<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 8, 1994.
REGISTRATION NO. 33-54325
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
SHOWBOAT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
NEVADA 88-0090766
(STATE OR OTHER JURISDICTION OF (I.R.S.EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
2800 FREMONT STREET
LAS VEGAS, NEVADA 89104
(702) 385-9141
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
<TABLE>
<CAPTION>
OCEAN SHOWBOAT, INC. ATLANTIC CITY SHOWBOAT, INC. SHOWBOAT OPERATING COMPANY
(EXACT NAME OF REGISTRANT (EXACT NAME OF REGISTRANT (EXACT NAME OF REGISTRANT
AS SPECIFIED IN ITS CHARTER) AS SPECIFIED IN ITS CHARTER) AS SPECIFIED IN ITS CHARTER)
--------------------------- --------------------------- -------------------------
<S> <C> <C>
NEW JERSEY 22-2500790 NEW JERSEY 22-2500794 NEVADA 88-022752
(STATE OR OTHER (I.R.S. EMPLOYER (STATE OR OTHER (I.R.S. EMPLOYER (STATE OR OTHER (I.R.S. EMPLOYER
JURISDICTION OF IDENTIFICATION NO.) JURISDICTION OF IDENTIFICATION NO.) JURISDICTION OR IDENTIFICATION NO.)
INCORPORATION INCORPORATION INCORPORATION
OR ORGANIZATION) OR ORGANIZATION) OR ORGANIZATION)
801 BOARDWALK 801 BOARDWALK 2800 FREMONT STREET
ATLANTIC CITY, NEW JERSEY 08401 ATLANTIC CITY, NEW JERSEY 08401 LAS VEGAS, NEVADA 89104
(609) 343-4000 (609) 343-4000 (702) 385-9141
(ADDRESS, INCLUDING ZIP (ADDRESS, INCLUDING ZIP (ADDRESS, INCLUDING ZIP
CODE, AND TELEPHONE CODE, AND TELEPHONE CODE, AND TELEPHONE
NUMBER, INCLUDING AREA NUMBER, INCLUDING AREA NUMBER, INCLUDING AREA
CODE, OF REGISTRANT'S CODE, OF REGISTRANT'S CODE, OF REGISTRANT'S
PRINCIPAL EXECUTIVE PRINCIPAL EXECUTIVE PRINCIPAL EXECUTIVE
OFFICES) OFFICES) OFFICES)
JOHN N. BREWER, ESQ. COPY TO:
KUMMER KAEMPFER BONNER & RENSHAW RAYMOND Y. LIN, ESQ.
3800 HOWARD HUGHES PARKWAY LATHAM & WATKINS
SEVENTH FLOOR 885 THIRD AVENUE
LAS VEGAS, NEVADA 89109 NEW YORK, NEW YORK 10022-4802
(702) 792-7000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND
TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
</TABLE>
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after
this Registration Statement becomes effective.
----------------
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 THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JULY 8, 1994
PROSPECTUS
, 1994
$150,000,000
SHOWBOAT, INC.
% SENIOR SUBORDINATED NOTES DUE 2009
The % Senior Subordinated Notes due 2009 (the "Notes") are being offered
(the "Note Offering") by Showboat, Inc., a Nevada corporation (the "Company").
The Notes will bear interest from the date of issuance at the rate of % per
annum, payable semi-annually in arrears on and of each year,
commencing , 1995. The Company will not be required to make any mandatory
redemption or sinking fund payments with respect to the Notes prior to
maturity. The Notes are redeemable at the option of the Company, in whole or in
part, at any time on or after , 2001 (except as may otherwise be required
by a Gaming Authority (as defined herein)) at the redemption prices set forth
herein, plus accrued and unpaid interest thereon to the date of redemption. In
the event of a Change of Control (as defined herein), each holder of Notes will
have the right to require the Company to repurchase all or any part of such
holder's Notes at a purchase price equal to 101% of the principal amount
thereof plus accrued and unpaid interest to the date of purchase.
The Notes will be unsecured general obligations of the Company, subordinated
in right of payment to all Senior Debt (as defined herein) of the Company. The
Notes will be jointly and severally guaranteed on an unsecured, senior
subordinated basis by certain of the Company's subsidiaries. At March 31, 1994,
on a pro forma basis after giving effect to the Note Offering and the
application of the proceeds therefrom, the Company and its subsidiaries would
have had outstanding approximately $429.6 million in aggregate principal amount
of indebtedness on a consolidated basis (excluding trade payables and other
accrued liabilities), of which approximately $279.6 million would have been
Senior Debt.
Concurrently with the Note Offering, the Company is offering 3,000,000 shares
(and a selling shareholder is offering 100,000 shares) of the Company's common
stock (the "Common Stock Offering"). Consummation of the Note Offering is not
contingent upon consummation of the Common Stock Offering, and there can be no
assurance that the Common Stock Offering will be consummated.
SEE "CERTAIN CONSIDERATIONS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD
BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE NOTES OFFERED HEREBY.
NEITHER THE NEVADA GAMING COMMISSION, THE NEVADA STATE GAMING CONTROL BOARD,
THE NEW JERSEY CASINO CONTROL COMMISSION NOR THE LOUISIANA RIVERBOAT GAMING
COMMISSION, NOR ANY OTHER GAMING REGULATORY AGENCY WITH WHICH THE COMPANY IS
LICENSED OR HAS APPLIED FOR A LICENSE, HAS PASSED UPON THE ADEQUACY OR
ACCURACY OF THIS PROSPECTUS OR THE INVESTMENT MERIT OF THE SECURITIES
OFFERED HEREBY. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
<TABLE>
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<CAPTION>
PRICE UNDERWRITING PROCEEDS
TO THE DISCOUNTS AND TO THE
PUBLIC(1) COMMISSIONS(2) COMPANY(3)
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<S> <C> <C> <C>
Per Note.................................... % % %
Total....................................... $ $ $
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</TABLE>
(1) Plus accrued interest, if any, from the date of issuance.
(2) See "Underwriting" for indemnification arrangements with the Underwriter.
(3) Before deducting expenses of the Note Offering payable by the Company,
estimated at $ .
The Notes are being offered by the Underwriter, subject to prior sale, when,
as and if delivered to and accepted by the Underwriter and subject to certain
prior conditions, including the right of the Underwriter to reject any orders
in whole or in part. It is expected that delivery of the Notes will be made in
New York, New York on or about , 1994.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
<PAGE>
[GRAPHIC NO.1 APPEARS HERE]
The Atlantic City Showboat casino expansion, completed in May 1994, permitted
the Company to add a total of 900 slot machines and 46 table games. The final
phase of the Atlantic City expansion will add a new 284-room hotel tower which
is scheduled to open in late 1994. (Artist's rendering)
- --------------------------------------------------------------------------------
The newly renovated Pacific
Avenue entrance to the
[GRAPHIC NO.2 APPEARS HERE] Atlantic City Showboat sets the
tone for the Mardi Gras theme
which is maintained
throughout the property.
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The Showboat Star Casino
was New Orleans' first
legal casino and is located
on Lake Pontchartrain, only [GRAPHIC NO.3 APPEARS HERE]
15 minutes from downtown
New Orleans and the
famous French Quarter.
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[GRAPHIC NO.4 APPEARS HERE]
The Sydney Harbour Casino will be located within one mile of the Sydney central
business district on an eight-acre waterfront site next to Darling Harbour. The
permanent casino will contain a 136,000 sq.ft. casino with 1,500 slot machines
and 200 table games. (Artist's rendering)
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[GRAPHIC NO.5 APPEARS HERE]
The Sydney Harbour Casino will be decorated to capture Australia's natural
beauty and diverse geography and will contain cascading waterfalls. (Artist's
rendering)
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[GRAPHIC NO.6 APPEARS HERE]
EXISTING SHOWBOAT EXPANSION OPPORTUNITIES
PROPERTIES ANNOUNCED AS OF JUNE 1994
. Atlantic City, NJ . Sydney, Australia
. Las Vegas, NV . East Chicago, IN
. Lake Pontchartrain, LA . St. Regis Mohawk, NY
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The East Chicago riverboat site is located
approximately 20 minutes from downtown
[GRAPHIC NO.7 APPEARS HERE] Chicago and approximately three miles from
the Chicago city limits. The riverboat is
expected to have up to 60,000 sq.ft. of
casino space containing approximately 2,300
slot machines and 80 table games.
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The St. Regis Casino, which Showboat is planning to
operate on tribal lands in Hogansburg, New York, [GRAPHIC NO.8
approximately 75 miles south of Montreal, Canada, will APPEARS HERE]
offer approximately 130 table games including blackjack,
craps, and roulette and keno.
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The Showboat Hotel, Casino &
Bowling Center is a Las Vegas
institution. It has operated
continuously for 40 years, [GRAPHIC NO. 9 APPEARS HERE]
catering to the local market -
customers who are loyal to the
Showboat experience.
- --------------------------------------------------------------------------------
Showboat is planning to
renovate and expand the Las
Vegas Showboat.
Showboat's plans include the
addition of a 500-room
[GRAPHIC NO. 10 APPEARS HERE] hotel tower, 20,000 sq.ft. of
casino space with capacity
to add up to 1,100 slot
machines, a 900-space
parking garage and a
78,000 sq.ft. Entertainment
Center.
(Artist's rendering)
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2
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational reporting 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 Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549; at the New York Regional
Office of the Commission, 7 World Trade Center, 13th Floor, New York, New York
10048; and at the Chicago Regional Office of the Commission, Citicorp Center,
500 West Madison Street, Chicago, Illinois 60661. Copies of such material can
be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Company's Common
Stock is listed on the New York Stock Exchange (the "NYSE"). Reports, proxy
statements, and other information concerning the Company may be inspected at
the offices of the NYSE at 20 Broad Street, New York, New York 10005.
The Company has filed with the Commission a Registration Statement on Form S-
3 (the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the registration of the Notes. This
Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits thereto, certain portions which have
been omitted as permitted by the regulations of the Commission. Statements
contained in this Prospectus or in any document incorporated by reference as to
the contents of any contract or other documents referred to herein or therein
are not necessarily complete and, in each instance, reference is made to the
copy of such documents filed as an exhibit to the Registration Statement or
such other documents, which may be obtained from the Commission at its
principal office in Washington, D.C., upon payment of the fees prescribed by
the Commission. Each such statement is qualified in its entirety by such
reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by the Company with the
Commission, are hereby incorporated herein by reference:
(i) The Company's Annual Report on Form 10-K for the Year Ended December
31, 1993;
(ii) The Company's Quarterly Report on Form 10-Q for the Quarter Ended
March 31, 1994; and
(iii) The Company's Current Report on Form 8-K dated May 19, 1994.
In addition, each document filed by the Company pursuant to Sections 13(a),
13(c), 14 or 15(b) of the Exchange Act subsequent to the date of this
Prospectus and prior to termination of the Note Offering shall be deemed to be
incorporated by reference into this Prospectus and to be a part hereof from the
date such document is filed.
Any statement contained herein, or any document, all or a portion of which is
incorporated or deemed to be incorporated by reference herein, shall be deemed
to be modified or superseded for purposes of the Registration Statement and
this Prospectus to the extent that a statement contained herein, or in any
subsequently filed document that also is or 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 part of the Registration Statement or this
Prospectus. All information appearing in this Prospectus is qualified in its
entirety by the information and financial statements (including notes thereto)
appearing in the documents incorporated herein by reference. This Prospectus
incorporates documents by reference which are not presented herein or delivered
herewith. These documents (other than exhibits thereto) are available without
charge, upon written or oral request by any person to whom this Prospectus has
been delivered, from H. Gregory Nasky, Secretary, Showboat, Inc., 2800 Fremont
Street, Las Vegas, Nevada 89104 (telephone (702) 385-9141).
IN CONNECTION WITH THE NOTE OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES
AND OTHER SECURITIES OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED
AT ANY TIME.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere or incorporated by
reference in this Prospectus. As used in this Prospectus, unless the context
otherwise requires, the "Company" refers to Showboat, Inc. and its
subsidiaries. As used in this Prospectus, amounts in Australian dollars ("A$")
have been converted to United States dollars ("$") using an exchange rate of
$0.731 for each A$1.00 (the exchange rate as of July 6, 1994). See "Certain
Considerations" for factors a prospective investor should consider in
evaluating the Company before purchasing the Notes.
THE COMPANY
Showboat, Inc., through its wholly owned subsidiaries, owns and operates the
Showboat Casino Hotel in Atlantic City, New Jersey (the "Atlantic City
Showboat") and the Showboat Hotel, Casino and Bowling Center in Las Vegas,
Nevada (the "Las Vegas Showboat"). The Company also owns a 50% partnership
interest in, and has a contract to manage, the Star Casino, a riverboat casino
in New Orleans, Louisiana (the "Showboat Star Casino"). In addition to its
existing facilities, the Company maintains an active development program to
identify and develop gaming opportunities in existing and emerging gaming
venues. The Company has announced expansion opportunities in Sydney, Australia,
East Chicago, Indiana and Hogansburg, New York. The Company had EBITDA/1/ of
$69.6 million, $68.5 million and $61.2 million during the years ended December
31, 1993, 1992 and 1991, respectively, and $15.1 million and $12.8 million for
the three months ended March 31, 1994 and 1993, respectively.
The Atlantic City Showboat, which commenced operations in March 1987, is a
516-room, 24-story casino hotel featuring a 95,000 square foot casino
containing approximately 3,000 slot machines and 116 table games. The Company
is currently in the final phase of a three-phase approximately $93 million
expansion project at the Atlantic City Showboat. The first phase of the
expansion was completed in June 1993 and added a 15,000 square foot horse race
simulcasting facility and 5,000 square feet of casino space, resulting in the
addition of approximately 340 slot machines and 28 table games. The second
phase of the expansion was completed in May 1994 and added 15,000 square feet
of casino space, resulting in the addition of approximately 560 slot machines
and 18 table games. The casino expansion permitted the Company to add a total
of approximately 900 slot machines and 46 table games. The final phase of the
expansion will add a new 284-room hotel tower which is currently under
construction and is scheduled to open in late 1994.
The Las Vegas Showboat, which commenced operations in September 1954, is a
482-room, 18-story casino hotel featuring a 78,000 square foot casino
containing approximately 1,900 slot machines, 33 table games and an
approximately 1,300-seat bingo parlor. In October 1990, the Las Vegas Showboat
completed an approximately $25 million expansion and upgrade of its casino,
restaurants and bingo parlor and constructed a 620-space parking garage. The
Company is beginning a $15 million renovation at the Las Vegas Showboat which
will upgrade the facility to current building codes, replace the existing power
plant facility and add a 900-space parking garage. In addition, the Company is
planning a $55 million expansion project which would add a 500-room hotel tower
and an approximately 78,000 square foot entertainment complex (the "Showboat
Entertainment Center"). The Showboat Entertainment Center is expected to
include seven restaurants, a midway arcade, two movie theatres, a food court,
retail shops and a dance hall, all surrounding a four-story atrium designed to
replicate a New Orleans square featuring a center-court "dancing" water
fountain, a laser light show and a simulated fireworks display. The expansion
will add 20,000 square feet of casino space, which will permit the Company to
add up to 1,100 slot machines. Construction on the renovation and expansion
projects is expected to begin before the end of 1994 and is anticipated to take
approximately 18 months to complete.
- --------------------
/1/EBITDA is defined as income from operations of consolidated subsidiaries
before depreciation and amortization plus cash distributions from all
unconsolidated subsidiaries. EBITDA should not be construed as an alternative
to net income and is presented solely as supplemental disclosure because the
Company believes that it is a widely used measure of operating performance in
the gaming industry.
4
<PAGE>
The Showboat Star Casino, which commenced operations in November 1993, is a
riverboat located on the south shore of Lake Pontchartrain in New Orleans,
Louisiana, and features a 21,900 square foot casino which contains
approximately 780 slot machines and 42 table games. In addition to its 50%
equity interest, the Company manages the riverboat for a management fee of 5%
of net gaming revenues. During the first five months of 1994, the Company
earned management fees of $1.6 million and the Showboat Star Casino had net
earnings of $13.9 million. The current policy of Showboat Star Partnership is
to distribute at least 70% of net earnings to its partners on a monthly basis.
The Company is actively pursuing expansion opportunities in emerging gaming
markets throughout the United States and internationally, including land-based
casinos, riverboats and Indian gaming. Announced projects which the Company is
currently pursuing include the following:
Sydney, New South Wales, Australia. On May 6, 1994, the New South Wales
Casino Control Authority (the "NSWCCA") selected an affiliate of the Company as
the preferred applicant to build, manage and operate the sole full-service
casino in New South Wales, Australia (the "Sydney Harbour Casino"). The terms
of the proposed transaction provide for a 99-year site lease and casino
license, which will be the exclusive full-service casino license in the state
of New South Wales for a 12-year period, commencing with the opening of a
proposed temporary casino. Gaming operations are currently anticipated to begin
in mid- to late-1995 in the temporary casino, which is expected to contain
approximately 500 slot machines, 150 table games and, subject to certain
approvals, keno. The permanent Sydney Harbour Casino, expected to open in late
1997, will contain approximately 1,500 slot machines, 200 table games, 352
hotel rooms, 139 luxury condominium units in an adjacent tower, 14 themed
restaurants, 12 cocktail lounges, a 2,000-seat lyric theatre and a 700-seat
cabaret style theatre. The cost of the Sydney Harbour Casino, including
licensing fees, is anticipated to be approximately A$1.2 billion ($867.7
million). Firm commitments for the project have been received for all
anticipated external financing requirements. The Company has agreed to invest
A$135.0 million ($98.7 million) in Sydney Harbour Casino Holdings Limited
("SHCL"), the holding company for the Sydney Harbour Casino, for an
approximately 27% ownership interest in SHCL. In addition, an 85% owned
subsidiary of the Company has a 99-year management agreement to manage and
operate the Sydney Harbour Casino. The management fee will be based on both
revenues and earnings of the casino and the non-casino areas of the
entertainment complex. See "The Company--Expansion Opportunities--Sydney, New
South Wales, Australia."
East Chicago, Indiana. The Company owns a 55% interest in the Showboat Marina
Partnership (the "Indiana Partnership") which is the only applicant for the
sole riverboat gaming license allocated by statute to East Chicago, Indiana.
The riverboat will be located approximately 20 minutes from downtown Chicago,
Illinois and approximately three miles from the Chicago city limits. The
Company plans to invest approximately $30 million in the Indiana Partnership
and assist the Indiana Partnership in obtaining financing (currently estimated
to be $90 million) for the construction of the riverboat casino and related
dock-side facilities (collectively, the "East Chicago Riverboat"). Under the
current partnership agreement, the Company will receive a 12% preferred return
on its investment. The Indiana Partnership's application to the Indiana Gaming
Commission for the license to operate the East Chicago Riverboat proposes a
riverboat with up to 60,000 square feet of casino space containing
approximately 2,300 slot machines and 80 table games and substantial dock-side
amenities. Issuance of the gaming license is subject to the resolution of
certain legal challenges to the Indiana gaming statute. See "Certain
Considerations--New Gaming Jurisdictions and Expansion Opportunities."
St. Regis Mohawk Tribal Reservation, Hogansburg, New York. The Company has
entered into a management agreement and related agreements to manage a casino
(the "St. Regis Casino") on the St. Regis Mohawk Tribal Reservation in
Hogansburg, New York, located approximately 75 miles south of Montreal, Canada.
The agreements, which are subject to the approval of the National Indian Gaming
Commission (the
5
<PAGE>
"NIGC"), contemplate that a wholly owned subsidiary of the Company will lend
approximately $30 million for a term of five years, at a rate of 15% per annum,
to purchase and renovate an existing building which will house an approximately
30,000 square foot casino with approximately 130 table games, including
blackjack, craps, roulette, best hand poker, big six and keno. The proposed
management agreement provides for a fee of 20% of earnings before interest,
taxes and depreciation (subject to a maximum of 30% of earnings before taxes)
and has a term of five years. See "The Company--Expansion Opportunities--St.
Regis Mohawk Tribal Reservation, Hogansburg, New York."
The Company's marketing and operating strategy is to develop a high volume of
traffic through its casinos. The Atlantic City Showboat targets the drive-in
customer by providing competitive games and excellent service in an attractive
and convenient facility. Customers are attracted to the Las Vegas Showboat by
competitive slot machines, bingo, moderately priced food and accommodations, a
friendly "locals" atmosphere and a 106-lane bowling center. The Showboat Star
Casino, like the Las Vegas Showboat, targets "locals" with its excellent
service, attractive and convenient facility and accessible location. At future
venues, the Company will modify its marketing strategies to maximize casino
revenues by focusing on a specific venue's unique location and demographics.
The Company's development strategy is to identify new and existing gaming
opportunities with strong demographics, in attractive and accessible locations,
and which the Company believes will exceed the Company's return on investment
objectives. In 1993, the Company created a Development and Management Services
Division to investigate and secure new properties in the United States and
around the world. The Company's Development and Management Services Division
also provides management services to support new facilities upon opening,
including human resources, marketing, design and construction, management
information systems, regulatory compliance and operating and financial
services. As of May 31, 1994, the Development and Management Services Division
employed approximately 40 full-time employees and, since its inception, has
actively pursued new projects in 16 states and four foreign countries. No
assurance can be given that any of the announced projects, or any project under
development, will be completed, licensed or result in any significant
contribution to the Company's cash flow or earnings. Casino gaming operations
are highly regulated and new casino development is subject to a number of
risks. See "Certain Considerations--New Gaming Jurisdictions and Expansion
Opportunities," "--Regulatory Matters" and "--Development of New Facilities."
6
<PAGE>
THE OFFERING
Securities Offered.......... $150 million aggregate principal amount of % Se-
nior Subordinated Notes due 2009.
Maturity Date............... , 2009.
Interest Payment Dates...... and of each year, commencing on ,
1995.
Guarantees.................. The payment of principal of and interest on the
Notes when due will be guaranteed on an unsecured
senior subordinated basis (the "Subsidiary Guar-
antees") by certain of the Company's subsidiaries
(the "Guarantors").
Optional Redemption......... The Notes will be redeemable, in whole or in
part, at the option of the Company at any time on
or after , 2001 at the redemption prices set
forth herein plus accrued and unpaid interest
thereon to the redemption date.
Mandatory Redemption........ The Company is not required to make mandatory re-
demption or sinking fund payments with respect to
the Notes.
Ranking..................... The Notes will be unsecured general obligations
of the Company, subordinated in right of payment
to all existing and future Senior Debt of the
Company. The Subsidiary Guarantees will be gen-
eral unsecured obligations of the Guarantors,
subordinated in right of payment to all Senior
Debt of the Guarantors. At March 31, 1994, on a
pro forma basis after giving effect to the Note
Offering, the Company and its subsidiaries would
have had outstanding approximately $429.6 million
in aggregate principal amount of indebtedness on
a consolidated basis (excluding trade payables
and other accrued liabilities), of which approxi-
mately $279.6 million would have been Senior
Debt.
Change of Control........... In the event of a Change of Control, each holder
of Notes will have the right to require the Com-
pany to repurchase all or any part of such hold-
er's Notes at a purchase price equal to 101% of
the principal amount thereof plus accrued and un-
paid interest to the date of purchase.
Certain Covenants........... The Indenture relating to the Notes (the "Inden-
ture") will contain covenants restricting or lim-
iting the ability of the Company and its Re-
stricted Subsidiaries (as defined herein) to,
among other things, (i) pay dividends or make
other restricted payments, (ii) incur additional
indebtedness and issue preferred stock, (iii)
create liens, (iv) create dividend and other pay-
ment restrictions affecting Restricted Subsidiar-
ies, (v) enter into mergers, consolidations or
make sales of all or substantially all assets,
(vi) enter into transactions with affiliates and
(vii) engage in other lines of business.
7
<PAGE>
Escrow Agreement............ The Company is required to place $100.0 million
of the net proceeds of the Note Offering into an
escrow account, which may only be used to fund
the Company's investment in SHCL. In the event
that Australian Gaming Approval or Management
Contract Approval (as defined in the Indenture)
has not occurred on or prior to December 31,
1995, the Company will be obligated to make an
offer to repurchase an amount of Notes and cer-
tain other indebtedness of the Company equal to
the amount in the escrow account.
Concurrent Offering......... Concurrently with the Note Offering, the Company
is offering 3,000,000 shares (and a selling
shareholder is offering 100,000 shares) of the
Company's common stock. Consummation of the Note
Offering is not contingent upon consummation of
the Common Stock Offering, and there can be no
assurance that the Common Stock Offering will be
consummated.
Use of Proceeds.............
The net proceeds from the Note Offering are ex-
pected to be approximately $144.9 million. The
Company currently intends to apply such net pro-
ceeds, together with the net proceeds to the Com-
pany from the Common Stock Offering and available
cash, to (i) invest A$135.0 million ($98.7 mil-
lion) for an approximately 27% equity interest in
SHCL, (ii) renovate the Las Vegas Showboat in or-
der to upgrade the facility to current building
codes, replace the existing power plant facility
and add a 900-space parking garage at a cost of
approximately $15 million, (iii) expand the Las
Vegas Showboat to add a 500-room hotel tower and
the Showboat Entertainment Center at a cost of
approximately $55 million, (iv) invest approxi-
mately $30 million in the Indiana Partnership and
(v) provide a loan of approximately $30 million
to the St. Regis Mohawk Tribe for the purchase
and renovation of a building in which to operate
the St. Regis Casino. See "Use of Proceeds."
8
<PAGE>
SHOWBOAT, INC. AND SUBSIDIARIES
SUMMARY OF CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------ ----------------
1989 1990 1991 1992 1993 1993 1994
(IN THOUSANDS, EXCEPT RATIO DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenues........... $342,354 $334,247 $331,560 $355,236 $375,727 $85,496 $88,779
Income from operations
of consolidated
subsidiaries.......... 31,107 27,765 35,501 46,508 46,269 7,685 7,848
Equity in income (loss)
from operations of
unconsolidated
affiliate............. -- -- -- -- (850) -- 3,240
Income from operations. 31,107 27,765 35,501 46,508 45,419 7,685 11,088
Interest expense,
net(1)................ 24,870 25,236 25,399 23,894 21,481 4,499 5,399
Income before
extraordinary items
and cumulative effect
adjustment(2)......... 7,066 1,081 6,014 15,857 13,464 1,921 3,440
Net income(2).......... 7,066 5,051 6,194 12,449 7,341 2,477 3,440
Ratio of earnings to
fixed charges(2)(3)... 1.32 1.06x 1.29x 1.68x 1.67x 1.42x 1.60x
OTHER DATA:
EBITDA(4).............. $50,696 $50,138 $61,193 $68,520 $69,572 $12,825 $15,109
Depreciation and
amortization.......... 19,589 22,373 25,692 22,012 23,303 5,140 6,361
Capital expenditures... 20,497 44,020 13,203 23,092 63,600 17,769 20,488
EBITDA/Interest
expense, net.......... 2.04x 1.99x 2.41x 2.87x 3.24x 2.85x 2.80x
Net debt(5)/EBITDA..... 3.54x 3.87x 2.85x 1.60x 2.27x -- 2.40x
PRO FORMA DATA(6):
Interest expense, net.. $ 32,982 $ 8,030 $ 7,954
EBITDA/Interest
expense, net.......... 2.11x 1.60x 1.90x
Net debt/EBITDA........ 1.64x -- 1.78x
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1994
--------------------------------
AS AS FURTHER
ACTUAL ADJUSTED(7) ADJUSTED(8)
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................... $107,458 $252,333 $301,502
Total assets................................. 482,475 632,475 681,644
Long-term debt (including current
maturities)................................. 279,570 429,570 429,570
Shareholders' equity......................... 138,561 138,561 187,730
</TABLE>
- ------------------
(1) Interest expense, net of capitalized interest and interest income.
