------- ---------
Deferred:
Federal.................................................................. 3,704 815 (483)
State.................................................................... 635 15 (66)
--------- --------- ---------
4,339 830 (549)
--------- --------- ---------
Income tax expense......................................................... $ 6,621 $ 6,453 $ 3,956
--------- --------- ---------
--------- --------- ---------
</TABLE>
The provision for income taxes for the years ended December 31, 1995, 1994
and 1993, differs from that computed at the federal statutory corporate tax rate
as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Federal statutory rate............................................... 35.0% 35.0% 35.0%
State income taxes, net of federal benefit........................... 6.8 5.0 4.8
Prior year taxes..................................................... 4.4
Goodwill amortization................................................ 0.9
Federal and state benefit of S-Corporation status through February
24, 1993............................................................ (5.0)
Impact of change in tax status on net temporary differences.......... (4.3)
Tax-exempt interest income........................................... (0.7) (5.9)
Other, net........................................................... 2.3 1.3 2.2
--- --- ---
49.4% 40.6% 26.8%
--- --- ---
--- --- ---
</TABLE>
The tax effects of significant temporary differences representing deferred
tax assets and liabilities at December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Depreciation....................................................................... $ (8,684) $ (5,364)
Preopening......................................................................... 4,609 3,877
Other, net......................................................................... 876 1,206
--------- ---------
(3,199) (281)
Valuation allowance................................................................ (595)
--------- ---------
Net deferred tax liability......................................................... $ (3,794) $ (281)
--------- ---------
--------- ---------
</TABLE>
5. SUPPLEMENTAL CASH FLOW INFORMATION
The Company acquired equipment in the amounts of $1,681, $9,564 and $4,025
in 1995, 1994 and 1993 respectively which was financed through installment
contracts. In 1993 the Company issued $7,361 in unsecured notes payable to
stockholders relating to their fourth quarter 1992 and first quarter 1993
S-Corporation earnings.
The Company paid $16,052, $8,220 and $695 for interest, and $3,105, $5,325
and $5,968 for income taxes in 1995, 1994, and 1993 respectively.
F-10
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
6. LEASES
Future minimum lease payments for operating leases with initial terms in
excess of one year as of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
- ------------------------------------------------------------
<S> <C>
1996........................................................ $ 2,673
1997........................................................ 1,142
1998........................................................ 584
1999........................................................ 429
2000........................................................ 394
Thereafter.................................................. 15,352
</TABLE>
Rent expense for the years ended December 31, 1995, 1994, and 1993 was
$4,947, $2,221, and $555, respectively.
7. PURCHASE OF JAZZ ENTERPRISES, INC.
Effective May 30, 1995 the Company acquired 100% of the stock of Jazz
Enterprises, Inc. ("Jazz"), formerly a 10% partner in the Company's Baton Rouge,
Louisiana riverboat casino. The acquisition was accounted for as a purchase.
Terms of the transaction allowed the Company to acquire Jazz's 10% limited
partnership interest in the Company's Baton Rouge casino and all of Jazz's
interest in the Catfish Town real estate development.
Under terms of the purchase agreement, the Company made initial cash
payments to Jazz totalling $8,500 and is required to make additional payments of
$1,350 annually for ten years, and payments of $500 annually for the following
ten years. The net present value of these additional payments was approximately
$9,400 assuming a discount rate of 10.5%, and is included in long-term debt in
the December 31, 1995 balance sheet. In addition, the Company forgave loans to
Jazz and its principals of approximately $20,700, assumed certain construction
obligations, ordinary course accounts payable and other liabilities totalling
approximately $7,300 and paid expenses of approximately $900. Under terms of the
Purchase Agreement substantially all other obligations of Jazz existing at the
time of the purchase remain the responsibility of the former owners of Jazz.
The table below sets forth the pro forma historical operating results of the
Company for the years ended December 31, 1995 and 1994 giving effect to the
acquisition as if the acquisition occurred on January 1, 1994. The Company's
fiscal year end is December 31 and Jazz's year end is February 28. The pro forma
operating results of the years ended December 31, 1995 and 1994 were prepared
using the Company's operating results for the year ended December 31, 1995 and
1994 and Jazz's operating results for period January 1, 1995
F-11
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
7. PURCHASE OF JAZZ ENTERPRISES, INC. (CONTINUED)
through May 30, 1995 (the effective date which Jazz became a wholly owned
subsidiary of the Company) and the year ended February 28, 1995. Jazz's revenues
and net loss for the months of January and February 1995 are immaterial.
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------------
1995 1994
---------- ----------
(UNAUDITED)
<S> <C> <C>
Net Revenues.................................................................... $ 252,719 $ 153,862
---------- ----------
---------- ----------
Income from operations.......................................................... 26,762 18,746
---------- ----------
---------- ----------
Interest expense................................................................ 15,480 10,156
---------- ----------
---------- ----------
Net income...................................................................... 5,712 5,393
---------- ----------
---------- ----------
Net income per share............................................................ .23 .22
---------- ----------
---------- ----------
</TABLE>
The pro forma condensed statements of operations are not necessarily
indicative of either future results of operations or results that might have
been achieved if the foregoing transactions had been consummated as of the
indicated dates.
8. PRO FORMA NET INCOME PER SHARE
Pro forma data presented below for 1993 assumes that the Company's
reorganization would have occurred on January 1, 1993 and that the Company would
have issued 551,798 additional shares of common stock to retire related party
debt of approximately $13,000 on January 1, 1993, and would have incurred
federal and state income taxes as a C-Corporation since that date.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1993
-------------
<S> <C>
Income before income taxes............................................................... $ 14,781
Reduction in interest charges............................................................ 145
Pro forma income tax expense............................................................. (5,821)
-------------
Pro forma net income..................................................................... $ 9,105
-------------
-------------
Pro forma common shares outstanding...................................................... 23,763,513
-------------
-------------
</TABLE>
Pro forma income tax expense has been computed under SFAS 109 using an
effective tax rate of 39% based on taxable income of approximately $14,926 in
1993.
9. STOCK OPTION PLANS
The Company adopted the Argosy Gaming Company Stock Option Plan, as amended,
("Stock Option Plan"), which provides for the grant of non-qualified stock
options for up to 2,500,000 shares of common stock to key employees of the
Company. As of December 31, 1995, options representing 2,445,253 shares of
common stock were outstanding at exercise prices ranging between $16.75 and
$19.38 per share. These options expire in December 2003 through August 2005.
The Company also has adopted the Argosy Gaming Company 1993 Directors Stock
Option Plan ("Directors Option Plan"), which provides for a total of 50,000
shares of common stock to be authorized and reserved for issuance. The Directors
Option Plan provides for the grant of non-qualified stock options at fair market
value to non-employee directors of the Company as of the date such individuals
become directors of the Company.
F-12
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
9. STOCK OPTION PLANS (CONTINUED)
Under the Directors Option Plan options for 21,000 shares of common stock
are outstanding at December 31, 1995 at prices ranging from $11.50 to $19.00.
The directors options expire between 1998 and 2000.
Options outstanding under these plans at December 31, 1995, are exercisable
as follows:
<TABLE>
<CAPTION>
STOCK
OPTION DIRECTORS
PLAN OPTION PLAN
--------- -----------
<S> <C> <C>
Currently exercisable................................................... 569,705 17,000
1996.................................................................... 465,548 2,000
1997.................................................................... 460,000 2,000
1998.................................................................... 460,000
1999.................................................................... 460,000
2000.................................................................... 30,000
</TABLE>
The Company follows Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees (APB 25) and related interpretations in accounting
for its employee stock options. Under APB 25, when the exercise price of
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
10. EMPLOYEES BENEFIT PLAN
In 1994, the Company established a 401(k) defined-contribution plan which
covers substantially all of its full-time employees. Participants can contribute
a maximum of 10% of their eligible salaries (as defined) subject to maximum
limits, as determined by provisions of the Internal Revenue Code, and the
Company will match 100% of participants' contributions up to 5% of their
eligible salaries. Expense recognized under the Plan was approximately $1,708
and $587 in 1995 and 1994, respectively.
11. COMMITMENTS AND CONTINGENT LIABILITIES
DEVELOPMENT OPPORTUNITIES
LAWRENCEBURG, INDIANA -- On June 30, 1995 Indiana Gaming Company L.P. (the
"Indiana Partnership") was awarded a preliminary suitability certificate from
the Indiana Gaming Commission to develop a riverboat casino project on the Ohio
River in Lawrenceburg, Indiana. The Company is a 57.5% general partner in the
Indiana Partnership.
Capital contributions to the Indiana Partnership will be made on the same
basis as the partners' equity ownership. Funding for the Indiana Partnership is
expected to be provided by capital contributions and capital loans by the
partners. The partnership's current estimate for the development and
construction costs for the Lawrenceburg casino and entertainment project is $210
million.
Additionally, under the Lawrenceburg partnership agreement, after the third
anniversary date of commencement of operations at the Lawrenceburg Casino, each
limited partner has the right to sell its interest to the other partners (pro
rata in accordance with their respective percentage interests).
This proposed gaming project is subject to the satisfaction of numerous
conditions. Before gaming can commence, the Company must obtain numerous permits
and licenses, including licensing for its employees as well as final licensing
from the gaming commission of the State. In addition, the Company must construct
gaming facilities. There can be no assurance that this proposed gaming project
will become operational.
F-13
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
11. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
OTHER -- A predecessor entity to the Company ("Predecessor"), as a result of
a certain shareholder loan transaction, could be subject to federal and certain
state income taxes (plus interest and penalties, if any) if it is determined
that it failed to satisfy all of the requirements of the S-Corporation
provisions of the Internal Revenue Code ("Code") relating to the prohibition
concerning a second class of stock.
An audit is currently being conducted by the Internal Revenue Service
("IRS") of the Company's federal income tax returns for the 1992 and 1993 tax
years and the IRS has asserted the S-Corporation status as one of the issues
although the IRS has yet to make a formal claim of deficiency. If the IRS
successfully challenges the Predecessor's S-corporation status, the Company
would be required to pay federal and certain state income taxes on the
Predecessor's taxable income from the commencement of its operations until
February 25, 1993 (plus interest and penalties, if any, thereon until the date
of payment). If the Predecessor was required to pay federal and state income
taxes on its taxable earnings through February 25, 1993, such payments could
amount to approximately $11,400, including interest through December 31, 1995,
but excluding penalties, if any. While the Company believes the Predecessor has
legal authority for its position that it is not subject to federal and certain
state income taxes because it met the S-Corporation requirements, no assurances
can be given that the Predecessor's position will be upheld. This contingent
liability could have a material adverse effect on the Company's results of
operations, financial condition and cash flows. No provision has been made for
this contingency in the accompanying consolidated financial statements.
12. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
1995:
Net revenues.......................................................... $ 60,374 $ 65,162 $ 66,637 $ 60,518
Income from operations................................................ 6,221 10,028 6,585 4,828
Other expense, net.................................................... 3,844 3,859 3,879 2,690
Net income............................................................ 1,468 3,312 1,654 519
Net income per share.................................................. .06 .14 .07 .02
1994:
Net revenues.......................................................... $ 22,906 $ 26,269 $ 44,323 $ 59,547
Income from operations................................................ 2,333 3,481 5,433 11,747
Other expense, net.................................................... 138 948 2,371 3,644
Net income............................................................ 1,341 1,491 1,837 4,966
Net income per share.................................................. .06 .06 .08 .20
</TABLE>
- ------------
(a) Income from operations for the third quarter of 1995 includes a charge of
$3,477 related to the writeoff of a note receivable.
F-14
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
13. SUBSEQUENT EVENT -- SUBSIDIARY GUARANTORS
On June 5, 1996, the Company issued $235,000,000 of 13 1/4% First Mortgage
Notes due 2004 (the "Notes") in a private placement transaction. The Company has
filed a Registration Statement on Form S-4 to effect an exchange of the
privately placed Notes with identical Notes registered with the Securities and
Exchange Commission. The Notes rank senior in right of payment to all existing
and future indebtedness of the Company.
The Notes are unconditionally guaranteed, on a joint and several basis, by
the following wholly-owned subsidiaries of the Company, Alton Gaming Company,
The Missouri Gaming Company, The St. Louis Gaming Company, Iowa Gaming Company,
Jazz Enterprises, Inc., Argosy of Louisiana, Inc., Catfish Queen Partnership in
Commendam and The Indiana Gaming Company (the "Guarantors"). The Notes are
secured, subject to certain prior liens, by a first lien on (i) substantially
all of the assets of the Company including the assets used in the Company's
Alton, Riverside, Baton Rouge, and Sioux City operations, (ii) a pledge of all
the capital stock of, and partnership interests in, the Company's subsidiaries,
excluding the Company's partnership interest in its Sioux City property, (iii) a
pledge of the intercompany notes payable to the Company from its subsidiaries
and (iv) an assignment of the proceeds of the management agreement relating to
the proposed Lawrenceburg Casino project. The collateral for the notes does not
include assets of the Company's Lawrenceburg Casino project.
The following tables present summarized balance sheet and operating
statement information of the Company as of December 31, 1995 and 1994 and for
each of the years in the three year period ended December 31, 1995. The column
labeled "Parent Company" represents the holding company for each of the
Company's direct subsidiaries, the column labeled "Guarantors" represents each
of the Company's direct subsidiaries, all of which are wholly-owned by the
parent company, and the column labeled "Non-Guarantors" represents the
partnerships which operate the Company's casino in Sioux City and its proposed
casino in Lawrenceburg, Indiana. The Company believes that separate financial
statements and other disclosures regarding the Guarantors, except as otherwise
required under Regulation S-X, are not material to investors.
Summarized balance sheet information as of December 31, 1995 and 1994 is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
---------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Assets:
Current assets............................... $ 5,998 $ 23,567 $ 2,904 $ (3,977) $ 28,492
Non-current assets........................... 259,670 260,517 21,140 (259,937) 281,390
---------- ----------- ----------- ------------ ------------
$ 265,668 $ 284,084 $ 24,044 $ (263,914) $ 309,882
---------- ----------- ----------- ------------ ------------
---------- ----------- ----------- ------------ ------------
Liabilities and Equity:
Current liabilities.......................... $ 6,648 $ 27,316 $ 3,861 $ (2,496) $ 35,329
Noncurrent liabilities....................... 161,480 192,681 3,401 (180,549) 177,013
Shareholder's equity......................... 97,540 64,087 16,782 (80,869) 97,540
---------- ----------- ----------- ------------ ------------
$ 265,668 $ 284,084 $ 24,044 $ (263,914) $ 309,882
---------- ----------- ----------- ------------ ------------
---------- ----------- ----------- ------------ ------------
</TABLE>
F-15
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
13. SUBSEQUENT EVENT -- SUBSIDIARY GUARANTORS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1994
----------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
---------- ----------- ----------- ------------ ------------
Assets:
<S> <C> <C> <C> <C> <C>
Current assets............................... $ 8,432 $ 20,665 $ 237 $ -- $ 29,334
Non-current assets........................... 199,759 182,764 4,575 (183,601) 203,497
---------- ----------- ----------- ------------ ------------
$ 208,191 $ 203,429 $ 4,812 $ (183,601) $ 232,831
---------- ----------- ----------- ------------ ------------
---------- ----------- ----------- ------------ ------------
Liabilities and Equity:
Current liabilities.......................... $ 2,148 $ 20,358 $ -- $ -- $ 22,506
Noncurrent liabilities....................... 115,456 137,085 -- (132,803) 119,738
Shareholder's equity......................... 90,587 45,986 4,812 (50,798) 90,587
---------- ----------- ----------- ------------ ------------
$ 208,191 $ 203,429 $ 4,812 $ (183,601) $ 232,831
---------- ----------- ----------- ------------ ------------
---------- ----------- ----------- ------------ ------------
</TABLE>
Summarized operating statement information for the years ended December 31,
1995, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenues..................................... $ 4,071 $ 233,205 $ 21,994 $ (6,579) $ 252,691
Costs and expenses............................... 14,161 195,517 21,930 (6,579) 225,029
Net interest income (expense).................... (8,964) (5,185) (123) -- (14,272)
Net income (loss)................................ 6,953 18,101 (59) (18,042) 6,953
<CAPTION>
DECEMBER 31, 1994
-----------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenues..................................... $ 4,844 $ 152,654 -- $ (4,453) $ 153,045
Costs and expenses............................... 9,521 124,144 839 (4,453) 130,051
Net interest income (expense).................... (6,620) (481) -- -- (7,101)
Net income (loss)................................ (9,635) 17,252 (839) (16,413) 9,635
<CAPTION>
DECEMBER 31, 1993
-----------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenues..................................... $ 0 $ 67,525 -- -- $ 67,525
Costs and expenses............................... 3,301 49,362 535 -- 53,198
Net interest income (expense).................... 1,226 (772) -- -- 454
Net income (loss)................................ 10,825 11,035 (535) (10,500) 10,825
----------- ----------- ----------- ------------ ------------
----------- ----------- ----------- ------------ ------------
</TABLE>
F-16
<PAGE>
ARGOSY GAMING COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
1995
JUNE 30, ------------
1996
-----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents........................................................... $ 63,890 $ 16,159
Other current assets................................................................ 18,465 12,333
----------- ------------
Total current assets.............................................................. 82,355 28,492
----------- ------------
PROPERTY AND EQUIPMENT, NET........................................................... 284,163 239,480
----------- ------------
OTHER ASSETS:
Cash and cash equivalents held by Trustee........................................... 94,484
Goodwill, net....................................................................... 23,222 23,519
Other, net.......................................................................... 25,673 18,391
----------- ------------
Total other assets................................................................ 143,379 41,910
----------- ------------
TOTAL ASSETS.......................................................................... $ 509,897 $ 309,882
----------- ------------
----------- ------------
CURRENT LIABILITIES:
Accounts payable and accrued liabilities............................................ $ 24,684 $ 26,941
Other current liabilities........................................................... 7,290 8,388
----------- ------------
Total current liabilities......................................................... 31,974 35,329
----------- ------------
LONG-TERM DEBT........................................................................ 358,587 169,303
MINORITY INTERESTS IN EQUITY OF CONSOLIDATED SUBSIDIARIES............................. 21,506 2,543
DEFERRED INCOME TAXES................................................................. 6,158 5,167
STOCKHOLDERS' EQUITY:
Common stock, $.01 par; 60,000,000 shares authorized; 24,333,333 shares issued and
outstanding........................................................................ 243 243
Capital in excess of par............................................................ 71,865 71,865
Retained earnings................................................................... 19,564 25,432
----------- ------------
Total stockholders' equity........................................................ 91,672 97,540
----------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............................................ $ 509,897 $ 309,882
----------- ------------
----------- ------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-17
<PAGE>
ARGOSY GAMING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------------
JUNE 30, JUNE 30,
1996 1995
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES:
Casino............................................................................... $ 118,147 $ 117,791
Admissions........................................................................... 1,995 8,344
Food, beverage and other............................................................. 12,853 8,136
----------- -----------
132,995 134,271
Less: promotional allowances......................................................... (7,041) (8,735)
----------- -----------
Net revenues........................................................................... 125,954 125,536
----------- -----------
COSTS AND EXPENSES:
Casino............................................................................... 59,264 58,753
Food, beverage and other............................................................. 11,329 7,977
Other operating expenses............................................................. 8,732 7,802
Selling, general and administrative.................................................. 26,231 23,579
Depreciation and amortization........................................................ 11,085 10,038
Development and preopening costs..................................................... 3,790 1,138
Lease termination costs.............................................................. 3,508
----------- -----------
123,939 109,287
----------- -----------
Income from operations................................................................. 2,015 16,249
----------- -----------
OTHER INCOME (EXPENSE):
Interest income...................................................................... 640 214
Interest expense..................................................................... (11,546) (7,917)
----------- -----------
(10,906) (7,703)
----------- -----------
Income (loss) before income taxes, minority interests and extraordinary item........... (8,891) 8,546
Income tax (expense) benefit........................................................... 3,200 (3,711)
Minority interests..................................................................... 713 (54)
----------- -----------
Income (loss) before extraordinary item................................................ (4,978) 4,781
Extraordinary loss on extinguishment of debt (net of income tax benefit of $594)....... (890)
----------- -----------
Net income (loss)...................................................................... $ (5,868) $ 4,781
----------- -----------
----------- -----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM PER SHARE...................................... $ (.20) $ .20
EXTRAORDINARY LOSS ON EXTINGUISHMENT OF DEBT PER SHARE (NET OF INCOME TAX BENEFIT OF
$.02)................................................................................. (.04)
----------- -----------
NET INCOME (LOSS) PER SHARE............................................................ $ (.24) $ .20
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-18
<PAGE>
ARGOSY GAMING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------------
JUNE 30, JUNE 30,
1996 1995
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income.................................................................... $ (5,868) $ 4,781
Adjustments to reconcile net (loss) income to net cash provided by operating
activities:
Depreciation and amortization...................................................... 11,909 10,444
Deferred income taxes.............................................................. (3,198) 896
Minority interests................................................................. (713) 54
Extraordinary item................................................................. 890
Lease termination costs............................................................ 3,151
Changes in operating assets and liabilities, net of the effects of the purchase of
Jazz Enterprises, Inc.:
Other current assets............................................................... (1,442) (30)
Accounts payable and accrued liabilities........................................... 1,386 8,382
----------- -----------
Net cash provided by operating activities........................................ 6,115 24,527
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in notes receivable......................................................... (349)
Purchases of property and equipment.................................................. (62,083) (24,157)
Deposits............................................................................. (656) (220)
Goodwill............................................................................. (9,388)
Increase in cash and cash equivalents held by trustee................................ (94,484)
----------- -----------
Net cash used in investing activities............................................ (157,223) (34,114)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit......................................................... 44,500 14,000
Repayment of line of credit.......................................................... (90,000) (2,000)
Proceeds from sale of first mortgage notes........................................... 235,000
Payments on long-term debt and installment contracts................................. (752) (4,656)
Capital contributions from partner................................................... 19,676
Increase in other assets............................................................. (9,585) (2,037)
----------- -----------
Net cash provided by financing activities........................................ 198,839 5,307
----------- -----------
Net increase (decrease) in cash and cash equivalents................................... 47,731 (4,280)
Cash and cash equivalents, beginning of period......................................... 16,159 18,291
----------- -----------
Cash and cash equivalents, end of period............................................... $ 63,890 $ 14,011
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-19
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1. BASIS OF PRESENTATION
Argosy Gaming Company (collectively with its subsidiaries, "Argosy" or
"Company") is engaged in the business of providing casino style gaming and
related entertainment to the public and, through its subsidiaries, operates
riverboat casinos in Alton, Illinois; Riverside, Missouri; Baton Rouge,
Louisiana; and Sioux City, Iowa. Also, Indiana Gaming Company, L.P., a limited
partnership in which the Company is general partner and holds a 57.5%
partnership interest, holds a preliminary certificate of suitability from the
Indiana Gaming Commission and is developing a riverboat casino and related
entertainment and support facilities in Lawrenceburg, Indiana ("Lawrenceburg
Project").