(2) Results from 1989 include a pre-tax gain of $4.9 million on a sale of a
country club by the Company.
(3) The ratio of earnings to fixed charges has been computed by dividing
earnings available for fixed charges (income before income taxes,
extraordinary items and cumulative effect adjustment plus fixed charges
less capitalized interest) by fixed charges (interest expense plus
capitalized interest plus that portion of rental expense deemed to
represent interest).
(4) EBITDA is defined as income from operations of consolidated subsidiaries
before depreciation and amortization, plus cash distributions from
unconsolidated subsidiaries. Cash distributions from unconsolidated
subsidiaries were $0 from 1989 through 1993 and were $0.9 million in the
three months ended March 31, 1994.
(5) Net debt is defined as long-term debt, inclusive of current maturities,
less cash, at the end of the period.
(6) The pro forma data give effect to (i) the Note Offering at an assumed
interest rate of 11%, (ii) the Common Stock Offering at an assumed offering
price of $17 3/8 per share, the last reported sale price of the Common
Stock on the NYSE on July 6, 1994, and (iii) the sale by the Company on May
18, 1993 of $275 million aggregate principal amount of 9 1/4% First
Mortgage Bonds due 2008 and the application of the net proceeds therefrom
to repay certain indebtedness, in each case as if such transaction had
occurred as of the first day of the period presented. The pro forma data
assume that interest income is earned on cash balances at a rate of 3.0% in
1993 and 3.5% in 1994. If the Common Stock Offering is not consummated, the
pro forma data would be as follows:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
------------ ----------------
1993 1993 1994
(IN THOUSANDS, EXCEPT RATIO
DATA)
PRO FORMA DATA:
<S> <C> <C> <C>
Interest expense, net...................... $34,457 $ 8,399 $ 8,384
EBITDA/Interest expense, net............... 2.02x 1.53x 1.80x
Net debt/EBITDA............................ 2.34x -- 2.47x
</TABLE>
If the interest rate on the Notes is increased or decreased by 1/4%,
interest expense, net will increase or decrease, respectively, by $375,000.
(7) Adjusted to give effect to the Note Offering.
(8) Adjusted to give effect to the Note Offering and the Common Stock Offering
at an assumed offering price of $17 3/8 per share.
9
<PAGE>
THE COMPANY
Showboat, Inc., through its wholly owned subsidiaries, owns and operates the
Atlantic City Showboat and the Las Vegas Showboat. The Company also owns a 50%
partnership interest in, and has a contract to manage, the Showboat Star
Casino. In addition to its existing facilities, the Company maintains an
active development program to identify and develop gaming opportunities in
existing and emerging gaming venues. The Company has announced expansion
opportunities in Sydney, Australia, East Chicago, Indiana and Hogansburg, New
York. The Company had EBITDA/1/ of $69.6 million, $68.5 million and $61.2
million during the years ended December 31, 1993, 1992 and 1991, respectively,
and $15.1 million and $12.8 million for the three months ended March 31, 1994
and 1993, respectively.
The Company's marketing and operating strategy is to develop a high volume
of traffic through its casinos. The Atlantic City Showboat targets the drive-
in customer by providing competitive games and excellent service in an
attractive and convenient facility. Customers are attracted to the Las Vegas
Showboat by competitive slot machines, bingo, moderately priced food and
accommodations, a friendly "locals" atmosphere and a 106-lane bowling center.
The Showboat Star Casino, like the Las Vegas Showboat, targets "locals" with
its excellent service, attractive and convenient facility and accessible
location. At future venues, the Company will modify its marketing strategies
to maximize casino revenues by focusing on a specific venue's unique location
and demographics.
The Company's development strategy is to identify new and existing gaming
opportunities with strong demographics, in attractive and accessible
locations, and which the Company believes will exceed the Company's return on
investment objectives. In 1993, the Company created a Development and
Management Services Division to investigate and secure new properties in the
United States and around the world. The Company's Development and Management
Services Division also provides management services to support new facilities
upon opening, including human resources, marketing, design and construction,
management information systems, regulatory compliance and operating and
financial services. As of May 31, 1994, the Development and Management
Services Division employed approximately 40 full-time employees and, since its
inception, has actively pursued projects in 16 states and four foreign
countries. The Development and Management Services Division is currently
working on a number of projects in addition to the announced projects. No
assurance can be given that any of the announced projects, or any project
under development, will be completed, licensed or result in any significant
contribution to the Company's cash flow or earnings. Casino gaming operations
are highly regulated and new casino development is subject to a number of
risks. See "Certain Considerations--New Gaming Jurisdictions and Expansion
Opportunities," "--Regulatory Matters" and "--Development of New Facilities."
The Company is actively pursuing expansion opportunities in emerging gaming
markets in the United States and internationally. The Company has announced
expansion opportunities which include (i) an approximately 27% interest in
SHCL, which was selected as the preferred applicant for the only full-service
casino license in New South Wales, Australia, (ii) a 55% interest in the
Indiana Partnership, which is the only applicant for the sole gaming license
to operate a riverboat casino in East Chicago, Indiana, located approximately
20 minutes from downtown Chicago, Illinois and three miles from the Chicago
city limits, and (iii) an agreement with the St. Regis Mohawk Tribe to
construct and operate the St. Regis Casino on the St. Regis Mohawk Tribal
Reservation in Hogansburg, New York, located approximately 75 miles south of
Montreal, Canada.
The Company's principal executive offices are located at 2800 Fremont
Street, Las Vegas, Nevada 89104. The telephone number is (702) 385-9141.
- ---------------------
/1/EBITDA is defined as income from operations of consolidated subsidiaries
before depreciation and amortization plus cash distributions from all
unconsolidated subsidiaries. EBITDA should not be construed as an alternative
to net income and is presented solely as supplemental disclosure because the
Company believes that it is a widely used measure of operating performance in
the gaming industry.
10
<PAGE>
THE ATLANTIC CITY SHOWBOAT
The Atlantic City Showboat, a 516-room, 24-story hotel casino which commenced
operations in March 1987, is located at the eastern end of the "Boardwalk." The
casino features approximately 3,000 slot machines and 116 table games,
including 62 "21" tables, 18 poker tables, 14 craps tables, 11 roulette tables,
two baccarat tables, two mini-baccarat tables, two pai-gow poker tables, two
big six wheels, one red dog table, one sic bo table, one double down stud poker
table, keno and a simulcast horse racing facility. The Atlantic City Showboat
contains two public levels. On the ground level the public areas include the
casino, a show lounge, two cocktail lounges, six restaurants, an ice cream
parlor and three shops. On the second level the public areas include a 573-seat
buffet-style restaurant, a 383-seat coffee shop, a player's club lounge, a
beauty salon, a health spa, a video game arcade, 27,000 square feet of meeting
rooms, convention and exhibition space, and a 60-lane bowling center with a
snack bar and cocktail lounge. The themed interior of the facility replicates
the spirit and elegance of turn-of-the-century New Orleans.
The Atlantic City Showboat's attached nine-story parking garage facility,
with a New Orleans themed exterior, provides self-parking for approximately
2,000 cars and a 14-bus depot integrated with the casino. This design permits
Atlantic City Showboat's customers to enter the casino hotel protected from the
weather. In addition, on-site underground parking accommodates valet parking
for approximately 500 cars. The Company recently secured land for 500
additional parking spaces located approximately two blocks from the Atlantic
City Showboat to supplement customer parking during peak periods. Access to the
Atlantic City Showboat has improved with the completion of the expansion of
Delaware Avenue to four traffic lanes in May 1994. Delaware Avenue leads
directly to the Atlantic City Showboat from the White Horse Pike (U.S. Route
30), one of three major highways to Atlantic City.
The Company is in the final phase of a three-phase approximately $93 million
expansion project which commenced in 1993 at the Atlantic City Showboat. As a
result of the expansion, the Company will receive, at a minimum, $7.6 million
in credits from the Casino Reinvestment Development Authority, which will be
applied to future funding obligations. The first phase of the expansion was
completed in June 1993 and added a 15,000 square foot horse race simulcasting
facility and 5,000 square feet of casino space, resulting in the addition of
approximately 340 slot machines and 28 table games. The second phase of the
expansion was completed in May 1994 and added 15,000 square feet of casino
space, resulting in the addition of approximately 560 slot machines and 18
table games. The casino expansion permitted the Company to add a total of
approximately 900 slot machines and 46 table games. The final phase of the
Atlantic City expansion will add a new 284-room hotel tower which is currently
under construction and is scheduled to open in late 1994.
The Atlantic City Showboat is connected to the Taj Mahal Casino Hotel, the
largest casino in Atlantic City, and Merv Griffin's Resorts International
Casino Hotel by pedestrian walkways. These three properties form an "uptown
casino complex" in which patrons can pass from property to property, either on
the ocean-front Boardwalk or through the pedestrian walkways.
THE LAS VEGAS SHOWBOAT
The Las Vegas Showboat, a 482-room, 18-story hotel casino which commenced
operations in September 1954, is located on 26 acres approximately 2 1/2 miles
from both the "Strip" and downtown Las Vegas. The Las Vegas Showboat casino
features approximately 1,900 slot machines and 33 table games, including 20
"21" tables, six poker tables, two craps tables, two roulette tables, two
Caribbean stud poker tables, one pai-gow poker table, a race and sports book,
an approximately 1,300-seat bingo parlor and a keno area. The hotel casino
complex also includes a 106-lane bowling center, a 408-seat buffet-style
restaurant, a 194-seat coffee shop, two specialty restaurants and 8,300 square
feet of meeting room space. The facility includes surface parking for 1,600
cars in addition to a 620-car six level parking garage. The Company also owns
and operates a 33-room motel directly across from the Las Vegas Showboat.
11
<PAGE>
The Company is beginning a $15 million renovation at the Las Vegas Showboat
which will upgrade the roof of the oldest portion of the Las Vegas Showboat in
order to comply with current building codes and replace the existing power
plant facility. The renovation will also add a 900-space parking garage which,
following the renovation, will permit direct access to the casino through
pedestrian walkways.
In addition, the Company is planning a $55 million expansion project which
would add a 500-room hotel tower and the approximately 78,000 square foot
Showboat Entertainment Center featuring seven restaurants (the three existing
restaurants and buffet will be relocated to the Showboat Entertainment Center
providing the Las Vegas Showboat with additional casino and meeting room
space), a midway arcade, two movie theatres, a food court, retail shops and a
dance hall, all surrounding a four-story atrium which will recreate the festive
atmosphere of a New Orleans square during Mardi Gras. The ceiling of the atrium
will be designed to simulate the sky as a day progresses from dawn to dusk. The
highlight of the atrium will be a center-court "dancing" water fountain, a
laser light show and a simulated fireworks display. The primary entrance to the
Showboat Entertainment Center will be through the casino. The Company believes
the expansion project will strengthen the Company's market niche with local Las
Vegas residents and registered hotel guests as well as attract casual tourists,
a market segment which is not currently emphasized by the Las Vegas Showboat.
Following the renovation and expansion, the hotel will contain 833 rooms and
have added casino capacity of 20,000 square feet, which will permit the Company
to add up to 1,100 slot machines. Construction on the renovation and expansion
is anticipated to commence before the end of 1994 and is expected to take
approximately 18 months to complete.
THE SHOWBOAT STAR CASINO
The Company owns a 50% equity interest in Showboat Star Partnership, the
owner of the Showboat Star Casino. The Showboat Star Casino riverboat, which
commenced gaming operations in November 1993, is located on the south shore of
Lake Pontchartrain in New Orleans, Louisiana, approximately seven miles from
New Orleans' "French Quarter." The riverboat, which measures 265 feet long and
78 feet wide, was built to resemble a traditional paddle-wheel riverboat. The
riverboat contains 21,900 square feet of casino space on three levels, with
approximately 780 slot machines and 42 table games, including 32 "21" tables,
six craps tables and four roulette tables. A cocktail lounge is located on each
of the three public levels of the riverboat.
Dock-side facilities include a 34,000 square foot terminal building, which
contains a restaurant, a cocktail lounge and administrative offices, and
provides parking for 1,150 cars. Passengers pass through the terminal area in
order to board the riverboat and embark on one of six daily three-hour
excursion cruises on Lake Pontchartrain. During inclement weather conditions,
the riverboat operates mock cruises while docked at the terminal facility. The
Showboat Star Casino currently operates between the hours of 10:00 a.m. and
4:00 a.m. every day of the week. For the five months ended May 31, 1994, the
total number of passenger visits to the Showboat Star Casino was 803,431 with
an average casino win per passenger per visit of $54.60. Since commencement of
operations, the Showboat Star Casino has been principally restricted to mock
cruises due to either inclement weather or underwater obstructions. The Company
believes that operating mock cruises has had a positive effect in attracting
customers.
The Company, through its subsidiary, Lake Pontchartrain Showboat, Inc.
("LPSI"), manages and operates the gaming areas of the Showboat Star Casino for
a management fee of 5% of gaming revenues, net of gaming taxes of 18.5% of
gaming revenue and boarding fees of $5.00 per passenger. During the first five
months of 1994, the Company earned a management fee of $1.6 million and the
Showboat Star Casino had net earnings of $13.9 million. The current policy of
Showboat Star Partnership is to distribute at least 70% of net earnings to its
partners monthly.
12
<PAGE>
EXPANSION OPPORTUNITIES
The Company is actively pursuing expansion opportunities in emerging gaming
markets throughout the United States and internationally, including land-based
casinos, riverboats and Indian gaming. Announced expansion opportunities
include:
SYDNEY, NEW SOUTH WALES, AUSTRALIA
On May 6, 1994, the NSWCCA selected an affiliate of the Company as the
preferred applicant to develop, construct and operate the sole full-service
casino with slot machines and table games in New South Wales, Australia. The
terms of the proposed transaction provide for a 99-year site lease and casino
license, which will be the exclusive full-service casino license in the state
of New South Wales for a 12-year period, commencing with the opening of a
temporary casino. The preferred applicant is required to obtain various
development approvals for the construction of the Sydney Harbour Casino (the
"Development Period"). The Development Period is anticipated to be completed by
November 1994. Following, and subject to, satisfactory completion of the
Development Period, the NSWCCA is expected to issue the casino license to a
wholly owned subsidiary of SHCL.
The Sydney Harbour Casino will begin operations in a temporary casino, which
will be located at Pyrmont Bay on Wharves 12 and 13 in an existing building
which will be renovated to permit the operation of a casino. The temporary
casino is anticipated to open in August 1995 and is expected to contain
approximately 500 slot machines, 150 table games (30 of which are expected to
be located in a private gaming room) and, subject to certain approvals, keno.
Additional amenities are expected to include cocktail lounges, specialty
restaurants, retail shops and on-site parking for 428 cars.
The permanent Sydney Harbour Casino is expected to be open in late 1997.
Based on the maximum allowable number of table games, the permanent Sydney
Harbour Casino will rank as one of the largest casinos in the world. The Sydney
Harbour Casino will be located less than one mile from the Sydney central
business district on an eight-acre waterfront site on Pyrmont Bay next to
Darling Harbour. The Sydney Harbour Casino will feature approximately 136,000
square feet of casino space, including an approximately 20,000 square foot
private gaming area to be located on a separate level which will target a
premium clientele. The Sydney Harbour Casino will have approximately 1,500 slot
machines and 200 table games, including 20 slot machines and 30 table games in
the private gaming area. The Sydney Harbour Casino will be decorated to capture
Australia's natural beauty and diverse geography and will contain cascading
water fountains. Passage through the casino will allow patrons to experience
Australia's indigenous landscape from wall surfaces of brilliant oranges and
reds representing the cliffs and ranges of Australia's central desert, to an
Australian rain forest under a glass canopy and a Great Barrier Reef room with
a large aquarium of tropical fish. The Sydney Harbour Casino will also contain
14 themed restaurants, 12 cocktail lounges, a deluxe 2,000-seat lyric theatre,
a 700-seat cabaret style theatre and extensive public areas which include
landscaped gardens. The Sydney Harbour Casino complex will include a 352-room
hotel tower and an adjacent condominium tower containing 139 privately owned
luxury units with full hotel services. The complex will also include extensive
retail facilities, a station for Sydney's proposed light rail system, a bus
terminal, docking facilities for commuter ferries and parking for approximately
2,500 cars.
Approximately 5.5 million people live within a 120-mile radius of Sydney.
Additionally, 1.7 million international tourists and 4.4 million Australian
tourists visited Sydney in 1992. Slot machines are currently permitted in
approximately 1,500 non-profit private clubs in New South Wales, most of which
contain less than 25 slot machines. According to the Tasmanian Gaming
Commission, in 1992-1993 gambling expenditures per adult citizen in New South
Wales were approximately A$595 ($435), the largest gambling expenditures per
adult citizen in all of the Australian states. The following chart compares
gambling expenditures per adult citizen of the various Australian states in
1992-1993.
13
<PAGE>
AUSTRALIA GAMBLING EXPENDITURES 1992-1993
<TABLE>
<CAPTION>
PERCENTAGE PERCENT OF
GAMBLING OF TOTAL ADULT TOTAL EXPENDITURES
EXPENDITURES/1/ EXPENDITURES POPULATION POPULATION PER CAPITA
--------------- ------------ ----------- ---------- ------------
(MILLIONS) (THOUSANDS)
<S> <C> <C> <C> <C> <C>
New South Wales......... A$2,667.3 44.9 4,484 34.2 A$594.9
Victoria................ 1,112.7 18.7 3,345 25.5 332.7
Queensland.............. 984.4 16.6 2,270 17.3 433.7
South Australia......... 345.3 5.8 1,107 8.5 311.9
Western Australia....... 513.7 8.7 1,221 9.3 420.7
Tasmania................ 119.1 2.0 345 2.6 345.3
ACT..................... 139.5 2.3 218 1.7 542.1
Northern Territory...... 58.4 1.0 114 0.9 511.9
--------- ----- ------ -----
Total................. A$5,940.4 100.0 13,104 100.0
========= ===== ====== =====
</TABLE>
Source: Australian Gambling Statistics 1973 to 1993, The Tasmanian Gaming
Commission.
Leighton Properties Pty Limited ("Leighton Properties") has agreed to
construct the Sydney Harbour Casino (including the temporary casino) for
A$691.0 million ($505.1 million). Under the terms of the construction
contract, the temporary casino must be completed nine months, and the
permanent casino must be completed 38 months, after the issuance of the casino
license. In the event that the permanent Sydney Harbour Casino is not
completed within such time period, the construction contract provides for
liquidated damages of A$150,000 ($109,650) per day. Additionally, SHCL is
indemnified against any loss arising from the contractor's failure to perform
its obligations under the construction contract.
The cost of the Sydney Harbour Casino, including licensing fees, is
anticipated to be approximately A$1.2 billion ($867.7 million). The Company
and Leighton Properties have agreed to invest A$135.0 million ($98.7 million)
and A$25.0 million ($18.3 million), respectively, in SHCL for equity stakes of
approximately 27% and 5%, respectively. In addition, each of the Company and
Leighton Properties has options to purchase an additional 7% of the fully
diluted equity of SHCL. The options may be exercised no earlier than July 1,
1998 and expire June 30, 2000 and have an exercise price of A$1.15 per share.
Upon the issuance of the casino license, and prior to the exercise of any
outstanding options, SHCL will have 505,000,000 shares outstanding, consisting
of 135,000,000 ordinary shares owned by Showboat Australia Pty Limited
("Showboat Australia"), an indirect wholly owned subsidiary of the Company,
25,000,000 ordinary shares owned by Leighton Properties, and 345,000,000
preferred ordinary shares owned by certain institutional investors. SHCL is
expected to become a publicly listed company on the Australian Stock Exchange
within six months of receiving the casino license.
Additional funds for the construction of the Sydney Harbour Casino will be
obtained through bank financing of A$500.0 million ($365.5 million), a working
capital facility of A$50.0 million ($36.6 million), an offering of securities
to institutional investors of A$345.0 million ($252.2 million) for an
approximately 68% ownership in SHCL, and cash flow from the operation of the
temporary casino of approximately A$132.0 million ($96.5 million). SHCL has
received firm commitments for all of these anticipated financing requirements,
which total approximately A$895.0 million ($654.3 million). In addition, SHCL
has granted options to certain parties that were involved in the preliminary
bidding for the New South Wales casino license to purchase approximately 4% of
the equity of SHCL. Options to purchase 15,150,000 preferred ordinary shares
have been granted and are exercisable at any time prior to the issuance of the
casino license at an exercise price of A$1.00 per share and options to
purchase 5,050,000 ordinary shares have been granted and are exercisable
between June 1, 1998 and June 30, 2000 at an exercise price of A$1.15 per
share.
- ---------------------
/1/As a measure of gambling expenditures, The Tasmanian Gaming Commission
includes both racing related gambling (racecourse and off-course betting on
horse and greyhound races) and gaming related gambling (lotteries, poker
machines, casino gaming and other minor gaming).
14
<PAGE>
SHCL has entered into an agreement (the "Facility Agreement") with the
Commonwealth Bank of Australia ("CBA") to obtain a loan in the amount of
A$500.0 million ($365.5 million) to finance a portion of the development and
construction of the Sydney Harbour Casino. SHCL will also obtain from CBA a
working capital facility in the amount of A$50.0 million ($36.6 million) for
working capital purposes. The A$500.0 million construction facility will
convert to a seven-year term loan upon completion of the Sydney Harbour Casino.
The term loan will be amortized by mandatory repayments specified in the
Facility Agreement. The Facility Agreement also requires that the Company
remain the beneficial owner of not less than 10% of the issued ordinary shares
of SHCL for a period of not less than five years after completion of the
permanent Sydney Harbour Casino and remain the beneficial owner of not less
than 5% of the issued ordinary shares of SHCL for an additional two years
thereafter. The Facility Agreement further restricts SHCL's ability to declare
or pay any dividend (other than a permitted preferred ordinary dividend) or
make distributions to stockholders, except under certain conditions as
specified in the Facility Agreement. The Facility Agreement contains additional
customary financial covenants. In connection with the Facility Agreement, CBA
will receive options to acquire 17,250,000 preferred ordinary shares at an
exercise price of A$1.10 per share. These options may be exercised no earlier
than July 1, 1998 and expire five years from the date of the agreement granting
such options.
Institutional investors have committed to purchase 345,000,000 preferred
ordinary shares of SHCL for A$345.0 million ($252.2 million). The preferred
ordinary shares are entitled to a cumulative dividend of A$.05 per share per
annum for the three fiscal years ended June 30, 1997, 1998 and 1999.
Immediately prior to the issuance of the casino license, the underwriter for
the institutional investor offering of the preferred ordinary shares is
required to fund the underwritten amount to SHCL in immediately available
funds. The institutional investor offering has been fully committed by 24
institutional investors. Pursuant to the underwriting agreement, the
underwriter of the institutional investor offering has committed to list the
preferred ordinary shares on the Australian Stock Exchange within six months of
the issuance of the casino license to SHCL.
Sydney Harbour Casino Management Pty Limited (the "Manager"), a company which
is 85% owned by Showboat Australia and 15% owned by Leighton Properties, will
manage the temporary casino and the permanent Sydney Harbour Casino pursuant to
a 99-year management agreement (the "Management Agreement"). The terms of the
Management Agreement require the Manager to advise Sydney Harbour Casino Pty
Limited or Sydney Harbour Casino Properties Pty Limited, wholly owned
subsidiaries of SHCL, as to the casino design and configuration and the
placement of all gaming equipment. The Manager also has agreed to train all
employees of the Sydney Harbour Casino and to manage a high quality
international class casino in accordance with the operating standards required
by the NSWCCA. The NSWCCA requires a service audit to be conducted yearly by a
third party so that areas of non-compliance can be identified and remedied by
the Manager. The Manager will be paid a management fee equal to the sum of (i)
1 1/2% of casino revenue, (ii) 6% of casino gross operating profit, (iii) 3
1/2% of total non-casino revenue, and (iv) 10% of total gross non-casino
operating profit, for each fiscal year for services rendered by the Manager
pursuant to the Management Agreement. Under certain conditions, the Company has
agreed to forego management fees in an amount with a present value of
approximately A$19.0 million ($13.9 million). Gaming revenue from the Sydney
Harbour Casino will be taxed at a rate of (i) 22.5% of slot machine revenue and
(ii) 20% of the first $200 million of table game revenue, increasing 1% for
each additional $5 million of table game revenue, up to a maximum rate of 45%,
and will also be subject to a community benefit levy of 2% of gross gaming
revenue.
In addition, each of the Company and Leighton Holdings Limited, the parent of
Leighton Properties, has agreed to guarantee the obligations of Showboat
Australia and Leighton Properties pursuant to their agreements with the NSWCCA,
including the Company's obligation to invest an aggregate of A$135.0 million
($98.7 million) in SHCL, and to indemnify the NSWCCA for any loss as a result
of the failure by either of Showboat Australia or Leighton Properties to
perform their obligations under such agreements. The Company and Leighton
Holdings Limited will be released from their guarantees and indemnities upon
satisfaction of their obligations to invest in SHCL. The Company has secured
its guarantee and indemnity with an A$8.4 million ($6.1 million) line of
credit.
15
<PAGE>
EAST CHICAGO, INDIANA
On April 12, 1994, the Indiana Partnership, owned 55% by Showboat Indiana
Investment Limited Partnership, a wholly owned limited partnership ("SII"), and
45% by Waterfront Entertainment and Development, Inc., an unrelated Indiana
corporation, filed its gaming application with the Indiana Riverboat Gaming
Commission to operate the East Chicago Riverboat on Lake Michigan in East
Chicago, Indiana. The East Chicago Riverboat is located approximately 20
minutes from downtown Chicago and approximately three miles from the Chicago
city limits. Approximately 9.2 million adults reside within 120 miles of East
Chicago, Indiana. The Indiana Partnership is the sole applicant for the only
riverboat gaming license allocated by statute to East Chicago. The Company
expects to invest approximately $30 million in the Indiana Partnership and will
help the partnership obtain in excess of $75 million (currently estimated to be
$90 million) in debt financing. Under the current partnership agreement, the
Company will receive a 12% preferred return on its investment prior to
additional partnership distributions.
The Indiana Partnership is considering constructing a new vessel or
renovating an existing vessel for its proposed gaming operations. The Indiana
Partnership's application to the Indiana Riverboat Gaming Commission for the
license to operate the East Chicago Riverboat proposes a riverboat with up to
60,000 square feet of casino space containing approximately 2,300 slot machines
and 80 table games. The East Chicago Riverboat dock-side facility is also
expected to include up to three restaurants, a 5,000 square foot sports lounge
and a parking garage for 2,000 cars. The Company is continuing to evaluate the
East Chicago market and construction costs for the project and may modify the
riverboat configuration in the future.
The Indiana Riverboat Gaming Act permits the operation of up to 11
riverboats, of which five riverboats, including the Indiana Partnership's
vessel, will operate on Lake Michigan. The Company anticipates that, subject to
the successful resolution of the lawsuit challenging the constitutionality of
Indiana's Riverboat Gaming Act, the first licensed riverboat on Lake Michigan
will be located in Gary, Indiana, and that the East Chicago Riverboat will open
in 1996. See "Certain Considerations--New Gaming Jurisdictions and Expansion
Opportunities." No gaming facility is in operation in Indiana at this time.
Illinois has authorized four gaming licenses, each limited to 1,200 gaming
positions, to operate riverboat casinos in the Chicago metropolitan area.
Riverboat operators holding three of such licenses currently operate six
riverboats and an operator holding the fourth license is expected to commence
gaming operations in late 1994. Additionally, the Illinois legislature is
considering expanding gaming in the Chicago metropolitan area with the proposed
operation of five riverboats in downtown Chicago.
ST. REGIS MOHAWK TRIBAL RESERVATION, HOGANSBURG, NEW YORK
The Company, through Showboat Mohawk Investment Limited Partnership, a wholly
owned limited partnership ("SMI"), and the St. Regis Mohawk Tribe have entered
into agreements to develop, construct, manage and operate a Class III gaming
establishment on the St. Regis Mohawk Tribal Reservation in Hogansburg, New
York. On October 15, 1993, the Governor of the State of New York signed a
compact (the "New York Compact") with the St. Regis Mohawk Tribe, permitting
Class III gaming on the St. Regis Mohawk Tribe's reservation. Class III games
under the New York Compact include blackjack, craps, roulette, best hand poker,
big six, keno, and other authorized games but does not include slot machines.
The agreements were submitted to NIGC and must be approved prior to being
effective. The agreements contemplate that SMI will initially operate Class III
games in an approximately 30,000 square foot casino containing approximately
130 table games. The Company expects to lend approximately $30 million for a
term of five years, at a rate of 15% per annum, to the St. Regis Mohawk Tribe
for the purchase of an existing building which will be expanded to house the
casino, for certain improvements to the building and for working capital
purposes. SMI will receive a management fee of 20% of earnings before interest,
taxes and depreciation throughout the management term of five years, subject to
a maximum of 30% of earnings before taxes.
16
<PAGE>
The St. Regis Mohawk reservation is located on the New York State/Canadian
border approximately 75 miles south of Montreal. Approximately 4.6 million
adults live within 120 miles of Hogansburg, New York. For a five-year period,
the tribal management agreement restricts gaming on the reservation to one
other casino containing in excess of 5,000 square feet, three casinos
containing no more than 5,000 square feet of gaming space and the Mohawk Bingo
Palace, which is limited to Class II games, such as bingo, pull-tabs, tip jars,
lotto and certain non-banking card games. The St. Regis Mohawk Tribe has
entered into a management/construction agreement with a second operator to
construct a casino that is expected to be approximately 40,000 square feet. Any
additional casinos must be located east of the St. Regis Casino making the St.
Regis Casino the first Class III casino visitors will encounter upon entering
the St. Regis Mohawk Reservation from the International Bridge to Canada and
other major highways leading to the reservation. The casino will also compete
with a 35,000 square foot casino in Montreal containing 1,250 slot machines and
65 table games and a casino operated on the Oneida reservation in Verona, New
York, approximately 130 miles south of Hogansburg, New York, containing 136
table games. The Montreal casino has announced plans to expand its casino to
50,000 square feet containing 1,700 slot machines and 100 table games and
Ottawa, Canada has announced its intention to open a casino containing 35,000
square feet of gaming space in 1996-1997.
The St. Regis Mohawk Tribe is governed by a body of three chiefs, with one
chief elected annually for a three-year term. In June 1994, members of the St.
Regis Mohawk Tribe elected a chief who has indicated an intent to re-examine
the New York Compact and the agreements pending before the NIGC between the St.
Regis Mohawk Tribe and prospective gaming operators, including the Company. No
assurance can be given that the St. Regis Mohawk Tribe will not seek to modify
the New York Compact or its agreements with the Company, which may adversely
affect the proposal for the St. Regis Casino.
17
<PAGE>
CERTAIN CONSIDERATIONS
Each prospective investor should carefully consider the following factors,
among others, in evaluating the Company before purchasing the Notes offered
hereby.
Leverage and Debt Service. As of March 31, 1994, the Company had long-term
obligations of approximately $279.6 million, inclusive of current maturities,
and total stockholders' equity of approximately $138.6 million. After giving
effect to the Note Offering and the Common Stock Offering, the Company will
have long-term obligations of approximately $429.6 million, inclusive of
current maturities, and total shareholders' equity of approximately $187.7
million.
After giving effect to the Note Offering, the Company will have significant
interest expense. The Company's ratio of earnings to fixed charges was 1.67 to
1 and 1.60 to 1 for the year ended December 31, 1993 and the three months ended
March 31, 1994, respectively. On a pro forma basis after giving effect to the
Note Offering, the Company's ratio of earnings to fixed charges would have been
1.13 to 1 and 1.09 to 1 for the year ended December 31, 1993 and the three
months ended March 31, 1994, respectively. The Company's ability to satisfy its
obligations is dependent upon its future performance, which will be subject to
prevailing economic conditions and to financial, business and other factors,
including factors beyond the control of the Company, affecting the business
operations of the Company. If the Company is unable to generate sufficient cash
flow from operations in the future, it may be required to refinance all or a
portion of its existing debt or to obtain additional financing. There can be no
assurance that any such refinancing would be possible or that any additional
financing could be obtained on terms that are favorable or acceptable to the
Company.
Subordination. The Notes will be subordinated in right of payment to all
Senior Debt of the Company. In addition, the Subsidiary Guarantees will be
subordinated to all Senior Debt of the Guarantors. In the event of the
bankruptcy, liquidation or reorganization of the Company or any of the
Guarantors, the assets of the Company or such Guarantor will be available to
pay obligations on the Notes only after all Senior Debt of the Company or such
Guarantor has been paid in full, and there may not be sufficient assets
remaining to pay amounts due on any or all of the Notes then outstanding. In
addition, the Notes are structurally subordinated to indebtedness of the
Company's subsidiaries that are not Guarantors. Additional indebtedness,
including Senior Debt, may be incurred by the Company and its subsidiaries from
time to time, subject to the terms of the Indenture and the Company's then
outstanding indebtedness.
Sydney Harbour Casino--Need to Obtain Permits and Financing; Risk of
Construction Delays. The Company has not yet received (i) a casino license to
operate the Sydney Harbour Casino or (ii) the approval and permits necessary
for the development and construction of temporary and permanent sites for the
Sydney Harbour Casino ("Development Approval"). The Company is currently in the
process of satisfying certain pre-conditions for the issuance of the casino
license from the NSWCCA and Development Approval from the Minister for Planning
and Housing. While the Company anticipates that it will secure the casino
license and Development Approval, there is no assurance that it will be able to
obtain such casino license, Development Approval, or other licenses, permits
and authorizations. Subsequent to receiving all requisite licenses, permits and
authorizations for the Sydney Harbour Casino, the project will be subject to
the risks of delay and higher expenses to which construction projects of this
type are exposed due to factors such as shortages of materials or skilled
labor, unforeseen engineering, environmental and/or geological problems, work
stoppages and weather interference. Accordingly, there can be no assurance that
the Sydney Harbour Casino will be completed or completed in a timely manner and
within budget.
The total cost for the Sydney Harbour Casino, including licensing fees, is
anticipated to be approximately A$1.2 billion ($867.7 million). The Company has
agreed to invest A$135.0 million ($98.7 million) for the development and
construction of the Sydney Harbour Casino. Additional funds for the
construction of the Sydney Harbour Casino will be obtained through bank
financing of A$500.0 million ($365.5 million), a working capital facility of
A$50.0 million ($36.6 million), a A$25.0 million ($18.3 million) equity
investment by Leighton Properties, an offering of securities to institutional
investors in Australia of A$345.0 million ($252.2 million) for an approximately
68% ownership in SHCL, and cash flow from the operation of the
18
<PAGE>
temporary casino of approximately A$132.0 million ($96.5 million). While SHCL
has received firm commitments on its anticipated external financing
requirements, in the event that additional funds should become necessary to
complete the Sydney Harbour Casino, there can be no assurance that additional
funds will be available on acceptable terms, if at all, or that such funds will
be sufficient to fund the construction. Any such failure to secure additional
financing sufficient to fund the development and construction of the Sydney
Harbour Casino, if necessary, would have a material adverse impact upon the
Company's expansion plans and on the financial condition of the Company.
The NSWCCA retains the right to determine that SHCL is no longer capable of
fulfilling the terms of its agreement with the NSWCCA, primarily because of an
inability to obtain Development Approval. In such circumstances, a non-
preferred applicant would be given the opportunity to obtain development
approval for its project. If successful in such an endeavor, such non-preferred
applicant could be granted the casino license.
Competition. The Atlantic City Showboat competes with 11 other casino hotels
in Atlantic City containing, in the aggregate, approximately 788,000 square
feet of casino space and 8,420 rooms. In addition, the Atlantic City Showboat
competes with Foxwood's High Stakes Bingo and Casino on the Mashantucket Pequot
Indian Reservation in Ledyard, Connecticut. Competition among casino hotels in
Atlantic City is intense. Casino hotels in Atlantic City generally compete on
the basis of promotional allowances, entertainment, advertising, service
provided to patrons, caliber of personnel, attractiveness of the hotel and
casino areas and related amenities.
The Las Vegas Showboat competes generally with approximately 119 casinos in
Clark County, Nevada, which includes the cities of Las Vegas, Henderson,
Laughlin and Mesquite. Competition among casinos in Clark County is intense.
The Company has experienced increased competition from new and existing Las
Vegas hotel casinos which have also sought to attract slot machine players and
Las Vegas-area residents, including construction of a new hotel casino and
renovation of another hotel casino which are located on Boulder Highway near
the Las Vegas Showboat. The Company anticipates continuing increased
competition for these customers.
The Showboat Star Casino currently experiences direct competition in its
primary market area. As of March 31, 1994, the state of Louisiana had
authorized the licensing of 15 riverboat casinos, six of which will operate in
the New Orleans area. The Showboat Star Casino and one other riverboat located
on Lake Charles in southwestern Louisiana were the only riverboat casinos
operating in Louisiana as of December 31, 1993. A third riverboat opened in New
Orleans on February 10, 1994. Additionally, a license has been awarded to
operate a single land-based casino in New Orleans, which is expected to be one
of the larger land-based casinos in the United States. The land-based casino is
anticipated to commence operations in a temporary facility in late 1994. The
Showboat Star Casino also competes with 13 casinos approximately 50 miles away
to the east on the Mississippi Gulf Coast. Mississippi permits dock-side gaming
and casinos in Mississippi, unlike the Showboat Star Casino, do not have a
state-imposed admissions tax. To compete with the Mississippi casinos, the
Showboat Star Casino pays the admissions tax as a complimentary item to its
patrons. The Company expects that greater competition will occur as the
emerging casino industry matures in Louisiana and elsewhere in the Southern
United States.
The Company believes that the growing legalization of casino gaming in states
other than New Jersey and Nevada, including Colorado, Connecticut, Illinois,
Iowa, Indiana, Louisiana, Mississippi, Missouri, and South Dakota, and on
various Indian reservations has not to date had a material adverse impact on
its operations. The legalization of casino and other gaming venues in states
close to Nevada, particularly California, or in or near New Jersey,
particularly Delaware, Maryland, New York or Pennsylvania, may have a material
adverse effect on the Company's business. Gaming legislation has been
introduced, but not passed, in Pennsylvania.
19
<PAGE>
The Company expects that many riverboat casinos, land-based casinos, and
Indian gaming will be licensed eventually throughout the United States.
Moreover, each announced opportunity will compete with other nearby gaming
operations. See "The Company--Expansion Opportunities." Some of these gaming
operations may be owned by companies that are larger and have significantly
greater financial and other resources than the Company. Given these factors, it
is possible that substantial competition will arise which could adversely
affect the Company's existing and proposed operations. The Company's ability to
maintain its competitive position may require the expenditure of significant
funds on an ongoing basis at all of its casino properties.
New Gaming Jurisdictions and Expansion Opportunities. The Company is actively
pursuing potential gaming opportunities in certain jurisdictions where gaming
has recently been legalized, as well as jurisdictions where gaming is not yet,
but is expected soon to be legalized. There can be no assurance that
legislation to legalize gaming will be enacted in any additional jurisdictions,
that any properties in which the Company may have invested will be compatible
with any gaming legislation so enacted, that legalized gaming will continue to
be authorized in any jurisdiction or that the Company will be able to obtain
the required licenses in any jurisdiction. In addition, the constitutionality
of Indiana's Riverboat Gambling Act is currently being challenged by a lawsuit
seeking to declare the portion of the Riverboat Gambling Act that treated the
manner in which gaming was approved in Lake County, Indiana (the county in
which East Chicago is located) differently than certain other Indiana counties
unconstitutional. On May 19, 1994, the Porter County Superior Court issued a
ruling that such provisions of the Riverboat Gambling Act are unconstitutional
and ordered the Indiana Gaming Commission to cease all activity, except
background investigations, in the process of licensing riverboats until such
time as the legislature cures the constitutional defects in the legislation or
until further order of the Porter County Superior Court or the Indiana Supreme
Court. No assurance can be given that the order of the Porter County Superior
Court will be vacated by such court, overturned by the Indiana Supreme Court,
or cured by the Indiana legislature.
Furthermore, competition for the development of new gaming opportunities has
intensified as established and newly organized gaming companies compete for a
limited number of sites and licenses. There can be no assurance that attractive
opportunities to develop new gaming operations will be available to the
Company.
The Company may invest in real property related to potential gaming
opportunities. Such investments are subject to the risks generally incident to
the ownership of real property, including changes in economic conditions,
environmental risks, governmental regulations and other circumstances over
which the Company may have little or no control. There can be no assurance that
the Company will be able to recover its investment in any such property.
Risks of Potential Disruptions from Construction. Construction on the
proposed $15 million renovation and $55 million expansion of the Las Vegas
Showboat is expected to begin by the end of 1994 and will take approximately 18
months to complete. The construction of the renovation and expansion project
may disrupt casino operations and will require, from time to time, that
portions of the casino area be temporarily closed. In addition, construction of
the proposed expansion will require the closing of 150 existing hotel rooms in
the rear of the facility. Although, the Company does not believe the resulting
decrease in hotel revenues will be significant, the resulting loss of casino
revenues from its hotel market segment could be significant. Any significant
disruption in casino operations, coupled with the expected decrease in hotel
and casino revenues, could have a material adverse effect on the Company's
business and results of operations.
Relationship With Tribes and Effect of Indian Sovereignty. Good relations
with the St. Regis Mohawk Tribe are critical to the success of the St. Regis
Casino. The Company believes that its ability to enter into agreements with the
St. Regis Mohawk Tribe has been attributable, in large part, to the reputation
it has achieved with tribe officials. Indian tribes are sovereign nations with
their own governmental systems. Tribal officials are subject to replacement by
appointment or election. The Company's relationship with the St. Regis Mohawk
Tribe may improve or deteriorate under new administrations. A deterioration of
the Company's reputation and relationships with officials of the St. Regis
Mohawk Tribe could have a material adverse effect upon the development and
operation of the St. Regis Casino.
20
<PAGE>
The St. Regis Mohawk Tribe is governed by a body of three chiefs, with one
chief elected annually for a three-year term. In June 1994, members of the St.
Regis Mohawk Tribe elected a chief who has indicated an intent to re-examine
the New York Compact and the agreements pending before the NIGC between the St.
Regis Mohawk Tribe and prospective gaming operators, including the Company. No
assurance can be given that the St. Regis Mohawk Tribe will not seek to modify
the New York Compact or its agreements with the Company, which may adversely
affect the proposal for the St. Regis Casino.
In addition to all the usual risks associated with the development of the St.
Regis Casino, the Company faces certain risks peculiar to dealing with Indian
tribes, including the uncertain applicability of federal and state laws as they
relate to Indian tribes and the sovereignty of Indian tribes. With respect to
the anticipated loan of up to $30 million by SMI to the St. Regis Mohawk Tribe,
SMI must look exclusively to the future cash flow from casino operations as a
source of repayment, rather than the general credit of the St. Regis Mohawk
Tribe.
Taxation. The Company believes that the prospect of significant additional
revenue is one of the primary reasons that jurisdictions have legalized gaming.
As a result, gaming companies are typically subject to significant taxes and
fees in addition to normal federal and state income taxes, and such taxes and
fees are subject to increase at any time. 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 may conduct gaming operations in the
future. In addition, there have been suggestions from time to time to tax all
gaming establishments at the federal level. Any increase in the Company's tax
rates would adversely affect the Company. See "Regulation."
Loss of a Riverboat From Service. A riverboat, such as the Showboat Star
Casino and the proposed East Chicago Riverboat, could be lost from service for
a variety of reasons, including casualty, mechanical failure or extended or
extraordinary maintenance or inspection. U.S. Coast Guard regulations require a
hull inspection for all riverboats at five-year intervals. The Showboat Star
Casino will be due for this inspection in late 1999. To comply with this
inspection requirement, which could take a substantial amount of time, the
Showboat Star Casino and any other riverboat that the Company operates in the
future must be taken to a U.S. Coast Guard approved dry docking facility.
Hotel/Gaming Business. The Company is subject to the risks inherent in the
hotel and gaming operations business. Gaming activity can vary significantly as
a result of a number of factors, including the competitive environment, hotel
occupancy rate, and general economic conditions, and is subject to substantial
governmental regulation. See "Regulation." Additionally, hotel and gaming
operations are subject to the imposition of special taxes or assessments by
regulatory bodies. Any new tax or assessment may have an adverse impact on the
Company's operations.
Regulatory Matters. The ownership and operation of the Las Vegas Showboat,
the Atlantic City Showboat and the Showboat Star Casino are subject to
extensive regulation by state and local gaming authorities in Nevada, New
Jersey, Louisiana and in other states and foreign countries the Company may
conduct business in the future (collectively, the "Gaming Authorities"). The
Company may be required to disclose to the Gaming Authorities, upon request,
the identities of the holders of the Notes. The Gaming Authorities may, in
their discretion, (i) require holders of debt securities of the Company to file
applications in states in which the Company does business; (ii) investigate
such holders; and (iii) require such holders to be found suitable or qualified
to own such securities. Pursuant to the regulations of the Gaming Authorities,
the Company may be sanctioned, including the loss of its approvals, if, without
prior approval of the Gaming Authorities, it (i) pays to the unsuitable or
unqualified person any dividend, interest or other distribution; (ii)
recognizes any voting right by such unsuitable or unqualified person in
connection with the securities; (iii) pays the unsuitable or unqualified person
remuneration in any form; or (iv) makes any payments to the unsuitable or
unqualified person by way of principal, redemption, conversion, exchange,
liquidation, or similar transaction. See "Regulation."
21
<PAGE>
Market for the Notes. The Notes will constitute a new issue of securities
with no established trading market and the Company does not intend to list the
Notes on any national securities exchange. The Underwriter has advised the
Company that it currently intends to make a market in the Notes, but they are
not obligated to do so and may discontinue such market-making activity at any
time. No assurance can be given that an active public or other market will
develop for the Notes or as the liquidity of the trading market for the Notes.
Development of New Facilities. The development of any significant new venture
which requires the Company to make a substantial capital investment may require
additional debt or equity financing. There can be no assurance that the cash
flow generated by the operations of the Company or any other new venture will
be sufficient to service any additional debt which may be incurred in
connection therewith. In addition there can be no assurance that additional
financing can be obtained which is acceptable to the Company. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
The opening of any new facility or expansion of an existing facility will be
contingent upon the completion of construction, hiring and training of
experienced management and sufficient personnel and receipt of all regulatory
licenses, permits, allocations and authorizations. The scope of the approvals
required to construct and open a new facility or expand an existing facility
may be extensive, and the failure to obtain such approvals could prevent or
delay the completion of construction or opening of all or part of such
facilities or otherwise affect the design and features of the project. Major
construction projects, such as a new casino development, entail significant
risks, including management's ability to control and manage such projects
effectively, shortages of materials or skilled labor, engineering,
environmental or regulatory problems, work stoppages, weather interference and
unanticipated cost increases. Accordingly, there can be no assurance that any
project will be completed on time or within budget or that unanticipated delays
or cost increases will not have a material adverse effect on any project.
The Company is pursuing a number of gaming opportunities. In many cases, the
Company is competing against other gaming companies, some of which may have
greater financial resources. There can be no assurance that these opportunities
will be realized by the Company. The Company reserves the right to cease
pursuing any of the gaming opportunities at any time.
22
<PAGE>
USE OF PROCEEDS
The net proceeds from the Note Offering, after deducting underwriting
discounts and commissions and estimated offering expenses, are expected to be
approximately $144.9 million. The Company currently intends to apply such net
proceeds, together with the net proceeds to the Company from the Common Stock
Offering, estimated to be approximately $49.2 million, and approximately $34.6
million of available cash, to (i) invest A$135 million ($98.7 million) for an
approximately 27% equity interest in SHCL, which has been selected as the
preferred applicant to build, manage and operate the sole full-service casino
in Sydney, Australia, (ii) renovate the Las Vegas Showboat in order to upgrade
the facility to current building codes, replace the existing power plant
facility and add a 900-space parking garage at a cost of approximately $15
million, (iii) expand the Las Vegas Showboat to add a 500-room hotel tower and
the Showboat Entertainment Center and hotel tower at a cost of approximately
$55 million, (iv) invest approximately $30 million in the Indiana Partnership,
the sole applicant to obtain the only riverboat gaming license in East Chicago,
Indiana, and (v) provide a loan of approximately $30 million to the St. Regis
Mohawk Tribe for the purchase and renovation of a building in which to operate
the St. Regis Casino. In the event that the Company determines not to pursue
any of the expansion opportunities listed above, the Company will apply any
remaining net proceeds to invest in other expansion opportunities or for other
general corporate purposes.
The Company is required to place $100.0 million of the net proceeds of the
Note Offering into an escrow account, which may only be used to fund the
Company's investment in SHCL. In the event that Australian Gaming Approval or
Management Contract Approval (as defined herein) has not occurred on or prior
to December 31, 1995, the Company will be obligated to make an offer to
repurchase an amount of Notes and certain other indebtedness of the Company
equal to the amount in the escrow account. See "Description of Notes--
Repurchase at the Option of Holders--Escrow Account."
In the event that the Common Stock Offering is not consummated, the Company
will use the net proceeds of the Note Offering and available cash to invest in
SHCL and to renovate and expand the Las Vegas Showboat. The Company will pursue
other means to finance the other projects or will delay their development in
the event the Common Stock Offering is not consummated.
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<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the Company
as of March 31, 1994, and as adjusted as of such date to give effect to the
Note Offering and as further adjusted as of such date to give effect to both
the Note Offering and the Common Stock Offering. This table should be read in
conjunction with the attached consolidated financial statements and the related
notes thereto included elsewhere in this Prospectus and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
MARCH 31, 1994
---------------------------------
AS AS FURTHER
ACTUAL ADJUSTED(1) ADJUSTED(2)
(IN THOUSANDS)
<S> <C> <C> <C>
Cash......................................... $107,458 $252,333 $301,502
======== ======== ========
Current maturities of long-term debt......... 2,549 2,549 2,549
======== ======== ========
Long-term debt (excluding current maturities)
9 1/4% First Mortgage Bonds due 2008....... $275,000 $275,000 $275,000
Capitalized lease obligations.............. 2,021 2,021 2,021
% Senior Subordinated Notes.............. -- 150,000 150,000
-------- -------- --------
Total long-term debt..................... 277,021 427,021 427,021
Shareholders' equity(3)
Common Stock, par value $1.00; 50,000,000
shares authorized; 15,794,578 shares
issued as adjusted; 18,794,578 shares
issued as further adjusted................ 15,795 15,795 18,795
Additional paid-in capital................. 71,437 71,437 117,606
Retained earnings.......................... 57,693 57,693 57,693
Cost of Common Stock in treasury; 809,383
shares.................................... (6,328) (6,328) (6,328)
Unearned compensation for restricted stock. (36) (36) (36)
-------- -------- --------
Total shareholders' equity............... 138,561 138,561 187,730
-------- -------- --------
Total capitalization................... $415,582 $565,582 $614,751
======== ======== ========
</TABLE>
- ---------------------
(1) Adjusted to give effect to the Note Offering.
(2) Adjusted to give effect to the Note Offering and the Common Stock Offering
at an assumed offering price of $17 3/8 per share, the last reported sale
price of the Common Stock on the NYSE on July 6, 1994. The Company and the
Selling Shareholder have granted the underwriters of the Common Stock
Offering a 30-day option to purchase up to an additional 450,000 and 15,000
shares of Common Stock, respectively, to cover over-allotments, if any, in
connection with the Common Stock Offering. In the event that such option is
exercised in full, cash, total shareholders' equity and total
capitalization would each increase by $7.4 million, and Common Stock and
additional paid-in capital would increase by $450,000 and $7.0 million,
respectively.
(3) Excludes (a) 671,120 shares of Common Stock issuable upon exercise of
vested options which have not yet been exercised and (b) 150,000 shares of
Common Stock issuable upon exercise of outstanding warrants granted as of
May 6, 1994.
24
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below under the captions
"Statement of Operations Data" and "Balance Sheet Data" for, and as of the end
of, each of the years in the five-year period ended December 31, 1993 are
derived from the consolidated financial statements of Showboat, Inc. and
subsidiaries, which consolidated financial statements have been audited by
KPMG Peat Marwick, independent certified public accountants. The selected data
presented for the three months ended March 31, 1993 and 1994 are derived from
unaudited financial statements of the Company which, in the opinion of
management, reflect all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the information set forth therein.
The consolidated financial statements referred to above are included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------ -----------------
1989 1990 1991 1992 1993 1993 1994
(IN THOUSANDS, EXCEPT PER SHARE AND RATIO DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DA-
TA:
Net revenues........... $342,354 $334,247 $331,560 $355,236 $375,727 $85,496 $ 88,779
Total expenses......... 311,247 306,482 296,059 308,728 329,458 77,811 80,931
-------- -------- -------- -------- -------- ------- --------
Income from operations
of consolidated
subsidiaries.......... 31,107 27,765 35,501 46,508 46,269 7,685 7,848
Equity in income (loss)
from unconsolidated
affiliate............. -- -- -- -- (850) -- 3,240
-------- -------- -------- -------- -------- ------- --------
Income from operations. 31,107 27,765 35,501 46,508 45,419 7,685 11,088
Interest expense,
net(1)................ 24,870 25,236 25,399 23,894 21,481 4,499 5,399
Gain on sale of
property.............. (4,897) -- -- -- -- -- --
Income tax expense..... 4,068 1,448 4,088 6,757 10,474 1,265 2,249
-------- -------- -------- -------- -------- ------- --------
Income before
extraordinary items
and cumulative effect
adjustment............ 7,066 1,081 6,014 15,857 13,464 1,921 3,440
Extraordinary items and
cumulative effect
adjustment............ -- 3,970 180 (3,408) 6,123 556 --
-------- -------- -------- -------- -------- ------- --------
Net income............. 7,066 5,051 6,194 12,449 7,341 2,477 3,440
Net income per share... 0.62 0.45 0.55 1.08 0.49 0.16 0.23
Cash dividends declared
per share............. 0.235 0.10 0.10 0.10 0.10 0.025 0.025
Ratio of earnings to
fixed charges(2)...... 1.32x 1.06x 1.29x 1.68x 1.67x 1.42x 1.60x
OTHER DATA:
EBITDA(3).............. $ 50,696 $ 50,138 $ 61,193 $ 68,520 $ 69,572 $12,825 $ 15,109
Depreciation and
amortization.......... 19,589 22,373 25,692 22,012 23,303 5,140 6,361
Capital expenditures... 20,497 44,020 13,203 23,092 63,600 17,769 20,488
EBITDA/Interest
expense, net.......... 2.04x 1.99x 2.41x 2.87x 3.24x 2.85x 2.80x
Net debt(4)/EBITDA..... 3.54x 3.87x 2.85x 1.60x 2.27x -- 2.40x
PRO FORMA DATA(5):
Interest expense, net.. $ 32,982 $ 8,030 $ 7,954
EBITDA/Interest
expense, net.......... 2.11x 1.60x 1.90x
Net debt/EBITDA........ 1.64x -- 1.78x
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------------------------------ -----------------
1989 1990 1991 1992 1993 1993 1994
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents........... $ 46,277 $ 37,550 $ 38,690 $ 99,601 $122,787 $34,767 $107,458
Total assets........... 322,808 331,950 320,032 384,900 470,700 333,576 482,475
Long-term debt
(including current
maturities)........... 225,812 231,591 213,004 209,116 280,617 158,036 279,570
Shareholders' equity... 55,663 58,848 64,133 126,018 135,158 128,375 138,561
</TABLE>
- -------------------
(1) Interest expense, net of capitalized interest and interest income.