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. Interim results may not necessarily be indicative of
results which may be expected for any other interim period or for the year as a
whole. For further information, refer to the financial statements and footnotes
thereto for the year ended December 31, 1995, included in the Company's Annual
Report on Form 10-K (File No. 0-21122). The accompanying unaudited condensed
consolidated financial statements contain all adjustments which are, in the
opinion of management, necessary to present fairly the financial position and
the results of operations for the periods indicated. Such adjustments include
only normal recurring accruals. Certain 1995 amounts have been reclassified to
conform to the 1996 financial statement presentation.
2. LONG TERM DEBT
Long term debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
---------- ------------
<S> <C> <C>
First mortgage notes due June 1, 2004 interest payable semiannually at
13 1/4%..................................................................... $ 235,000
Senior secured line of credit................................................ $ 45,500
Convertible subordinated notes due June 1, 2001, convertible into common
stock at $17.70 per share, interest payable semi-annually at 12%............ 115,000 115,000
Notes payable, principal and interest payments due quarterly through
September 2015, discounted at 10.5%......................................... 9,202 9,202
---------- ------------
359,202 169,702
Less: Current maturities..................................................... 615 399
---------- ------------
Long-term debt, less current maturities...................................... $ 358,587 $ 169,303
---------- ------------
---------- ------------
</TABLE>
On June 5, 1996 the Company issued $235,000 of First Mortgage Notes due 2004
("Mortgage Notes"). The Mortgage Notes are senior obligations of the Company
secured by substantially all of its assets, except for the assets of the
Company's joint venture, Indiana Gaming Company, L.P.
The Mortgage Notes contain certain restrictions on the payment of dividends
on the Company's common stock and the occurrence of additional indebtedness, as
well as other covenants customary in senior secured financing. In addition,
$94,300 of the proceeds of the Mortgage Notes were placed in a disbursement
account which can only be used to fund the company's obligations for the
construction of the Lawrenceburg Project.
F-20
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
2. LONG TERM DEBT (CONTINUED)
The Company used a portion of the proceeds from the issuance of the Mortgage
Notes to repay and terminate its senior secured line of credit ("Line of
Credit"). In connection with this early termination of the Line of Credit, the
Company expensed approximately $1,484 of deferred finance costs ($890 net of
tax).
The convertible subordinated notes ("Convertible Notes") are convertible
into common stock at any time and may be redeemed by the Company on or after
June 1, 1997, in whole or in part at specified percentages of principal plus
accrued and unpaid interest to the date of redemption. The Convertible Notes are
subordinated to prior payment in full of all senior indebtedness, including the
Mortgage Notes and senior indebtedness incurred in the future.
3. ACQUISITION OF JAZZ ENTERPRISES, INC.
Effective May 30, 1995 the Company acquired 100% of the stock of Jazz
Enterprises, Inc. ("Jazz"), formerly a 10% partner in the Company's Baton Rouge,
Louisiana riverboat casino. The acquisition was accounted for as a purchase.
The table below sets forth the pro forma operating results of the Company
for the three month and six month periods ended June 30, 1996 and 1995 giving
effect to the acquisition as if the acquisition occurred on January 1, 1995. The
pro forma operating results for the three months ended June 30, 1996 and 1995
were prepared using the Company's historical operating results and Jazz's
operating results for the applicable periods through May 30, 1995 (the effective
date which Jazz became a wholly owned subsidiary of the Company).
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
---------------------- --------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1966 1995 1996 1995
---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Net Revenues............................................. $ 125,954 $ 125,564 $ 63,265 $ 65,162
---------- ---------- --------- ---------
---------- ---------- --------- ---------
Net Income (loss) before extraordinary item.............. (4,978) $ 3,540 (3,931) 2,284
---------- ---------- --------- ---------
---------- ---------- --------- ---------
Net Income (loss) before extraordinary item per share.... (.20) .15 (.16) .12
---------- ---------- --------- ---------
---------- ---------- --------- ---------
</TABLE>
The unaudited pro forma condensed statements of operations are not
necessarily indicative of either future results of operations or results that
might have been achieved if the foregoing transactions had been consummated as
of the indicated dates.
4. COMMITMENTS AND CONTINGENT LIABILITIES
LAWRENCEBURG, INDIANA DEVELOPMENT -- On June 30, 1995 Indiana Gaming
Company, L.P. (the "Indiana Partnership") was awarded a preliminary suitability
certificate from the Indiana Gaming Commission to develop a riverboat casino
project on the Ohio River in Lawrenceburg, Indiana. The Company is a 57.5%
general partner in the Indiana Partnership. The renewal of the Indiana
Partnership's preliminary certificate of suitability will be considered at a
hearing of the Indiana Gaming Commission to be held on August 20, 1996.
Capital contributions to the Indiana Partnership, up to a total project cost
of $225 million, will be made on the same basis as the partners' equity
ownership with any excess project cost being the responsibility of the Company.
Funding for the Indiana Partnership is expected to be provided by capital
contributions and capital loans by the partners. The Indiana Partnership's
estimate for the development and construction costs for the Lawrenceburg Project
is $210 million.
F-21
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
4. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
Additionally, under terms of the Lawrenceburg partnership agreement, after
the third anniversary date of commencement of operations at the Lawrenceburg
casino, each limited partner has the right to sell its interest to the other
partners (pro rata in accordance with their respective percentage interests).
This proposed gaming project is subject to the satisfaction of numerous
conditions. Before gaming can commence, the Company must obtain numerous permits
and licenses, including licensing for its employees as well as final licensing
from the gaming commission of the State. In addition, the Company must construct
gaming facilities. There can be no assurance that this proposed gaming project
will become operational.
OTHER -- A predecessor entity to the Company ("Predecessor"), as a result of
a certain shareholder loan transaction, could be subject to federal and certain
state income taxes (plus interest and penalties, if any) if it is determined
that it failed to satisfy all of the requirements of the S-Corporation
provisions of the Internal Revenue Code ("Code") relating to the prohibition
concerning a second class of stock.
An audit is currently being conducted by the Internal Revenue Service
("IRS") of the Company's federal income tax returns for the 1992 and 1993 tax
years and the IRS has asserted the S-Corporation status as one of the issues
although the IRS has yet to make a formal claim of deficiency. If the IRS
successfully challenges the Predecessor's S-Corporation status, the Company
would be required to pay federal and certain state income taxes on the
Predecessor's taxable income from the commencement of its operations until
February 25, 1993 (plus interest and penalties, if any, thereon until the date
of payment). If the Predecessor was required to pay federal and state income
taxes on its taxable earnings through February 25, 1993, such payments could
amount to approximately $12,000, including interest through June 30, 1996, but
excluding penalties, if any. While the Company believes the Predecessor has
legal authority for its position that it is not subject to federal and certain
state income taxes because it met the S-Corporation requirements, no assurances
can be given that the Predecessor's position will be upheld. This contingent
liability could have a material adverse effect on the Company's results of
operations, financial condition and cash flows. No provision has been made for
this contingency in the accompanying condensed consolidated financial
statements.
On April 19, 1996, the Louisiana legislature approved legislation mandating
local option elections to determine whether to prohibit specified individual
types of gaming, including riverboat gaming, in Louisiana on a parish-by-parish
basis. The referendum will be brought before the Louisiana voters in November,
1996. There can be no assurance that the voters of East Baton Rouge Parish will
not vote to prohibit riverboat gaming. If such a vote to prohibit riverboat
gaming occurs, the Company will be required to discontinue gaming activity in
East Baton Rouge Parish upon the expiration of its current gaming license in
September 1999. The discontinuance of gaming operations in East Baton Rouge
Parish would have a material adverse effect on the Company, both in terms of the
loss of revenues and cash flow generated by the Belle of Baton Rouge and the
impairment of the significant capital investment that the Company has in its
riverboat casino and related facilities, including the Catfish Town development.
The Company would be required, under the indenture provisions of the Mortgage
Notes, to offer to repurchase a defined amount of the Mortgage Notes in the
event that it discontinued gaming operations in Baton Rouge.
The Company is subject, from time to time, to various legal and regulatory
proceedings, in the ordinary course of business. The Company believes that these
proceedings will not have a material effect on the financial condition of the
Company.
F-22
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
5. SUBSIDIARY GUARANTORS
On June 5, 1996, the Company issued the Mortgage Notes due 2004 in a private
placement transaction. The Company has filed a Registration Statement on Form
S-4 to effect an exchange of the privately placed Mortgage Notes with identical
notes registered with the Securities and Exchange Commission. The Mortgage Notes
rank senior in right of payment to all existing and future indebtedness of the
Company.
The Mortgage Notes are unconditionally guaranteed, on a joint and several
basis, by the following wholly-owned subsidiaries of the Company, Alton Gaming
Company, The Missouri Gaming Company, The St. Louis Gaming Company, Iowa Gaming
Company, Jazz Enterprises, Inc., Argosy of Louisiana, Inc., Catfish Queen
Partnership in Commendam and The Indiana Gaming Company (the "Guarantors"). The
Mortgage Notes are secured, subject to certain prior liens, by a first lien on
(i) substantially all of the assets of the Company including the assets used in
the Company's Alton, Riverside, Baton Rouge, and Sioux City operations, (ii) a
pledge of all the capital stock of, and partnership interests in, the Company's
subsidiaries, excluding the Company's partnership interest in its Sioux City
property, (iii) a pledge of the intercompany notes payable to the Company from
its subsidiaries and (iv) an assignment of the proceeds of the management
agreement relating to the proposed Lawrenceburg Casino project. The collateral
for the notes does not include assets of the Company's Lawrenceburg Casino
project.
The following tables present summarized balance sheet and operating
statement information of the Company as of June 30, 1996 and for the six months
ended June 30, 1996 and 1995. The column labeled "Parent Company" represents the
holding company for each of the Company's direct subsidiaries, the column
labeled "Guarantors" represents each of the Company's direct subsidiaries, all
of which are wholly-owned by the parent company, and the column labeled
"Non-Guarantors" represents the partnerships which operate the Company's casino
in Sioux City and its proposed casino in Lawrenceburg, Indiana. The Company
believes that separate financial statements and other disclosures regarding the
Guarantors, except as otherwise required under Regulation S-X, are not material
to investors.
Summarized balance sheet information as of June 30, 1996 is as follows:
<TABLE>
<CAPTION>
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
---------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Assets:
Current assets............................... $ 58,841 $ 25,572 $ 7,995 $ (10,053) $ 82,355
Non-current assets........................... 391,496 288,647 48,957 (301,558) 427,542
---------- ----------- ----------- ------------ ------------
$ 450,337 $ 314,219 $ 56,952 $ (311,611) $ 509,897
---------- ----------- ----------- ------------ ------------
---------- ----------- ----------- ------------ ------------
Liabilities and Equity:
Current liabilities.......................... $ 7,685 $ 36,786 $ 4,276 $ (16,773) $ 31,974
Noncurrent liabilities....................... 350,980 209,197 4,827 (178,753) 386,251
Shareholder's equity......................... 91,672 68,236 47,849 (116,085) 91,672
---------- ----------- ----------- ------------ ------------
$ 450,337 $ 314,219 $ 56,952 $ (311,611) $ 509,897
---------- ----------- ----------- ------------ ------------
---------- ----------- ----------- ------------ ------------
</TABLE>
F-23
<PAGE>
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
5. SUBSIDIARY GUARANTORS (CONTINUED)
Summarized operating statement information for the six months ended June 30,
1996 and 1995 is as follows:
<TABLE>
<CAPTION>
JUNE 30, 1996
-----------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenues..................................... $ 2,113 $ 115,931 $ 10,167 $ (2,257) $ 125,954
Costs and expenses............................... 8,445 104,981 12,770 (2,257) 123,939
Net interest income (expense).................... (7,638) (3,098) (170) -- (10,906)
Net income (loss)................................ (5,868) 4,149 (2,774) (1,375) (5,868)
<CAPTION>
JUNE 30, 1995
-----------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenues..................................... $ 2,011 $ 116,093 $ 10,831 $ (3,399) $ 125,536
Costs and expenses............................... 7,823 95,228 9,635 (3,399) 109,287
Net interest income (expense).................... (4,981) (2,699) (23) -- (7,703)
Net income (loss)................................ 4,781 10,762 1,578 (12,340) 4,781
</TABLE>
F-24
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Alton Gaming Company
We have audited the accompanying balance sheets of Alton Gaming Company as
of December 31, 1994 and 1995, and the related statements of income,
stockholder's equity and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Alton Gaming Company at
December 31, 1994 and 1995, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1995, in conformity
with generally accepted accounting principles.
Ernst & Young LLP
Chicago, Illinois
January 26, 1996
F-25
<PAGE>
ALTON GAMING COMPANY
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- --------- JUNE 30,
-----------
1996
-----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash......................................................................... $ 2,907 $ 3,873 $ 2,995
Accounts receivable.......................................................... 445 430 516
Deferred income taxes........................................................ 974 687 687
Other current assets......................................................... 948 916 565
--------- --------- -----------
Total current assets....................................................... 5,274 5,906 4,763
--------- --------- -----------
DUE FROM AFFILIATES............................................................ 4,381 10,929 18,834
NET PROPERTY AND EQUIPMENT..................................................... 35,650 32,929 31,195
OTHER ASSETS:
Deposits..................................................................... 498 164
Other........................................................................ 4 9 6
--------- --------- -----------
Total other assets......................................................... 502 173 6
--------- --------- -----------
TOTAL ASSETS................................................................... $ 45,807 $ 49,937 $ 54,798
--------- --------- -----------
--------- --------- -----------
CURRENT LIABILITIES:
Accounts payable............................................................. $ 1,180 $ 1,172 $ 408
Accrued payroll and related expenses......................................... 2,036 2,337 2,133
Slot club liability.......................................................... 1,046 1,319 830
Other accrued liabilities.................................................... 920 2,146 2,360
Income taxes payable to affiliate............................................ 15,044 5,570 7,693
Current maturities of long-term debt -- related party........................ 432
--------- --------- -----------
Total current liabilities.................................................. 20,658 12,544 13,424
--------- --------- -----------
OTHER LONG-TERM OBLIGATIONS -- RELATED PARTY................................... 453 158 165
DEFERRED INCOME TAXES.......................................................... 1,627 2,953 3,270
STOCKHOLDER'S EQUITY:
Common stock -- $1 par value, 1,000 shares authorized, issued and
outstanding................................................................. 1 1 1
Capital in excess of par..................................................... 256 256 256
Retained earnings............................................................ 22,812 34,025 37,682
--------- --------- -----------
Total stockholder's equity................................................. 23,069 34,282 37,939
--------- --------- -----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY..................................... $ 45,807 $ 49,937 $ 54,798
--------- --------- -----------
--------- --------- -----------
</TABLE>
See accompanying notes to financial statements.