(2) The ratio of earnings to fixed charges has been computed by dividing
earnings available for fixed charges (income before income taxes,
extraordinary items and cumulative effect adjustment plus fixed charges
less capitalized interest) by fixed charges (interest expense plus
capitalized interest plus the portion of rental expenses deemed to
represent interest).
(3) EBITDA is defined as income from operations of consolidated subsidiaries
before depreciation and amortization plus cash distributions from
unconsolidated subsidiaries. Cash distributions from unconsolidated
subsidiaries were $0 from 1989 through 1993 and were $0.9 million in the
three months ended March 31, 1994.
(4) Net debt is defined as long-term debt, inclusive of current maturities,
less cash, at the end of the period.
(5) The pro forma data give effect to (i) the Note Offering at an assumed
interest rate of 11%, (ii) the Common Stock Offering at an assumed
offering price of $17 3/8 per share, the last reported sale price of the
Common Stock on the NYSE on July 6, 1994, and (iii) the sale by the
Company on May 18, 1993 of $275 million aggregate principal amount of 9
1/4% First Mortgage Bonds due 2008 and the application of the net proceeds
therefrom to repay certain indebtedness, in each case as if such
transaction had occurred as of the first day of the period presented. The
pro forma data assume that interest income is earned on cash balances at a
rate of 3.0% in 1993 and 3.5% in 1994. If the Common Stock Offering is not
consummated, the pro forma data would be as follows:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
------------ ----------------
1993 1993 1994
(IN THOUSANDS, EXCEPT RATIO
PRO FORMA DATA: DATA)
<S> <C> <C> <C>
Interest expense, net....................... $34,457 $ 8,399 $ 8,384
EBITDA/Interest expense, net................ 2.02x 1.53x 1.80x
Net Debt/EBITDA............................. 2.34x -- 2.47x
</TABLE>
If the interest rate on the Notes is increased or decreased by 1/4%,
interest expense, net will increase or decrease, respectively, by $375,000.
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The consolidated financial statements of the Company include the accounts of
the Company and its wholly owned subsidiaries, Showboat Development Company
("SDC"), Showboat Operating Company ("SBOC") and Ocean Showboat, Inc. ("OSI").
They also include SDC's wholly owned subsidiaries LPSI, Showboat Mohawk, Inc.
("SBM"), Showboat Indiana, Inc. ("SBI") and Showboat Louisiana, Inc. ("SBL")
and OSI's wholly owned subsidiaries, Atlantic City Showboat, Inc. ("ACSI") and
Ocean Showboat Finance Corporation ("OSFC"). The Company and its subsidiaries
operate the Atlantic City Showboat, the Las Vegas Showboat and the Showboat
Star Casino.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1994 Compared to Three Months Ended March 31,
1993
REVENUES
Net revenues for the Company increased to $88.8 million in the quarter ended
March 31, 1994 compared to $85.5 million in the same period in 1993, an
increase of $3.3 million or 3.8%. Casino revenues increased $1.6 million or
2.2% to $76.9 million in the quarter ended March 31, 1994 from $75.3 million in
1993. Nongaming revenues, which consist principally of food, beverage, room and
bowling revenues and management fees, were $18.9 million in the first quarter
of 1994, compared to $17.3 million in 1993, an increase of 9.1%.
The Atlantic City Showboat generated $66.3 million of net revenues in the
quarter ended March 31, 1994 compared to $64.8 million in the same period in
the prior year, an increase of $1.5 million or 2.3%. Casino revenues were $60.5
million in the three months ended March 31, 1994 compared to $59.7 million for
the same period in the prior year, an increase of $.8 million or 1.4%. The
increase in casino revenues was due primarily to poker revenue of $.7 million
and simulcasting revenue of $.5 million recognized for the three months ended
March 31, 1994. The poker and simulcasting facilities were not open in the same
period in the prior year. This increase was offset by a $.6 million or 1.3%
decrease in slot revenues to $44.1 million for the three months ended March 31,
1994 compared to $44.7 million for the same period in the prior year. During
the first quarter of 1993, slot revenues included the effect of a $.8 million
reversal for a progressive slot accrual. The decrease in slot revenue was also
affected by the harsh winter weather experienced during the first quarter of
1994. The inclement weather was a factor in the results for the total Atlantic
City market as gross slot revenues declined 3.7% in that market.
At the Las Vegas Showboat, net revenues increased to $21.6 million in the
quarter ended March 31, 1994 from $20.7 million in the same period in 1993, an
increase of $.9 million or 4.2%. The greatest improvement in revenues was
realized in the casino where revenues increased to $16.4 million in the first
quarter of 1994 from $15.6 million in the first quarter of 1993, an increase of
$.8 million or 5.1%. This is consistent with the increased customer volume as a
result of certain marketing activities. Slot revenues accounted for 81.7% of
casino revenues in the first three months of 1994 and 83.3% for the same period
in 1993. Improvements in nongaming revenues were due to increased hotel
occupancy resulting from increased effectiveness of certain marketing
activities.
LPSI generated $.9 million in management fee revenues in the first quarter of
1994. LPSI receives management fees of 5.0% of Showboat Star Casino's net
gaming revenues after gaming taxes of 18.5% and boarding fees totalling $5.00
per passenger boarding the vessel. The Showboat Star Casino, which began
operations in November 1993, generated net revenues of $27.5 million in the
first quarter of 1994 consisting primarily of casino revenues of $27.1 million.
During the first quarter of 1994 the total number of passengers boarding the
vessel was 485,726 with an average gaming win per passenger of $56.00.
26
<PAGE>
INCOME FROM OPERATIONS
The Company's income from operations increased to $11.1 million in the
quarter ended March 31, 1994 from $7.7 million in the same period in 1993, an
increase of $3.4 million or 44.3% primarily as a result of improved operating
results at the Atlantic City Showboat and the opening of the Showboat Star
Casino in November 1993.
The Company incurred approximately $2.3 million in expenses relating to the
pursuit of expansion opportunities in jurisdictions outside of Nevada and New
Jersey in the first three months of 1994 compared to $.5 million in the first
quarter of 1993.
Atlantic City Showboat's income from operations, before management fees,
increased to $7.0 million in the first quarter of 1994 compared to $5.6 million
for the same period in 1993, an increase of $1.4 million or 25.3%, primarily as
a result of the increase in net revenues. Total operating expenses at the
Atlantic City Showboat remained unchanged from the prior year at $59.2 million.
Increased depreciation expense resulting from recent facility expansion was
offset by a $1.1 million or a 15.2% decrease in promotional coin incentives
offered in conjunction with slot marketing programs and by a $1.2 million or
10.5% decrease in general and administrative costs.
Income from operations at the Las Vegas Showboat, which includes parent
company expenses, declined to $2.4 million in the first quarter of 1994 from
$2.6 million in the quarter ended March 31, 1993, a decrease of $.2 million or
9.5%. This decrease is primarily due to increased parent company expenses,
increased food costs and increases in payroll and benefits due to the increased
customer volume.
Until March 1, 1994 SBL owned 30% of Showboat Star Partnership. On March 1,
1994 SBL acquired an additional 20% equity interest in Showboat Star
Partnership giving SBL a total equity interest of 50%. SBL's equity in the
earnings of Showboat Star Partnership for the quarter ending March 31, 1994 was
$3.2 million. Showboat Star Partnership had net income of $9.1 million on net
revenues of $27.5 million. Showboat Star Partnership paid a management fee of
$.9 million to LPSI and distributed $.9 million to SBL as partner distributions
during the first quarter of 1994.
LPSI, which manages Showboat Star Partnership, had income from operations for
the quarter ended March 31, 1994 of $.8 million. Operating expenses for LPSI
for the first quarter of 1994 were $.1 million.
OTHER (INCOME) EXPENSE
Net interest expense increased to $5.4 million in the first quarter of 1994
up from $4.5 million in the same period in 1993, an increase of $.9 million or
20.0%. This increase is primarily the result of an increase in interest expense
of $1.5 million as a result of an increase in long-term debt. The increase in
interest expense was offset by a $.4 million increase in interest income as a
result of increased invested cash and a $.3 million increase in capitalized
interest costs associated with the Company's Atlantic City Showboat expansion.
INCOME TAXES
During the first quarter of 1994, the Company incurred income tax expense of
$2.2 million, or an effective tax rate of approximately 40%, compared to $1.3
million, or an effective tax rate of approximately 40% in the same period in
1993. Differences between the Company's effective tax rate and statutory
federal tax rates are due to permanent differences between financial and tax
reporting which consisted principally of the estimated tax reporting impact of
the financial reporting provision for loss on Casino Reinvestment Development
Authority obligations and disallowance of certain employee needs.
NET INCOME
The Company recognized net income of $3.4 million for the quarter ended March
31, 1994 or $.23 per share, compared to a net income before the cumulative
effect of the change in method of accounting for
27
<PAGE>
income taxes of $1.9 million or $.13 per share in the quarter ended March 31,
1993. Net income for the quarter ended March 31, 1993 was $2.5 million or $.16
per share.
Year Ended December 31, 1993 (1993) Compared to Year Ended December 31, 1992
(1992)
REVENUES
Net revenues for the Company increased to $375.7 million in 1993 from $355.2
million in 1992, an increase of $20.5 million or 5.8%. Casino revenues
increased $16.3 million or 5.2% to $329.5 million in 1993 from $313.2 million
in 1992. Nongaming revenues, which consist principally of food, beverage, room
and bowling revenues and management fees, were $78.3 million in 1993 compared
to $71.2 million in 1992, an increase of $7.1 million or 10.0%.
The Atlantic City Showboat generated $294.2 million of net revenues in 1993
compared to $277.3 million in 1992, an increase of $16.9 million or 6.1%.
Casino revenues were $268.8 million in 1993 compared to $254.7 million in 1992,
an increase of $14.1 million or 5.5%. The increase in casino revenues was due
to an increase in slot machine revenues of $14.7 million or 8.0% to $196.8
million in 1993 from $182.1 million in 1992. This compares to 4.8% growth in
slot machine revenues in the Atlantic City market in 1993 compared to 1992. The
improved slot revenue growth experienced by the Atlantic City Showboat is
attributed to an increase in slot units throughout the year to approximately
2,410 slot units at the end of 1993, up from approximately 2,070 slot units at
the end of 1992, an increase of 340 slot units or a weighted average rate of
9.9%. The increase in slot machine revenues was partially offset by the $4.0
million or 5.5% decrease in table games revenues which resulted primarily from
the 3.2% decline in table games revenues in the Atlantic City market during
1993 compared to 1992. Casino revenues were positively impacted by the addition
of simulcasting and poker as part of the opening of Jake's Betting Parlor in
the second quarter of 1993. These games contributed $2.2 million and $1.1
million, respectively, during the year ended December 31, 1993. Nongaming
revenues increased $5.6 million or 12.0% in 1993 to $52.7 million from $47.1
million in 1992. This increase was attributed to promotional programs offering
casino customers rooms, food and beverage at a reduced price as well as
increases in complimentary services.
At the Las Vegas Showboat, net revenues increased to $81.1 million in 1993
from $77.9 million in 1992, an increase of $3.2 million or 4.1%. Casino
revenues increased $2.2 million or 3.8% in 1993 to $60.7 million from $58.5
million in 1992. Slot machine revenues showed the greatest improvement in
casino revenues with an increase of $1.6 million or 3.4%. Slot machine revenues
accounted for 84.2% of casino revenues in 1993 and 84.5% of casino revenues in
1992. Increases in gaming revenues were primarily the result of higher patron
volume due to promotions and increased advertising. Nongaming revenues
increased $1.0 million or 4.3% in 1993 to $25.1 million from $24.1 million in
1992. These increases were principally in rooms and food and beverage resulting
from targeted marketing programs for rooms and promotional programs offering
food at a reduced price.
LPSI generated $.4 million in management fee revenues in 1993. LPSI receives
management fees of 5.0% of the Showboat Star Casino's net gaming revenues after
gaming taxes of 18.5% and boarding fees totalling $5.00 per passenger boarding
the vessel. The Showboat Star Casino opened November 8, 1993 and generated net
revenues of $12.0 million in 1993 consisting primarily of casino revenues of
$10.9 million.
INCOME FROM OPERATIONS
The Company's income from operations decreased to $45.4 million in 1993 from
$46.5 million in 1992, a decrease of $1.1 million or 2.3%.
The Company incurred approximately $3.8 million in expenses relating to the
pursuit of expansion opportunities in jurisdictions outside of Nevada and New
Jersey in 1993 compared to $.9 million in 1992.
Income from operations at the Atlantic City Showboat, before management fees,
was $44.0 million in 1993 compared to $39.6 million in 1992, an increase of
$4.4 million or 11.1%. The increase in income from
28
<PAGE>
operations was primarily due to increased revenues which were offset by a $12.5
million or 5.3% increase in operating expenses, before management fees, to
$250.3 million in 1993 compared to $237.7 million in 1992. The increase in
operating expenses was primarily due to the increased capacity and volume of
business. General and administrative expenses increased due to increases in
utilities and maintenance costs resulting from the expanded facility. General
and administrative expenses were also impacted by an $.8 million or 13.2%
increase in real estate taxes and an $.8 million parking assessment absorbed by
Atlantic City Showboat. In addition, depreciation expense increased $1.3
million or 7.4% in 1993 as a result of the expansion at the Atlantic City
Showboat.
Income from operations at the Las Vegas Showboat declined $1.3 million or
16.6% in 1993 to $6.5 million from $7.8 million in 1992. The decrease was
primarily due to a $4.5 million or 6.4% increase in operating expenses to $74.6
million in 1993 from $70.1 million in 1992. Increased operating expenses
resulted primarily from increases in payroll and payroll related expenses,
increased advertising and repairs and maintenance expenses.
LPSI incurred a loss from operations of $.4 million which was primarily the
result of administrative expenses incurred before the November 8, 1993 opening
of the Showboat Star Casino.
The loss from operations of SBL of $.9 million represents SBL's 30% share of
the net loss of SBL's unconsolidated affiliate, Showboat Star Partnership.
Showboat Star Partnership had a net loss of $2.8 million resulting primarily
from preopening costs of Showboat Star Casino of $4.2 million in 1993, of which
SBL's share was $1.3 million. Before the write-off of preopening costs,
Showboat Star Partnership's income was $1.4 million of which SBL's share was
$.4 million.
OTHER (INCOME) EXPENSE
Other (income) expense consisted of $24.7 million interest expense, net of
$1.1 million of capitalized interest, and $3.2 million of interest income in
1993 compared to interest expense of $25.3 million and interest income of $1.4
million in 1992. Two offsetting factors impacted 1993 interest expense. In
January 1993, the Company repurchased all of its 13% Debentures and prepaid its
construction and term loan that had an outstanding balance of $17.2 million. In
June 1993, the Company repurchased all of its 11 3/8% Mortgage-Backed Bonds Due
2002 (the "11 3/8% Bonds"). This resulted in a $14.4 million decrease in
interest expense. This decrease was offset by the issuance in May 1993 of
$275.0 million of 9 1/4% First Mortgage Bonds due 2008 (the "First Mortgage
Bonds") resulting in a $15.8 million increase in interest expense. In
connection with its expansion project at the Atlantic City Showboat, the
Company capitalized $1.1 million of interest costs.
INCOME TAXES
In 1993, the Company incurred, before the income tax benefit on an
extraordinary loss, income taxes of $10.5 million, or an effective rate of
43.8%, compared to $6.8 million, or an effective rate of 29.9% in 1992.
Differences between the Company's effective tax rate and statutory federal tax
rates are due to permanent differences between financial and tax reporting. In
1993, these differences consisted principally of $.9 million in state income
taxes resulting from the utilization, for financial reporting purposes, of New
Jersey net operating loss carryforwards, a $.6 million restricted interest
assessment, net of tax, resulting from an Internal Revenue Service audit of
prior years and $.4 million resulting from the increase in federal tax rates.
In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109 ("FAS 109"), "Accounting for Income
Taxes." The Company adopted the provisions of FAS 109 effective January 1, 1993
without restating prior years' financial statements. The adoption of FAS 109
resulted in a reduction of net deferred tax liability of $.6 million and this
amount was reported separately as a cumulative effect of the change in the
method of accounting for income taxes in the 1993 Consolidated Statement of
Income.
29
<PAGE>
NET INCOME
In 1993, the Company realized income before an extraordinary loss on the
extinguishment of debt and the cumulative effect of the change in the method of
accounting for income taxes of $23.9 million or $.89 per share. On June 18,
1993, the Company redeemed all of the outstanding 11 3/8% Bonds at 105.7% of
the principal amount plus accrued and unpaid interest up to and including the
redemption date. The Company recognized an extraordinary loss, before an income
tax benefit, of $11.2 million as a result of the write-off of unamortized debt
issue costs of $2.7 million and payment of a 5.7% redemption premium of $8.5
million. The after tax loss was $6.7 million or $.44 per share. The Company
also recognized a cumulative effect adjustment for the change in the method of
accounting for income taxes of $.6 million or $.04 per share. Net income for
1993 was $7.3 million or $.49 per share.
In 1992, the Company realized income before an extraordinary loss on the
extinguishment of debt of $15.9 million or $1.37 per share. As a result of the
repurchase of the Company's outstanding 13% Debentures, the Company recognized
an extraordinary loss, net of tax, of $3.4 million or $.29 per share. This loss
resulted from the write-off of original issue discount and issuance costs
associated with the 13% Debentures. Net income for 1992 was $12.4 million or
$1.08 per share.
Year Ended December 31, 1992 (1992) Compared to Year Ended December 31, 1991
(1991)
REVENUES
Net revenues for the Company increased to $355.2 million in 1992 from $331.6
million in 1991, an increase of $23.6 million or 7.1%. Casino revenues
increased $24.8 million or 8.6% to $313.2 million in 1992 from $288.4 million
in 1991. Nongaming revenues were $71.2 million in 1992 compared to $71.7
million in 1991, a decrease of $.5 million or .7%.
The Atlantic City Showboat generated $277.3 million of net revenues in 1992
compared to $260.8 million in 1991, an increase of $16.5 million or 6.3%.
Casino revenues were $254.7 million in 1992 compared to $237.2 million in 1991,
an increase of $17.5 million or 7.4%. The increase in casino revenues was due
primarily to an increase in slot machine revenues of $20.4 million or 12.6% to
$182.1 million in 1992 from $161.7 million in 1991. This compares to a 14.2%
growth in slot machine revenues in the Atlantic City market in 1992 compared to
1991. Slot machine revenues were also favorably impacted by a one-time reversal
of a $1.2 million slot progressive jackpot accrual. Slot machine revenues at
the Atlantic City Showboat accounted for 71.5% of casino revenues in 1992 and
68.2% of casino revenues in 1991. The increase in slot machine revenues was
partially offset by the $2.9 million or 3.8% decrease in table games revenues
to $72.6 million in 1992 from $75.5 million in 1991. The decrease in table
games revenues resulted primarily from the Company decreasing the number of
table games units by 24 tables in the third quarter of 1991 and by the 3.4%
decline in table games revenues in the Atlantic City market during 1992
compared to 1991. Nongaming revenues declined $1.0 million or 2.2% in 1992 to
$47.1 million from $48.1 million in 1991. This decrease was primarily
attributed to a $3.1 million or 9.4% decline in food and beverage revenues
associated with a reduction in promotional offers. The reduction in food and
beverage revenues were partially offset by a $1.3 million or 12.8% increase in
room revenues due to more effective room utilization and a $.9 million or 77.2%
increase in entertainment revenues.
At the Las Vegas Showboat, net revenues increased to $77.9 million in 1992
from $70.8 million in 1991, an increase of $7.1 million or 10.1%. Casino
revenues increased $7.3 million or 14.3% in 1992 to $58.5 million from $51.2
million in 1991. The most significant improvement in casino revenues occurred
in slot machine revenues which increased $5.7 million or 13.1% in 1992. Casino
revenues were also favorably impacted by a $1.1 million or 49.9% reduction in
bingo losses in 1992. Slot machine revenues continued to dominate casino
revenues at 84.5% of casino revenues in 1992 and 85.3% of casino revenues in
1991. Increases in casino revenues were due to an overall increase in the
volume of business, principally as a result of the continuation of certain
targeted marketing activities. Nongaming revenues increased $.5 million or 2.0%
in 1992 to $24.1 million from $23.6 million in 1991. Increases in food and
beverage revenues of $.9
30
<PAGE>
million or 6.5% and hotel revenues of $.3 million or 6.3% were offset by a
reduction of $.7 million in other revenues as a result of the recognition in
1991 of a one-time benefit of $.8 million from the reversal of an accrual.
INCOME FROM OPERATIONS
The Company's income from operations increased to $46.5 million in 1992 from
$35.5 million in 1991, an increase of $11.0 million or 31.0%.
Income from operations at the Atlantic City Showboat was $39.6 million in
1992 compared to $31.2 million in 1991, an increase of $8.4 million or 26.9%.
This increase was primarily due to improved casino revenues caused by the 14.2%
slot machine revenue growth experienced in the Atlantic City market in 1992.
Operating expenses increased $8.1 million or 3.5% to $237.7 million in 1992
compared to $229.6 million in 1991. The increase in operating expenses was
comprised of a $5.6 million or 28.9% increase in promotional coin incentives
offered in conjunction with slot marketing programs and a 6.8% increase in
general and administrative costs consisting primarily of a $3.0 million
increase in payroll and benefits. Increases in operating expenses were offset
by a $3.3 million or 16.0% decrease in depreciation and amortization expense to
$17.5 million in 1992 from $20.8 million in 1991. Improvements in income from
operations, excluding that realized from the reduction in depreciation and
amortization expense, occurred principally in the quarter ended March 31, 1992.
At the Las Vegas Showboat, income from operations, increased to $7.8 million
in 1992 from $4.3 million in 1991, an increase of $3.5 million or 81.4%. The
improvement in operating results reflected the continued implementation of cost
effective marketing programs which resulted in increased revenues of $7.2
million offset by a $3.7 million or 5.6% increase in operating expenses in 1992
to $70.1 million from $66.4 million in 1991. In general, increases in operating
expenses were consistent with increases in business volume.
Income from operations in 1992 was adversely impacted by $.9 million of
expenses incurred by the Company in conjunction with the investigation of new
gaming opportunities outside of Nevada and New Jersey.
OTHER (INCOME) EXPENSE
In 1992, other (income) expense consisted of $25.3 million of interest
expense and $1.4 million of interest income compared to $27.5 million and $2.1
million, respectively, in 1991. Reductions in interest expense of $1.4 million
were realized as a result of the fourth quarter 1991 repurchase of $12.1
million of the 11 3/8% Bonds. Other reductions in interest expense were
primarily a result of reduced principal balances due to scheduled principal
amortization.
INCOME TAXES
In 1992, the Company incurred income tax expense, before income tax benefit
on an extraordinary loss, of $6.8 million, or an effective tax rate of 29.9%,
compared to $4.1 million, or an effective tax rate of 40.5%, in 1991.
Differences between the Company's effective tax rate and statutory federal tax
rates are due to permanent differences between financial and tax reporting
which consisted principally of the estimated tax reporting impact of the
financial reporting provision for loss on Casino Reinvestment Development
Authority obligations and disallowance of certain employee meals.
NET INCOME
In 1992, the Company realized income before an extraordinary loss on the
extinguishment of debt of $15.9 million or $1.37 per share. The Company
recognized an extraordinary loss, net of tax, of $3.4 million or $.29 per share
as a result of the write-off of original issue discount and issuance costs
associated with the redemption of the Debentures. Net income for 1992 was $12.4
million or $1.08 per share.
31
<PAGE>
In 1991, the Company realized income before an extraordinary gain on the
extinguishment of debt of $6.0 million or $.53 per share. In 1991, the Company
purchased $12.1 million face value of the 11 3/8% Bonds and realized an
extraordinary gain, net of tax, of $.2 million or $.02 per share. Net income
for 1991 was $6.2 million or $.55 per share.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1994, the Company held cash and cash equivalents of $107.5
million compared to $122.8 million at December 31, 1993. On March 1, 1994 the
Company purchased from a partner an additional 20% equity interest in Showboat
Star Partnership for $9.0 million. The Company has expended approximately $2.3
million in the quarter ended March 31, 1994 in its investigation of expansion
opportunities in new jurisdictions.
During the quarter ended March 31, 1994 and the year ended December 31, 1993,
the Company expended approximately $19.7 million and $59.7 million,
respectively, on capital improvements at its Las Vegas and Atlantic City
facilities which were funded from operations. Costs associated with the
expansion project in Atlantic City were $15.2 million during the quarter ended
March 31, 1994. Capital expenditures relating to the expansion project in
Atlantic City are expected to be $36.2 million for the remainder of 1994 and
$2.3 million in 1995.
The Company has announced expansion opportunities, including foreign gaming
opportunities and renovation and expansion of the Las Vegas Showboat, which
will require additional expenditures of approximately $230 million. See
"Company--Expansion Opportunities." Concurrent with the Note Offering, the
Company is offering 3,000,000 shares of its Common Stock in the Common Stock
Offering. The Company believes that the proceeds from the Note Offering, the
Common Stock Offering and working capital from operations will be sufficient to
fund currently announced expansion opportunities, subject to additional funding
being provided from other entities for the development of the Sydney Harbour
Casino. The closing of the Note Offering is not contingent on the closing of
the Common Stock Offering. There can be no assurance that funds will be
available on acceptable terms to the Company to finance the development of all
announced or other gaming opportunities if the Common Stock Offering is not
consummated.
The Company believes that is has sufficient capital resources to cover the
cash requirements of its existing operations. The ability of the Company to
satisfy its cash requirements, however, will be dependent upon the future
performance of its casino hotels which will continue to be influenced by
prevailing economic conditions and financial, business and other factors,
certain of which are beyond the control of the Company.
CERTAIN INDEBTEDNESS
Lines of Credit
At March 31, 1994, ACSI had available an unsecured line of credit for general
working capital purposes totaling $15.0 million. Interest is payable monthly at
the bank's prime rate plus .5%. The bank's prime rate at March 31, 1994 was
6.75%. The line of credit is guaranteed by OSI and expires in August 1994.
Borrowings on this line of credit may not be used for the payment of management
fees or to fund ventures in other jurisdictions. At March 31, 1994, ACSI had
all the funds under this line of credit available for use.
On March 24, 1994, the Company secured a line of credit for A$8.4 million
($6.1 million) in compliance with NSWCCA's licensing requirements. This line of
credit is secured by a $6.3 million certificate of deposit. Interest on this
line of credit is payable at the bank's prime rate plus 2.0%. This line of
credit expires in December 1994. At March 31, 1994, all funds were available
under this line of credit.
32
<PAGE>
First Mortgage Bonds
On May 18, 1993, the Company issued $275 million aggregate principal amount
of 9 1/4% First Mortgage Bonds. The proceeds from the sale of the First
Mortgage Bonds were $268,468,750, net of underwriting discounts and
commissions. Proceeds from the sale of the First Mortgage Bonds were used to
redeem all of the outstanding 11 3/8% Bonds at 105.7% of the principal amount
plus accrued interest.
The First Mortgage Bonds are unconditionally guarantied by OSI, ACSI and
SBOC. Interest on the First Mortgage Bonds is payable semi-annually on May 1
and November 1 of each year commencing November 1, 1993. The First Mortgage
Bonds are not redeemable prior to May 1, 2000. Thereafter, the First Mortgage
Bonds will be redeemable, in whole or in part, at redemption prices specified
in the Indenture for the First Mortgage Bonds (the "Bond Indenture"). The First
Mortgage Bonds are senior secured obligations of the Company and rank senior in
right of payment to all existing and future subordinated indebtedness of the
Company, including the Notes, and pari passu with the Company's senior
indebtedness. The First Mortgage Bonds are secured by a deed of trust
representing a first lien on the Las Vegas Showboat (other than certain
assets), by a pledge of all outstanding shares of capital stock of OSI, an
intercompany note by ACSI in favor of the Company and a pledge of certain
intellectual property rights of the Company. OSI's obligation under its
guaranty is secured by a pledge of all outstanding shares of capital stock of
ACSI. ACSI's obligation under its guaranty is secured by a leasehold mortgage
representing a first lien on the Atlantic City Showboat (other than certain
assets). SBOC's guaranty is secured by a pledge of certain assets related to
the Las Vegas hotel casino.
The Bond Indenture places significant restrictions on the Company and its
subsidiaries, including restrictions on making loans and advances by the
Company to subsidiaries in which the Company owns less than 50% of the equity
of such subsidiary.
33
<PAGE>
MANAGEMENT
The following table sets forth information concerning the Company's executive
officers, directors and other key employees:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
J.K. Houssels......................... 71 Chairman of the Board
J. Kell Houssels, III................. 44 Director, President and Chief
Executive Officer
William C. Richardson(2).............. 67 Director
John D. Gaughan(1).................... 73 Director
Jeanne S. Stewart..................... 71 Director
Frank A. Modica....................... 66 Director and Executive Vice President
and Chief Operating Officer
H. Gregory Nasky...................... 52 Director and Secretary
George A. Zettler(1)(2)............... 67 Director
Carolyn M. Sparks(1).................. 52 Director
G. Clifford Taylor, Jr................ 49 Treasurer and Assistant Secretary
R. Craig Bird......................... 47 Executive Vice President--Finance and
Development
Leann K. Schneider.................... 41 Vice President--Finance and Chief
Financial Officer
Mark J. Miller........................ 37 Executive Vice President--Operations
</TABLE>
- ---------------------
(1) Member of Audit Committee of the Board of Directors.
(2) Member of Compensation Committee of the Board of Directors.
J.K. Houssels is the Chairman of the Board of the Company, SBOC, SDC, OSI,
OSFC, SBL, LPSI, SBI, SBM and Showboat Australia. Mr. Houssels was the
President and Chief Executive Officer of the Company until May 25, 1994. Mr.
Houssels is Vice-Chairman of the Board of Directors of Union Plaza Hotel and
Casino, Inc., Las Vegas, Nevada. Until July 25, 1991, he was Director of First
Western Financial Corporation (savings and loan association), Las Vegas,
Nevada.
J. Kell Houssels, III is a Director and the President and Chief Executive
Officer of the Company and SDC, a Director of ACSI, SBOC, OSI, OSFC, SBL, LPSI,
SBI, SBM and Showboat Australia, and the Executive Vice President of OSI. From
January 1, 1990 until May 25, 1994, Mr. Houssels was the Vice President of the
Company. From May 1993 to June 1994, Mr. Houssels was the President and Chief
Executive Officer of ACSI. From January 1990 to May 1993, Mr. Houssels was the
President and Chief Operating Officer of ACSI. From June 1989 until January
1990, Mr. Houssels was the Senior Vice President and Chief Operating Officer of
ACSI. From January 1989 until June 1989, he was the Senior Vice President and
General Manager of ACSI.
William C. Richardson is a Director of the Company and OSI. Mr. Richardson is
an independent financial consultant, Los Angeles, California. Since April 1,
1991, he has been an arbitrator and mediator for the American Arbitration
Association and other self regulatory organizations. Until March 30, 1991, Mr.
Richardson was President, Chief Executive Officer and the Vice Chairman of
Western Capital Financial Group, Los Angeles, California.
John D. Gaughan is a Director of the Company, ACSI, SBOC, SDC, OSI, OSFC,
SBL, LPSI, SBI, SBM and Showboat Australia. Mr. Gaughan is Chairman of the
Board and President of Exber, Inc., doing business as the El Cortez Hotel and
the Western Hotel and Casino, Las Vegas, Nevada. Mr. Gaughan is also the
Chairman of the Board of Union Plaza Hotel and Casino, Inc., Las Vegas, Nevada.
Jeanne S. Stewart is a Director of the Company and OSI. Mrs. Stewart is a
retired attorney, Las Vegas, Nevada.
Frank A. Modica is the Chief Operating Officer, Executive Vice President and
Director of the Company. He is also a Director, President and Chief Executive
Officer of SBOC and OSI. He also serves as a Director and the President of
OSFC, a Director and Vice Chairman of SBL, LPSI, SBI and SBM, a Director of SDC
34
<PAGE>
and Showboat Australia, and the Chairman of the Board of ACSI. Until December
31, 1989, Mr. Modica was the President and Chief Executive Officer of ACSI. Mr.
Modica is a Director of First Security Bank (formerly Continental National
Bank), Las Vegas, Nevada.
H. Gregory Nasky is the Secretary and a Director of the Company and all
subsidiaries. He also serves as Chief Executive officer and Managing Director
of Showboat Australia and SHCL. Since March 1, 1994, Mr. Nasky has been of
counsel to the law firm of Kummer Kaempfer Bonner & Renshaw, Las Vegas, Nevada,
general counsel to the Company. Until February 28, 1994, Mr. Nasky was a member
of the law firm of Vargas & Bartlett, Las Vegas and Reno, Nevada, former
general counsel to the Company.
George A. Zettler is a Director of the Company and OSI. Since February 1,
1994, Mr. Zettler has been the President of Zimex, Redondo Beach, California.
Until February 1, 1994, he was the President of World Trade Services Group,
Long Beach, California. Prior to January 1, 1991, he was the President of
United Export Trading Company, Los Angeles, California.
Carolyn M. Sparks is a Director of the Company and OSI. Mrs. Sparks is a co-
owner of International Insurance Services, Las Vegas, Nevada. Until January
1991, Mrs. Sparks was the Vice-President, Secretary and Treasurer of
International Insurance Services, Ltd. Until December 31, 1990, she was a
claims administrator for International Insurance Services, Ltd. She is also a
Director of Southwest Gas Corporation, a Director of PriMerit Bank--Federal
Savings Bank and a Regent of the University and Community College System of
Nevada.
G. Clifford Taylor, Jr. has been the Executive Vice President and Chief
Operating Officer of SBOC since December 1, 1988. He has served as the
Assistant Secretary of the Company since May 1990. He has also served as the
Treasurer of the Company and SBOC since February 1981. He served as the
Treasurer of SDC from June 1983 to May 1993. He has been the Treasurer of OSI
since December 1983, ACSI since June 1984 and OSFC since December 1986. He
serves at the pleasure of the respective board of directors.
R. Craig Bird has been the Executive Vice President--Finance and Development
of the Company since June 1994 and the Executive Vice President and Chief
Operating Officer of SDC since October 1993. Mr. Bird was the Vice President--
Financial Administration of the Company from February 1988 to June 1994. Mr.
Bird was the Vice President--Financial Administration of ACSI from March 1990
to October 1993. He serves at the pleasure of the respective boards of
directors.
Leann K. Schneider has been the Vice President--Finance and Chief Financial
Officer of the Company and the Vice President--Finance and Chief Financial
Officer of SBOC since May 1990. Ms. Schneider has also served as the Chief
Financial Officer and Treasurer of SDC since May 1993, the Treasurer of SBL and
SBM since July 1993 and the Treasurer of SBI since September 1993. From
December 1989 until May 1990, she served as the Vice President--Financial
Relations and Chief Financial Officer of the Company. From December 1988 until
December 1989, she served as the Vice President--Financial Relations and Acting
Chief Financial Officer of the Company. She serves at the pleasure of the
respective boards of directors.
Mark J. Miller has served as the Executive Vice President--Operations of the
Company since June 1994, the Vice President--Finance of OSI since April 1988,
the Vice President--Finance and Chief Financial Officer of OSFC since April
1991 and, subject to regulatory approval, will serve as the President and Chief
Executive Officer and cease to serve as the Executive Vice President and Chief
Operating Officer of ACSI. Mr. Miller served as the Vice President--Finance and
Chief Financial Officer of ACSI from December 1988 to October 1993. He serves
at the pleasure of the respective boards of directors.
Subject to the approval of the New Jersey Casino Control Commission, the
following have been appointed as additional officers of the Company:
Donald L. Tatzin, age 42, will become the Executive Vice President of the
Company and has been the Executive Vice President of SDC since April 1993. Mr.
Tatzin has been a consultant with Arthur D. Little, Inc., San Francisco,
California since June 1976.
Paul S. Harris, age 58, will become the Senior Vice President--Human
Resources for the Company and has been Vice President--Organization and
Development of ACSI since July 1988.
35
<PAGE>
REGULATION
The operations of the Company are subject to extensive regulation by the
States of Nevada, New Jersey, Louisiana and local governmental authorities in
Nevada, New Jersey and Louisiana. Such regulations impose restrictions on the
Company's operations in such states, including, among other things,
restrictions on the manner of operation of the casinos, licensing of officers,
directors and certain key employees, and the submission of extensive financial
and operating reports. Although the Company believes that it is in substantial
compliance in all material respects with applicable local, state and federal
laws, rules and regulations, there can be no assurance that more restrictive
laws, rules and regulations will not be adopted in the future which could make
compliance much more difficult or expensive, restrict the Company's ability to
attract investors or lenders, or otherwise adversely affect the business or
prospects of the Company.
The Company may be required to disclose to the Gaming Authorities, upon
request, the identities of the holders of the Notes. The Gaming Authorities
may, in their discretion, (i) require holders of the Company's securities to
file applications in states in which the Company does business; (ii)
investigate such holders; and (iii) require such holders to be found suitable
or qualified to own such securities. Pursuant to the regulations of the Gaming
Authorities, the Company may be sanctioned, including the loss of its
approvals, if, without prior approval of the Gaming Authorities, it (i) pays to
the unsuitable or unqualified person any dividend, interest or other
distribution; (ii) recognizes any voting right by such unsuitable or
unqualified person in connection with the securities; (iii) pays the unsuitable
or unqualified person remuneration in any form; or (iv) makes any payments to
the unsuitable or unqualified person by way of principal, redemption,
conversion, exchange, liquidation, or similar transaction. The Indenture
requires that if any Gaming Authority requires that a holder or beneficial
owner of Notes must be licensed, qualified or found suitable under any
applicable gaming law and the holder or beneficial owner fails to apply for a
license, qualification or a finding of suitability within 30 days after being
requested to do so by the Gaming Authority, or if such holder or such
beneficial owner is not so licensed, qualified or found suitable, the Company
shall have the right, at its option, (i) to require such holder or beneficial
owner to dispose of such holder's or beneficial owner's Notes within 30 days of
receipt of such notice of such finding by the applicable Gaming Authority or
such earlier date as may be ordered by such Gaming Authority or (ii) to call
for the redemption of the Notes of such holder or beneficial owner at the
lesser of the principal amount thereof or the price at which such holder or
beneficial owner acquired the Notes, together with, in either case, accrued
interest to the earlier of the date of the finding of unsuitability by such
Gaming Authority, which may be less than 30 days following the notice of
redemption, if so ordered by such Gaming Authority. See "Description of Notes--
Optional Redemption."
Pursuant to the regulations of the Nevada Gaming Commission (the "Nevada
Commission") and the Nevada State Gaming Control Board ( the "Nevada Board"),
the Company may not make a public offering of its securities, such as the
Notes, without the prior approval of the Nevada Commission if the securities or
proceeds therefrom are intended to be used to construct, acquire or finance
gaming facilities in Nevada, or to retire or extend obligations incurred for
such purposes. On November 18, 1993, the Nevada Commission granted the Company
prior approval to make public offerings for a period of one year, subject to
certain conditions (the "Shelf Approval"). The Shelf Approval is for a period
of one year and expires on the date of the November 1994 Nevada Commission
meeting. The Shelf Approval may be rescinded without prior notice upon the
issuance of an interlocutory stop order by the Chairman of the Nevada Board.
This Offering is made pursuant to the Shelf Approval.
If the Company becomes involved in gaming operations in any other
jurisdictions, such gaming operations will subject the Company and certain of
its officers, directors, key employees, stockholders and other affiliates
("Regulated Persons") to strict legal and regulatory requirements, including
mandatory licensing and approval requirements, suitability requirements, and
ongoing regulatory oversight with respect to such gaming operations. Such legal
and regulatory requirements and oversight will be administered and exercised by
the relevant regulatory agency or agencies in each jurisdiction. The Company
and the Regulated Persons will need to satisfy the licensing, approval and
suitability requirements of each jurisdiction in which the Company seeks to
become involved in gaming operations. To date, other than Nevada, New Jersey
and
36
<PAGE>
Louisiana, no such gaming licenses, approvals or fundings of suitability have
been obtained or, other than in Sydney, Australia, Indiana or the St. Regis
Mohawk Reservation, applied for by the Company.
A more extensive discussion of the Nevada, New Jersey and Louisiana gaming
statutes and regulations, and other statutes and regulations in jurisdictions
to which the Company and its subsidiaries are subject, or may become subject,
is contained in the Company's Annual Report on Form 10-K for the Year Ended
December 31, 1993, which is incorporated herein by reference.
DESCRIPTION OF NOTES
GENERAL
The Notes will be issued pursuant to the Indenture among the Company, the
Guarantors and Marine Midland Bank, as trustee (the "Trustee"). The terms of
the Notes include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act"). The Notes are subject to all such terms, and holders of
the Notes are referred to the Indenture and the Trust Indenture Act for a
statement thereof. The following summary of certain provisions of the Indenture
does not purport to be complete and is qualified in its entirety by reference
to the Indenture, including the definitions therein of certain terms used
below. A copy of the proposed form of Indenture has been filed as an exhibit to
the Registration Statement of which this Prospectus is a part. The definitions
of certain terms used in the following summary are set forth below under
"Certain Definitions."
The Notes will be unsecured general obligations of the Company and will be
subordinated in right of payment to all Senior Debt of the Company. See "--
Subordination." At March 31, 1994, the Company and its Restricted Subsidiaries
had an aggregate of $279.6 million in principal amount of Senior Debt
outstanding, including $275 million in principal amount of the First Mortgage
Bonds. In addition, substantially all of the Company's and the Guarantors'
assets have been pledged to secure the First Mortgage Bonds. The Company's
obligations under the Notes and the Indenture will be unconditionally
guaranteed on a senior subordinated basis by each of ACSI, OSI and SBOC.
The Company is a holding company that operates its casino hotels and related
facilities through its subsidiaries. Repayment of intercompany notes and
payment of management fees, rent and dividends from its subsidiaries are the
Company's principal sources of cash to pay operating expenses and principal of
and interest on debt. The ability of the Company's New Jersey subsidiaries to
make payments on intercompany notes and to pay management fees and dividends to
the Company may, under certain circumstances, be subject to regulatory approval
by the New Jersey Commission in the event that such payment would affect the
"financial stability" of such subsidiary. Under New Jersey gaming law, a
company's "financial stability" is evaluated pursuant to certain financial
standards, including (i) cash availability to pay gaming wagers and gaming and
nongaming expenditures, (ii) ability to make capital and maintenance
expenditures in a timely manner and (iii) ability to provide for the servicing
of debt.
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $150 million and will
mature on , 2009. Interest on the Notes will accrue at the rate of % per
annum and will be payable semi-annually on and , commencing on ,
1995, to holders of record on the immediately preceding and . Interest
on the Notes will accrue from the most recent date to which interest has been
paid or, if no interest has been paid, from the date of original issuance.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months. The Notes will be payable both as to principal and interest at
the office or agency of the Company maintained for such purpose within the City
and State of New York or, at the option of the Company, payment of interest may
be made by check mailed to the holders of the Notes at their respective
addresses set forth in the register of holders of Notes. Until otherwise
designated by the Company, the Company's office or agency in New York will be
the office of the Trustee maintained for such purpose. The Notes will be issued
in registered form, without coupons, and in denominations of $1,000 and
integral multiples thereof.
37
<PAGE>
OPTIONAL REDEMPTION
The Notes are not redeemable at the Company's option prior to , 2001,
except as may be required by a Gaming Authority as provided below. Thereafter,
the Notes will be subject to redemption at the option of the Company, in whole
or in part, upon not less than 30 nor more than 60 days' notice, at the
redemption prices (expressed as percentages of principal amount) set forth
below plus accrued and unpaid interest thereon to the applicable redemption
date, if redeemed during the twelve-month period beginning on of the years
indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2001......................................................... %
2002......................................................... %
2003......................................................... %
2004 and thereafter.......................................... 100.000%
</TABLE>
Notwithstanding any other provision hereof, if any Gaming Authority requires
that a holder or beneficial owner of Notes must be licensed, qualified or found
suitable under any applicable gaming law and such holder or beneficial owner
fails to apply for a license, qualification or a finding of suitability within
30 days after being requested to do so by the Gaming Authority (or such lesser
period that may be required by such Gaming Authority), or if such holder or
such beneficial owner is not so licensed, qualified or found suitable, the
Company shall have the right, at its option, (i) to require such holder or
beneficial owner to dispose of such holder's or beneficial owner's Notes within
30 days of receipt of such notice of such finding by the applicable Gaming
Authority or such earlier date as may be ordered by such Gaming Authority or
(ii) to call for the redemption of the Notes of such holder or beneficial owner
at the lesser of the principal amount thereof or the price at which such holder
or beneficial owner acquired the Notes, together with, in either case, accrued
interest to the earlier of the date of redemption or such earlier date as may
be required by such Gaming Authority or the date of the finding of
unsuitability by such Gaming Authority, which may be less than 30 days
following the notice of redemption, if so ordered by such Gaming Authority. The
Company shall notify the Trustee in writing of any such redemption as soon as
practicable. The holder of Notes or beneficial owner applying for a license,
qualification or a finding of suitability must pay all costs of the licensure
or investigation for such qualification or finding of suitability. Under the
Indenture, the Company is not required to pay or reimburse any holder of the
Notes or beneficial owner who is required to apply for such license,
qualification or finding of suitability for the costs of the licensure or
investigation for such qualification or finding of suitability. Such expense
will, therefore, be the obligation of such holder or beneficial owner. See
"Certain Considerations--Regulatory Matters" and "Regulation."
MANDATORY REDEMPTION
The Company is not required to make mandatory redemption or sinking fund
payments with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of Notes shall have
the right to require the Company to repurchase all or any part (equal to $1,000
or an integral multiple thereof) of such holder's Notes pursuant to the offer
described below (the "Change of Control Offer") at a purchase price equal to
101% of the aggregate principal amount thereof plus accrued and unpaid
interest, if any, to the date of purchase (the "Change of Control Payment").
Within 30 days following any Change of Control, the Company shall mail a notice
to each holder stating: (1) that the Change of Control Offer is being made
pursuant to the covenant entitled "Change of Control" and that all Notes
tendered will be accepted for payment; (2) the purchase price and the purchase
date (the "Change of Control Payment Date"), which shall be no earlier than 30
days nor later than 40 days from the date such notice is mailed (unless a
longer period is required by law); (3) that any Note not tendered will continue
to accrue interest; (4) that, unless the Company defaults in the payment of the
Change of Control Payment, all Notes accepted for payment pursuant to the
Change of Control Offer shall cease to accrue interest after the Change of
Control Payment Date; (5) that holders electing to have any
38
<PAGE>
Notes purchased pursuant to a Change of Control Offer will be required to
surrender the Notes, with the form entitled "Option of Holder to Elect
Purchase" on the reverse of the Notes completed, to the Paying Agent at the
address specified in the notice prior to the close of business on the third
business day preceding the Change of Control Payment Date; (6) that holders
will be entitled to withdraw their election if the Paying Agent receives, not
later than the close of the Offer Period (as defined in the Indenture), a
telegram, telex, facsimile transmission or letter setting forth the name of the
holder, the principal amount of Notes delivered for purchase, and a statement
that such holder is withdrawing his election to have such Notes purchased; and
(7) that holders whose Notes are being purchased only in part will be issued
new Notes equal in principal amount to the unpurchased portion of the Notes
surrendered, which unpurchased portion must be equal to $1,000 in principal
amount or an integral multiple thereof.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (1) accept for payment Notes or portions thereof tendered pursuant to
the Change of Control Offer, (2) deposit with the Paying Agent an amount equal
to the Change of Control Payment in respect of all Notes or portions thereof so
tendered and (3) deliver or cause to be delivered to the Trustee the Notes so
accepted together with an Officers' Certificate stating the Notes or portions
thereof tendered to the Company. The Paying Agent shall promptly mail to each
holder of Notes so accepted payment in an amount equal to the purchase price
for such Notes, and the Trustee shall promptly authenticate and mail to each
holder a new Note equal in principal amount to any unpurchased portion of the
Notes surrendered, if any; provided, that each such new Note shall be in a
principal amount of $1,000 or an integral multiple thereof. Prior to complying
with the provisions of this covenant, but in any event within 90 days following
a Change of Control, the Company shall either repay all outstanding Senior Debt
or obtain the requisite consents, if any, under all agreements governing
outstanding Senior Debt to permit the repurchase of Notes required by this
covenant. The Company will publicly announce the results of the Change of
Control Offer on or as soon as practicable after the Change of Control Payment
Date.
Except as described above with respect to a Change of Control, the Indenture
does not contain any other provisions that permit the holders of the Notes to
require that the Company repurchase or redeem the Notes in the event of a
takeover, recapitalization or similar restructuring.
The Working Capital Credit Agreement and the First Mortgage Bond Indenture
currently restrict the Company's ability to purchase any Notes upon a Change of
Control. In the event a Change of Control occurs at a time when the Company is
prohibited from purchasing Notes, the Company could seek the consent of its
lenders to the purchase of Notes or could attempt to refinance the borrowings
that contain such prohibition. If the Company does not obtain such a consent or
repay such borrowings, the Company will remain prohibited from purchasing
Notes. In such case, the Company's failure to purchase tendered Notes would
constitute an Event of Default under the Indenture which would, in turn,
constitute a default under the Working Capital Credit Agreement and the First
Mortgage Bond Indenture. In such circumstances, the subordination provisions in
the Indenture would restrict payments to the holders of Notes.
The Change of Control purchase feature of the Notes may in certain
circumstances make more difficult or discourage a takeover of the Company and,
thus, the removal of incumbent management. The Change of Control purchase
feature, however, is not the result of management's knowledge of any specific
effort to accumulate the Company's stock or to obtain control of the Company by
means of a merger, tender offer, solicitation or otherwise, or part of a plan
by management to adopt a series of anti-takeover provisions. Instead, the
Change of Control purchase feature is a result of negotiations between the
Company and the Underwriter. Management has no present intention to engage in a
transaction involving a Change of Control, although it is possible that the
Company would decide to do so in the future. Subject to the limitations
discussed below, the Company could, in the future, enter into certain
transactions including acquisitions, refinancings or other recapitalizations,
that would not constitute a Change of Control under the Indenture, but that
could increase the amount of indebtedness outstanding at such time or otherwise
affect the Company's capital structure or credit ratings. The Company will
comply with all applicable laws, including without limitation Section 14(e) of
the Exchange Act and the rules thereunder, in the event that it is required to
offer to repurchase any Notes upon a Change of Control.
39
<PAGE>
The Company and the Trustee may not waive or modify any rights of the holders
of the Notes upon a Change of Control without the consent of the holders of 66
2/3% of the principal amount of the then outstanding Notes.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the Company's assets. Although there is a developing body of case law
interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
holder of Notes to require the Company to repurchase such Notes as a result of
a sale, lease, transfer, conveyance or other disposition of less than all of
the assets of the Company and its Subsidiaries to another person may be
uncertain.
Asset Sales
The Indenture will provide that the Company will not, and will not permit any
of its Restricted Subsidiaries to, cause, make or suffer to exist any Asset
Sale unless (i) no Default exists or is continuing immediately prior to and
after giving effect to such Asset Sale, (ii) the Company (or such Restricted
Subsidiary, as the case may be) receives consideration at the time of each such
Asset Sale at least equal to the fair market value (evidenced by a resolution
of the Board of Directors set forth in an Officers' Certificate delivered to
the Trustee) of the assets or equity securities sold or otherwise disposed of
and (iii) at least 90% of the consideration therefor received by the Company or
such Restricted Subsidiary is in the form of cash; provided, however, that the
amount of (x) any liabilities (as shown on the Company's or such Restricted
Subsidiary's most recent balance sheet or in the notes thereto) of the Company
or any Restricted 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) any notes or other obligations received
by the Company or any such Restricted Subsidiary from such transferee that are
immediately converted by the Company or such Restricted Subsidiary into cash,
shall be deemed to be cash (to the extent of the cash received) for purposes of
this provision.
Within 360 days after any Asset Sale, the Company (or the Subsidiary, as the
case may be) may apply the Net Proceeds from such Asset Sale, at its option,
either (a) to permanently reduce Senior Debt of the Company or (b) to reinvest
or cause to be reinvested the Net Proceeds from such Asset Sale in another
asset or business in a Gaming Related Business. Pending the final application
of any such Net Proceeds, the Company may temporarily reduce Senior Debt of the
Company, including under the Working Capital Credit Agreement, or otherwise
invest such Net Proceeds in any manner that is not prohibited by the Indenture.
Any Net Proceeds from any Asset Sale that are not applied as provided in the
first sentence of this paragraph constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $10 million, the Company will make
an offer (an "Asset Sale Offer") to (i) all holders of Notes to purchase the
maximum principal amount of Notes that may be purchased out of the Excess
Proceeds or (ii) at the Company's option, make an Asset Sale Offer to redeem
outstanding Notes and Pari Passu Indebtedness, on a pro rata basis in relation
to the outstanding aggregate principal amount of such Indebtedness and the
aggregate principal amount of the Notes then outstanding, in each case at an
offer price in cash in an amount equal to 100% of the outstanding principal
amount thereof plus accrued and unpaid interest, if any, to the date fixed for
the closing of such offer, in accordance with the procedures set forth in the
Indenture. To the extent that the aggregate amount of Notes tendered pursuant
to an Asset Sale Offer to purchase is less than the Excess Proceeds, the
Company may use such deficiency for general corporate purposes. If the
aggregate principal amount of Notes surrendered by holders thereof exceeds the
amount of Excess Proceeds, the Trustee will select the Notes to be purchased on
a pro rata basis. Upon completion of such offer to purchase, the amount of
Excess Proceeds will be reset at zero.