F-26
<PAGE>
ALTON GAMING COMPANY
STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1993 1994 1995
--------- ---------- --------- SIX MONTHS ENDED JUNE
30,
------------------------
1995 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Casino............................................. $ 60,182 $ 88,886 $ 81,413 $ 40,489 $ 37,442
Admissions......................................... 6,440 7,115
Food, beverage and other........................... 4,381 7,334 7,849 3,636 3,693
--------- ---------- --------- ----------- -----------
71,003 103,335 89,262 44,125 41,135
Less promotional allowances........................ (3,463) (7,055) (3,269) (1,547) (1,193)
--------- ---------- --------- ----------- -----------
Net revenues......................................... 67,540 96,280 85,993 42,578 39,942
--------- ---------- --------- ----------- -----------
COSTS AND EXPENSES
Casino............................................. 26,845 41,225 37,448 18,882 17,490
Food, beverage and other........................... 4,491 7,914 6,820 3,217 3,489
Other operating expenses........................... 3,324 5,246 5,437 2,559 2,732
Selling, general and administrative................ 8,178 9,167 9,555 4,474 6,194
Depreciation and amortization...................... 3,316 3,911 4,288 2,066 2,071
Allocation of corporate costs -- related party..... 4,444 3,742 2,018 1,872
Flood costs........................................ 1,477
--------- ---------- --------- ----------- -----------
47,631 71,907 67,290 33,216 33,848
--------- ---------- --------- ----------- -----------
Income from operations............................... 19,909 24,373 18,703 9,362 6,094
OTHER INCOME (EXPENSE)
Interest income.................................... 69 77 87 40 23
Interest expense................................... (848) (305) (178) (38) (21)
--------- ---------- --------- ----------- -----------
(779) (228) (91) 2 2
--------- ---------- --------- ----------- -----------
Income before income taxes......................... 19,130 24,145 18,612 9,364 6,096
Income tax expense................................. 6,041 9,658 7,399 3,746 2,439
--------- ---------- --------- ----------- -----------
Net income......................................... $ 13,089 $ 14,487 $ 11,213 $ 5,618 $ 3,657
--------- ---------- --------- ----------- -----------
--------- ---------- --------- ----------- -----------
</TABLE>
See accompanying notes to financial statements.
F-27
<PAGE>
ALTON GAMING COMPANY
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1993 1994 1995
--------- --------- --------- SIX MONTHS ENDED JUNE
30,
------------------------
1995 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................... $ 13,089 $ 14,487 $ 11,213 $ 5,618 $ 3,657
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization...................... 3,535 3,911 4,288 2,066 2,071
Deferred income taxes.............................. 478 176 1,612 401 317
Changes in operating assets and liabilities:
Accounts receivable................................ (122) (225) 16 (20) (87)
Other current assets............................... (164) (536) 32 125 351
Other assets....................................... -- -- 327 158 167
Accounts payable................................... 1,843 (1,068) (8) (456) (764)
Accrued liabilities................................ 978 171 1,799 1,155 380
Income taxes payable to affiliate.................. 5,563 9,482 (9,474) (2,052) 2,122
--------- --------- --------- ----------- -----------
Net cash provided by operating activities.......... 25,200 26,398 9,805 6,995 8,214
--------- --------- --------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.................. (24,919) (4,714) (1,566) (614) (690)
--------- --------- --------- ----------- -----------
Net cash used in investing activities................ (24,919) (4,714) (1,566) (614) (690)
--------- --------- --------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on installment contracts.................... (3,010) (976)
Payments on long term debt........................... (649)
Payments on long-term debt -- related party.......... (16,446) (3,901) (431) (431)
Due from affiliate................................... 19,491 (15,927) (6,548) (5,421) (7,550)
Increase (decrease) in other long-term obligations --
related party....................................... (278) (154) (294) 34 (852)
Proceeds from contributed capital.................... 44
--------- --------- --------- ----------- -----------
Net cash used in financing activities................ (848) (20,958) (7,273) (5,818) (8,402)
--------- --------- --------- ----------- -----------
Net increase in cash................................. (567) 726 966 563 (878)
Cash, beginning of year.............................. 2,748 2,181 2,907 2,907 3,873
--------- --------- --------- ----------- -----------
Cash, end of year.................................... $ 2,181 $ 2,907 $ 3,873 $ 3,470 $ 2,995
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
</TABLE>
See accompanying notes to financial statements.
F-28
<PAGE>
ALTON GAMING COMPANY
STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CAPITAL IN TOTAL
EXCESS OF RETAINED STOCKHOLDER'S
SHARES COMMON STOCK PAR EARNINGS EQUITY
--------- ------------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992.............................. 1,000 $ 1 $ 212 $ 2,598 $ 2,811
Distributions......................................... (7,362) (7,362)
Capital contribution.................................. 44 44
Net income............................................ 13,089 13,089
--
--------- ----- --------- ------------
Balance, December 31, 1993.............................. 1,000 1 256 8,325 8,582
Net income............................................ 14,487 14,487
--
--------- ----- --------- ------------
Balance, December 31, 1994.............................. 1,000 1 256 22,812 23,069
--
--------- ----- --------- ------------
Net income............................................ 11,213 11,213
--
--------- ----- --------- ------------
Balance, December 31, 1995.............................. 1,000 $ 1 $ 256 $ 34,025 $ 34,282
--
--
--------- ----- --------- ------------
--------- ----- --------- ------------
</TABLE>
See accompanying notes to financial statements.
F-29
<PAGE>
ALTON GAMING COMPANY
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION -- Alton Gaming Company ("Company"), an Illinois
Corporation and a wholly-owned subsidiary of Argosy Gaming Company ("Argosy"),
is engaged in the business of providing casino-style gaming and related
entertainment to the public through the operation of the Alton Belle casino in
Alton, Illinois.
The accompanying unaudited condensed financial statements have been prepared
in accordance with the instructions to Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
Interim results may not necessarily be indicative of results which may be
expected for any other interim period or for the year as a whole. The
accompanying unaudited condensed financial statements contain all adjustments
which are, in the opinion of management, necessary to present fairly the
financial position and the results of operations for the periods indicated. Such
adjustments include only normal recurring accruals.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Certain 1993, 1994 and 1995 amounts have been reclassified to conform to the
1996 presentation.
PROPERTY AND EQUIPMENT -- Property and equipment is recorded at cost.
Depreciation is computed on the straight-line method over the following
estimated useful lives:
<TABLE>
<S> <C>
5 to 31.5
Leasehold and shore improvements......................... years
Riverboat, dock and improvements......................... 5 to 20 years
Furniture, fixtures and equipment........................ 5 to 10 years
</TABLE>
REVENUES AND PROMOTIONAL ALLOWANCES -- The Company recognizes as casino
revenues the net win from gaming activities, which is the difference between
gaming wins and losses. The retail value of admissions and food, beverage and
other provided to customers without charge has been included in revenues, and a
corresponding amount has been deducted as promotional allowances. Prior to 1995,
admission revenue was recognized at the time the related service was performed.
Beginning in 1995 the Company stopped charging customers an admission fee and
therefore does not recognize any admissions revenue. The estimated cost of
providing promotional allowances has been included in costs and expenses as
follows:
<TABLE>
<CAPTION>
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Admission................................................... $ 1,015 $ 2,532 $
Food, beverage and other.................................... 213 2,313 1,662
</TABLE>
ADVERTISING COSTS -- The Company expenses advertising costs as incurred.
Advertising expense was $2,048, $3,176 and $3,089 for the years ended December
31, 1993, 1994 and 1995 respectively.
INCOME TAXES -- Earnings or losses from the Company are included in the
consolidated income tax returns of Argosy. Under the terms of a tax sharing
arrangement between the Company and Argosy, the Company computes federal and
state income taxes on a separate return basis.
F-30
<PAGE>
ALTON GAMING COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- ---------
<S> <C> <C>
Leasehold and shore improvements........................................ $ 1,594 $ 1,771
Riverboat, dock and improvements........................................ 28,600 29,097
Furniture, fixtures and equipment....................................... 11,929 12,649
--------- ---------
42,123 43,517
Less accumulated depreciation and amortization.......................... (6,473) (10,588)
--------- ---------
Net property and equipment............................................ $ 35,650 $ 32,929
--------- ---------
--------- ---------
</TABLE>
3. LONG-TERM DEBT
At December 31, 1994, the Company's long-term debt totalling $431 consisted
of unsecured notes to stockholders bearing interest at the prime rate plus 2%.
Both notes were paid in 1995.
The Company is a party to a senior secured line of credit among Argosy and
its subsidiaries and several banks ("Credit Facility"). Terms of the Credit
Facility allow Argosy a $20 million revolving line of credit, to be used for
working capital and general corporate purposes and an $80 million expansion line
of credit to be used for expansion projects. Availability under the $80 million
expansion line decreases quarterly beginning January 1, 1997. At December 31,
1995 outstanding borrowings under the $20 million revolving line of credit were
$12 million and borrowings under the $80 million expansion line were $33.5
million. The outstanding principal balance under the Credit Facility of $45,500
at December 31, 1995 approximates fair value. Borrowings under the Credit
Facility are secured by substantially all the assets of the Company and the
Company is a named borrower and guarantor under the Credit Facility. Argosy
anticipates that as of March 31, 1996 it will be unable to comply with certain
financial covenants contained in the Credit Facility. Argosy plans, however, to
repay all borrowings outstanding and terminate the Credit Facility with a
portion of the net proceeds from a financing which is underway.
In the event the financing is not consummated prior to the anticipated
covenant violation, Argosy believes that the requisite number of banks
participating in the Credit Facility will agree to waive Argosy's non-compliance
with these financial covenants.
Interest expense to related parties amounted to $670, $292 and $178 for the
years ended December 31, 1993, 1994 and 1995 respectively.
4. INCOME TAXES
Income tax expense for the years ended December 31, 1993, 1994 and 1995
consists of the following:
<TABLE>
<CAPTION>
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal........................................................ $ 4,822 $ 8,376 $ 5,151
State.......................................................... 740 1,106 637
--------- --------- ---------
5,562 9,482 5,788
--------- --------- ---------
Deferred:
Federal........................................................ 449 128 1,419
State.......................................................... 30 48 192
--------- --------- ---------
479 176 1,611
--------- --------- ---------
Income tax expense............................................. $ 6,041 $ 9,658 $ 7,399
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-31
<PAGE>
ALTON GAMING COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
4. INCOME TAXES (CONTINUED)
The provision for income taxes for the years ended December 31,1993, 1994
and 1995, differs from that computed at the Federal Statutory tax rate as
follows:
<TABLE>
<CAPTION>
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Federal statutory rate........................................... 35.0% 35.0% 35.0%
State income taxes, net of federal benefit....................... 4.0 4.8 4.5
Federal and state benefit of S-Corporation status through
February 24, 1993............................................... (4.2)
Tax exempt interest income....................................... (1.4)
Impact of change in tax status on net temporary differences...... (2.8)
Other............................................................ 1.0 .2 .3
--- --- ---
31.6% 40.0% 39.8%
--- --- ---
--- --- ---
</TABLE>
The tax effects of significant temporary differences representing deferred
tax assets and liabilities at December 31, 1994 and 1995 are as follows:
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Depreciation............................................................. $ (1,911) $ (3,085)
Start-up costs........................................................... 284 132
Retirement benefit payable............................................... 435 140
Other.................................................................... 539 547
--------- ---------
Net deferred tax liability............................................... $ (653) $ (2,266)
--------- ---------
--------- ---------
</TABLE>
5. SUPPLEMENTAL CASH FLOW INFORMATION
The Company paid, $695, $226 and $5 for interest for the years ended
December 31, 1993, 1994 and 1995 respectively, and $15,261 for income taxes in
1995 to Argosy. There were no income tax payments made in the years ended 1993
and 1994.
During 1994, the Company transferred the original Alton Belle along with
other barge facilities having a total cost of approximately $11,300 and
accumulated depreciation of approximately $3,300 to Argosy affiliated operations
through its intercompany account balance. No cash was transferred as a result of
this transaction.
6. LEASES
Future minimum lease payments for operating leases with initial terms in
excess of one year as of December 31, 1995, are as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
- -----------------------------------------------------
<S> <C>
1996................................................. $ 379
1997................................................. 373
1998................................................. 239
1999................................................. 196
2000................................................. 183
</TABLE>
Rent expense for the years ended December 31, 1993, 1994 and 1995 was $384,
$469 and $490 respectively.
F-32
<PAGE>
ALTON GAMING COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
7. OTHER RELATED PARTY TRANSACTIONS
Argosy incurs certain expenses on behalf of the Company including but not
limited to interest on outstanding debt, centralized reservations, risk
management, travel and entertainment and salaries and wages. Reimbursement of
these expenses has been recorded by the Company as a management fee. The
management fee, representing the allocation of corporate costs, has been
expensed in the accompanying income statement during 1994 and 1995 and the six
months ended June 30, 1995 and 1996.
8. EMPLOYEE BENEFIT PLAN
The Company participates in the Argosy sponsored 401(k) defined-contribution
plan which was established in 1994 and covers substantially all of the Company's
full-time employees and was established in 1994. Participants can contribute a
maximum of 10% of their eligible salaries (as defined) subject to maximum
limits, as determined by provisions of the Internal Revenue Code, and the
Company will match 100% of participants' contributions up to 5% of their
eligible salaries. Expense recognized under the Plan was $412 and $461 for the
years ended December 31, 1994 and 1995.
9. COMMITMENTS AND CONTINGENCIES
A predecessor entity to the Company ("Predecessor"), as a result of a
certain shareholder loan transaction, could be subject to federal and certain
state income taxes (plus interest and penalties, if any) if it is determined
that it failed to satisfy all of the requirements of the S-Corporation
provisions of the Internal Revenue Code relating to the prohibition concerning a
second class of stock. An audit is currently being conducted by the Internal
Revenue Service ("IRS") of the Company's federal income tax returns for the 1992
and 1993 tax years and the IRS has asserted the S-Corporation status as one of
the issues although the IRS has yet to make a formal claim of deficiency. If the
IRS successfully challenges the Predecessor's S-Corporation status, the Company
would be required to pay federal and certain state income taxes on the
Predecessor's taxable income from the commencement of its operations until
February 25, 1993 (plus interest and penalties, if any, thereon until the date
of payment). If the Predecessor was required to pay federal and certain state
income taxes on its taxable earnings through February 25, 1993, such payments
could amount to approximately $12,000, including interest through June 30, 1996,
but excluding penalties, if any. While the Company believes the Predecessor has
legal authority for its position that it is not subject to federal and certain
state income taxes because it met the S-Corporation requirements, no assurances
can be given that the Predecessor's position will be upheld. This contingent
liability could have a material adverse effect on the Company's results of
operations, financial condition and cash flows. No provision has been made for
this contingency in the accompanying financial statements.
10. GUARANTY OF PARENT OBLIGATIONS (UNAUDITED)
On June 5, 1996, Argosy issued $235 million of 13 1/4% First Mortgage Notes,
due 2004 ("Mortgage Notes") and retired the Credit Facility. The assets of the
Company are pledged as collateral, and the Company is a guarantor, under the
terms of the Mortgage Notes. The Mortgage Notes are due 2004.
F-33
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Argosy of Louisiana, Inc.
We have audited the accompanying consolidated balance sheets of Argosy of
Louisiana, Inc. as of December 31, 1994 and 1995, and the related consolidated
statements of operations, stockholder's equity and cash flows for the period
from July 29, 1993 (inception) through December 31, 1993 and the years ended
December 31, 1994 and 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Argosy of
Louisiana, Inc. at December 31, 1994 and 1995, and the consolidated results of
its operations and its cash flows for the period from July 29, 1993, (inception)
through December 31, 1993, and for the years ended December 31, 1994 and 1995 in
conformity with generally accepted accounting principles.