Escrow Account
The Indenture will provide that the Company must place $100 million of net
proceeds from the Note Offering into an escrow account. The escrow agent for
the escrow account will be permitted to apply the
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amount in the escrow account only to fund the Company's investment in SHCL. In
the event that Australian Gaming Approval or Management Contract Approval has
not occurred on or prior to December 31, 1995, the Company will be obligated to
apply the amount in the escrow account to an offer to all holders of Notes to
purchase the maximum principal amount of Notes that may be purchased with such
amount a purchase price equal to 100% of the principal amount thereof plus
accrued and unpaid interest to the date of purchase in accordance with the
procedures set forth in the Indenture. If the aggregate principal amount of
Notes surrendered by holders thereof exceeds the amount in the escrow account,
the Trustee will select the Notes to be purchased on a pro rata basis. If the
amount in the escrow account exceeds the amount necessary to purchase all Notes
surrendered in such offer, the Company will be obligated to apply such excess
amount to an offer to purchase First Mortgage Bonds. Any funds remaining in the
escrow account after the Company has fully funded its investment in SHCL or
after the required offers to purchase shall be released to the Company and may
be used for general corporate purposes.
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which
the Notes are listed, or, if the Notes are not so listed, on a pro rata basis,
by lot or by such method as the Trustee shall deem fair and appropriate,
provided that no Notes of $1,000 or less shall be redeemed in part. Notice of
redemption shall be mailed by first class mail at least 30 but not more than 60
days before the redemption date to each holder of Notes to be redeemed at its
registered address. If any Note is to be redeemed in part only, the notice of
redemption that relates to such Note shall state the portion of the principal
amount thereof to be redeemed. A new Note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the holder thereof
upon cancellation of the original Note. On and after the redemption date,
interest ceases to accrue on Notes or portions of them called for redemption.
SUBORDINATION
The payment of principal of and interest on the Notes will be subordinated in
right of payment, as set forth in the Indenture, to the prior payment in full
of all Obligations with respect to Senior Debt of the Company, including
without limitation, the First Mortgage Bonds, whether outstanding on the date
of the Indenture or thereafter incurred.
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property, an
assignment for the benefit of creditors or any marshalling of the Company's
assets and liabilities, the holders of Senior Debt of the Company will be
entitled to receive payment in full of all Obligations due in respect of such
Senior Debt (including interest after the commencement of any such proceeding
at the rate specified in the applicable Senior Debt) before the holders of
Notes will be entitled to receive any payment with respect to the Notes, and
until all Obligations with respect to Senior Debt of the Company are paid in
full, any distribution to which the holders of Notes would be entitled shall be
made to the holders of Senior Debt (except that holders of Notes may receive
securities that are subordinated at least to the same extent as the Notes to
Senior Debt and any securities issued in exchange for Senior Debt).
The Company also may not make any payment upon or in respect of the Notes
(except in such subordinated securities) if (a) a default in the payment of the
principal of or interest on Designated Senior Debt of the Company occurs and is
continuing beyond any applicable grace period or (b) any other default occurs
and is continuing with respect to Designated Senior Debt of the Company that
permits holders of the Designated Senior Debt as to which such default relates
to accelerate its maturity and the Trustee receives a notice of such default (a
"Payment Blockage Notice") from the Company or the holders of any Designated
Senior Debt. Payments on the Notes may and shall be resumed (i) in the case of
a payment default, upon the date on which such default is cured or waived and
(ii) in case of a nonpayment default, the earlier of the date on which
nonpayment default is cured or waived or 179 days after the date on which the
applicable Payment
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Blockage Notice is received, unless the maturity of any Designated Senior Debt
has been accelerated. No new period of payment blockage may be commenced within
360 days after the receipt by the Trustee of any prior Payment Blockage Notice.
No nonpayment default that existed or was continuing on the date of delivery of
any Payment Blockage Notice to the Trustee shall be, or be made, the basis for
a subsequent Payment Blockage Notice.
The Indenture will further require that the Company promptly notify holders
of Designated Senior Debt if payment of the Notes is accelerated because of an
Event of Default.
As a result of the subordination provision described above, in the event of a
liquidation or insolvency, holders of Notes may recover less ratably than
creditors of the Company who are holders of Senior Debt. At March 31, 1994, the
principal amount of Senior Debt of the Company outstanding was approximately
$279.6 million. The Indenture will limit, subject to certain financial tests,
the amount of additional Indebtedness, including Senior Debt, that the Company
and its Subsidiaries can incur. See "--Certain Covenants."
CERTAIN COVENANTS
RESTRICTED PAYMENTS
The Indenture will provide that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay
any dividend or make any distribution on account of the Company's or any of its
Restricted Subsidiaries' Equity Interests other than dividends or distributions
payable in Equity Interests (other than Disqualified Stock) of the Company or
such Restricted Subsidiary or dividends or distributions by a Restricted
Subsidiary of the Company provided, that to the extent that a portion of such
dividend or distribution is paid to a holder other than the Company or a
Restricted Subsidiary, such portion of such dividend or distribution is not
greater than such holder's pro rata aggregate common equity interest in such
Restricted Subsidiary; (ii) purchase, redeem or otherwise acquire or retire for
value any Equity Interests of the Company or any Subsidiary or other Affiliate
of the Company (other than any such Equity Interests owned by the Company or
any Restricted Subsidiary of the Company); (iii) voluntarily purchase, redeem,
defease or otherwise acquire or retire for value any Indebtedness that is pari
passu with or subordinated to the Notes; or (iv) make any Restricted Investment
(all such payments and other actions set forth in clauses (i) through (iv)
above being collectively referred to as "Restricted Payments"), unless, at the
time of such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof; and
(b) With respect to a Restricted Payment other than a Regular Quarterly
Dividend or a Restricted Investment in a Subsidiary engaged in a Gaming
Related Business, the Company would, at the time of such Restricted Payment
and after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the covenant entitled
"Incurrence of Indebtedness"; and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Restricted Subsidiaries
after the date of the Indenture (including Restricted Payments permitted by
clauses (i) and (ii) of the next succeeding paragraph but excluding any
Restricted Payments permitted by clauses (iii)-(ix) of the next succeeding
paragraph), is less than the sum of (x) 50% of the Consolidated Net Income
of the Company for the period (taken as one accounting period) from April
1, 1993 to the end of the Company's most recently ended fiscal quarter for
which internal financial statements are available at the time of such
Restricted Payment (or, if such Consolidated Net Income for such period is
a deficit, 100% of such deficit), plus (y) 100% of the aggregate net cash
proceeds received by the Company from the issuance or sale of Equity
Interests of the Company (other than Equity Interests sold to a Restricted
Subsidiary of the Company and other than Disqualified Stock) from and
including the date of the First Mortgage Bond Indenture (including any such
Equity Interests issued concurrently with the issuance of the Notes), plus
(z) Excess Non-Recourse Subsidiary Cash Proceeds received after the date of
the First Mortgage Bond Indenture.
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The foregoing provisions will not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement or other acquisition of
any Equity Interests of the Company in exchange for, or out of the proceeds of,
the substantially concurrent sale (other than to a Restricted Subsidiary of the
Company) of other Equity Interests of the Company (other than any Disqualified
Stock); (iii) Investments by the Company or any Restricted Subsidiary in an
amount not to exceed $75 million in the aggregate (measured as of the date such
Investments were made) in any Non-Recourse Subsidiaries engaged in a Gaming
Related Business; provided that any loan to, or Investment Guarantee in favor
of, a Non-Recourse Subsidiary that is not a Restricted Subsidiary shall mature
prior to the earlier of (x) the termination of the management contract pursuant
to which the Company or any of its Restricted Subsidiaries manages such Non-
Recourse Subsidiary and (y) the Company or any of its Restricted Subsidiaries
otherwise ceasing to have control over the direction of the day-to-day
operations of such Non-Recourse Subsidiary; (iv) Investments by the Company or
any Restricted Subsidiary in any Non-Recourse Subsidiary engaged in a Gaming
Related Business in an amount (measured as of the date such Investments were
made) not to exceed in the aggregate 100% of all cash received by the Company
or any Restricted Subsidiary from any Non-Recourse Subsidiary (other than cash
which is or may be required to be repaid or returned to such Non-Recourse
Subsidiary) up to $75.0 million in the aggregate and thereafter 50% of all cash
received by the Company or any Restricted Subsidiary from any Non-Recourse
Subsidiary (other than cash which is or may be required to be repaid or
returned to such Non-Recourse Subsidiary); provided that the aggregate amount
of Investments pursuant to this clause (iv) does not exceed $125.0 million in
the aggregate; (v) the purchase, redemption, defeasance, or other acquisition
or retirement for value of any Pari Passu Indebtedness with the substantially
concurrent purchase, redemption, defeasance, or other acquisition or retirement
for value of the Notes (on a pro rata basis in relation to the outstanding
aggregate principal amount of such Indebtedness and the aggregate principal
amount of the outstanding Notes or which was on a basis offered pro rata to the
holders of the Notes); (vi) any voluntary purchase, redemption, defeasance or
other acquisition or retirement for value of any Pari Passu Indebtedness with
the proceeds of the substantially concurrent issuance of Refinancing
Indebtedness relating to such Pari Passu Indebtedness in accordance with the
"Incurrence of Indebtedness" covenant; (vii) dividends or distributions from a
Non-Recourse Subsidiary or dividends or distributions from a Controlled Entity;
(viii) any purchase, redemption, defeasance or other acquisition or retirement
for value of any Pari Passu Indebtedness (other than pursuant to clause (v) or
(vi) above) up to $30.0 million in aggregate principal amount; and (ix)
Investments by the Company or any Guarantor in Controlled Entities, so long as
such Persons remain Controlled Entities, provided that (A) any Investment in
SHCL exceeding $110.0 million shall be a Restricted Payment pursuant to the
preceding paragraph, (B) neither the Company nor any Guarantor shall invest any
portion of the Las Vegas Showboat or the Atlantic City Showboat in, or
contribute any such assets to, a Controlled Entity and (C) the Issuer would
have at the time of such Investment and after giving effect thereto as if such
Investment had been made at the beginning of the applicable four-quarter
period, a Fixed Charge Coverage Ratio of at least 1.5 to 1 if such Investment
is made prior to December 31, 1996 and at least 1.75 to 1 if such Investment is
made thereafter; provided that, with respect to clauses (iii)-(ix) above,
immediately after giving effect to the transaction contemplated therein, no
Default or Event of Default would occur as a consequence thereof.
Any Investment in a Restricted Subsidiary that becomes a Non-Recourse
Subsidiary or any Investment in a wholly owned Subsidiary that becomes a non-
wholly owned Restricted Subsidiary that is not a Guarantor shall become a
Restricted Payment made on such date in the amount of the greater of (x) the
book value of the Investment in such Subsidiary on such date and (y) the fair
market value of the Investment in such Subsidiary on such date as determined
(A) in good faith by the Board of Directors of the Company if such fair market
value is determined to be less than $10.0 million and (B) by an investment
banking firm of national standing with high yield underwriting expertise if
such fair market value is determined to be in excess of $10.0 million.
Any Guarantee that is an Investment in a Non-Recourse Subsidiary shall cease
to be deemed an Investment (and shall be deemed to have not been made) to the
extent that the Guarantee is released without payment on the obligations
guaranteed by the Company or any Restricted Subsidiary.
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If any Controlled Entity ceases to be a Controlled Entity, then all
Investments owned by the Company or any Restricted Subsidiary in such
Controlled Entity shall be deemed to be a Restricted Investment made on such
date, unless such former Controlled Entity purchases or redeems all such
Investments for a price at least equal to the greater of the book value of such
Investments on the date such entity ceases to be a Controlled Entity or the
original amount of such Investments.
INCURRENCE OF INDEBTEDNESS
The Indenture will provide that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur,
issue, assume, guarantee or otherwise become directly or indirectly liable with
respect to or become responsible for (collectively, "incur") any Indebtedness
and the Company will not issue any Disqualified Stock and will not permit any
of its Subsidiaries to issue any shares of preferred stock; provided, however,
that the Company or any Restricted Subsidiary may incur Indebtedness if (i) the
Fixed Charge Coverage Ratio for the Company's most recently ended four full
fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Indebtedness is
incurred is greater than 2.0 to 1, determined on a pro forma basis (including a
pro forma application of the net proceeds therefrom) as if the additional
Indebtedness had been incurred at the beginning of such four-quarter period,
and (ii) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof.
The foregoing limitations will not apply to (a) the incurrence by the Company
or any Restricted Subsidiary of up to $25.0 million in aggregate principal
amount of Indebtedness outstanding at any one time, the proceeds of which are
used to acquire or lease tangible assets, (b) the incurrence by the Company or
any Restricted Subsidiary of Indebtedness pursuant to the Working Capital
Credit Agreement for working capital purposes in an aggregate principal amount
not to exceed $25.0 million outstanding at any one time; provided that there
shall be no such Indebtedness outstanding for a period of 14 consecutive days
in each calendar year (other than in respect of standby letters of credit), (c)
the incurrence by the Company and its Restricted Subsidiaries of the Existing
Indebtedness, (d) the incurrence by the Company of Indebtedness represented by
the Notes and the incurrence by the Guarantors of the Subsidiary Guarantees,
(e) Indebtedness incurred in connection with Hedging Obligations with respect
to Indebtedness otherwise permitted under this paragraph, (f) the incurrence by
the Company of Indebtedness issued in exchange for, or the proceeds of which
are used to extend, refinance, renew, replace, or refund Indebtedness referred
to in the first paragraph of this covenant or clauses (a) through (e) above and
(h) below (the "Refinancing Indebtedness"); provided, however, that (1) the
principal amount of such Refinancing Indebtedness shall not exceed the
principal amount of Indebtedness so extended, refinanced, renewed, replaced,
substituted or refunded (plus the amount of reasonable expenses incurred in
connection therewith); (2) the Refinancing Indebtedness shall have a Weighted
Average Life to Maturity equal to or greater than the Weighted Average Life to
Maturity of the Indebtedness being extended, refinanced, renewed, replaced or
refunded; (3) the Refinancing Indebtedness shall be subordinated in right of
payment to the Notes on terms at least as favorable to the holders of Notes as
those contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced or refunded; and (4) no Default or Event of
Default shall have occurred and be continuing or would occur as a consequence
thereof, (g) Indebtedness between the Company and any Restricted Subsidiary;
and (h) the incurrence by the Company or any Restricted Subsidiary of
Indebtedness that is not otherwise permitted under this covenant not to exceed
an aggregate principal amount of $10.0 million outstanding at any one time
under this clause (h).
The Indenture will provide that the Company will not permit any of its Non-
Recourse Subsidiaries to incur any Indebtedness or issue any shares of
Disqualified Stock, other than Non-Recourse Indebtedness; provided, however,
that if any such Non-Recourse Subsidiary ceases to remain a Non-Recourse
Subsidiary, such event shall be deemed to constitute the incurrence of the
Indebtedness in such Subsidiary by a Restricted Subsidiary.
LIENS
The Indenture will provide that neither the Company nor any of its Restricted
Subsidiaries may directly or indirectly create, incur, assume or suffer to
exist any Lien on any asset now owned or hereafter acquired,
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or any income or profits therefrom or assign or convey any right to receive
income therefrom, except: (i) Liens securing Obligations under Senior Debt
permitted to be incurred under the Indenture or (ii) Permitted Liens.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Indenture will provide that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary, other than a Guarantor, to (a) pay
dividends or make any other distributions to the Company or any of its
Restricted Subsidiaries (i) on its Capital Stock or (ii) with respect to any
other interest or participation in, or measured by, its profits; (b) pay any
Indebtedness owed to the Company or any of its Restricted Subsidiaries; (c)
make loans or advances to the Company or any of its Restricted Subsidiaries; or
(d) transfer any of its properties or assets to the Company or any of its
Restricted Subsidiaries, except for such encumbrances or restrictions existing
under or by reasons of (i) Existing Indebtedness as in effect on the Issue
Date, (ii) the Working Capital Credit Agreement as in effect as of the Issue
Date, (iii) the Indenture and the Notes, (iv) applicable law, (v) any
instrument governing Indebtedness or Capital Stock of a person acquired by the
Company or any of its Subsidiaries as in effect at the time of such acquisition
(except to the extent such Indebtedness was incurred in connection with such
acquisition), which encumbrance or restriction is not applicable to any person,
or the properties or assets of any person, other than the person, or the
property or assets of the person, so acquired, provided that the Consolidated
Cash Flow of such person is not taken into account in determining whether such
acquisition was permitted by the terms of the Indenture, (vi) by reason of
customary non-assignment provisions in leases entered into in the ordinary
course of business and consistent with past practices, (vii) with respect to
clause (c) above, purchase money obligations for property acquired in the
ordinary course of business, or (viii) permitted Refinancing Indebtedness,
provided that the restrictions contained in the agreements governing such
Refinancing Indebtedness are substantially not more restrictive taken as a
whole than those contained in the agreements governing the Indebtedness being
refinanced.
MERGER, CONSOLIDATION, OR SALE OF ASSETS
The Indenture will provide that the Company may not consolidate or merge with
or into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially
all of its properties or assets in one or more related transactions to, another
corporation, person or entity unless (i) the Company is the surviving
corporation or the entity or the person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United
States, any state thereof or the District of Columbia; (ii) the entity or
person formed by or surviving any such consolidation or merger (if other than
the Company) or the entity or person to which such sale, assignment, transfer,
lease, conveyance or other disposition will have been made assumes all the
obligations of the Company pursuant to a supplemental indenture in a form
reasonably satisfactory to the Trustee, under the Notes and the Indenture;
(iii) immediately after such transaction no Default or Event of Default exists;
(iv) the Company or any entity or person formed by or surviving any such
consolidation or merger, or to which such sale, assignment, transfer, lease,
conveyance or other disposition will have been made (A) will have Consolidated
Net Worth (immediately after the transaction but prior to any purchase
accounting adjustments resulting from the transaction) equal to or greater than
the Consolidated Net Worth of the Company immediately preceding the transaction
and (B) will, at the time of such transaction and after giving pro forma effect
thereto as if such transaction had occurred at the beginning of the applicable
four-quarter period, be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the
covenant entitled "Incurrence of Indebtedness"; (v) such transactions would not
require any holder of Notes to obtain a gaming license or be qualified under
the laws of any applicable gaming jurisdiction, provided that such holder would
not have been required to obtain a gaming license or be qualified under the
laws of any applicable gaming jurisdiction in the absence of such transactions;
and (vi) such transactions would not result in the loss of any qualification or
any material license of the Company or its Subsidiaries necessary for any
Gaming Related Business then operated by the Company or its Subsidiary.
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ADDITIONAL SUBSIDIARY GUARANTEES
The Indenture will provide that if the Company or any of its Restricted
Subsidiaries shall transfer or cause to be transferred, in one or a series of
related transactions, any assets, businesses, divisions, real property or
equipment having a book value in excess of $5.0 million to any Restricted
Subsidiary that is not a Guarantor (other than any such transfer that is a
Restricted Payment permitted by the Indenture), then such transferee or
acquired Subsidiary shall execute a Subsidiary Guarantee and deliver an opinion
of counsel, in accordance with the terms of the Indenture. The Subsidiary
Guarantee shall be released if the Company or its Restricted Subsidiaries cease
to own any Equity Interests in such Restricted Subsidiary or if such Restricted
Subsidiary becomes a Non-Recourse Subsidiary in accordance with the terms of
the Indenture.
NO SENIOR SUBORDINATED DEBT
The Indenture will provide that (i) the Company will not incur, create,
issue, assume, guarantee or otherwise become liable for any Indebtedness that
is subordinate or junior in right of payment to any Senior Debt of the Company
and senior in any respect in right of payment to the Notes and (ii) no
Guarantor will incur, create, issue, assume, guarantee or otherwise become
liable for any Indebtedness that is subordinate or junior in right of payment
to Senior Debt of such Guarantor and senior in any respect in right of payment
to such Guarantor's Subsidiary Guarantee.
TRANSACTIONS WITH AFFILIATES
The Indenture will provide that the Company will not, and will not permit any
of its Restricted Subsidiaries to, sell, lease, transfer or otherwise dispose
of any of its properties or assets to, or purchase any property or assets from,
or enter into or maintain any contract, agreement, understanding, loan, advance
or guarantee with, or for the benefit of, any Affiliate (each of the foregoing,
an "Affiliate Transaction"), unless (a) such Affiliate Transaction is on terms
that are no less favorable to the Company or the relevant Restricted Subsidiary
than those that would have been obtained in a comparable transaction by the
Company or such Restricted Subsidiary with an unrelated person, (b) with
respect to any Affiliate Transaction with a Non-Recourse Subsidiary, which,
either individually or when combined with all other Affiliate Transactions with
Non-Recourse Subsidiaries during the past year, involves aggregate payments in
excess of $1.0 million, a majority of the Board of Directors approves each such
transaction, (c) with respect to any Affiliate Transaction (other than with any
Non-Recourse Subsidiary) involving aggregate payments in excess of $1.0
million, or with respect to any Affiliate Transaction with all Non-Recourse
Subsidiaries, which, either individually or when combined with all other
Affiliate Transactions with Non-Recourse Subsidiaries during the past year,
involves aggregate payments in excess of $3.0 million, the Company delivers to
the Trustee a resolution of the Board of Directors set forth in an Officers'
Certificate certifying that any such Affiliate Transaction complies with clause
(a) above and such Affiliate Transaction is approved by a majority of the Board
of Directors, and (d) with respect to any Affiliate Transaction involving
aggregate payments in excess of $10.0 million, the Company delivers to the
Trustee an opinion as to the fairness to the Company or such Restricted
Subsidiary from a financial point of view issued by an investment banking firm
of national standing with expertise in high yield debt offerings or in the case
of a transaction involving the sale or transfer of assets subject to valuation,
such as real estate, an appraisal by a nationally recognized appraisal firm;
provided, however, that the following shall not be deemed Affiliate
Transactions: (i) any employment agreement entered into by the Company or any
of its Restricted Subsidiaries in the ordinary course of business and
consistent with the past practice of the Company or such Restricted Subsidiary,
(ii) transactions between or among the Company and/or its Restricted
Subsidiaries, (iii) payments made pursuant to the Tax Sharing Agreement, (iv)
Restricted Payments, dividends, distributions or Investments permitted by the
provisions of the Indenture described above under the covenant "Restricted
Payments," (v) payments to an Affiliate of ACSI in respect of the leasing of
the Land from such Affiliate; provided that the terms of clause (a) above are
complied with; (vi) payments by the Company pursuant to the indemnification
agreement with its directors and officers in such director's or officer's
capacity as a director or officer of the Company or a Restricted Subsidiary;
(vii) the engagement of Kummer Kaempfer Bonner & Renshaw (or any successor
firm) for legal services in connection with the business of the Company or its
Subsidiaries; provided that the payment for such services
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does not exceed $1.0 million in any fiscal year; (viii) loans to employees of
the Company or any Restricted Subsidiary, other than relocation loans, in an
amount not to exceed $500,000 in aggregate principal amount outstanding at any
one time; (ix) loans to employees of the Company or any Restricted Subsidiary
in connection with the relocation of such employee in an amount not to exceed
$2.0 million in aggregate principal amount outstanding at any one time; (x)
transactions pursuant to any management agreement or trademark license
agreement between the Company and any of its Restricted Subsidiaries; (xi) the
engagement of International Insurance Services, Ltd. for insurance adjustment
services in the ordinary course of business of the Company or its Subsidiaries,
provided that the payments for such services do not exceed $1.0 million in any
fiscal year; and (xii) the lease of a gift shop in the Atlantic City Showboat
to Ocean 11, a sole proprietorship, provided that the payments for such lease
do not exceed $1.0 million in any fiscal year.
BUSINESS ACTIVITIES
The Indenture will provide that the Company will not, and will not permit any
Subsidiary to, engage in any business other than (i) those necessary for,
incident to, connected with or arising out of the gaming business (including
developing and operating hotel casinos, sports or entertainment facilities,
transportation services or other related activities or enterprises and any
additions or improvements thereto) and (ii) such other businesses as the
Company or its Restricted Subsidiaries are engaged in on the Issue Date. The
Company or its Subsidiaries may not enter into any gaming jurisdictions in
which the Company or its Subsidiary is not presently licensed if all of the
holders of Notes will be required to be licensed, provided that this sentence
shall not prohibit the Company or its Subsidiary from entering any jurisdiction
that does not require the licensing or qualification of all of the holders of
the Notes, but reserves the discretionary right to license or qualify any
holder of Notes.
REDESIGNATION OF NON-RECOURSE SUBSIDIARY
Any Non-Recourse Subsidiary may be redesignated by the Company as a
Restricted Subsidiary, provided that at the time of such designation after
giving pro forma effect to such designation as if it occurred at the beginning
of the applicable four-quarter period, the Company could incur $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in the first paragraph of the "Incurrence of Indebtedness" covenant and
no Default or Event of Default then exists and is continuing.
REPORTS
Whether or not required by the rules and regulations of the Securities and
Exchange Commission (the "Commission"), so long as any Notes are outstanding,
the Company will furnish to the holders of Notes all quarterly and annual
financial information that would be required to be contained in a filing with
the Commission on Forms 10-Q and 10-K if the Company were required to file such
Forms, including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and, with respect to the annual information only, a
report thereon by the Company's certified independent accountants.
PAYMENTS FOR CONSENT
Neither the Company nor any of its Subsidiaries shall, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any holder of any Notes for or as an inducement
to any consent, waiver or amendment of any of the terms or provisions of the
Indenture or the Notes unless such consideration is offered to be paid or
agreed to be paid to all holders of the Notes that consent, waive or agree to
amend in the time frame set forth in the solicitation documents relating to
such consent, waiver or agreement.
SUBSIDIARY GUARANTEES
The Company's obligations under the Notes will be jointly and severally
guaranteed (the "Subsidiary Guarantees"), on a senior subordinated basis, by
the Guarantors. The Subsidiary Guarantee of each Guarantor will be subordinated
to the prior payment in full of all Senior Debt of such Guarantor, which
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in the aggregate for all Guarantors would be approximately $279.6 million of
Senior Debt outstanding as of March 31, 1994, and the amounts for which the
Guarantors will be liable under the guarantees issued from time to time with
respect to Senior Debt. The obligations of each Guarantor under its Subsidiary
Guarantee will be limited to a maximum amount which will result in the
obligations of such Guarantor in respect of such amount to not be deemed to
constitute a fraudulent conveyance.
Each of the Guarantors may consolidate with, merge with or into, or transfer
all or substantially all of its assets to any other person to the same extent
that the Company may consolidate with, merge with or into, or transfer all or
substantially all of its assets to any other person; provided, however, that if
such other person is not the Company or another Guarantor, such Guarantor's
obligations under its Subsidiary Guarantee must be expressly assumed by such
other person.
In addition, if any Guarantor is or becomes insolvent, the Subsidiary
Guarantees could be challenged, including, but not limited to, under applicable
provisions of federal bankruptcy law or comparable provisions of state
fraudulent conveyance law, and the payment of amounts by Guarantors pursuant to
the Subsidiary Guarantees could be voided and be required to be returned to
such Guarantors, or to a fund for the benefit of the creditors of such
Guarantor or to certain judgment creditor thereof.