Ernst & Young LLP
New Orleans, Louisiana
January 26, 1996
F-34
<PAGE>
ARGOSY OF LOUISIANA, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- --------- JUNE 30,
-----------
1996
-----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.................................................... $ 6,073 $ 5,201 $ 5,088
Accounts receivable, net..................................................... 203 796 73
Note receivable -- affiliate................................................. 2,801
Deferred income taxes........................................................ 5 179 179
Income taxes receivable from affiliate....................................... 696 460
Prepaid assets............................................................... 36 686 435
Other current assets......................................................... 195 190 222
--------- --------- -----------
Total current assets..................................................... 9,313 7,748 6,457
NET PROPERTY AND EQUIPMENT..................................................... 55,376 64,715 62,711
Other assets:
Deposits..................................................................... -- 82 13
Deferred lease acquisition cost, net......................................... 2,159 2,051 1,997
Deferred licensing cost, net................................................. 1,112 741 556
--------- --------- -----------
Total other assets......................................................... 3,271 2,874 2,566
--------- --------- -----------
TOTAL ASSETS................................................................... $ 67,960 $ 75,337 $ 71,734
--------- --------- -----------
--------- --------- -----------
CURRENT LIABILITIES:
Accounts payable............................................................. $ 1,036 $ 1,318 $ 806
Accrued payroll and related expenses......................................... 1,003 611 732
Other accrued liabilities.................................................... 877 1,140 2,818
Accrued gaming taxes......................................................... 482 560 487
Income taxes payable to affiliate............................................ 114
Current maturities of long-term debt......................................... 2,856 390 98
--------- --------- -----------
Total current liabilities.................................................. 6,368 4,019 4,941
--------- --------- -----------
OTHER LONG-TERM OBLIGATIONS.................................................... 206
DUE TO AFFILIATES.............................................................. 56,062 64,222 57,991
DEFERRED INCOME TAXES.......................................................... 657 1,974 2,685
MINORITY INTEREST IN CONSOLIDATED PARTNERSHIP.................................. 3,355 3,319 3,397
STOCKHOLDER'S EQUITY:
Common stock -- $1 par value, 1,000 shares authorized, issued and
outstanding................................................................. 1 1 1
Retained earnings............................................................ 1,311 1,802 2,719
--------- --------- -----------
1,312 1,803 2,720
--------- --------- -----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY..................................... $ 67,960 $ 75,337 $ 71,734
--------- --------- -----------
--------- --------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-35
<PAGE>
ARGOSY OF LOUISIANA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
JULY 29, 1993
(INCEPTION) YEAR ENDED DECEMBER
THROUGH 31,
DECEMBER 31, --------------------
1993 1994 1995
------------- --------- --------- SIX MONTHS ENDED JUNE
30,
------------------------
1995 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES
Casino........................................... $ $ 19,952 $ 48,427 $ 24,035 $ 27,036
Food, beverage and other......................... 1,024 4,945 1,311 2,549
----- --------- --------- ----------- -----------
20,976 53,372 25,346 29,585
Less promotional allowances...................... (660) (3,566) (775) (1,495)
----- --------- --------- ----------- -----------
Net revenues....................................... 20,316 49,806 24,571 28,090
----- --------- --------- ----------- -----------
COSTS AND EXPENSES
Casino........................................... 8,248 25,547 12,919 13,365
Food, beverage and other......................... 979 3,772 1,739 2,297
Other operating expenses......................... 3,584 4,013 1,476 2,349
Selling, general and administrative.............. 1,954 10,164 5,742 5,481
Depreciation and amortization.................... 1,151 5,430 2,722 2,731
Preopening costs................................. 129 1,906
----- --------- --------- ----------- -----------
129 17,822 48,926 24,598 26,223
----- --------- --------- ----------- -----------
Income (loss) from operations...................... (129) 2,494 880 (27) 1,867
OTHER INCOME (EXPENSE)
Interest......................................... (204) (92) (159) 75
----- --------- --------- ----------- -----------
Income (loss) before income taxes and minority
interest.......................................... (129) 2,290 788 (186) 1,942
Income tax (expense) benefit....................... 52 (818) (333) 123 (947)
Minority interest.................................. (84) 36 25 (78)
----- --------- --------- ----------- -----------
Net income (loss).................................. $ (77) $ 1,388 $ 491 $ (38) $ 917
----- --------- --------- ----------- -----------
----- --------- --------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-36
<PAGE>
ARGOSY OF LOUISIANA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
JULY 29, 1993
(INCEPTION) YEAR ENDED DECEMBER
THROUGH 31,
DECEMBER 31, ---------------------
1993 1994 1995
--------------- --------- ---------- SIX MONTHS ENDED JUNE
30,
------------------------
1995 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)................................. $ (77) $ 1,388 $ 491 $ (38) $ 917
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization................... 1,151 5,430 2,722 2,731
Preopening costs................................ 129 1,906
Minority interest............................... 84 (36) (25) 78
Deferred income taxes........................... 652 1,143 1,134 711
Changes in operating assets and liabilities:
Accounts receivable........................... (202) (593) (122) 723
Other current assets.......................... (231) (645) 834 219
Accounts payable.............................. 1,036 282 1,593 (512)
Accrued payroll and related expenses.......... 1,002 (392) (116) 121
Other accrued liabilities..................... (52) 1,527 (469) (505) 1,841
--- --------- ---------- ----------- -----------
Net cash provided by operating activities..... 8,313 5,211 5,477 6,829
--- --------- ---------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............... (2,076) (13,914) (14,078) (488)
--- --------- ---------- ----------- -----------
Net cash used in investing activities........... (2,076) (13,914) (14,078) (488)
--- --------- ---------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in advances from affiliates... 4,546 8,160 4,567 (6,231)
Payments on notes payable and long-term debt...... (1,909) (3,048) (2,331) (292)
Notes receivable-affiliate........................ (2,801) 2,801 2,801
(Increase) decrease in other assets............... (82) (28) 69
--- --------- ---------- ----------- -----------
Net cash provided by (used in) financing
activities..................................... (164) 7,831 5,009 (6,454)
--- --------- ---------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents...................................... 6,073 (872) (3,592) (113)
Cash and cash equivalents, beginning of period.... 6,073 6,073 5,201
--- --------- ---------- ----------- -----------
Cash and cash equivalents, end of period.......... $ $ 6,073 $ 5,201 $ 2,481 $ 5,088
--- --------- ---------- ----------- -----------
--- --------- ---------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-37
<PAGE>
ARGOSY OF LOUISIANA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
RETAINED
EARNINGS
SHARES COMMON STOCK (DEFICIT) TOTAL
----------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Initial capital contribution, July 29, 1993 (inception)................... 1,000 $ 1 $ $ 1
Net loss for period from July 29, 1993 through December 31, 1993........ (77) (77)
--
----- ----------- ---------
Balances, December 31, 1993............................................. 1,000 1 (77) (76)
Net income for 1994................................................... 1,388 1,388
--
----- ----------- ---------
Balance, December 31, 1994.............................................. 1,000 1 1,311 1,312
Net income for 1995................................................... 491 491
--
----- ----------- ---------
Balance, December 31, 1995.............................................. 1,000 $ 1 $ 1,802 $ 1,803
--
--
----- ----------- ---------
----- ----------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-38
<PAGE>
ARGOSY OF LOUISIANA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Argosy of Louisiana, Inc. (collectively with its controlled partnership
Catfish Queen Partnership in Commendam ("Partnership") "the Company") was formed
on July 29, 1993. The Company entered a partnership agreement with Jazz
Enterprises, Inc. ("Jazz") to form the Partnership to provide riverboat gaming
and related entertainment in Baton Rouge, Louisiana. The Company, a wholly owned
subsidiary of Argosy Gaming Company (Argosy), is the 90% general partner of the
Partnership, along with the 10% partner in commendam Jazz, which became a wholly
owned subsidiary of Argosy in 1995. On September 21, 1994, Jazz contributed its
State of Louisiana Riverboat Gaming License and certain leases with a fair value
of $3,271 to the Company. On September 21, 1994, the Company's riverboat casino,
Belle of Baton Rouge, commenced operations.
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with the instructions to Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. Interim results may not necessarily be indicative of results which
may be expected for any other interim period or for the year as a whole. The
accompanying unaudited condensed consolidated financial statements contain all
adjustments which are, in the opinion of management, necessary to present fairly
the financial position and the results of operations for the periods indicated.
Such adjustments include only normal recurring accruals.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates. These
consolidated financial statements include the accounts of the Company and the
Partnership. All significant intercompany accounts and transactions have been
eliminated.
CASH AND CASH EQUIVALENTS
The Company considers cash and all liquid investments with an original
maturity of three months or less to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Depreciation and amortization is
computed on the straight-line method over the estimated useful lives or lease
period as follows:
Leasehold improvements............................ 31 years
Riverboat, dock and improvements.................. 15 to 20 years
Furniture, fixtures and equipment................. 5 to 7 years
DEFERRED LEASE ACQUISITION COST
Deferred lease acquisition cost results from the contribution of certain
leases by Jazz to the Partnership. This cost is amortized on the straight-line
method over 20 years. Accumulated amortization was $108 at December 31, 1995.
DEFERRED LICENSING COST
Deferred licensing cost results from the contribution by Jazz of the State
of Louisiana Riverboat Gaming License to the Partnership. This cost is amortized
on the straight-line method over three years. Accumulated amortization was $371
at December 31, 1995.
F-39
<PAGE>
ARGOSY OF LOUISIANA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASINO REVENUES AND PROMOTIONAL ALLOWANCES
The Company recognizes as casino revenues the net win from gaming
activities, which is the difference between gaming wins and losses. The retail
value of food and beverages which were provided to customers without charge has
been included in revenues, and a corresponding amount has been deducted as
promotional allowances. The estimated cost of providing promotional allowances
for food and beverages was $402 and $2,166 in 1994 and 1995, respectively, and
has been included in food and beverage costs and expenses.
PREOPENING COSTS
Preopening costs, which consist primarily of labor, training and marketing
costs incurred prior to the commencement of gaming operations, are expensed as
incurred.
ADVERTISING COSTS
The Company expenses advertising costs as incurred. Advertising expense was
$221 and $1,580 in 1994 and 1995.
INCOME TAXES
Earnings or losses from the Company are included in the consolidated income
tax returns of Argosy. Under the terms of a tax sharing arrangement between the
Company and Argosy, the Company computes federal and state income taxes on a
separate return basis.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- ---------
<S> <C> <C>
Leasehold and shore improvements........................................ $ 2,992 $ 20,446
Riverboat, docks and improvements....................................... 33,752 33,923
Furniture, fixtures and equipment....................................... 15,129 16,450
Construction in progress................................................ 4,654
--------- ---------
56,527 70,819
Less accumulated depreciation and amortization.......................... 1,151 6,104
--------- ---------
Net property and equipment.............................................. $ 55,376 $ 64,715
--------- ---------
--------- ---------
</TABLE>
F-40
<PAGE>
ARGOSY OF LOUISIANA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
3. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- ---------
<S> <C> <C>
9.75% note payable to vendor in monthly installments of $27, including
interest, through August 1996, collateralized by gaming equipment........... $ 510 $ 214
Prime plus 2% (10.5% at December 31, 1994) note payable to vendor in monthly
installments of $332, plus interest, through August 1995, collateralized by
gaming equipment............................................................ 2,321
9% note payable to vendor in monthly installments of $34, including interest,
through August 1995, collateralized by gaming equipment..................... 231
Other........................................................................ 176
--------- ---------
3,062 390
Less current maturities...................................................... 2,856 390
--------- ---------
$ 206 $ 0
--------- ---------
--------- ---------
</TABLE>
4. INCOME TAXES
Income tax (expense) benefit consists of the following:
<TABLE>
<CAPTION>
PERIOD FROM JULY
29, 1993 YEAR ENDED DECEMBER
(INCEPTION) 31,
THROUGH DECEMBER --------------------
31, 1993 1994 1995
----------------- --------- ---------
<S> <C> <C> <C>
Current:
Federal................................................... $ $ (88) $ 718
State..................................................... (26) 92
--- --------- ---------
Total current........................................... (114) 810
Deferred:
Federal................................................... 45 (615) (1,000)
State..................................................... 7 (89) (143)
--- --------- ---------
Total deferred.......................................... 52 (704) (1,143)
--- --------- ---------
Income tax (expense) benefit............................ $ 52 $ (818) $ (333)
--- --------- ---------
--- --------- ---------
</TABLE>
The tax effects of significant temporary differences representing deferred
tax assets and liabilities at December 31, 1994 and 1995 are as follows:
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Tax over book depreciation............................................... $ 1,702 $ 2,495
Pre-opening.............................................................. (1,045) (521)
Other, net............................................................... (5) (179)
--------- ---------
Net deferred tax liabilities......................................... $ 652 $ 1,795
--------- ---------
--------- ---------
</TABLE>
F-41
<PAGE>
ARGOSY OF LOUISIANA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
4. INCOME TAXES (CONTINUED)
The provision for income taxes differs from that computed at the federal
statutory corporate tax rate as follows:
<TABLE>
<CAPTION>
PERIOD FROM
JULY 29, 1993
(INCEPTION) YEAR ENDED DECEMBER 31,
THROUGH
DECEMBER 31, ------------------------
1993 1994 1995
--------------- ----------- -----------
<S> <C> <C> <C>
Tax at U.S. statutory rates................................. 35.0% 35.0% 35.0%
State income tax, net of federal tax benefit................ 4.8 4.8 5.7
Targeted jobs tax credits, net.............................. (3.1) (3.3)
Other, net.................................................. .2 (1.0) 4.9
--- --- ---
40.0% 35.7% 42.3%
--- --- ---
--- --- ---
</TABLE>
5. RELATED PARTY TRANSACTIONS
The Company leases, for a minimum of five years with six five-year renewal
options, a docking site, office and warehouse space from Jazz. Rent under terms
of the lease ranges from 6% to 10% of adjusted gross receipts. Pursuant to
Argosy's agreement to purchase 100% of the common stock of Jazz, the partners
agreed that all rents from November 1, 1994 through the closing of the Jazz
purchase (June 1995) shall not be paid or due to Jazz. Subsequent to the closing
of the Jazz purchase, the Company resumed its obligations under the lease with
Jazz.
Rent expense was approximately $0, $724 and $2,202 in 1993, 1994 and 1995,
respectively. Approximately $408 in 1994 and $1,800 in 1995 resulted from the
above mentioned lease with Jazz.
The Company participates in Argosy's property, general liability, workers
compensation and other insurance programs. The Company's share of these costs
was approximately $0, $1,100 and $2,183 in 1993, 1994 and 1995 respectively.
6. SUPPLEMENTAL CASH FLOW INFORMATION
In 1995, the Company entered into capital lease obligations totaling $376
for the acquisition of property and equipment.
During 1994, the Company acquired gaming equipment totaling $4,971 which was
financed by equipment vendors.
During 1994, other assets totaling $3,271 were contributed to the Company by
Jazz.
The Company paid interest of $0, $111 and $943 in 1993, 1994 and 1995,
respectively.
During 1993 and 1994, Argosy transferred property and equipment to the
Company with a fair value of approximately $8,183 and $41,297 respectively,
subject to an unsecured note payable to Argosy. Additionally, preopening costs
of $2,035 were also financed through Argosy.
7. EMPLOYEE BENEFIT PLAN
The Company participates in the Argosy Gaming Company Employees Savings
Trust, a 401(k) defined-contribution plan which covers substantially all of its
full-time employees. Participants can contribute a maximum of 10% of their
eligible salaries (as defined) subject to maximum limits, as determined by
provisions of the Internal Revenue Code, and the Company will match 100% of
participants' contributions up to 5% of their eligible salaries. Expense
recognized by the Company under the Plan was approximately $0, $7 and $503 in
1993, 1994 and 1995, respectively.
F-42
<PAGE>
ARGOSY OF LOUISIANA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
8. COMMITMENTS
On September 21, 1994, the City of Baton Rouge and the Parish of East Baton
Rouge (collectively referred to as "City-Parish") and Jazz entered into an
agreement which requires Jazz and the Company to pay to the City-Parish $2.50
per passenger. Additionally, Jazz agreed to pay to the City-Parish an additional
$1.25 per passenger for two years or until construction of a convention-size
hotel is begun. This additional $1.25 per passenger payment is limited to a
total of $1,000,000 per year for each of the first and second years of operation
of the riverboat. In the event the actual construction of the hotel does not
commence within two years, then Jazz is required to pay to the City-Parish $2.50
per passenger until actual construction of the hotel commences.
Argosy has guaranteed the additional $1.25 per passenger payment for the
first two years, subject to the $1,000,000 annual limitation, and the additional
$2.50 per passenger payment after year two, if required, for the initial
five-year certification term approved by the Louisiana Riverboat Gaming
Commission. Through December 31, 1995, the Company has paid all admission
payments due under the above agreements.
The Company leases certain premises under noncancelable operating leases
that expire in 1997. Future minimum lease payments under the noncancelable
operating leases with initial terms of one year or more are $226 in 1996 and
$205 in 1997.
The Company is a party to a $100 million senior line of credit among Argosy
and its subsidiaries and several banks ("Credit Facility"). Borrowings under the
Credit Facility are secured by substantially all the assets of the Company and
the Company is a named borrower and guarantor under the Credit Facility.
9. GUARANTY OF PARENT OBLIGATIONS (UNAUDITED)
On June 5, 1996 Argosy issued $235 million of 13 1/4% First Mortgage Notes,
due 2004 ("Mortgage Notes") and retired the Credit Facility. The assets of the
Company are pledged as collateral, and the Company is a guarantor, under the
terms of Mortgage Notes.
10. LOUISIANA LOCAL OPTION ELECTION (UNAUDITED)
On April 19, 1996, the Louisiana legislature approved legislation mandating
local option elections to determine whether to prohibit specified individual
types of gaming, including riverboat gaming, in Louisiana on a parish-by-parish
basis. The referendum will be brought before the Louisiana voters in November
1996. There can be no assurance that the voters of East Baton Rouge Parish will
not vote to prohibit riverboat gaming. If such a vote to prohibit riverboat
gaming occurs, the Company will be required to discontinue gaming activity in
East Baton Rouge Parish upon the expiration of its current gaming license in
September 1999. The discontinuance of gaming operations in East Baton Rouge
Parish would have a material adverse effect on the Company, both in terms of the
loss of revenues and cash flow generated by the Belle of Baton Rouge and the
impairment of the significant capital investment that the Company has in its
riverboat casino and related facilities.
F-43
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
The Missouri Gaming Company
We have audited the accompanying balance sheets of The Missouri Gaming
Company as of December 31, 1994 and 1995, and the related statements of
operations, stockholder's equity and cash flows for the period from March 31,
1993 (inception) through December 31, 1993 and for the years ended December 31,
1994 and 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Missouri Gaming Company
at December 31, 1994 and 1995, and the results of its operations and its cash
flows for the period from March 31, 1993 (inception) through December 31, 1993
and for the years ended December 31, 1994 and 1995, in conformity with generally
accepted accounting principles.
Ernst & Young LLP
Kansas City, Missouri
January 26, 1996
F-44
<PAGE>
THE MISSOURI GAMING COMPANY
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- --------- JUNE 30,
1996
-----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash......................................................................... $ 5,087 $ 4,131 $ 8,825
Accounts receivable.......................................................... 37 129 177
Other current assets......................................................... 2,030 1,848 1,643
--------- --------- -----------
Total current assets....................................................... 7,154 6,108 10,645
--------- --------- -----------
Net property and equipment..................................................... 42,923 68,991 76,766
Other assets:
Deposits..................................................................... 503 288 288
Prepaid rent................................................................. 3,916 2,917 2,417
Deferred income taxes........................................................ 1,028 294 649
Other........................................................................ 1,796 1,507 1,387
--------- --------- -----------
Total other assets......................................................... 7,243 5,006 4,741
--------- --------- -----------
Total assets................................................................... $ 57,320 $ 80,105 $ 92,152
--------- --------- -----------
--------- --------- -----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable............................................................. $ 1,927 $ 7,159 $ 1,456
Accrued payroll and related expenses......................................... 1,027 1,104 1,993
Other accrued liabilities.................................................... 1,591 2,115 2,795
Accrued lease termination costs.............................................. 1,281
Income taxes payable to affiliate............................................ 1,792 6,022 6,084
Installment contracts payable................................................ 4,352 756 298
--------- --------- -----------
Total current liabilities.................................................. 10,689 17,156 13,907
--------- --------- -----------
Due to affiliates.............................................................. 40,808 45,570 60,968
--------- --------- -----------
Stockholder's equity:
Common stock -- $.01 par value, 1,000 shares authorized, issued and
outstanding.................................................................
Capital in excess of par..................................................... 5,000 5,000 5,000
Retained earnings............................................................ 823 12,379 12,277
--------- --------- -----------
Total stockholder's equity................................................. 5,823 17,379 17,277
--------- --------- -----------
Total liabilities and stockholder's equity..................................... $ 57,320 $ 80,105 $ 92,152
--------- --------- -----------
--------- --------- -----------
</TABLE>
See accompanying notes to financial statements.
F-45
<PAGE>
THE MISSOURI GAMING COMPANY
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 31, 1993
(INCEPTION)
THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31,
--------------- ---------------------
1993 1994 1995
--------------- --------- ---------- SIX MONTHS ENDED
JUNE 30,
------------------------
1995 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES
Casino........................................ $ $ 29,588 $ 86,443 $ 42,889 $ 44,002
Admissions.................................... 5,104 15,300 8,344 1,993
Food, beverage and other...................... 2,532 5,203 2,253 5,344
----- --------- ---------- ----------- -----------
37,224 106,946 53,486 51,339
Less promotional allowances................... (1,873) (12,888) (6,180) (4,010)
----- --------- ---------- ----------- -----------
Net revenues.................................... 35,351 94,058 47,306 47,329
----- --------- ---------- ----------- -----------
COSTS AND EXPENSES
Casino........................................ 17,330 42,355 20,834 22,391
Food, beverage and other...................... 2,421 4,934 2,244 4,713
Other operating expenses...................... 2,163 4,199 2,191 2,342
Selling, general and administrative........... 4,451 13,118 6,098 7,057
Depreciation and amortization................. 3,978 7,395 3,502 4,252
Preopening costs.............................. 544 2,481 322
Lease termination costs....................... 3,508
Referendum expenses........................... 57
----- --------- ---------- ----------- -----------
544 32,881 72,001 34,869 44,585
----- --------- ---------- ----------- -----------
Income from operations.......................... (544) 2,470 22,057 12,437 2,744
----- --------- ---------- ----------- -----------
OTHER INCOME (EXPENSE)
Interest income............................... 8
Interest expense.............................. (47) (3,626) (2,490) (2,914)
----- --------- ---------- ----------- -----------
(39) (3,626) (2,490) (2,914)
----- --------- ---------- ----------- -----------
Income (loss) before income taxes............... (544) 2,431 18,431 9,947 (170)
Income tax (expense) benefit.................... (1,064) (6,875) (4,281) 68
----- --------- ---------- ----------- -----------
Net income (loss)............................... $ (544) $ 1,367 $ 11,556 $ 5,666 $ (102)
----- --------- ---------- ----------- -----------
----- --------- ---------- ----------- -----------
</TABLE>
See accompanying notes to financial statements.
F-46
<PAGE>
THE MISSOURI GAMING COMPANY
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 31, 1993
(INCEPTION)
THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31,
-------------- ----------------------
1993 1994 1995
-------------- ---------- ---------- SIX MONTHS ENDED
JUNE 30,
------------------------
1995 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss).............................. $ (544) $ 1,367 $ 11,556 $ 5,666 $ (102)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization................ 3,978 7,395 3,502 4,252
Deferred income taxes........................ (1,028) 734 (506) (355)
Lease termination costs...................... 3,508
Changes in operating assets and liabilities:
Accounts receivable........................ (29) (92) 4 (48)
Other current assets....................... (20) (2,017) 182 1,005 (195)
Accounts payable........................... 12 1,927 5,232 (1,072) (6,060)
Accrued liabilities........................ 2,604 601 664 1,569
Income taxes payable to affiliate.......... 1,792 4,230 4,288 62
Other assets............................... (5,868) 1,217 900
------- ---------- ---------- ----------- -----------
Net cash provided by (used by) operating
activities................................ (552) 2,726 31,055 13,551 3,531
------- ---------- ---------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............ (2,507) (39,222) (31,496) (10,262) (13,296)
------- ---------- ---------- ----------- -----------
Net cash used in investing activities...... (2,507) (39,222) (31,496) (10,262) (13,296)
------- ---------- ---------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on installment contracts............ (664) (5,277) (1,894) (458)
Due from affiliate........................... 10,536 35,273 4,762 (2,141) 14,917
Decrease (increase) in deposits.............. (7,463) 6,960 175
------- ---------- ---------- ----------- -----------
Net cash provided by (used in) financing
activities................................ 3,073 41,569 (515) (3,860) 14,459
------- ---------- ---------- ----------- -----------
Net increase (decrease) in cash.............. 14 5,073 (956) (571) 4,694
Cash, beginning of year...................... 14 5,087 5,087 4,131
------- ---------- ---------- ----------- -----------
Cash, end of year............................ $ 14 $ 5,087 $ 4,131 $ 4,516 $ 8,825
------- ---------- ---------- ----------- -----------
------- ---------- ---------- ----------- -----------
</TABLE>
See accompanying notes to financial statements.
F-47
<PAGE>
THE MISSOURI GAMING COMPANY
STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CAPITAL IN RETAINED
COMMON EXCESS OF EARNINGS
SHARES STOCK PAR (DEFICIT) TOTAL
--------- --------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C>
Initial capital contribution............................. 1,000 $ $ 5,000 $ $ 5,000
Net loss for period from inception through December 31,
1993.................................................. (544) (544)
--------- --------- ----------- --------- ------------
Balances, December 31, 1993............................ 1,000 5,000 (544) 4,456
Net income for 1994.................................. 1,367 1,367
--------- --------- ----------- --------- ------------
Balance, December 31, 1994............................. 1,000 5,000 823 5,823
Net income for 1995.................................. 11,556 11,556
--------- --------- ----------- --------- ------------
Balance, December 31, 1995............................. 1,000 $ $ 5,000 $ 12,379 $ 17,379
--------- --------- ----------- --------- ------------
--------- --------- ----------- --------- ------------
</TABLE>
See accompanying notes to financial statements.
F-48
<PAGE>
THE MISSOURI GAMING COMPANY
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
The Missouri Gaming Company (a Missouri company and a wholly owned
subsidiary of Argosy Gaming Company, ("Argosy")) was incorporated in Missouri in
March 1993. The Company was formed to develop and operate a riverboat casino and
related facilities in Riverside, Missouri. The Company commenced operations on
June 22, 1994, with the opening of the Argosy Riverside Casino, at a temporary
facility. The Company offered games of skill from opening until December 9,
1994, when games of chance were legalized in Missouri. From the period of
incorporation until June 22, 1994, the Company was engaged principally in
organizational and preopening activities. All operating costs incurred during
this period have been charged to expense as preopening costs. The Company began
construction of a permanent facility during 1995. The permanent facility was
opened to the public on January 15, 1996 and serves as a dining and
entertainment outlet to the riverboat casino.
The accompanying unaudited condensed financial statements have been prepared
in accordance with the instructions to Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
Interim results may not necessarily be indicative of results which may be
expected for any other interim period or for the year as a whole. The
accompanying unaudited condensed financial statements contain all adjustments
which are, in the opinion of management, necessary to present fairly the
financial position and the results of operations for the periods indicated. Such
adjustments include only normal recurring accruals.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers cash and all highly liquid investments with an
original maturity of three months or less to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Depreciation and amortization is
computed using the straight-line method over the following estimated useful
lives:
<TABLE>
<S> <C>
5 to 10
Leasehold and shore improvements...................... years
5 to 20
Riverboat, dock and improvements...................... years
5 to 10
Furniture, fixtures and equipment..................... years
</TABLE>
CASINO REVENUES AND PROMOTIONAL ALLOWANCES
The Company recognizes as casino revenues the net win from gaming
activities, which is the difference between gaming wins and losses. The retail
value of admissions and food and beverage which were provided to customers
without charge, has been included in revenues, and a corresponding amount has
been deducted as promotional allowances. The estimated cost of providing
promotional allowances has been included in operating costs and expenses as
follows:
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Admissions......................................................... $ 938 $ 4,601
Food, beverage and other........................................... 65 522
</TABLE>
F-49
<PAGE>
THE MISSOURI GAMING COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ADMISSIONS REVENUE
Admissions revenue is recognized at the time the related service is
performed. The Company stopped charging customers an admission fee in the second
quarter of 1996 and therefore no longer recognizes any admission revenue.
ADVERTISING COSTS
The Company expenses advertising costs as incurred. Advertising expense for
the years ended December 31, 1994 and 1995 was $1,043 and $2,619, respectively.
INCOME TAXES
Earnings or losses from the Company are included in the consolidated income
tax returns of Argosy. Under the terms of a tax sharing arrangement between the
Company and Argosy, the Company computes federal and state income taxes on a
separate return basis.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
<S> <C> <C>
Land and improvements...................................................... $ 2,815 $ 2,815
Buildings and improvements................................................. 25 25
Riverboat, dock and improvements........................................... 32,820 30,827
Furniture, fixtures and equipment.......................................... 10,493 13,305
Construction in progress................................................... 1,479 32,329
------------ ------------
47,632 79,301
Accumulated depreciation and amortization.................................. (4,709) (10,310)
------------ ------------
Net Property and Equipment............................................... $ 42,923 $ 68,991
------------ ------------
------------ ------------
</TABLE>
3. RIVERSIDE AGREEMENT
The Company entered into a Lease and Development Agreement ("Agreement")
with the City of Riverside, Missouri. The Agreement, as amended, required the
Company to pay $1,600 for the construction of a city park and for the
development of a golf course. These payments were capitalized and are being
amortized over ten years using the straight-line method. The unamortized portion
of these payments is included in other assets in the accompanying balance
sheets.
Under the terms of the Agreement, the Company leases its site from the City
of Riverside. The $5,000 minimum rent due for the initial five-year term of the
lease was paid in advance as required by the Agreement. In addition to minimum
rent, during the initial five-year lease term, percentage rent is payable at 2%
of adjusted gross receipts ("AGR"), as defined, over $100 million annually. The
Company has the option to extend the Agreement for three successive five-year
terms. In all extension periods, there will be no minimum rent and percentage
rent will be payable as follows: (i) 2% on the first $50 million of AGR; (ii) 3%
on AGR between $50 million and $100 million; and (iii) 4% on AGR in excess of
$100 million. If at any time during the initial lease term or any extension,
thereof, the Company is permitted to operate permanently a dockside gaming
facility, any applicable percentage rent will increase by one percentage point.
The Agreement requires the Company to maintain a net worth of $5,000 at all
times, unless approved by the City of Riverside.
F-50
<PAGE>
THE MISSOURI GAMING COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
4. INCOME TAXES
Income tax expense for years ended December 31, 1994 and 1995 consists of
the following:
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Current:
Federal................................................................ $ 1,856 $ 5,419
State.................................................................. 236 722
--------- ---------
2,092 6,141
--------- ---------
Deferred:
Federal................................................................ (905) 646
State.................................................................. (123) 88
--------- ---------
(1,028) 734
--------- ---------
Total income tax expense............................................... $ 1,064 $ 6,875
--------- ---------
--------- ---------
</TABLE>
The provision for income taxes for the years ended December 31, 1994 and
1995 differs from that computed at the Federal Statutory corporate tax rate as
follows:
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Federal Statutory rate................................................... 35.0% 35.0%
State income taxes, net of Federal benefit............................... 4.6 4.4
Nondeductible contributions.............................................. 3.0
Other.................................................................... .4 (2.4)
--------- ---------
43.0% 37.0%
--------- ---------
--------- ---------
</TABLE>
The tax effects of significant temporary differences representing deferred
tax assets and liabilities at December 31, 1994 and 1995 are as follows:
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Start-up costs........................................................... $ 1,020 $ 792
Depreciation............................................................. (182) (351)
Other, net............................................................... 190 (147)
--------- ---------
Net deferred tax asset................................................. $ 1,028 $ 294
--------- ---------
--------- ---------
</TABLE>
5. RELATED PARTY TRANSACTIONS
The Company participates in Argosy's property, general liability, worker's
compensation and other insurance programs. The Company's estimated share of
these costs is allocated directly to the Company by Argosy in the amount of $878
and $2,584 for the years ended December 31, 1994 and 1995, respectively.
The Company has outstanding long-term debt with Argosy in the amounts of
$40,808 and $45,570 at December 31, 1994 and 1995, respectively. These amounts
represent funds received in connection with the construction of the permanent
facility. The Company accrues interest on the long-term debt at a rate of 12%
annually.
The Company also receives various management and other services from related
parties at no charge.
6. EMPLOYEE BENEFIT PLAN
The Company participates in the Argosy Gaming Company Employees Savings
Trust, a 401(k) defined-contribution plan, which covers substantially all of its
full time employees. Participants can contribute a maximum of 10% of their
eligible salaries (as defined) subject to maximum limits, as determined by
F-51
<PAGE>
THE MISSOURI GAMING COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
6. EMPLOYEE BENEFIT PLAN (CONTINUED)
provisions of the Internal Revenue Code and the Company will match 100% of
participants' contributions up to 5% of their eligible salaries. Expense
recognized by the Company under the Plan was $89 and $490 for the years ended
December 31, 1994 and 1995, respectively.
7. COMMITMENTS AND CONTINGENCIES
The Company leases a barge that it previously used as restaurant,
entertainment and boarding facilities. The Company also leases office space,
warehouse space, gaming equipment and other equipment under various operating
leases. Minimum rents due under such leases are approximately $1,414 in 1996,
$146 in 1997, $51 in 1998, and $9 in 1999. Rent expense for the years ended
December 31, 1994 and 1995 was $1,023 and $3,447, respectively.
The Company is restricted from making certain distributions to Argosy and
other affiliates unless approved by state gaming authorities.
The Company is a party to a $100 million senior secured line of credit among
Argosy and its subsidiaries and several banks ("Credit Facility"). Borrowings
under the Credit Facility are secured by substantially all the assets of the
Company and the Company is a named borrower and guarantor under the Credit
Facility.
8. GUARANTY OF PARENT OBLIGATIONS (UNAUDITED)
On June 5, 1996, Argosy issued $235 million of 13 1/4% First Mortgage Notes,
due 2004 ("Mortgage Notes") and retired the Credit Facility. Substantially all
of the assets of the Company are pledged as collateral, and the Company is a
guarantor under terms of the Mortgage Notes.
9. LEASE TERMINATION (UNAUDITED)
In the second quarter of 1996 the Company determined that it no longer had a
use for the temporary restaurant and entertainment barge. Accordingly, the
Company expensed the remaining lease costs and any termination costs associated
with the lease.
F-52
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Jazz Enterprises, Inc.
We have audited the accompanying balance sheets of Jazz Enterprises, Inc. as
of February 28, 1995 and 1994, and the related statements of operations,
stockholders' equity (deficit), and cash flows for the years ended February 28,
1995 and 1994 and for the period from June 10, 1992 (date of inception) through
February 28, 1993. 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, the financial statements referred to above present fairly,
in all material respects, the financial position of Jazz Enterprises, Inc. as of
February 28, 1995 and 1994, and the results of its operations and its cash flows
for each of the two years in the period ended February 28, 1995 and for the
period June 10, 1992 (date of inception) through February 28, 1993 in conformity
with generally accepted accounting principles.
Grant Thornton LLP
Reno, Nevada
July 10, 1995
F-53
<PAGE>
JAZZ ENTERPRISES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
FEBRUARY 28,
----------------------------
1995 1994
MAY 30, ------------- -------------
1995
-------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents......................................... $ 5,572 $ 1,508 $ 140,122
Receivables....................................................... 47,516 47,516 36,394
Due from affiliate................................................ -- -- 175,000
Prepaid expenses.................................................. 161,563 170,794 77,760
------------- ------------- -------------
Total current assets............................................ 214,651 219,818 429,276
PROPERTY AND EQUIPMENT.............................................. 21,477,253 21,427,872 13,273,609
NOTES RECEIVABLE -- RELATED PARTY................................... 1,892,966 1,861,523 807,203
OTHER ASSETS
Escrow deposits................................................... -- -- 255,000
Investment in partnership......................................... 1,550,458 1,550,458 350,232
Deposits.......................................................... 198,247 198,714 231,868
Other assets...................................................... 3,359 3,647 4,791
------------- ------------- -------------
$ 25,336,934 $ 25,262,032 $ 15,351,979
------------- ------------- -------------
------------- ------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Bank overdraft.................................................... $ -- $ 234,059 $ --
Short-term borrowings............................................. 1,810,680 1,810,680 --
Short-term borrowings -- related party............................ 7,879,087 7,879,087 --
Notes payable..................................................... 3,352,469 3,352,469 --
Accounts payable.................................................. 490,324 434,651 135,399
Accounts payable -- affiliate..................................... 362,983 182,638 --
Accrued liabilities............................................... 949,936 815,872 54,119
State income taxes payable........................................ 130,000 65,000 37,722
------------- ------------- -------------
Total current liabilities....................................... 14,975,479 14,774,456 227,240
------------- ------------- -------------
NOTES PAYABLE....................................................... 15,000,000 15,000,000 17,081,376
------------- ------------- -------------
COMMITMENTS AND CONTINGENCIES....................................... -- -- --
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, no par value, 100,000 shares authorized, 200 shares
issued........................................................... 1 1 1
Additional paid-in capital........................................ 3,194,278 2,547,891 100,000
Accumulated deficit............................................... (7,832,824) (7,060,316) (2,056,638)
------------- ------------- -------------
(4,638,545) (4,512,424) (1,956,637)
------------- ------------- -------------
$ 25,336,934 $ 25,262,032 $ 15,351,979
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-54
<PAGE>
JAZZ ENTERPRISES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 10, 1992
THREE MONTHS ENDED (DATE OF
------------------------ YEAR ENDED FEBRUARY 28, INCEPTION)
MAY 30, MAY 31, ---------------------------- THROUGH
1995 1994 1995 1994 FEBRUARY 28, 1993
----------- ----------- ------------- ------------- -----------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES
Rental revenue -- buildings....... $ -- $ 245,882 $ 817,346 $ 918,222 $ --
Lease revenue..................... -- -- 812,793 -- --
----------- ----------- ------------- ------------- -----------------
-- 245,882 1,630,139 918,222 --
----------- ----------- ------------- ------------- -----------------
COSTS AND EXPENSES
Rental expenses................... 47,579 180,299 788,221 497,540 --
Pre-opening expenses
Rent expense.................... 6,205 73,196 288,512 159,684 --
Salaries and employee
benefits....................... 136,674 227,335 1,361,953 434,672 22,466
Advertising and business
promotion...................... 27,200 26,381 66,030 93,492 --
Consulting fees................. 4,668 21,866 30,971 203,413 --
Professional fees............... 120,595 22,595 1,051,244 40,347 1,029
Management fees................. 180,000 180,000 720,000 720,000 120,000
Travel.......................... 9,826 66,869 218,145 291,733 5,930
Other general and administrative
costs.......................... 87,631 127,165 457,548 328,960 18,216
Depreciation and amortization... 25,078 14,633 62,118 11,598 172
Write down associated with real
estate owned................... -- -- 1,385,680 -- --
----------- ----------- ------------- ------------- -----------------
645,456 940,339 6,430,422 2,781,439 167,813
----------- ----------- ------------- ------------- -----------------
OTHER INCOME (EXPENSE)
Interest income................... 31,459 9,213 82,682 12,114 --
Gain on sale of assets............ -- -- 59,757 -- --
Interest expense.................. (93,511) (22,253) (282,259) -- --
----------- ----------- ------------- ------------- -----------------
(62,052) (13,040) (139,820) 12,114 --
----------- ----------- ------------- ------------- -----------------
Loss before income tax
provision...................... (707,508) (707,497) (4,940,103) (1,851,103) (167,813)
INCOME TAX PROVISION................ 65,000 59,990 63,575 37,722 --
----------- ----------- ------------- ------------- -----------------
NET LOSS........................ $ (772,508) $ (767,487) $ (5,003,678) $ (1,888,825) $ (167,813)
----------- ----------- ------------- ------------- -----------------
----------- ----------- ------------- ------------- -----------------
NET LOSS PER SHARE.............. $ (3,862.54) $ (3,837.44) $ (25,018.39) $ (9,444.13) $ (839.07)
----------- ----------- ------------- ------------- -----------------
----------- ----------- ------------- ------------- -----------------
SHARES USED IN CALCULATION...... 200 200 200 200 200
----------- ----------- ------------- ------------- -----------------
----------- ----------- ------------- ------------- -----------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-55
<PAGE>
JAZZ ENTERPRISES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------------ PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
----------- ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at February 28, 1993....................... 200 $ 1 $ 100,000 $ (167,813) $ (67,812)
Net loss......................................... -- -- -- (1,888,825) (1,888,825)
--- --- ------------ ------------- -------------
Balance at February 28, 1994....................... 200 1 100,000 (2,056,638) (1,956,637)
Capital contributions............................ -- -- 2,447,891 -- 2,447,891
Net loss......................................... -- -- -- (5,003,678) (5,003,678)
--- --- ------------ ------------- -------------
Balance at February 28, 1995....................... 200 1 2,547,891 (7,060,316) (4,512,424)
Capital contributions (unaudited)................ -- -- 646,387 -- 646,387
Net loss (unaudited)............................. -- -- -- (772,508) (772,508)
--- --- ------------ ------------- -------------
Balance at May 30, 1995 (unaudited)................ 200 $ 1 $ 3,194,278 $ (7,832,824) $ (4,638,545)
--- --- ------------ ------------- -------------
--- --- ------------ ------------- -------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-56
<PAGE>
JAZZ ENTERPRISES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 10, 1992
THREE MONTHS ENDED YEAR ENDED FEBRUARY 28, (DATE OF
--------------------- INCEPTION)
MAY 30, MAY 31, ----------------------- THROUGH
1995 1994 1995 1994 FEBRUARY 28, 1993
--------- ---------- ---------- ----------- -----------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.......................................... $(772,508) $ (767,487) $(5,003,678) $(1,888,825) $(167,813)
--------- ---------- ---------- ----------- -----------------
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization................... 35,643 25,198 104,377 36,249 172
Write down associated with real estate owned.... -- -- 1,385,680 -- --
Gain on sale of assets.......................... -- -- (59,757) -- --
Investment in partnership....................... -- (107,522) (700,172) (315,177) (35,055)
(Increase) decrease in receivables.............. -- 29,144 (11,122) (36,394) --
(Increase) decrease in prepaid expenses......... 9,231 32,647 (93,034) (77,760) --
(Increase) decrease in other assets............. 467 3,616 35,154 (235,089) (2,499)
Increase in accounts payable and accrued
liabilities.................................... 189,737 1,743,205 1,370,860 181,573 450
Increase in state income taxes payable.......... 65,000 60,000 27,278 37,722 --
--------- ---------- ---------- ----------- -----------------
Total adjustments............................. 300,078 1,786,288 2,057,264 (408,876) (36,932)
--------- ---------- ---------- ----------- -----------------
Net cash provided by (used in) operating
activities................................... (472,430) 1,018,801 (2,946,414) (2,297,701) (204,745)
--------- ---------- ---------- ----------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase (decrease) in bank overdraft............. (234,059) -- 234,059 -- --
Proceeds from sale of assets...................... -- -- 100,529 -- --
(Increase) decrease in escrow deposit............. -- (50,303) 255,000 (255,000) --
Capital expenditures.............................. (84,736) (1,671,536) (5,330,708) (13,143,010) (158,595)
Loans and advances to related parties............. (31,443) 71,752 (1,054,320) (807,203) --
--------- ---------- ---------- ----------- -----------------
Net cash used in investing activities......... (350,238) (1,650,087) (5,795,440) (14,205,213) (158,595)
--------- ---------- ---------- ----------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowings -- related
party............................................ $ -- $2,500,000 $7,879,087 $ -- $ --
Proceeds from issuance of long-term debt.......... -- 51,611 51,611 15,348,389 --
Principal payments on long-term debt.............. -- -- -- (400,000) --
Advances to and from affiliate.................... 180,345 (75,206) 761,002 1,339,702 --
Payments to and from affiliate.................... -- 175,000 175,000 (1,778,242) 263,540
Contributed capital............................... 646,387 -- 1,869,527 -- 100,000
Increase (decrease) in construction related
payable.......................................... -- (2,132,987) (2,132,987) 2,132,987 --
--------- ---------- ---------- ----------- -----------------
Net cash provided by financing activities....... 826,732 518,418 8,603,240 16,642,836 363,540
--------- ---------- ---------- ----------- -----------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.................................... 4,064 (112,868) (138,614) 139,922 200
CASH AT BEGINNING OF PERIOD......................... 1,508 140,122 140,122 200 --
--------- ---------- ---------- ----------- -----------------
CASH AT END OF PERIOD............................... $ 5,572 $ 27,254 $ 1,508 $ 140,122 $ 200
--------- ---------- ---------- ----------- -----------------
--------- ---------- ---------- ----------- -----------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-57
<PAGE>
JAZZ ENTERPRISES, INC.