EVENTS OF DEFAULT AND REMEDIES
The Indenture will provide that each of the following constitutes an Event of
Default: (i) default in payment when due at maturity of principal on the Notes
by the Company or any Guarantor (whether or not prohibited by the subordination
provisions of the Indenture); (ii) default for 30 days in the payment when due
of interest on the Notes by the Company or any Guarantor (whether or not
prohibited by the subordination provisions of the Indenture); (iii) failure by
the Company or any Guarantor for 30 days after notice to comply with the
provisions described under the covenants "Change of Control," "Asset Sale,"
"Restricted Payments," "Liens," "Transactions with Affiliates," or "Incurrence
of Indebtedness"; (iv) failure by the Company or any Guarantor for 60 days
after notice to comply with certain other agreements in the Indenture or the
Notes; (v) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any Guarantor or any of their
respective Restricted Subsidiaries, or the payment of which is guaranteed by
the Company or any Guarantor or any of their respective Restricted
Subsidiaries, whether such Indebtedness or guarantee now exists, or is created
after the date of the Indenture, which default (a) is caused by a failure to
pay when due principal or interest on such Indebtedness within the grace period
provided in such Indebtedness (which failure continues beyond any applicable
grace period) (a "Payment Default") or (b) results in the acceleration of such
Indebtedness prior to its express maturity and, in each case, the principal
amount of any such Indebtedness, together with the principal amount of any
other such Indebtedness under which there has been a Payment Default or the
maturity of which has been so accelerated, aggregates $10.0 million or more;
(vi) failure by the Company or any Guarantor or any of their respective
Restricted Subsidiaries to pay any final judgments aggregating in excess of
$5.0 million which judgments are not stayed within 60 days after their entry;
(vii) except as permitted by the Indenture, any Subsidiary Guarantee is held in
any judicial proceeding to be unenforceable or invalid or ceases for any reason
to be in full force and effect or any Guarantor, or any person acting on behalf
of any Guarantor, denies or disaffirms its obligations under its Subsidiary
Guarantee; and (viii) certain events of bankruptcy or insolvency with respect
to the Company or any of its Restricted Subsidiaries that individually or as a
group constitute a Significant Subsidiary.
If any Event of Default occurs and is continuing, the Trustee or the holders
of at least 25% in principal amount of the then outstanding Notes may declare
all the Notes to be due and payable immediately. Notwithstanding the foregoing,
in the case of an Event of Default arising from certain events of bankruptcy or
insolvency, with respect to the Company or any Subsidiary, all outstanding
Notes will become due and payable without further action or notice. Holders of
the Notes may not enforce the Indenture or the Notes
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except as provided in the Indenture. Subject to certain limitations, holders of
a majority in principal amount of the then outstanding Notes may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
holders of the Notes notice of any continuing Default or Event of Default
(except a Default or Event of Default relating to the payment of principal or
interest) if it determines that withholding notice is in their interest.
The holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND SHAREHOLDERS
No director, officer, employee, incorporator or shareholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Notes, the Indenture or the Related Documents or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each holder of
the Notes by accepting a Note waives and releases all such liability. The
waiver and release are part of the consideration for issuance of the Notes.
Such waiver may not be effective to waive liabilities under the federal
securities laws, and it is the view of the Commission that such a waiver is
against public policy.
DEFEASANCE AND DISCHARGE OF THE INDENTURE AND THE NOTES
The Indenture will provide that the Company at any time may terminate all of
its obligations under the Notes and the Indenture ("legal defeasance"), except
for certain obligations, including those with respect to the defeasance trust
and obligations to register the transfer or exchange of the Notes, to replace
mutilated, destroyed, lost or stolen Notes and to maintain a registrar and
paying agent in respect of the Notes. If the Company exercises its legal
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default with respect thereto. Subject to the conditions described
below, the Company at any time may terminate its obligations under the
covenants described under "Certain Covenants," "Change of Control," and "Asset
Sale," and the operation of the provisions described in clauses (v) and (vi)
under "Event of Default" ("covenant defeasance"). The Company may exercise its
legal defeasance option notwithstanding its prior exercise of its covenant
defeasance option.
In order to exercise either defeasance option, (i) the Company must
irrevocably deposit in trust (the "defeasance trust") with the Trustee, money,
U.S. Governmental Obligations, or a combination thereof sufficient to pay the
principal of, premium, if any, and interest on the Notes to redemption or
maturity, as the case may be, (ii) the Company delivers to the Trustee a
certificate from a nationally recognized firm of independent accountants
expressing their opinion that the payments of principal and interest when due
and without reinvestment on the deposited U.S. Government Obligations plus any
deposited money without investment will provide cash at such times and in such
amounts as will be sufficient to pay principal and interest when due on all the
Notes to maturity or redemption, as the case may be; (iii) the Company shall
have delivered to the Trustee an opinion of counsel to the effect that all
preference periods applicable to the defeasance trust have expired under any
applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally; (iv) 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
is a party or by which the Company is bound; (v) the Company delivers
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to the Trustee an opinion of counsel to the effect that the trust resulting
from the deposit does not constitute, or is qualified as, a regulated
investment company under the Investment Company Act of 1940, as amended; (vi)
the Company shall have delivered an opinion of counsel to the effect that the
holders of Notes shall have a perfected security interest under applicable law
in the U.S. Government Obligations so deposited; (vii) in the case of legal
defeasance, the Company shall have delivered to the Trustee an opinion of
counsel in the United States reasonably acceptable to the Trustee confirming
that (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 holders of the Notes 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;
(viii) in the case of covenant defeasance, the Company shall have delivered to
the Trustee an opinion of counsel in the United States reasonably acceptable to
the Trustee confirming that the holders of the Notes will not recognize income,
gain or losses 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
tenant defeasance had not occurred; and (ix) the Company shall have delivered
to the Trustee an officers' certificate and an opinion of counsel, each stating
that all conditions precedent provided for relating to either the legal
defeasance or the covenant defeasance, as the case may be, have been complied
with.
TRANSFER AND EXCHANGE
A holder may transfer or exchange Notes in accordance with the Indenture. The
Registrar and the Trustee may require a holder, among other things, to furnish
appropriate endorsements and transfer documents, and the Company may require a
holder to pay any taxes and fees required by law or permitted by the Indenture.
The Company is not required to transfer or exchange any Note selected for
redemption. Also, the Company is not required to transfer or exchange any Note
for a period of 15 days before a selection of Notes to be redeemed.
The registered holder of a Note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next succeeding paragraphs, the Indenture or the
Notes may be amended or supplemented with the consent of the holders of at
least a majority in principal amount of the Notes then outstanding (including
consents obtained in connection with a tender offer or exchange offer for
Notes), and any existing default or compliance with any provision of the
Indenture or the Notes may be waived with the consent of the holders of a
majority in principal amount of the then outstanding Notes (including consents
obtained in connection with a tender offer or exchange offer for Notes).
Without the consent of each holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting holder of Notes) (i) reduce
the principal amount of Notes whose holders must consent to an amendment,
supplement or waiver, (ii) reduce the principal of or change the fixed maturity
of any Note or alter the provisions with respect to the redemption of the
Notes, (iii) reduce the rate of or change the time for payment of interest on
any Note, (iv) waive a Default or Event of Default in the payment of principal
of or premium, if any, or interest on the Notes (except a rescission of
acceleration of the Notes by the holders of at least a majority in aggregate
principal amount of the Notes and a waiver of the payment default that resulted
from such acceleration), (v) make any Note payable in money other than that
stated in the Notes, (vi) make any change in the provisions of the Indenture
relating to waivers of past Defaults or the rights of holders of Notes to
receive payments of principal of or interest on the Notes or make any change in
the foregoing amendment and waiver provisions or (vii) waive a redemption
payment with respect to any Note.
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Notwithstanding the foregoing, without the consent of any holder of Notes,
the Company and the Trustee may amend or supplement the Indenture or the Notes
to cure any ambiguity, defect or inconsistency, to provide for uncertificated
Notes in addition to or in place of certificated Notes, to provide for the
assumption of the Company's or any Guarantor's obligations to holders of the
Notes in the case of a merger or consolidation, to make any change that would
provide any additional rights or benefits to the holders of the Notes or that
does not adversely affect the legal rights under the Indenture of any such
holder, or to comply with requirements of the Commission in order to effect or
maintain the qualification of the Indenture under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage in
other transactions; however, if it acquires any conflicting interest it must
eliminate such conflict within 90 days, apply to the Commission for permission
to continue or resign.
The holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request of any holder of Notes, unless such holder shall have offered to
the Trustee security and indemnity satisfactory to it against any loss,
liability or expense.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture
without charge by writing to Showboat, Inc., 2800 Fremont Street, Las Vegas,
Nevada 89104, Attention: H. Gregory Nasky, Secretary.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference is
made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Affiliate" of any specified person means any other individual, corporation,
partnership, trust, incorporated or unincorporated associated, joint venture,
joint stock company, government or other entity of any kind directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any person, shall
mean the possession, directly or indirectly, of the power to direct or cause
the direction of the management or policies of such person, whether through the
ownership of voting securities, by agreement or otherwise; provided, however,
that beneficial ownership of 10% or more of the voting securities of a person
shall be deemed to be control.
"Asset Sale" means (i) the sale, lease, conveyance, transfer or other
disposition (whether in a single transaction or a series of related
transactions) of property or assets (including by way of a sale and leaseback)
of the Company or any Restricted Subsidiary (each referred to in this
definition as a "disposition") or (ii) the issuance or sale of Equity Interests
of any Restricted Subsidiary (whether in a single transaction or a series of
related transactions) in each case, other than (a) a disposition of inventory
in the ordinary course of business, (b) the disposition of all or substantially
all of the assets of the Company in a manner permitted pursuant to
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the provisions described above under "Merger, Consolidation or Sale of Assets"
and "Change of Control," (c) any disposition that is a Restricted Payment or
that is a dividend or distribution permitted under the covenant described above
under "Restricted Payments" or any Investment that is not prohibited thereunder
or any disposition of cash or Cash Equivalents, and (d) any single disposition,
or related series of dispositions, of assets with an aggregate fair market
value of less than $3.0 million.
"Atlantic City Showboat" means (i) all of ACSI's interest in its hotel casino
and related properties located at 801 Boardwalk, Atlantic City, New Jersey and
any Project Expansion relating thereto and (ii) any contiguous property
acquired by the Company or any of its Subsidiaries and any Project Expansion
relating thereto.
"Australian Gaming Approval" means the official selection of SHCL (or a
subsidiary of SHCL) as the sole licensee or operator of a casino gaming
operation in Sydney, Australia.
"Capital Stock" means any and all shares, interests, participations, rights
or other equivalents (however designated) of corporate stock, including,
without limitation, partnership interests.
"Change of Control" means the occurrence of any of the following events: (i)
the sale, lease, transfer, conveyance or other disposition, in one or a series
of related transactions, of all or substantially all of the assets of the
Company and its Subsidiaries, taken as a whole; (ii) the liquidation or
dissolution of the Company; (iii) the Company becomes aware of (by way of a
report or any other filing pursuant to Section 13(d) of the Exchange Act, proxy
vote, written notice or otherwise) the acquisition by any "person" or related
group (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the
Exchange Act, or any successor provision to either of the foregoing, including
any "group" acting for the purpose of acquiring, holding or disposing of
securities within the meaning of Rule 13d-5(b)(1) under the Exchange Act),
other than the Company's Existing Management, in a single transaction or in a
related series of transactions, by way of merger, consolidation or other
business combination or purchase of beneficial ownership (within the meaning of
Rule 13d-3 under the Exchange Act, or any successor provision) of 30% or more
of the total voting power entitled to vote in the election of the Board of
Directors of the Company or such other person surviving the transaction; or
(iv) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Company's Board of Directors (together
with any new directors whose election or appointment 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 Company's Board of Directors then in office.
"Consolidated Cash Flow" means, with respect to any person for any period,
the Consolidated Net Income of such person and its Restricted Subsidiaries for
such period plus (a) an amount equal to any extraordinary loss plus any net
loss realized in connection with an Asset Sale (to the extent such losses were
deducted in computing Consolidated Net Income), plus (b) provision for taxes
based on income or profits to the extent such provision for taxes was included
in computing Consolidated Net Income, plus (c) consolidated interest expense of
such person for such period, whether paid or accrued (including amortization of
original issue discount, non-cash interest payments, amortization of deferred
financing charges and the interest component of capital lease obligations), to
the extent such expense was deducted in computing Consolidated Net Income, plus
(d) depreciation, amortization (including amortization of goodwill and other
intangibles) and other non-cash charges (excluding any such non-cash charge
that requires an accrual of or reserve for cash charges for any future period
and excluding any such non-cash charge that is included in consolidated
interest expense or consolidated tax expense) of such person for such period to
the extent such depreciation, amortization and other non-cash charges were
deducted in computing Consolidated Net Income, in each case, on a consolidated
basis for such person and its Restricted Subsidiaries and determined in
accordance with GAAP.
"Consolidated Net Income" means, with respect to any person for any period,
the aggregate of the Net Income of such person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP,
provided, that (i) the Net Income of any person that is not a Subsidiary or
that is accounted for by the equity method of accounting shall be included only
to the extent of the amount of
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dividends or distributions paid to the referent person or a wholly owned
Subsidiary, (ii) the Net Income of any person that is a Subsidiary (other than
a Subsidiary of which at least 80% of the Capital Stock having ordinary voting
power for the election of directors or other governing body of such Subsidiary
is owned by the referent person directly or indirectly through one or more
Subsidiaries) shall be included only to the extent of the amount of dividends
or distributions paid to the referent person, (iii) the Net Income of any
person acquired in a pooling of interests transaction for any period prior to
the date of such acquisition shall be excluded, and (iv) the cumulative effect
of a change in accounting principles shall be excluded.
"Consolidated Net Worth" means, with respect to any person, the sum of (i)
the consolidated equity of the common stockholders of such person and its
consolidated Subsidiaries plus (ii) the respective amounts reported on such
person's most recent balance sheet with respect to any series of preferred
stock (other than Disqualified Stock) that by its terms is not entitled to the
payment of dividends unless such dividends may be declared and paid only out of
net earnings in respect of the year of such declaration and payment, but only
to the extent of any cash received by such person upon issuance of such
preferred stock, less (x) all write-ups (other than write-ups resulting from
foreign currency translations and write-ups of tangible assets of a going
concern business made within 12 months after the acquisition of such business)
subsequent to the date of the Indenture in the book value of any asset owned by
such person or a consolidated Subsidiary of such person, (y) all investments in
unconsolidated Subsidiaries and in persons that are not Subsidiaries (except,
in each case, Permitted Investments), and (z) all unamortized debt discount and
expense and unamortized deferred charges, all of the foregoing determined in
accordance with GAAP.
"Controlled Entity" means: any of (a) SHCL, (b) any Non-Recourse Subsidiary
of the Company, including Showboat Star Partnership and Showboat Marina
Partnership, provided that the Company or a Subsidiary of the Company owns at
least 50% of the outstanding Capital Stock of such Non-Recourse Subsidiary, and
which is designated by the Company as a Controlled Entity or (c) any Qualified
Native American Gaming Project, including the Qualified Native American Gaming
Project to be managed by Showboat Mohawk Investment Limited Partnership,
provided that in each case: (i) each Subsidiary of the Company that owns,
directly or indirectly (through one or more Subsidiaries), any Capital Stock of
such Controlled Entity shall become a Guarantor of the Notes by executing a
Subsidiary Guarantee; and (ii) such Controlled Entity is a Managed Entity or a
Subsidiary of such Controlled Entity which is engaged in gaming activities is a
Managed Entity.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Designated Senior Debt" means, with respect to any person, (i) the First
Mortgage Bonds and (ii) any other Senior Debt of such person permitted under
the Indenture the principal amount of which is $50 million or more or which is
pari passu in right of payment to the First Mortgage Bonds and is secured by
substantially the same collateral.
"Disqualified Stock" means any Capital Stock which, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable
at the option of the holder thereof, in whole or in part, on or prior to ,
2009.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Excess Non-Recourse Subsidiary Cash Proceeds" means 50% of all cash received
by the Company or any Restricted Subsidiary from any Non-Recourse Subsidiary
(other than cash that is or may be required to be returned or repaid to such
Non-Recourse Subsidiary) in excess of $125 million in the aggregate.
"Existing Hotel Casinos" means the Las Vegas Showboat and the Atlantic City
Showboat.
"Existing Indebtedness" means Indebtedness of the Company or its Restricted
Subsidiaries (other than under the Working Capital Credit Agreement) in
existence on the date of the Indenture, until such amounts are repaid,
including without limitation, the First Mortgage Bonds.
"Existing Management" means J. K. Houssels, members of his family and his
estate.
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"First Mortgage Bond Indenture" means the Indenture, dated as of May 18,
1993, among the Company, the Guarantors and IBJ Schroeder Bank & Trust Company,
as amended, pursuant to which the First Mortgage Bonds were issued.
"Fixed Charges" means, with respect to any person for any period, the sum of
(a) consolidated interest expense of such person and its Restricted
Subsidiaries for such period, whether paid or accrued, to the extent such
expense was deducted in computing Consolidated Net Income (including
amortization of original issue discount, non-cash interest payments and the
interest component of capital leases but excluding amortization of deferred
financing fees and excluding capitalized interest) and (b) the product of (i)
all cash dividend payments (and non-cash dividend payments in the case of a
person that is a Subsidiary) on any series of preferred stock of such person,
times (ii) a fraction, the numerator of which is one and the denominator of
which is one minus the then current combined federal, state and local statutory
tax rate of such person, expressed as a decimal, in each case, on a
consolidated basis for such person and its Restricted Subsidiaries and in
accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any person for any
period, the ratio of the Consolidated Cash Flow of such person for such period
to the Fixed Charges of such person for such period; provided that (a) in the
event that the Company or any of its Restricted Subsidiaries incurs, assumes,
guarantees or redeems any Indebtedness (other than revolving credit borrowings)
or issues preferred stock subsequent to the commencement of the period for
which the Fixed Charge Coverage Ratio is being calculated but prior to the
event for which the calculation of the Fixed Charge Coverage Ratio is made,
then the Fixed Charge Coverage Ratio shall be calculated giving pro forma
effect to such incurrence, assumption, guarantee or redemption of Indebtedness,
or such issuance or redemption of preferred stock, as if the same had occurred
at the beginning of the applicable period, (b) in making such computation, the
Fixed Charges of such person attributable to interest on any Indebtedness
bearing a floating interest rate shall be computed on a pro forma basis as if
the rate in effect on the date of computation had been the applicable rate for
the entire period, (c) in making such computation, the Fixed Charges of such
person attributable to interest on any Indebtedness under a revolving credit
facility shall be computed on a pro forma basis based upon the average daily
balance of such Indebtedness outstanding during the applicable period, (d) in
the event that the Company or any of its Restricted Subsidiaries consummates a
Material Acquisition or an Asset Sale subsequent to the commencement of the
period for which the Fixed Charge Coverage Ratio is being calculated, then the
Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such
material acquisition or Asset Sale (including the incurrence of any
Indebtedness in connection therewith), as if the same had occurred at the
beginning of the applicable period and in the event that the Company or any of
its Restricted Subsidiaries purchases any assets or property (including the
real property on which the Atlantic City Showboat is situated) which was
previously leased by the Company or any of its Restricted Subsidiaries
subsequent to the commencement of the period for which the calculation of the
Fixed Charge Coverage Ratio is being calculated but prior to the event for
which the calculation of the Fixed Charge Coverage Ratio is made, then the
Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such
purchase as if the same had occurred at the beginning of the applicable period.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as approved by a significant segment of the accounting profession,
which are in effect from time to time.
"Gaming Authority" means any agency, authority, board, bureau, commission,
department, office or instrumentality of any nature whatsoever of the United
States federal or foreign government, any state, province or any city or other
political subdivision or otherwise and whether now or hereafter in existence,
or any officer or official thereof, including, without limitation, the Nevada
Commission, the Nevada Board, the City Council of the City of Las Vegas, and
the New Jersey Commission with authority to regulate any gaming
54
<PAGE>
operation (or proposed gaming operation) owned, managed or operated by the
Company or any of its Subsidiaries.
"Gaming Related Business" means the gaming business and other businesses
necessary for, incident to, connected with or arising out of the gaming
business (including developing and operating lodging facilities, sports or
entertainment facilities, transportation services or other related activities
or enterprises and any additions or improvements thereto).
"Guarantors" means each of (i) SBOC, OSI and ACSI and (ii) any other
Subsidiary that executes a Subsidiary Guarantee in accordance with the
provisions of the Indenture, and their respective successors and assigns until
any of them shall be released from their obligations as a Guarantor pursuant to
the terms of the Indenture.
"Hedging Obligations" means, with respect to any person, the obligations of
such person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such person against fluctuations in interest
rates.
"Indebtedness" of any person means, without duplication, (i) the principal of
and premium (if any) in respect of (A) indebtedness of such person for money
borrowed and (B) indebtedness evidenced by notes, debentures, bonds or other
similar instruments for the payment of which such person is responsible or
liable; (ii) all capitalized lease obligations of such person; (iii) all
obligations of such person issued or assumed as the deferred purchase price of
property, all conditional sale obligations of such person and all obligations
of such person under any title retention agreement (but excluding trade
accounts payable arising in the ordinary course of business); (iv) all
obligations of such person for the reimbursement of any obligor on any letter
of credit, banker's acceptance or similar credit transaction (other than
obligations with respect to letters of credit securing obligations (other than
obligations described in clauses (i), (ii) and (iii) above) entered into in the
ordinary course of business of such person to the extent such letters of credit
are not drawn upon or, if and to the extent drawn upon, such drawing is
reimbursed no later than the third business day following receipt by such
person of a demand for reimbursement following payment on the letter of
credit); (v) the amount of all obligations of such person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock (but
excluding any accrued distributions or dividends); (vi) all obligations
existing at the time under Hedging Obligations, foreign currency hedges and
similar agreements; (vii) all obligations of the type referred to in clauses
(i) through (vi) of other persons and all dividends and distributions of other
persons for the payment of which, in either case, such person is responsible or
liable as obligor, guarantor or otherwise; and (viii) all obligations of the
type referred to in clauses (i) through (vi) of other persons secured by any
Lien on any property or asset of such person (whether or not such obligation is
assumed by such person), the amount of such obligation being deemed to be the
lesser of the value of such property or assets or the amount of the obligation
so secured.
"Investment Grade Securities" means (i) Marketable Securities, (ii) any other
debt securities or debt instruments with a rating of "BBB-" (the lowest
investment grade rating by S&P) or higher by S&P, "Baa-3" (the lowest
investment grade rating by Moody's) or higher by Moody's or the equivalent of
such rating by any other nationally recognized securities rating agency, and
(iii) any fund investing exclusively in investments of the types described in
clauses (i) and (ii) above.
"Investment Guarantee" means, with respect to any person, any direct or
indirect liability, contingent or otherwise, of such person with respect to any
Indebtedness of another person, including, without limitation, any Indebtedness
directly or indirectly guaranteed, endorsed (otherwise than for collection or
deposit in the ordinary course of business) or discounted or sold with recourse
by such person, or in respect of which such person is otherwise directly or
indirectly liable, or any other obligation under which any contract which, in
economic effect, is substantially equivalent to a guarantee, including, without
limitation, any Indebtedness of a partnership in which such person is a general
partner or of a joint venture in which such person is a joint venturer, and any
Indebtedness in effect guaranteed by such person through any agreement
(contingent or otherwise) to purchase, repurchase or otherwise acquire such
Indebtedness or any security therefor, or to
55
<PAGE>
provide funds for the payment or discharge of such Indebtedness (whether in the
form of loans, advances, stock purchases, capital contributions or otherwise),
or to maintain the solvency or any balance sheet or other financial condition
of the obligor of such Indebtedness, or to make payment for any products,
materials or supplies or for any transportation or services regardless of the
non-delivery or nonfurnishing thereof, in any such case if the purpose or
intent of such agreement is to provide assurance that such Indebtedness will be
paid or discharged, or that any agreements relating thereto will be complied
with, or that the holders of such Indebtedness will be protected against loss
in respect thereof.
"Investments" means, with respect to any person, all investments by such
person in other persons (including Affiliates) in the forms of loans,
Investment Guarantees, advances or capital contributions (excluding commission,
travel and similar advances to officers and employees made in the ordinary
course of business), purchases or other acquisitions for consideration of
Indebtedness, Equity Interests or other securities and all other items that are
or would be classified as investments on a balance sheet prepared in accordance
with GAAP.
"Issue Date" means , 1994, the date on which the Notes are first
authenticated and issued.
"Las Vegas Showboat" means (i) the Company's hotel casino and related
properties at 2800 Fremont Street, Las Vegas, Nevada and any Project Expansion
relating thereto and (ii) any contiguous property acquired by the Company or
any of its Subsidiaries and any Project Expansion relating thereto.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the
nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement
under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Managed Entity" mean either (i) any Person that is not under Third-Party
Management, so long as such Person is not under Third-Party Management or (ii)
a Person that the Company or any Subsidiary has a contract to manage the day-
to-day gaming operations and affairs, so long as such contract remains in
effect.
"Management Contract Approval" means, with respect to the Sydney Harbour
Casino, a binding agreement with SHCL that provides that the Company or a
Person at least 80% of whose equity interest are owned by the Company or a
wholly-owned Subsidiary (other than a Non-Recourse Subsidiary) will manage the
gaming operations of the Sydney Harbour Casino for a period of not less than 12
years.
"Marketable Securities" means (1) U.S. Government Obligations; (2) any
certificate of deposit, maturing not more than 270 days after the date of
acquisition, issued by, or time deposit of, a commercial banking institution
that has combined capital and surplus of not less than $100,000,000 or its
equivalent in foreign currency, whose debt is rated at the time as of which any
investment is made, of "A" (or higher) according to S&P or Moody's, or if none
of S&P or Moody's shall then exist, the equivalent of such rating by any other
nationally recognized securities rating agency; (3) commercial paper, maturing
not more than 270 days after the date of acquisition, issued by a corporation
(other than an Affiliate or Subsidiary of the Company) with a rating, at the
time as of which any investment therein is made, of "A-1" (indicating that the
degree of timely payment is strong) (or higher) according to S&P or "P-1"
(having a superior capacity for punctual repayment of short-term promissory
obligations) (or higher) according to Moody's, or if neither of S&P and Moody's
shall then exist, the equivalent of such rating by any other nationally
recognized securities ratings agency; (4) any bankers acceptances or any money
market deposit accounts, in each case, issued or offered by any commercial bank
having capital and surplus in excess of $100,000,000 or its equivalent in
foreign currency, whose debt is rated at the time as of which any investment
there is made of "A" (an upper medium grade bond obligation) (or higher)
according to S&P or Moody's, or if none of S&P or Moody's shall then exist, the
equivalent of such rating by any other nationally recognized securities rating
agency and (5) any
56
<PAGE>
fund investing exclusively in investments of the types described in clauses (1)
through (4) above, and if such fund has at least $500,000,000 under management,
including investments in repurchase obligations of the foregoing investments.
"Material Acquisition" means any acquisition of a business, including the
acquisition of operating commercial real estate, that has a fair market value
in excess of $3.0 million and which the Company intends to continue to operate.