STATEMENTS OF CASH FLOWS -- CONTINUED
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 10, 1992
THREE MONTHS ENDED YEAR ENDED FEBRUARY 28, (DATE OF
--------------------- INCEPTION)
MAY 30, MAY 31, ----------------------- THROUGH
1995 1994 1995 1994 FEBRUARY 28, 1993
--------- ---------- ---------- ----------- -----------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest............................ $ 104 $ 422 $ 5,692 $ -- $ --
Cash paid for state income taxes.................. -- -- 37,722 -- --
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Equipment acquisitions financed by vendor......... $ -- $ 18,663 $ 18,663 $ 7,495 $ --
Due to affiliate paid by stockholders............. -- -- 578,364 -- --
Construction costs and other payables paid on
behalf of the Company by Argosy Gaming Company... -- -- 3,352,469 -- --
Land acquired in exchange for notes payable....... -- -- 425,000 -- --
</TABLE>
The accompanying notes are an integral part of these statements.
F-58
<PAGE>
JAZZ ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1995, 1994 AND 1993
AND MAY 30, 1995 AND MAY 31, 1994
(DATA RELATED TO MAY 30, 1995 AND MAY 31, 1994 IS UNAUDITED)
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Jazz Enterprises, Inc., a Louisiana corporation, was incorporated on June
10, 1992 for the purpose of developing a riverboat gaming operation and an
entertainment complex, known as "Catfish Town" in Baton Rouge, Louisiana. Since
March 1993, when the Company obtained preliminary regulatory approval to develop
and construct a riverboat casino facility, the Company's activities have
consisted of applying for the license for the riverboat casino operation, land
acquisitions, design, construction, and renovations at Catfish Town and
negotiating contracts. In connection with the construction of the riverboat
casino, the Company entered into certain transactions in order to provide
financing for the projects (see notes F and M). The riverboat casino commenced
operations on September 30, 1994.
During the year ended February 28, 1995, the Company began operations and is
no longer considered a development stage enterprise.
A summary of the significant accounting policies consistently applied in the
preparation of the accompanying financial statements follows:
1. INTERIM FINANCIAL STATEMENTS
The financial statements for the three months ended May 30, 1995 and May 31,
1994 are unaudited; however, in the opinion of management, all adjustments,
consisting of normal recurring adjustments necessary for a fair presentation of
the Company's financial position and results of operations for such periods have
been included. The results for the three months ended May 30, 1995 are not
necessarily indicative of the results to be expected for the year ending
February 28, 1996.
2. DEFERRED PRE-OPENING COSTS
Costs incurred which directly relate to obtaining the preliminary regulatory
approval for the gaming license for the Baton Rouge riverboat casino, have been
capitalized in the expectation that they will benefit future periods. Such costs
incurred to date consist primarily of gaming application fees and legal fees
incurred in connection with obtaining regulatory approval for a gaming license
to operate a riverboat casino in Baton Rouge, Louisiana. The Company recorded
these assets as Investment in Partnership on September 30, 1994 (see notes A6
and K). Regulatory approval for the gaming license was received on September 30,
1994 in conjunction with the opening of the riverboat casino operation. Costs
incurred to date which are primarily related to obtaining financing, negotiating
contracts, and other costs which are not expected to benefit future periods have
been expensed as nonrecoverable pre-opening expenses in the Statements of
Operations.
3. DEPRECIATION AND AMORTIZATION
Depreciation and amortization is provided for in amounts sufficient to
relate the cost of the assets to operations over their estimated service lives
principally on a straight-line basis based upon the following estimated useful
lives:
<TABLE>
<S> <C>
Buildings and improvements..................................... 39 years
5 to 7
Equipment, furniture and fixtures.............................. years
</TABLE>
4. INCOME TAXES
Income taxes are recorded in accordance with the liability method specified
by Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes." Under the asset and liability approach for financial accounting
and reporting for income taxes, the following basic principles are applied in
accounting for income taxes at the date of the financial statements: (a) a
current liability or asset is recognized for the estimated taxes payable or
refundable on taxes for the current year, (b) a deferred tax
F-59
<PAGE>
JAZZ ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1995, 1994 AND 1993
AND MAY 30, 1995 AND MAY 31, 1994
(DATA RELATED TO MAY 30, 1995 AND MAY 31, 1994 IS UNAUDITED)
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
4. INCOME TAXES (CONTINUED)
liability or asset is recognized for the estimated future tax effects
attributable to temporary differences and carryforwards; (c) the measurement of
current and deferred tax liabilities and assets is based on the provisions of
the enacted tax law; the effects of future changes in tax laws or rates are not
anticipated; and (d) the measurement of deferred taxes is reduced, if necessary,
by the amount of any tax benefits that, based upon available evidence, are not
expected to be realized.
Certain events and application of the tax laws create temporary differences
between the tax basis of an asset and a liability and its reported amount in the
financial statements. The Company's principal type of differences between asset
and liabilities for financial statement and tax return purposes are reporting on
the accrual basis method for financial statement purposes and the cash basis
method for tax purposes, and pre-opening expenses expensed for financial
statement purposes and deferred for tax purposes.
5. CASH EQUIVALENTS
For the purposes of cash flows, the Company considers all highly liquid debt
instruments purchased with a maturity of three months or less to be cash
equivalents.
6. INVESTMENT IN PARTNERSHIP
The Company's 10% interest in Catfish Queen Partnership, in which the
Company is a limited partner, is accounted for on the cost basis since, as a
limited partner, the Company cannot participate in the management of the limited
partnership.
7. CAPITALIZATION OF INTEREST
The Company capitalizes, as a part of the internal cost of constructing
major assets for its own use, a portion of the interest cost incurred during the
construction period. Of the total interest of $478,222 incurred for the year
ended February 28, 1995, $195,963 was capitalized. Of the total interest of
$178,247 incurred for the three months ended May 30, 1995, $84,736 was
capitalized.
8. RECLASSIFICATIONS
THE 1994 AND 1993 FINANCIAL STATEMENTS REFLECT CERTAIN RECLASSIFICATIONS, WHICH
HAVE NO EFFECT ON NET LOSS, TO CONFORM TO CLASSIFICATIONS IN THE CURRENT YEAR.
NOTE B -- NOTE RECEIVABLE -- RELATED PARTY
Note receivable from related party consisted of the following:
<TABLE>
<CAPTION>
FEBRUARY 28,
------------------------
MAY 30, 1995 1995 1994
------------ ------------ ----------
<S> <C> <C> <C>
Note receivable from the Company's Chairman of the
Board and majority stockholder, dated December 1,
1992. The note is an unsecured variable rate note
with interest payable at the short-term applicable
Federal rate......................................... $ 1,892,966 $ 1,861,523 $ 807,203
------------ ------------ ----------
------------ ------------ ----------
</TABLE>
F-60
<PAGE>
JAZZ ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1995, 1994 AND 1993
AND MAY 30, 1995 AND MAY 31, 1994
(DATA RELATED TO MAY 30, 1995 AND MAY 31, 1994 IS UNAUDITED)
NOTE C -- FIXED ASSETS
Fixed assets, at cost, consist of the following:
<TABLE>
<CAPTION>
FEBRUARY 28,
----------------------------
MAY 30, 1995 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Buildings and improvements...................... $ 4,289,861 $ 4,289,861 $ 3,932,947
Equipment, furniture and fixtures............... 580,638 580,638 213,949
------------- ------------- -------------
4,870,499 4,870,499 4,146,896
Accumulated depreciation and amortization....... (174,080) (138,725) (35,492)
------------- ------------- -------------
4,696,419 4,731,774 4,111,404
Construction in progress........................ 11,694,791 11,610,054 5,136,405
Land............................................ 5,086,043 5,086,044 4,025,800
------------- ------------- -------------
$ 21,477,253 $ 21,427,872 $ 13,273,609
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
On June 21, 1994, the Company purchased property in exchange for promissory
notes in the amount of $1,810,680 due October 30, 1994, which is thirty days
after the Company received their gaming license from the State of Louisiana. The
Company failed to make payment on the notes and is being sued for non-payment.
The Company has also filed a countersuit against the broker regarding the value
of the property, which was subsequently discovered to be worth approximately
$425,000. The notes have been recorded on the Company's books as of February 28,
1995 and the property written down to estimated net realizable value with a
corresponding charge to expense of $1,385,680.
NOTE D -- SHORT-TERM BORROWINGS
Notes payable in the amount of $1,810,680, including interest at 8% are due
October 30, 1994 (see note C).
NOTE E -- SHORT-TERM BORROWINGS -- RELATED PARTY
Short-term borrowings from a related party consisted of the following:
<TABLE>
<CAPTION>
FEBRUARY 28,
--------------------------
MAY 30, 1995 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Notes payable to the Company's Chairman of the Board
and majority stockholder, including interest at
8.5%, unsecured.................................... $ 4,889,087 $ 4,889,087 $ --
Note payable to the Company's Chairman of the Board
and majority stockholder. The note is an unsecured
variable rate note including interest at the bank's
prime rate plus 1%................................. 2,990,000 2,990,000 --
------------ ------------ ------------
$ 7,879,087 $ 7,879,087 $ 0
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
NOTE F -- NOTES PAYABLE
As of February 28, 1995, Argosy Gaming Company loaned the Company $15
million, of which $12.5 million was primarily used by the Company for land-based
development. The loan would be repaid as an offset against any lease payments in
excess of $3 million annually with the remaining balance due on September 30,
F-61
<PAGE>
JAZZ ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1995, 1994 AND 1993
AND MAY 30, 1995 AND MAY 31, 1994
(DATA RELATED TO MAY 30, 1995 AND MAY 31, 1994 IS UNAUDITED)
NOTE F -- NOTES PAYABLE (CONTINUED)
2004 (note M). As a result of the sale of 100% of the common stock of the
Company to Argosy Gaming, the lease fees were suspended, and no loan payments
have been made. The loan is collateralized by a first mortgage on certain real
estate and all outstanding shares of common stock of the Company and is
personally guaranteed by the Company's Chairman of the Board and majority
stockholder. In anticipation of the sale of 100% of the common stock of the
Company to Argosy Gaming, Argosy paid $3,352,469 in construction costs and other
payables which are considered loans to the Company as of February 28, 1995. Had
the transaction not been completed, these loans would have become due and
payable upon 90 days notice of termination.
NOTE G -- ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
FEBRUARY 28,
MAY 30, ---------------------
1995 1995 1994
---------- ---------- ---------
<S> <C> <C> <C>
Accrued salaries, wages and other employee benefits........ $ 1,633 $ 45,850 $ 32,719
Accrued interest payable................................... 650,673 472,530 --
Accrued settlement agreement............................... 275,000 275,000 --
Other...................................................... 22,630 22,492 21,400
---------- ---------- ---------
$ 949,936 $ 815,872 $ 54,119
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
NOTE H -- LEASES
The Company owns certain buildings at Catfish Town which are leased under
non-cancelable operating leases. The Company is responsible for payment of
taxes, insurance and maintenance costs related to the properties. Certain leases
contain provisions for one and two renewal options for five years. The leases
expire on various dates through March 1998. The cost of the leased buildings is
$1,656,956, and the related accumulated depreciation was $77,475, $66,910 and
$24,651 at May 30, 1995 and February 28, 1995 and 1994, respectively.
Future minimum lease payments due to the Company under these noncancellable
lease agreements are as follows:
<TABLE>
<S> <C>
YEARS ENDING FEBRUARY 28,
1996.............................................. $ 468,223
1997.............................................. 340,723
1998.............................................. 28,394
---------
$ 837,340
---------
---------
</TABLE>
The Company also leases certain land under non-cancelable operating leases,
which expire at various dates through August 2000. The leases contain renewal
provisions and are subject to annual rent adjustments in May 1998 and January
1999, respectively, and every fifth year thereafter for increases in the
Consumer Price Index. The Company is required to pay insurance, taxes and
operating expenses.
F-62
<PAGE>
JAZZ ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1995, 1994 AND 1993
AND MAY 30, 1995 AND MAY 31, 1994
(DATA RELATED TO MAY 30, 1995 AND MAY 31, 1994 IS UNAUDITED)
NOTE H -- LEASES (CONTINUED)
The minimum rental commitment under these operating leases are as follows:
<TABLE>
<S> <C>
YEARS ENDING FEBRUARY 28,
1996............................................ $ 237,975
1997............................................ 237,975
1998............................................ 237,975
1999............................................ 237,975
2000............................................ 180,677
Thereafter...................................... 63,020
---------
$1,195,597
---------
---------
</TABLE>
Total rent expense under the above leases for the years ended February 28,
1995 and 1994 was $241,262 and $159,684, respectively.
NOTE I -- RELATED PARTY TRANSACTIONS
The Company entered into a management contract with Lodging and Gaming
Systems, Inc., a corporation owned 60% by the Company's Chairman of the Board
and majority stockholder, to receive administrative, accounting and supervisory
services to be renegotiated on an annual basis. Management fees paid during the
years ended February 28, 1995 and 1994 and from the period June 10, 1992 (date
of inception) to February 28, 1993 were $720,000, $720,000 and $120,000,
respectively. In conjunction with the sale of the Company's stock to Argosy
Gaming Company (note M), the Company terminated the shared services agreement
with Lodging and Gaming Systems, Inc. In addition, the Company reimbursed
Lodging and Gaming Systems, Inc. for certain payroll, travel, and other expenses
advanced on behalf of or supplied to the Company during the years ended February
28, 1995 and 1994 and from the period June 10, 1992 (date of inception) to
February 28, 1993 of approximately $-0-, $1,778,000 and $-0-, respectively.
Accounts payable to Lodging Systems, Inc. amounted to $362,983, $182,638 and
$-0- at May 30, 1995 and February 28, 1995 and 1994, respectively. Accounts
receivable from Lodging Systems, Inc. amounted to $-0-, $-0- and $175,000 at May
30, 1995 and February 28, 1995 and 1994, respectively.
NOTE J -- INCOME TAXES
The provision for income taxes in the accompanying statements of operations
consist of the following:
<TABLE>
<CAPTION>
FEBRUARY 28,
MAY 30, MAY 31, -------------------------------
1995 1994 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
CURRENT:
State.......................................... $ 65,000 $ 59,990 $ 63,575 $ 37,722 $ --
DEFERRED:
Federal........................................ -- -- -- -- --
--------- --------- --------- --------- ---------
$ 65,000 $ 59,990 $ 63,575 $ 37,722 $ 0
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
At February 28, 1995, the Company had federal net operating loss
carryforwards of $249,350, which expire through 2011.
F-63
<PAGE>
JAZZ ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1995, 1994 AND 1993
AND MAY 30, 1995 AND MAY 31, 1994
(DATA RELATED TO MAY 30, 1995 AND MAY 31, 1994 IS UNAUDITED)
NOTE J -- INCOME TAXES (CONTINUED)
The components of net deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
FEBRUARY 28,
--------------------------
MAY 30, 1995 1995 1994
------------- ------------- -----------
<S> <C> <C> <C>
DEFERRED TAX ASSETS:
Write down associated with real estate owned..... $ 471,132 $ 471,132 $ --
Accounts payable and accruals.................... 553,616 419,761 23,647
Federal operating loss carryforwards............. 97,465 84,779 11,778
Preopening expenses.............................. 1,688,151 1,564,435 639,620
------------- ------------- -----------
2,810,364 2,540,107 675,045
------------- ------------- -----------
DEFERRED TAX LIABILITIES:
Accounts receivable and prepaid expenses......... 42,408 45,706 23,415
Fixed assets and other assets.................... 151,968 150,521 1,369
------------- ------------- -----------
194,376 196,227 24,784
------------- ------------- -----------
Valuation allowance.............................. (2,615,988) (2,343,880) (650,261)
------------- ------------- -----------
Net deferred taxes............................. $ 0 $ 0 $ 0
------------- ------------- -----------
------------- ------------- -----------
</TABLE>
NOTE K -- INVESTMENT IN PARTNERSHIP
The Company has entered into a Partnership with Argosy Gaming Company
(Argosy), in which the Company owns 10% and Argosy owns 90% to operate a
riverboat casino in Baton Rouge, Louisiana, which opened September 30, 1994. The
Company contributed its State of Louisiana riverboat gaming license and certain
leases to the partnership. The partnership leases, for a minimum of five years,
a docking site and office and warehouse space from the Company. Rent under terms
of the lease are 6% of adjusted gross receipts up to $50 million, 9% of adjusted
gross receipts between $50 million and $75 million and 10% of adjusted gross
receipts over $75 million. Lease revenues in the amount of $413,138 were
received for the period September 30, 1994 through October 31, 1994. Lease
revenues for the month of November 1994 in the amount of $399,655 have not been
paid to the Company and have been reflected as an additional contribution to the
Partnership. As a result of the sale of 100% of the common stock of the Company
to Argosy Gaming, the lease fees were suspended (note M).
NOTE L -- LEGAL SETTLEMENTS
In April 1993, the Company signed a mutual release and settlement agreement
with a corporation in which it had executed a term sheet for formation of a
limited partnership to construct and operate a riverboat casino. Under the terms
of the agreement, the Company paid $250,000 on November 10, 1994 after receiving
final licensing approval.
In April 1993, the Company signed a general release and settlement agreement
with a corporation in which it has executed a letter of intent as to the
formation of a partnership and the gaming application process. Under the terms
of the agreement, the Company paid $50,000 in April 1993 and is required to pay
$350,000 upon the September 30, 1994 licensing approval as follows: $25,000
within 30 days of license approval, $25,000 within 60 days of license approval,
and $25,000 every 90 days thereafter. At February 28, 1995, $275,000 is
outstanding.
F-64
<PAGE>
JAZZ ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1995, 1994 AND 1993
AND MAY 30, 1995 AND MAY 31, 1994
(DATA RELATED TO MAY 30, 1995 AND MAY 31, 1994 IS UNAUDITED)
NOTE M -- CAPITAL TRANSACTIONS
On December 5, 1994, the stockholders of the Company entered in an agreement
to sell 100% of the common stock of the Company to Argosy. Under the terms of
the agreement, Argosy was appointed as both construction manager and general
manager of the Catfish Town Project for the Company and has full and complete
control and authority to make all construction, operational and management
decisions for the Company with regard to construction and completion of the
entire project. The agreement provided for the suspension of the lease fee from
the partnership in consideration of Argosy's costs to manage and develop the
Catfish Town Project. As a result of the suspension of the lease on December 5,
1994, the financial statements do not include any lease revenue or any costs
incurred by Argosy from that date forward. Further, under the terms of the
agreement, Argosy would assume certain ordinary course accounts payable and
construction obligations as of December 1, 1994 of approximately $2,000,000. The
transaction was consummated on May 30, 1995, and as a result, the stockholders
contributed capital to the Company in the amount of $2,447,891 for the year
ended February 28, 1995 and $646,387 for the period March 1, 1995 through May
30, 1995.
During the year ended February 28, 1995, the Company's Chairman of the Board
exercised an option to purchase 75% of the outstanding shares of common stock
from the current stockholders.
NOTE N -- CREDIT RISK
The Company maintains its cash and cash equivalents in bank deposit accounts
which, at times, may exceed federally insured limits. The Company has not
experienced any losses in such accounts. The Company believes it is not exposed
to any significant credit risk on cash and cash equivalents.
NOTE O -- CONTINGENCIES
Various lawsuits, claims and proceedings of a nature considered normal to
its businesses are pending against the Company and certain of its affiliates.
The Company believes, after reviewing such matters and consulting with the
Company's counsel, that any liability which may ultimately be incurred with
respect to these matters is not expected to have a material effect on either the
Company's financial position or results of operations.
F-65
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE EXCHANGE OFFER MADE BY
THIS PROSPECTUS TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR GUARANTORS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR THE
SOLICITATION OF AN OFFER TO BUY, THE EXCHANGE NOTES IN ANY CIRCUMSTANCES IN
WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR
THE GUARANTORS SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Available Information.......................... 3
Incorporation of Certain Documents by
Reference..................................... 3
Prospectus Summary............................. 4
Risk Factors................................... 16
Use of Proceeds................................ 31
The Exchange Offer............................. 31
Capitalization................................. 39
Selected Consolidated Financial Data........... 40
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 42
Description of Certain Indebtedness............ 48
Business....................................... 50
Lawrenceburg Casino Partnership Agreement...... 62
Regulatory Matters............................. 64
Management..................................... 78
Description of Exchange Notes.................. 81
Old Notes Registration Rights; Liquidated
Damages....................................... 108
Certain United States Federal Income Tax
Consequences.................................. 109
Plan of Distribution........................... 110
Legal Matters.................................. 111
Experts........................................ 111
Index to Financial Statements.................. F-1
</TABLE>
[LOGO]
Offer to Exchange $1,000
principal amount of its
13 1/4% First Mortgage Notes due 2004
which have been registered
under the Securities Act
for each $1,000 principal amount
of its outstanding
13 1/4% First Mortgage Notes due 2004
-------------------------------
PROSPECTUS
-------------------------------
THE EXCHANGE AGENT
FOR THE EXCHANGE OFFER IS:
FIRST NATIONAL BANK
OF COMMERCE
BY FACSIMILE:
(504) 623-1095
CONFIRMATION BY TELEPHONE:
(504) 623-7581
BY MAIL:
Corporate Trust Services
First National Bank of Commerce
P.O. Box 60030
New Orleans, Louisiana 70160-0030
Attention: Rebecca Norton
BY OVERNIGHT DELIVERY:
Corporate Trust Services
First National Bank of Commerce
210 Baronne Street
Basement Level
New Orleans, Louisiana 70112
Attention: Rebecca Norton
BY HAND DELIVERY:
First National Bank of Commerce
c/o Chase Manhattan Bank
55 Water Street
Room 234
New York, New York 10041
September 11, 1996
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law ("Delaware GCU")
empowers a corporation, subject to certain limitations, to indemnify its
directors and officers against expenses (including attorneys' fees, judgments,
fines and certain settlements) actually and reasonably incurred by them in
connection with any suit or proceeding to which they are a party so long as they
acted in good faith and in a manner reasonably believed to be in or not opposed
to the best interests of the corporation, and, with respect to a criminal action
or proceeding, so long as they had no reasonable cause to believe their conduct
to have been unlawful. The Registrant's Certificate of Incorporation and By-laws
provide that the Registrant shall indemnify its directors and such of its
officers, employees and agents as the Board of Directors may determine from time
to time, to the fullest extent permitted by Section 145 of the Delaware GCL.
Section 102 of the Delaware GCL permits a Delaware corporation to include in
its certificate of incorporation a provision eliminating or limiting a
director's liability to a corporation or its stockholders for monetary damages
for breaches of fiduciary duty. The enabling statute provides, however, that
liability for breaches of the duty of loyalty, acts or omissions not in good
faith or involving intentional misconduct, or knowing violation of the law, and
the unlawful purchase or redemption of stock or payment of unlawful dividends or
the receipt of improper personal benefits cannot be eliminated or limited in
this manner. The Registrant's Certificate of Incorporation and By-Laws include a
provision which eliminates, to the fullest extent permitted, director liability
for monetary damages for breaches of fiduciary duty.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------
<C> <S>
3.1 Amended and Restated Certificate of Incorporation of the Company (previously filed with the
Securities and Exchange Commission ("SEC") as an Exhibit to the Company's Registration Statement
on Form S-1 (File No. 33-55878) and incorporated herein by reference).
3.2 Amended and Restated By-laws of the Company (previously filed with the SEC as an Exhibit to the
Company's Registration Statement on Form S-1 (File No. 33-55878) and incorporated herein by
reference).
4.1 * Form of the Company's 13 1/4% First Mortgage Notes due 2004 issued on June 5, 1996 in the aggregate
principal amount of $235,000,000.
4.2 * Form of Guarantee issued on June 5, 1996 by Alton Gaming Company, Argosy of Louisiana, Inc.,
Catfish Queen Partnership in Commendam, The Indiana Gaming Company, Iowa Gaming Company, Jazz
Enterprises, Inc., The Missouri Gaming Company and The St. Louis Gaming Company.
4.3 * Indenture dated as of June 5, 1996 by and among the Company, First National Bank of Commerce, as
Trustee, and the Guarantors named therein, for the Company's $235,000,000 of 13 1/4% First
Mortgage Notes due 2004.
4.4 * Registration Rights Agreement dated as of June 5, 1996 by and among the Company, the Guarantors
named therein and the Initial Purchasers named therein.
4.5 * Cash Collateral and Disbursement Agreement dated June 5, 1996 by and among the Company, First
National Bank of Commerce, as Trustee, and LaSalle National Trust, N.A., as disbursement agent.
4.6 * Form of Security Agreement dated as of June 5, 1996 by and between First National Bank of Commerce,
as Trustee, and the Company, as Grantor.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------
<C> <S>
4.7 * Form of Subsidiary Security Agreements dated as of June 5, 1996 by and between First National Bank
of Commerce, as Trustee, and each of Alton Gaming Company, Argosy of Louisiana, Inc., Catfish
Queen Partnership in Commendam, The Indiana Gaming Company, Iowa Gaming Company, Jazz Enterprises,
Inc., The Missouri Gaming Company and The St. Louis Gaming Company, each as a Grantor.
4.8 * Form of Pledge Agreement dated as of June 5, 1996 by and between First National Bank of Commerce,
as Trustee, and the Company, as Pledgor.
4.9 * Form of Subsidiary Pledge Agreements dated as of June 5, 1996 by and between First National Bank of
Commerce, as Trustee, and each of Alton Gaming Company, Argosy of Louisiana, Inc., Catfish Queen
Partnership in Commendam, The Indiana Gaming Company, Iowa Gaming Company, Jazz Enterprises, Inc.,
The Missouri Gaming Company and The St. Louis Gaming Company, each as a Pledgor.
4.10* Form of First Preferred Ship Mortgages dated as of June 5, 1996 executed in favor of First National
Bank of Commerce, as Trustee, by each of Alton Gaming Company (relating to Argosy I, Alton Belle
Casino II and Alton Landing), Catfish Queen Partnership in Commendam (relating to Argosy III), The
Missouri Gaming Company (relating to Argosy IV), Iowa Gaming Company (relating to Argosy V) and
the Company (relating to Spirit of America).
4.11* Form of Deed of Trust, Assignment of Leases and Rents and Security Agreement dated as of June 5,
1996 by and among the Company, First National Bank of Commerce, as Trustee, and Chicago Title
Insurance Company.
4.12* Form of Mortgage of Jazz Enterprises, Inc., and Catfish Queen Partnership in Commendam to Secure
Present and Future Indebtedness, Assignment of Leases and Rents and Security Agreement dated as of
June 5, 1996 execute in favor of First National Bank of Commerce, as Trustee.
4.13 Specimen Common Stock Certificate (previously filed with the SEC as an Exhibit to the Company's
Registration Statement on Form S-1 (File No. 33-55878) and incorporated herein by reference).
4.14 Indenture dated as of June 6, 1994 between the Company and Bank One, Springfield, as trustee, for
the Company's $115,000,000 12% Convertible Subordinated Notes due 2001 (previously filed with the
SEC as an Exhibit to the Company's Registration Statement on Form S-3 (File No. 33-76456) and
incorporated herein by reference).
4.15 Specimen 12% Convertible Subordinated Note due 2001 (previously filed with the SEC as an Exhibit to
the Company's Registration Statement on Form S-3 (File No. 33-76456) and incorporated herein by
reference).
4.16 Registration Rights Agreement (previously filed with the SEC as an Exhibit to the Company's
Registration Statement on Form S-3 (File No. 33-76456) and incorporated herein by reference).
5.1 * Legal Opinion of Winston & Strawn regarding the validity of the issuance of the 13 1/4% First
Mortgage Notes due 2004.
9.1 Pratt Voting Trust Agreement dated as of May 5, 1992 by and between John Biggs Pratt, Sr. and
Stephanie Pratt (previously filed with the SEC as an Exhibit to the Company's Registration
Statement on Form S-1 (File No. 33-55878) and incorporated herein by reference).
10.1 Lease dated August 1, 1992 by and between Edward McPike d/b/a Grand Properties and Alton Riverboat
Gambling Partnership (previously filed with the SEC as an Exhibit to the Company's Form 10-K for
the year ended December 31, 1994 and incorporated herein by reference).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------
<C> <S>
10.2 Bond and Easement Agreement dated as of April 18, 1991 by and between the Alton Riverboat Gambling
Partnership and the City of Alton, Illinois (previously filed with the SEC as an Exhibit to the
Company's Registration Statement on Form S-1 (File No. 33-55878) and incorporated herein by
reference).
10.3 Employment Agreement by and between the Company and J. Thomas Long (previously filed with the SEC
as an Exhibit to the Company's Form 10-K for the year ended December 31, 1995 and incorporated
herein by reference).
10.4 Employment Agreement by and between the Company and Patsy S. Hubbard (previously filed with the SEC
as an Exhibit to the Company's Form 10-K for the year ended December 31, 1995 and incorporated
herein by reference).
10.5 Stock Option Plan (previously filed with the SEC as an Exhibit to the Company's Registration
Statement on Form S-1 (File No. 33-55878) and incorporated herein by reference).
10.6 Form of Indemnification Agreement (previously filed with the SEC as an Exhibit to the Company's
Registration Statement on Form S-1 (File No. 33-55878) and incorporated herein by reference).
10.7 Director Option Plan (previously filed with the SEC as an Exhibit to the Company's Registration
Statement on Form S-1 (File No. 33-55878) and incorporated herein by reference).
10.8 Argosy Gaming Company Savings Plan (previously filed with the SEC as an Exhibit to the Company's
Form 8-K dated March 10, 1994 and incorporated herein by reference).
10.9 Letter Agreement dated as of January 28, 1993 by and between L. Thomas Lakin and the Alton
Riverboat Gambling Partnership (previously filed with the SEC as an Exhibit to the Company's
Registration Statement on Form S-1 (File No. 33-55878) and incorporated herein by reference).
10.10 Letter Agreement dated as of January 28, 1993 by and between the Alton Riverboat Gambling
Partnership and H. Steven Norton (previously filed with the SEC as an Exhibit to the Company's
Registration Statement on Form S-1 (File No. 33-55878) and incorporated herein by reference).
10.11 Letter Agreement dated March 29, 1995 by and between Floyd C. Warmann and the Company (previously
filed with the SEC as an exhibit to the Company's Form 10-K for the year ended December 31, 1994
dated March 31, 1995 and incorporated herein by reference).
10.12 Agreement to Purchase Stock dated January 30, 1995 by and among the Company, Jazz Enterprises, Inc.
and the signatory shareholders of Jazz Enterprises, Inc. (previously filed with the SEC as an
Exhibit to the Company's Form 10-K for the year ended December 31, 1994 and incorporated herein by
reference).
10.13 Contract dated June 7, 1993 by and among the City of Riverside, Missouri, The Missouri Gaming
Company and the Company, together with amendments thereto (previously filed with the SEC as an
Exhibit to the Company's Form 8-K dated March 10, 1994 and incorporated herein by reference).
10.14 Second Amended and Restated Agreement of Limited Partnership dated February 21, 1996 of Indiana
Gaming Company, L.P. (previously filed with the SEC as an Exhibit to the Company's Form 10-K for
the year ended December 31, 1995 and incorporated herein by reference).
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------
<C> <S>
10.15 Management Agreement dated April 11, 1994 by and between Indiana Gaming Company, L.P. and The
Indiana Gaming Company, as amended by Amendment No. 1 to Management Agreement dated February 21,
1996 (previously filed with the SEC as an Exhibit to the Company's Form 10-K for the year ended
December 31, 1995 and incorporated herein by reference).
10.16 Affirmation of Limited Parent Guaranty of Argosy Gaming Company in favor of the partners of Indiana
Gaming Company, L.P. dated February 21, 1996 (previously filed with the SEC as an Exhibit to the
Company's Form 10-K for the year ended December 31, 1995 and incorporated herein by reference).
10.17 Vessel Construction Contract by and between Service Marine Industries, Inc. and Indiana Gaming
Company, L.P. dated as of November 14, 1995 (previously filed with the SEC as an Exhibit to the
Company's Form 10-K for the year ended December 31, 1995 and incorporated herein by reference).
10.18 Riverboat Gaming Development Agreement between the City of Lawrenceburg, Indiana and Indiana Gaming
Company, L.P. dated as of April 13, 1994 as amended by Amendment Number One to Riverboat
Development Agreement between the City of Lawrenceburg, Indiana and Indiana Gaming Company, L.P.
dated as of December 28, 1995 (previously filed with the SEC as an Exhibit to the Company's Form
10-K for the year ended December 31, 1995 and incorporated herein by reference).
10.19 Guaranty of Development Agreement dated as of April 13, 1994 by the Company in favor of the City of
Lawrenceburg (previously filed with the SEC as an Exhibit to the Company's Form 10-K for the year
ended December 31, 1995 and incorporated herein by reference).
10.20 Charter Agreement dated October 27, 1994 by and between President Riverboat Casino-New York, Inc.
and The Missouri Gaming Company (previously filed with the SEC as an Exhibit to the Company's Form
10-K for the year ended December 31, 1994 and incorporated herein by reference).
12.1 * Statement re Computation of Earnings to Fixed Charges.
21 * List of Subsidiaries.
23.1 * Consent of Ernst & Young LLP.
23.2 * Consent of Grant Thornton LLP.
23.3 * Consent of Winston & Strawn (contained in its opinion filed as Exhibit 5.1 hereto).
24 * Powers of Attorney of directors.
25.1 * Statement of Eligibility and Qualification on Form T-1 under the Trust Indenture Act of 1939 of
First National Bank of Commerce, as Trustee under the Indenture relating to the 13 1/4% First
Mortgage Notes due 2004.
99.1 * Form of Letter of Transmittal.
99.2 * Form of Notice of Guaranteed Delivery.
99.3 * Form of Letter to Securities Dealers, Commercial Banks, Trust Companies and Other Nominees.
99.4 * Form of Letter to Clients.
99.5 * Guidelines for Certification of Taxpayer Identification Number on Form W-9.
</TABLE>
- ------------
* Previously filed with the SEC as an Exhibit to this Registration Statement
on Form S-4 (File No. 333-7299).
II-4
<PAGE>
(b)Financial Statement Schedules
None.
All schedules are omitted because the required information is not present in
amounts sufficient to require submission of the schedule or because the
information required is included in the financial statements or notes thereto.
ITEM 22. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and win be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, as amended, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, as amended, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein and this offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) For the purpose of determining any liability under the Securities Act
of 1933, each filing of the Registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 that
is incorporated by reference in this 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.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 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.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired therein, that was not the subject of and included in the
registration statement when it became effective.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment to Registration Statement to be signed
on its behalf by the undersigned thereunto duly authorized, in the City of
Alton, State of Illinois on September 10, 1996.
ARGOSY GAMING COMPANY
By: /s/ J. THOMAS LONG
-----------------------------------
J. Thomas Long
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment to Registration Statement has been signed by the following persons on
the dates and in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------- ------------------------------------------- ----------------------
<C> <S> <C> <C>
/s/ J. THOMAS LONG Chief Executive Officer and Director
-------------------------------- September 10, 1996
J. Thomas Long
/s/ JOSEPH G. URAM Executive Vice President, Chief
-------------------------------- Financial Officer (Principal September 10, 1996
Joseph G. Uram Accounting Officer)
/s/ EDWARD F. BRENNAN*
-------------------------------- Director
Edward F. Brennan
/s/ GEORGE L. BRISTOL*
-------------------------------- Director
George L. Bristol
/s/ F. LANCE CALLIS*
-------------------------------- Director
F. Lance Callis
/s/ WILLIAM F. CELLINI*
-------------------------------- Director
William F. Cellini
/s/ JIMMY F. GALLAGHER*
-------------------------------- Director
Jimmy F. Gallagher
/s/ WILLIAM McENERY*
-------------------------------- Director
William McEnery
/s/ JOHN B. PRATT, SR.*
-------------------------------- Director
John B. Pratt, Sr.
*By: /s/ J. THOMAS LONG
---------------------------
J. Thomas Long
ATTORNEY-IN-FACT
September 10, 1996
</TABLE>
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment to Registration Statement to be signed
on its behalf by the undersigned thereunto duly authorized, in the City of
Alton, State of Illinois on September 10, 1996.
ALTON GAMING COMPANY
By: /s/ J. THOMAS LONG
-----------------------------------
J. Thomas Long
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment to Registration Statement has been signed by the following persons on
the dates and in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------- ------------------------------------------- ----------------------
<C> <S> <C> <C>
/s/ J. THOMAS LONG President and Sole Director (Principal
-------------------------------- Executive Officer) September 10, 1996
J. Thomas Long
/s/ JOSEPH G. URAM Treasurer (Principal Financial Officer and
-------------------------------- Principal Accounting Officer) September 10, 1996
Joseph G. Uram
</TABLE>
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment to Registration Statement to be signed
on its behalf by the undersigned thereunto duly authorized, in the City of
Alton, State of Illinois on September 10, 1996.
ARGOSY OF LOUISIANA, INC.
By: /s/ J. THOMAS LONG
-----------------------------------
J. Thomas Long
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment to Registration Statement has been signed by the following persons on
the dates and in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------- ------------------------------------------- ----------------------
<C> <S> <C> <C>
/s/ J. THOMAS LONG President and Sole Director (Principal
-------------------------------- Executive Officer) September 10, 1996
J. Thomas Long
/s/ JOSEPH G. URAM Treasurer (Principal Financial Officer and
-------------------------------- Principal Accounting Officer) September 10, 1996
Joseph G. Uram
</TABLE>
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment to Registration Statement to be signed
on its behalf by the undersigned thereunto duly authorized, in the City of
Alton, State of Illinois on September 10, 1996.
CATFISH QUEEN PARTNERSHIP IN
COMMENDAM
By: Argosy of Louisiana, Inc.
Its: General Partner
By: /s/ J. THOMAS LONG
-----------------------------------
J. Thomas Long
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment to Registration Statement has been signed by the following persons on
the dates and in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------- ------------------------------------------- ----------------------
<C> <S> <C> <C>
President (Principal Executive Officer) of
/s/ J. THOMAS LONG Argosy of Louisiana, Inc., the general
-------------------------------- partner of Catfish Queen Partnership in September 10, 1996
J. Thomas Long Commendam
Treasurer (Principal Financial Officer and
/s/ JOSEPH G. URAM Principal Accounting Officer) of Argosy of
-------------------------------- Louisiana, Inc., the general partner of September 10, 1996
Joseph G. Uram Catfish Queen Partnership in Commendam
</TABLE>
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment to Registration Statement to be signed
on its behalf by the undersigned thereunto duly authorized, in the City of
Alton, State of Illinois on September 10, 1996.
THE INDIANA GAMING COMPANY
By: /s/ J. THOMAS LONG
-----------------------------------
J. Thomas Long
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment to Registration Statement has been signed by the following persons on
the dates and in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------- ------------------------------------------- ----------------------
<C> <S> <C> <C>
/s/ J. THOMAS LONG President and Sole Director (Principal
-------------------------------- Executive Officer) September 10, 1996
J. Thomas Long
/s/ JOSEPH G. URAM Treasurer (Principal Financial Officer and
-------------------------------- Principal Accounting Officer) September 10, 1996
Joseph G. Uram
</TABLE>
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment to Registration Statement to be signed
on its behalf by the undersigned thereunto duly authorized, in the City of
Alton, State of Illinois on September 10, 1996.
IOWA GAMING COMPANY
By: /s/ J. THOMAS LONG
-----------------------------------
J. Thomas Long
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment to Registration Statement has been signed by the following persons on
the dates and in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------- ------------------------------------------- ----------------------
<C> <S> <C> <C>
/s/ J. THOMAS LONG President and Sole Director (Principal
-------------------------------- Executive Officer) September 10, 1996
J. Thomas Long
/s/ JOSEPH G. URAM Treasurer (Principal Financial Officer and
-------------------------------- Principal Accounting Officer) September 10, 1996
Joseph G. Uram
</TABLE>
II-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment to Registration Statement to be signed
on its behalf by the undersigned thereunto duly authorized, in the City of
Alton, State of Illinois on September 10, 1996.
JAZZ ENTERPRISES, INC.
By: /s/ J. THOMAS LONG
-----------------------------------
J. Thomas Long
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment to Registration Statement has been signed by the following persons on
the dates and in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------- ------------------------------------------- ----------------------
<C> <S> <C> <C>
/s/ J. THOMAS LONG President and Sole Director (Principal
-------------------------------- Executive Officer) September 10, 1996
J. Thomas Long
/s/ JOSEPH G. URAM Treasurer (Principal Financial Officer and
-------------------------------- Principal Accounting Officer) September 10, 1996
Joseph G. Uram
</TABLE>
II-12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment to Registration Statement to be signed
on its behalf by the undersigned thereunto duly authorized, in the City of
Alton, State of Illinois on September 10, 1996.
THE MISSOURI GAMING COMPANY
By: /s/ J. THOMAS LONG
-----------------------------------
J. Thomas Long
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment to Registration Statement has been signed by the following persons on
the dates and in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------- ------------------------------------------- ----------------------
<C> <S> <C> <C>
/s/ J. THOMAS LONG President and Sole Director (Principal
-------------------------------- Executive Officer) September 10, 1996
J. Thomas Long
/s/ JOSEPH G. URAM Treasurer (Principal Financial Officer and
-------------------------------- Principal Accounting Officer) September 10, 1996
Joseph G. Uram
</TABLE>
II-13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment to Registration Statement to be signed
on its behalf by the undersigned thereunto duly authorized, in the City of
Alton, State of Illinois on September 10, 1996.
THE ST. LOUIS GAMING COMPANY
By: /s/ J. THOMAS LONG
-----------------------------------
J. Thomas Long
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment to Registration Statement has been signed by the following persons on
the dates and in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------- ------------------------------------------- ----------------------
<C> <S> <C> <C>
/s/ J. THOMAS LONG President and Sole Director (Principal
-------------------------------- Executive Officer) September 10, 1996
J. Thomas Long
/s/ JOSEPH G. URAM Treasurer (Principal Financial Officer and
-------------------------------- Principal Accounting Officer) September 10, 1996
Joseph G. Uram
</TABLE>
II-14
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ----------- ------------------------------------------------------------------------------------------------ ---------
<C> <S> <C>
3.1 Amended and Restated Certificate of Incorporation of the Company (previously filed with the
Securities and Exchange Commission ("SEC") as an Exhibit to the Company's Registration
Statement on Form S-1 (File No. 33-55878) and incorporated herein by reference).
3.2 Amended and Restated By-laws of the Company (previously filed with the SEC as an Exhibit to the
Company's Registration Statement on Form S-1 (File No. 33-55878) and incorporated herein by
reference).
4.1 * Form of the Company's 13 1/4% First Mortgage Notes due 2004 issued on June 5, 1996 in the
aggregate principal amount of $235,000,000.
4.2 * Form of Guarantee issued on June 5, 1996 by Alton Gaming Company, Argosy of Louisiana, Inc.,
Catfish Queen Partnership in Commendam, The Indiana Gaming Company, Iowa Gaming Company, Jazz
Enterprises, Inc., The Missouri Gaming Company and The St. Louis Gaming Company.
4.3 * Indenture dated as of June 5, 1996 by and among the Company, First National Bank of Commerce, as
Trustee, and the Guarantors named therein, for the Company's $235,000,000 of 13 1/4% First
Mortgage Notes due 2004.
4.4 * Registration Rights Agreement dated as of June 5, 1996 by and among the Company, the Guarantors
named therein and the Initial Purchasers named therein.
4.5 * Cash Collateral and Disbursement Agreement dated June 5, 1996 by and among the Company, First
National Bank of Commerce, as Trustee, and LaSalle National Trust, N.A., as disbursement agent.
4.6 * Form of Security Agreement dated as of June 5, 1996 by and between First National Bank of
Commerce, as Trustee, and the Company, as Grantor.
4.7 * Form of Subsidiary Security Agreements dated as of June 5, 1996 by and between First National
Bank of Commerce, as Trustee, and each of Alton Gaming Company, Argosy of Louisiana, Inc.,
Catfish Queen Partnership in Commendam, The Indiana Gaming Company, Iowa Gaming Company, Jazz
Enterprises, Inc., The Missouri Gaming Company and The St. Louis Gaming Company, each as a
Grantor.
4.8 * Form of Pledge Agreement dated as of June 5, 1996 by and between First National Bank of
Commerce, as Trustee, and the Company, as Pledgor.
4.9 * Form of Subsidiary Pledge Agreements dated as of June 5, 1996 by and between First National Bank
of Commerce, as Trustee, and each of Alton Gaming Company, Argosy of Louisiana, Inc., Catfish
Queen Partnership in Commendam, The Indiana Gaming Company, Iowa Gaming Company, Jazz
Enterprises, Inc., The Missouri Gaming Company and The St. Louis Gaming Company, each as a
Pledgor.
4.10* Form of First Preferred Ship Mortgages dated as of June 5, 1996 executed in favor of First
National Bank of Commerce, as Trustee, by each of Alton Gaming Company (relating to Argosy I,
Alton Belle Casino II and Alton Landing), Catfish Queen Partnership in Commendam (relating to
Argosy III), The Missouri Gaming Company (relating to Argosy IV), Iowa Gaming Company (relating
to Argosy V) and the Company (relating to Spirit of America).
4.11* Form of Deed of Trust, Assignment of Leases and Rents and Security Agreement dated as of June 5,
1996 by and among the Company, First National Bank of Commerce, as Trustee, and Chicago Title
Insurance Company.
4.12* Form of Mortgage of Jazz Enterprises, Inc., and Catfish Queen Partnership in Commendam to Secure
Present and Future Indebtedness, Assignment of Leases and Rents and Security Agreement dated as
of June 5, 1996 execute in favor of First National Bank of Commerce, as Trustee.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ----------- ------------------------------------------------------------------------------------------------ ---------
<C> <S> <C>
4.13 Specimen Common Stock Certificate (previously filed with the SEC as an Exhibit to the Company's
Registration Statement on Form S-1 (File No. 33-55878) and incorporated herein by reference).
4.14 Indenture dated as of June 6, 1994 between the Company and Bank One, Springfield, as trustee,
for the Company's $115,000,000 12% Convertible Subordinated Notes due 2001 (previously filed
with the SEC as an Exhibit to the Company's Registration Statement on Form S-3 (File No.
33-76456) and incorporated herein by reference).
4.15 Specimen 12% Convertible Subordinated Note due 2001 (previously filed with the SEC as an Exhibit
to the Company's Registration Statement on Form S-3 (File No. 33-76456) and incorporated herein
by reference).
4.16 Registration Rights Agreement (previously filed with the SEC as an Exhibit to the Company's
Registration Statement on Form S-3 (File No. 33-76456) and incorporated herein by reference).
5.1 * Legal Opinion of Winston & Strawn regarding the validity of the issuance of the 13 1/4% First
Mortgage Notes due 2004.
9.1 Pratt Voting Trust Agreement dated as of May 5, 1992 by and between John Biggs Pratt, Sr. and
Stephanie Pratt (previously filed with the SEC as an Exhibit to the Company's Registration
Statement on Form S-1 (File No. 33-55878) and incorporated herein by reference).
10.1 Lease dated August 1, 1992 by and between Edward McPike d/b/a Grand Properties and Alton
Riverboat Gambling Partnership (previously filed with the SEC as an Exhibit to the Company's
Form 10-K for the year ended December 31, 1994 and incorporated herein by reference).
10.2 Bond and Easement Agreement dated as of April 18, 1991 by and between the Alton Riverboat
Gambling Partnership and the City of Alton, Illinois (previously filed with the SEC as an
Exhibit to the Company's Registration Statement on Form S-1 (File No. 33-55878) and
incorporated herein by reference).
10.3 Employment Agreement by and between the Company and J. Thomas Long (previously filed with the
SEC as an Exhibit to the Company's Form 10-K for the year ended December 31, 1995 and
incorporated herein by reference).
10.4 Employment Agreement by and between the Company and Patsy S. Hubbard (previously filed with the
SEC as an Exhibit to the Company's Form 10-K for the year ended December 31, 1995 and
incorporated herein by reference).
10.5 Stock Option Plan (previously filed with the SEC as an Exhibit to the Company's Registration
Statement on Form S-1 (File No. 33-55878) and incorporated herein by reference).
10.6 Form of Indemnification Agreement (previously filed with the SEC as an Exhibit to the Company's
Registration Statement on Form S-1 (File No. 33-55878) and incorporated herein by reference).
10.7 Director Option Plan (previously filed with the SEC as an Exhibit to the Company's Registration
Statement on Form S-1 (File No. 33-55878) and incorporated herein by reference).
10.8 Argosy Gaming Company Savings Plan (previously filed with the SEC as an Exhibit to the Company's
Form 8-K dated March 10, 1994 and incorporated herein by reference).
10.9 Letter Agreement dated as of January 28, 1993 by and between L. Thomas Lakin and the Alton
Riverboat Gambling Partnership (previously filed with the SEC as an Exhibit to the Company's
Registration Statement on Form S-1 (File No. 33-55878) and incorporated herein by reference).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ----------- ------------------------------------------------------------------------------------------------ ---------
<C> <S> <C>
10.10 Letter Agreement dated as of January 28, 1993 by and between the Alton Riverboat Gambling
Partnership and H. Steven Norton (previously filed with the SEC as an Exhibit to the Company's
Registration Statement on Form S-1 (File No. 33-55878) and incorporated herein by reference).
10.11 Letter Agreement dated March 29, 1995 by and between Floyd C. Warmann and the Company
(previously filed with the SEC as an exhibit to the Company's Form 10-K for the year ended
December 31, 1994 dated March 31, 1995 and incorporated herein by reference).
10.12 Agreement to Purchase Stock dated January 30, 1995 by and among the Company, Jazz Enterprises,
Inc. and the signatory shareholders of Jazz Enterprises, Inc. (previously filed with the SEC as
an Exhibit to the Company's Form 10-K for the year ended December 31, 1994 and incorporated
herein by reference).
10.13 Contract dated June 7, 1993 by and among the City of Riverside, Missouri, The Missouri Gaming
Company and the Company, together with amendments thereto (previously filed with the SEC as an
Exhibit to the Company's Form 8-K dated March 10, 1994 and incorporated herein by reference).
10.14 Second Amended and Restated Agreement of Limited Partnership dated February 21, 1996 of Indiana
Gaming Company, L.P. (previously filed with the SEC as an Exhibit to the Company's Form 10-K
for the year ended December 31, 1995 and incorporated herein by reference).
10.15 Management Agreement dated April 11, 1994 by and between Indiana Gaming Company, L.P. and The
Indiana Gaming Company, as amended by Amendment No. 1 to Management Agreement dated February
21, 1996 (previously filed with the SEC as an Exhibit to the Company's Form 10-K for the year
ended December 31, 1995 and incorporated herein by reference).
10.16 Affirmation of Limited Parent Guaranty of Argosy Gaming Company in favor of the partners of
Indiana Gaming Company, L.P. dated February 21, 1996 (previously filed with the SEC as an
Exhibit to the Company's Form 10-K for the year ended December 31, 1995 and incorporated herein
by reference).
10.17 Vessel Construction Contract by and between Service Marine Industries, Inc. and Indiana Gaming
Company, L.P. dated as of November 14, 1995 (previously filed with the SEC as an Exhibit to the
Company's Form 10-K for the year ended December 31, 1995 and incorporated herein by reference).
10.18 Riverboat Gaming Development Agreement between the City of Lawrenceburg, Indiana and Indiana
Gaming Company, L.P. dated as of April 13, 1994 as amended by Amendment Number One to Riverboat
Development Agreement between the City of Lawrenceburg, Indiana and Indiana Gaming Company,
L.P. dated as of December 28, 1995 (previously filed with the SEC as an Exhibit to the
Company's Form 10-K for the year ended December 31, 1995 and incorporated herein by reference).
10.19 Guaranty of Development Agreement dated as of April 13, 1994 by the Company in favor of the City
of Lawrenceburg (previously filed with the SEC as an Exhibit to the Company's Form 10-K for the
year ended December 31, 1995 and incorporated herein by reference).
10.20 Charter Agreement dated October 27, 1994 by and between President Riverboat Casino-New York,
Inc. and The Missouri Gaming Company (previously filed with the SEC as an Exhibit to the
Company's Form 10-K for the year ended December 31, 1994 and incorporated herein by reference).
12.1 * Statement re Computation of Earnings to Fixed Charges.
21 * List of Subsidiaries.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ----------- ------------------------------------------------------------------------------------------------ ---------
<C> <S> <C>
23.1 * Consent of Ernst & Young LLP.
23.2 * Consent of Grant Thornton LLP.
23.3 * Consent of Winston & Strawn (contained in its opinion filed as Exhibit 5.1 hereto).
24 * Powers of Attorney of directors.
25.1 * Statement of Eligibility and Qualification on Form T-1 under the Trust Indenture Act of 1939 of
First National Bank of Commerce, as Trustee under the Indenture relating to the 13 1/4% First
Mortgage Notes due 2004.
99.1 * Form of Letter of Transmittal.
99.2 * Form of Notice of Guaranteed Delivery.
99.3 * Form of Letter to Securities Dealers, Commercial Banks, Trust Companies and Other Nominees.
99.4 * Form of Letter to Clients.
99.5 * Guidelines for Certification of Taxpayer Identification Number on Form W-9.
</TABLE>
- ------------
* Previously filed with the SEC as an Exhibit to this Registration Statement
on Form S-4 (File No. 333-7299).