"Net Income" means, with respect to any person, the net income (loss) of such
person, determined in accordance with GAAP, excluding, however, (i) any gain
(but not loss), together with any related provision for taxes on such gain (but
not loss), realized in connection with any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) and (ii)
any extraordinary gain (but not loss), together with any related provision for
taxes on such extraordinary gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including
insurance proceeds), net of the direct costs relating to such Asset Sale
(including, without limitation, legal, accounting and investment banking fees,
and sales commissions) and any relocation expenses incurred as a result
thereof, taxes paid or payable as a result thereof (after taking into account
any available tax credits or deductions and any tax sharing arrangements),
amounts required to be applied to the repayment of Indebtedness secured by a
Lien on the asset or assets which are the subject of such Asset Sale and any
reserve for adjustment in respect of the sale price of such asset or assets.
"Non-Recourse Debt" means Indebtedness or that portion of Indebtedness (a) as
to which none of the Company, the Guarantors and any of their respective
Restricted Subsidiaries: (i) provides credit support (including any
undertaking, agreement or instrument which would constitute Indebtedness); (ii)
is directly or indirectly liable; and (iii) constitutes the lender; and (b) no
default with respect to which (including any rights which the holders thereof
may have to take enforcement action against a Non-Recourse Subsidiary) would
permit (upon notice, lapse of time or both) any holder of any other
Indebtedness of the Company, the Guarantors or any of their respective
Restricted Subsidiaries to declare a default on such other Indebtedness or
cause the payment thereof to be accelerated or payable prior to its stated
maturity.
"Non-Recourse Subsidiary" means any Non-Recourse Subsidiary under the First
Mortgage Bonds on the Issue Date and (i) a Subsidiary or (ii) any entity in
which the Company or any of its Subsidiaries has an equity investment and
pursuant to a contract or otherwise has the right to direct the day-to-day
operation of such entity that, in the case of (i) or (ii), (a) at the time of
its designation as a Non-Recourse Subsidiary has not acquired any assets (other
than as specifically permitted by the "Restricted Payments" covenant), at any
previous time, directly or indirectly from the Company, any of the Guarantors,
or any of their respective Subsidiaries, (b) does not own, operate or manage
any portion of any Existing Hotel Casino on the Issue Date, and (c) has no
Indebtedness other than Non-Recourse Debt provided that at the time of such
designation, after giving pro forma effect to such designation as if it
occurred at the beginning of the applicable four-quarter period, the Company's
Fixed Charge Coverage Ratio is not less than 70% of the Company's Fixed Charge
Coverage Ratio immediately prior to such designation.
"Obligations" means any principal, premium, interest (including post-petition
interest), penalties, fees, indemnifications, reimbursements, damages and other
monetary liabilities payable under the documentation governing any
Indebtedness.
"Pari Passu Indebtedness" means senior subordinated Indebtedness of the
Company or its Restricted Subsidiaries permitted by the covenant entitled
"Incurrence of Indebtedness," other than the Notes which is pari passu in right
of payment with the Notes or the Subsidiary Guarantees.
57
<PAGE>
"Permitted Investments" means (a) any Investments in the Company, in a wholly
owned Restricted Subsidiary of the Company or in a Guarantor; (b) any
Investments in Marketable Securities; and (c) Investments by the Company or any
Subsidiary of the Company in a person, if as a result of such Investment (i)
such person becomes a wholly owned Restricted Subsidiary of the Company or a
Guarantor or (ii) such person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets to, or is
liquidated into, the Company or a wholly owned Subsidiary of the Company (other
than a Non-Recourse Subsidiary).
"Permitted Liens" means (a) Liens in favor of the Company; (b) Liens on
property of a person existing at the time such person is merged into or
consolidated with the Company or any Subsidiary of the Company; provided, that
such Liens were in existence prior to the contemplation of such merger or
consolidation and less than one year prior to such person becoming merged into
or consolidated with the Company or any of its Subsidiaries; (c) Liens on
property existing at the time of acquisition thereof by the Company or any
Subsidiary of the Company; provided, that such Liens were in existence prior to
the contemplation of such acquisition and less than one year prior to such
acquisition; (d) Liens to secure the performance of statutory obligations,
surety or appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business; (e) Liens for taxes, assessments
or governmental charges or claims that are not yet delinquent or that are being
contested in good faith by appropriate proceedings promptly instituted and
diligently concluded; provided, that any reserve or other appropriate provision
as shall be required in conformity with GAAP shall have been made therefor; (f)
ground leases in respect of the real property on which facilities owned or
leased by the Company or any of its Subsidiaries are located; (g) Liens arising
from UCC financing statements regarding property leased by the Company or any
of its Subsidiaries; (h) easements, rights-of-way, navigational servitudes,
restrictions, minor defects or irregularities in title and other similar
charges or encumbrances which do not interfere in any material respect with the
ordinary conduct of business of the Company and its Subsidiaries; (i) Liens
securing purchase money obligations incurred or assumed in connection with the
purchase of real or personal property to be used in the business of the Company
or any of its Restricted Subsidiaries within 180 days of such incurrence or
assumption and (j) Liens on the real property underlying the Atlantic City
Showboat securing the Resorts Bonds provided that the obligations under the
Resorts Bonds can be assumed under the "Incurrence of Indebtedness" covenant at
the time the real property is acquired by the Company or any of its
Subsidiaries.
"Project Expansion" means any addition, improvement, extension or capital
repair to the Las Vegas Showboat or the Atlantic City Showboat or any
contiguous or adjacent property, including the purchases of real estate or
improvements thereon; but excluding separable furniture.
"Qualified Native American Gaming Project" means any Gaming Related Business
in the United States owned by a tribe or band of Native Americans in which the
Issuer or a Subsidiary holds a management contract to manage or operate the
day-to-day casino or gaming operations.
"Regular Quarterly Dividend" means the quarterly dividend determined by the
Board of Directors of the Company in its reasonable judgment to be its regular
and normal quarterly dividend and paid by the Company in accordance with the
Company's prior business practices in an amount per share not to exceed $0.10
per fiscal year (or the equivalent thereof after giving effect to any stock
splits, stock dividends or recapitalizations of the Common Stock after June 17,
1994).
"Resorts Bonds" means the First Mortgage Non-Recourse Pass-Through Notes due
June 30, 2000 of Resorts.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" means any Subsidiary of the Company that is not a
Non-Recourse Subsidiary.
"SHCL" means Sydney Harbour Casino Holdings Limited, a New South Wales
corporation.
"Senior Debt" means (a) with respect to the Company, (i) the Obligations of
the Company with respect to the Working Capital Credit Agreement and First
Mortgage Bonds and (ii) any other Indebtedness permitted to be incurred by the
Company under the terms of the Indenture, unless the instrument under which
such Indebtedness is incurred expressly provides that it is pari passu with or
subordinated in right of payment to the Notes, and (b) with respect to any
Guarantor, (i) the Obligations of such Guarantor with
58
<PAGE>
respect to the Working Capital Credit Agreement and First Mortgage Bonds, (ii)
any Guarantee by such Guarantor of any Senior Debt of the Company and (iii) any
other Indebtedness permitted to be incurred by such Guarantor under the terms
of the Indenture, unless the instrument under which such Indebtedness is
incurred expressly provides that it is pari passu with or subordinated in right
of payment to the Subsidiary Guarantee of such Guarantor. Notwithstanding
anything to the contrary in the foregoing, Senior Debt shall not include (v)
any obligation of the Company or any Guarantor to, in respect of or imposed by
any environmental, landfill, waste management or other regulatory or
governmental agency, statute, law or court order, (w) any liability for
federal, state, local or other taxes owed or owing by the Company or any
Guarantor, (x) any Indebtedness of the Company or any Guarantor to any of the
Company's Subsidiaries or other Affiliates, (y) any trade payables or (z) any
Indebtedness that is incurred in violation of the Indenture on or after the
date of the Indenture.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date hereof.
"Subsidiary" means (i) any corporation, association or other business entity
of which more than 50% of the total voting power of shares of Capital Stock
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by any person or one or more of the other
Subsidiaries of that person or a combination thereof and (ii) any Non-Recourse
Subsidiary.
"Sydney Harbour Casino" means all of SHCL's interest in its proposed casino
and related properties located in Sydney, Australia.
"Tax Sharing Agreement" means the Tax Sharing Agreement, substantially in the
form attached as an exhibit to the Indenture, as amended, supplemented or
modified from time to time as permitted by the Indenture.
"Third-Party Management" with respect to any Person means that the day-to-day
affairs or business operations of such Person are managed by a third party that
is not the Company or any of its Subsidiaries (other than a Non-Recourse
Subsidiary).
"U.S. Government Obligations" means securities that are (a) direct
obligations of the United States of America for the timely payment of which its
full faith and credit is pledged or (b) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States
of America the timely payment of which is unconditionally guaranteed as a full
faith and credit obligation by the United States of America, which, in either
case, are not callable or redeemable at the option of the issuer thereof, and
shall also include a depository receipt issued by a bank (as defined in Section
3(a)(2) of the Securities Act of 1933, as amended), as custodian with respect
to any such U.S. Government Obligation or a specific payment of principal of or
interest on any such U.S. Government Obligation held by such custodian for the
account of the holder of such depository receipt; provided that (except as
required by law) such custodian is not authorized to make any deduction from
the amount payable to the holder of such depository receipt from any amount
received by the custodian in respect of the U.S. Government Obligation or the
specific payment of principal of or interest on the U.S. Government Obligation
evidenced by such depository receipt.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the sum of the
products obtained by multiplying (x) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (y) the
number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (b) the then outstanding
principal amount of such Indebtedness; provided, however, that with respect to
any revolving Indebtedness, the foregoing calculation of Weighted Average Life
to Maturity shall be determined based upon the total available commitments and
the required reductions of commitments in lieu of the outstanding principal
amount and the required payments of principal, respectively.
59
<PAGE>
"Working Capital Credit Agreement" means that certain Credit Agreement, dated
as of September 30, 1992, by and among ACSI and National Westminster Bank,
including any related notes, guarantees, collateral documents, instruments and
agreements executed in connection therewith, and in each case as amended,
modified, renewed, refunded, replaced or refinanced from time to time.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
(the "Underwriting Agreement") among the Company, the Guarantors and Donaldson,
Lufkin & Jenrette Securities Corporation (the "Underwriter"), the Company has
agreed to issue and sell to the Underwriter, and the Underwriter has agreed to
purchase from the Company, $150 million aggregate principal amount of the
Notes.
The Underwriting Agreement provides that the obligation of the Underwriter to
purchase the Notes is subject to the approval of certain legal matters by
counsel and to certain other conditions. If any of the Notes are purchased by
the Underwriter pursuant to the Underwriting Agreement, all such Notes must be
so purchased.
The Underwriter has advised the Company that it proposes to offer the Notes
to the public initially at the price to the public set forth on the cover page
of this Prospectus and to certain dealers at such offering price less a
concession not to exceed % of the principal amount of the Notes. The
Underwriter may allow and such dealers may reallow discounts not in excess of
% of such principal amount to certain other dealers. After the initial public
offering, the public offering price and such concessions may be changed.
There is currently no public market for the Notes and the Company does not
intend to list the Notes on any national securities exchange. The Underwriter
has indicated that it intends to make a market in the Notes, subject to
applicable laws and regulations. However, the Underwriter is not obligated to
do so and any such market-making may be discontinued at any time at the
Underwriter's sole discretion. No assurance can be given as to the development
of liquidity of, or any trading market for, the Notes. See "Certain
Considerations--Market for the Notes."
The Company and the Guarantors have agreed to indemnify the Underwriter
against certain liabilities, including liabilities under the Securities Act, or
to contribute to payments that the Underwriter may be required to make in
respect thereof.
The Underwriter will also be a managing underwriter in connection with the
Common Stock Offering. In addition, the Underwriter acted as financial advisor
to the Company in connection with a consent solicitation relating to the First
Mortgage Bonds, for which it received customary fees. An affiliate of the
Underwriter has provided a standby bridge loan commitment to the Company
relating to the Company's investment in SHCL, for which it received customary
fees.
LEGAL MATTERS
Certain legal matters with regard to the validity of the Notes will be passed
upon for the Company by Kummer Kaempfer Bonner & Renshaw, Las Vegas, Nevada. H.
Gregory Nasky, of counsel to the law firm of Kummer Kaempfer Bonner & Renshaw,
is a Director and the Secretary of the Company. Latham & Watkins, New York, New
York, is acting as counsel for the Underwriter in connection with certain legal
matters relating to the Notes. From time to time Latham & Watkins has
represented certain subsidiaries of the Company on matters not related to the
Note Offering or the Common Stock Offering.
EXPERTS
The consolidated financial statements and schedules of Showboat, Inc. and its
subsidiaries as of December 31, 1993 and 1992, and for each of the years in the
three-year period ended December 31, 1993, included and incorporated by
reference herein and elsewhere in the Registration Statement, have been
included and incorporated by reference herein and elsewhere in the Registration
Statement in reliance upon the reports of KPMG Peat Marwick, independent
certified public accountants, included and incorporated by reference herein and
elsewhere in the Registration Statement, and upon the authority of said firm as
experts in accounting and auditing.
60
<PAGE>
SHOWBOAT, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report............................................. F-2
Consolidated Balance Sheets at December 31, 1993 and 1992 and March 31,
1994 (unaudited)........................................................ F-3
Consolidated Statements of Income for the Years Ended December 31, 1993,
1992 and 1991 and Three Months Ended March 31, 1994 and 1993 (unau-
dited).................................................................. F-4
Consolidated Statements of Stockholders' Equity for the Years Ended De-
cember 31, 1993, 1992 and 1991 and the Three Months Ended March 31, 1994
(unaudited)............................................................. F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1993, 1992 and 1991 and the Three Months Ended March 31, 1994 (unau-
dited).................................................................. F-6
Notes to Consolidated Financial Statements............................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Directors Showboat, Inc.
We have audited the accompanying consolidated balance sheets of Showboat, Inc.
and subsidiaries as of December 31, 1993 and 1992, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1993. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Showboat, Inc. and
subsidiaries as of December 31, 1993 and 1992, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1993, in conformity with generally accepted accounting
principles.
As discussed in Notes 1 and 8 to the consolidated financial statements, the
Company changed its method of accounting for income taxes in 1993 to adopt the
provisions of the Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes."
KPMG Peat Marwick
Las Vegas, Nevada February 18, 1994, except for Note 1 paragraph 3 and Note 12
paragraph 2 which are as of March 1, 1994
F-2
<PAGE>
SHOWBOAT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ MARCH 31,
1993 1992 1994
-------- -------- -----------
(UNAUDITED)
(IN THOUSANDS)
ASSETS
------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents..................... $122,787 $ 99,601 $107,458
Receivables, net.............................. 5,913 5,092 6,086
Income taxes receivable....................... -- -- 435
Inventories................................... 2,359 2,411 2,213
Prepaid expenses.............................. 4,044 3,969 4,114
Current deferred income taxes................. 4,865 3,483 5,847
-------- -------- --------
Total current assets........................ 139,968 114,556 126,153
-------- -------- --------
Property and equipment:
Land.......................................... 9,425 3,609 9,425
Land improvements............................. 541 841 541
Buildings..................................... 261,009 246,090 261,398
Furniture and equipment....................... 145,178 122,573 146,079
Construction in progress...................... 27,194 7,253 45,274
-------- -------- --------
443,347 380,366 462,717
Less accumulated depreciation and
amortization................................. 145,527 129,183 150,795
-------- -------- --------
297,820 251,183 311,922
-------- -------- --------
Other assets, at cost:
Deposits and other assets..................... 7,892 16,074 8,167
Investment in unconsolidated affiliate........ 17,750 -- 29,090
Debt issuance costs, net of accumulated
amortization of $323,000 at December 31,
1993, $3,131,000 at December 31, 1992 and
$450,000 at March 31, 1994................... 7,270 3,087 7,143
-------- -------- --------
32,912 19,161 44,400
-------- -------- --------
$470,700 $384,900 $482,475
======== ======== ========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C>
Current liabilities:
Current maturities of long-term debt.......... $ 3,574 $ 54,055 $ 2,549
Accounts payable.............................. 14,173 10,096 16,497
Income taxes payable.......................... 1,752 1,453 --
Dividends payable............................. 375 284 375
Accrued liabilities........................... 23,664 25,167 30,787
-------- -------- --------
Total current liabilities................... 43,538 91,055 50,208
-------- -------- --------
Long-term debt................................. 277,043 155,061 277,021
-------- -------- --------
Deferred income taxes.......................... 14,961 12,766 16,685
-------- -------- --------
Commitments and contingencies (Note 12)
Shareholders' equity (Note 14):
Common stock, $1 par value; 20,000,000 shares
authorized; issued 15,794,578 shares at
December 31, 1993, 1992 and March 31, 1994... 15,795 15,795 15,795
Additional paid-in capital.................... 71,162 69,374 71,437
Retained earnings............................. 54,628 48,778 57,693
-------- -------- --------
141,585 133,947 144,925
Less: Cost of common stock in treasury, 814,483
shares and 991,043 shares at December 31, 1993
and 1992, respectively; and 809,383 shares at
March 31, 1994................................ (6,370) (7,761) (6,328)
Unearned compensation for restricted stock.. (57) (168) (36)
-------- -------- --------
Total shareholders' equity.................. 135,158 126,018 138,561
-------- -------- --------
$470,700 $384,900 $482,475
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
SHOWBOAT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
---------------------------- ------------------------------
1993 1992 1991 1994 1993
-------- -------- -------- ------------- -------------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues:
Casino................. $329,522 $313,247 $288,442 $ 76,897 $ 75,272
Food and beverage...... 48,669 44,511 46,802 11,202 10,972
Rooms.................. 19,355 17,280 15,612 4,225 3,834
Sports and special
events................ 4,251 4,443 4,506 1,106 1,159
Management Fees........ -- -- -- 948 --
Other.................. 5,982 4,932 4,791 1,398 1,345
-------- -------- -------- ------------- -------------
407,779 384,413 360,153 95,776 92,582
Less complimentaries... 32,052 29,177 28,593 6,997 7,086
-------- -------- -------- ------------- -------------
Net revenues........... 375,727 355,236 331,560 88,779 85,496
-------- -------- -------- ------------- -------------
Costs and expenses:
Casino................. 129,898 125,773 115,468 31,005 31,906
Food and beverage...... 55,608 51,173 51,388 13,567 12,689
Rooms.................. 13,083 12,169 11,282 3,253 3,049
Sports and special
events................ 3,198 3,141 3,140 878 869
General and
administrative........ 92,739 84,058 78,022 23,333 21,898
Selling, advertising
and promotion......... 11,629 10,402 11,067 2,534 2,260
Depreciation and
amortization.......... 23,303 22,012 25,692 6,361 5,140
-------- -------- -------- ------------- -------------
329,458 308,728 296,059 80,931 77,811
-------- -------- -------- ------------- -------------
Income from operations
of consolidated
subsidiaries........... 46,269 46,508 35,501 7,848 7,685
Equity in income (loss)
of unconsolidated
affiliate.............. (850) -- -- 3,240 --
-------- -------- -------- ------------- -------------
Income from operations.. 45,419 46,508 35,501 11,088 7,685
-------- -------- -------- ------------- -------------
Other (income) expense:
Interest income........ (3,215) (1,441) (2,098) (803) (401)
Interest expense, net
of amounts
capitalized........... 24,696 25,335 27,497 6,202 4,900
-------- -------- -------- ------------- -------------
21,481 23,894 25,399 5,399 4,499
-------- -------- -------- ------------- -------------
Income before income tax
expense, extraordinary
items and cumulative
effect adjustment...... 23,938 22,614 10,102 5,689 3,186
Income tax expense...... 10,474 6,757 4,088 2,249 1,265
-------- -------- -------- ------------- -------------
Income before
extraordinary items and
cumulative effect
adjustment............. 13,464 15,857 6,014 3,440 1,921
Extraordinary items, net
of income tax.......... (6,679) (3,408) 180 -- --
Cumulative effect of
change in method of
accounting for income
taxes.................. 556 -- -- -- 556
-------- -------- -------- ------------- -------------
Net income.............. $ 7,341 $ 12,449 $ 6,194 $ 3,440 $ 2,477
======== ======== ======== ============= =============
Income per common and
equivalent share:
Income before
extraordinary items
and cumulative effect
adjustment............ $ .89 $ 1.37 $ .53 $ .23 $ .13
Extraordinary items,
net of income tax..... (.44) (.29) .02 -- --
Cumulative effect of
change in method of
accounting for income
taxes................. .04 -- -- -- .03
-------- -------- -------- ------------- -------------
Net income............. $ .49 $ 1.08 $ .55 $ .23 $ .16
======== ======== ======== ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
SHOWBOAT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL LESS LESS
COMMON PAID-IN RETAINED TREASURY UNEARNED
STOCK CAPITAL EARNINGS STOCK COMPENSATION TOTAL
------- ---------- -------- -------- ------------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1990................... $12,345 $22,416 $32,405 $(7,765) $(553) $ 58,848
Net income.............. -- -- 6,194 -- -- 6,194
Cash dividends ($.10 per
share)................. -- -- (1,135) -- -- (1,135)
Share transactions under
stock plans............ -- 27 -- (19) 15 23
Amortization of unearned
compensation........... -- -- -- -- 203 203
------- ------- ------- ------- ----- --------
Balance, December 31,
1991................... 12,345 22,443 37,464 (7,784) (335) 64,133
Net income.............. -- -- 12,449 -- -- 12,449
Cash dividends ($.10 per
share)................. -- -- (1,135) -- -- (1,135)
Issuance of 3,450,000
shares of common stock. 3,450 46,916 -- -- -- 50,366
Share transactions under
stock plans............ -- 15 -- 23 11 49
Amortization of unearned
compensation........... -- -- -- -- 156 156
------- ------- ------- ------- ----- --------
Balance, December 31,
1992................... 15,795 69,374 48,778 (7,761) (168) 126,018
Net income.............. -- -- 7,341 -- -- 7,341
Cash dividends ($.10 per
share)................. -- -- (1,491) -- -- (1,491)
Share transactions under
stock plans............ -- 1,788 -- 1,391 -- 3,179
Amortization of unearned
compensation........... -- -- -- -- 111 111
------- ------- ------- ------- ----- --------
Balance, December 31,
1993................... $15,795 $71,162 $54,628 $(6,370) $ (57) $135,158
======= ======= ======= ======= ===== ========
(Balances from January
1, 1994 to
March 31, 1994 are
unaudited).............
Net income.............. -- -- 3,440 -- -- 3,440
Cash dividends ($.025
per share)............. -- -- (375) -- -- (375)
Share transactions under
stock plans............ -- 275 -- 42 9 326
Amortization of unearned
compensation........... -- -- -- -- 12 12
------- ------- ------- ------- ----- --------
Balance, March 31, 1994. $15,795 $71,437 $57,693 $(6,328) $ (36) $138,561
======= ======= ======= ======= ===== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
SHOWBOAT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE THREE
FOR THE YEARS ENDED MONTHS ENDED
DECEMBER 31, MARCH 31,
-------------------------- -----------------------
1993 1992 1991 1994 1993
-------- ------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income................ $ 7,341 $12,449 $ 6,194 $ 3,440 $ 2,477
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Allowance for doubtful
accounts................. 1,849 1,644 2,924 58 513
Depreciation and
amortization............. 23,303 22,012 25,692 6,361 5,140
Amortization of original
issue discount and debt
issuance costs........... 744 1,011 811 127 134
Provision for deferred
income taxes............. 813 238 1,230 742 141
Amortization of unearned
compensation............. 111 156 203 12 30
Provision for loss on
Casino Reinvestment
Development Authority
obligation............... 1,122 1,068 1,057 255 249
Equity in (income) loss of
unconsolidated affiliate. 850 -- -- (3,240) --
Extraordinary (gain) loss
on extinguishment of
debt..................... 11,166 5,164 (273) -- --
Loss on disposition of
property and equipment... 517 264 350 -- --
(Increase) decrease in
receivables, net......... (2,670) (1,537) (899) (231) 43
(Increase) decrease in
inventories and prepaid
expenses................. (23) (265) 599 76 (339)
(Increase) decrease in
deposits and other
assets................... (554) 284 (448) 235 52
Increase (decrease) in
accounts payable......... 85 395 (826) 1,556 1,236
Increase (decrease) in
income taxes payable..... 968 429 2 (1,996) (1,531)
Increase (decrease) in
accrued liabilities...... (1,503) 400 1,007 7,123 (5,038)
Other..................... (66) 346
-------- ------- ------- -------- -------
Net cash provided by
operating activities.... 44,119 43,712 37,623 14,452 3,453
-------- ------- ------- -------- -------
Cash flows from investing
activities:
Acquisition of property
and equipment............ (59,686) (21,050) (13,381) (19,693) (17,286)
Proceeds from sale of
property and equipment... 78 105 311 47 29
Investment in
unconsolidated affiliate. (18,600) -- -- (9,000) --
(Increase) decrease in
deposits and other
assets................... 4,046 910 (1,097) -- (67)
Deposit for Casino
Reinvestment Development
Authority obligation..... (3,289) (3,161) (2,892) (792) (717)
Distribution of earnings
of unconsolidated
affiliate................ -- -- -- 900 --
-------- ------- ------- -------- -------
Net cash used in
investing activities.... (77,451) (23,196) (17,059) (28,538) (18,041)
-------- ------- ------- -------- -------
Cash flows from financing
activities:
Principal payments of
long-term debt and
capital lease
obligations.............. (3,914) (8,879) (7,635) (1,047) (51,080)
Proceeds from issuance of
long-term debt........... 275,000 -- 1,098 -- --
Proceeds from note
payable.................. -- -- -- -- 1,100
Early extinguishment of
debt..................... (208,085) -- (11,696) -- --
Debt issuance costs....... (7,593) -- (74) -- --
Payment of dividends...... (1,400) (1,141) (1,140) (375) (284)
Issuance of common stock.. 2,510 50,366 -- 179 18
Other..................... -- 49 23 -- --
-------- ------- ------- -------- -------
Net cash provided by
(used in) financing
activities.............. 56,518 40,395 (19,424) (1,243) (50,246)
-------- ------- ------- -------- -------
Net increase (decrease) in
cash and cash equivalents. 23,186 60,911 1,140 (15,329) (64,834)
Cash and cash equivalents
at beginning of period.... 99,601 38,690 37,550 122,787 99,601
-------- ------- ------- -------- -------
Cash and cash equivalents
at end of period.......... $122,787 $99,601 $38,690 $107,458 $34,767
======== ======= ======= ======== =======
Supplemental disclosures of
cash flow information:
Cash paid during the
period for:
Interest, net of amount
capitalized.............. $ 25,741 $24,562 $26,937 $ 164 $10,275
Income taxes.............. 3,650 4,400 2,948 3,503 2,100
Supplemental schedule of
non-cash investing and
financing activities:
Capital lease obligations
incurred in connection
with acquisition of
equipment................ -- 152 131 -- --
Increase (decrease) in
property and equipment
acquisitions included in
construction contracts
and retentions payable
and long-term debt....... 3,914 1,890 (309) 795 483
Share transactions under
long-term incentive plan. -- 27 35 -- --
Transfer deposits for
Casino Reinvestment
Development Authority
obligation to
construction in progress. 6,667 -- -- -- --
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
SHOWBOAT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS AND PRINCIPLES OF CONSOLIDATION
Showboat, Inc. and subsidiaries, collectively the Company, conduct casino
gaming operations in Las Vegas, Nevada, Atlantic City, New Jersey and New
Orleans, Louisiana. In addition, the Company operates support services
including hotel, restaurant, bar, bowling and convention facilities.
The Consolidated Financial Statements for the three months ended March 31,
1993 and 1994 and related amounts in the Notes to the consolidated financial
statements are unaudited, but in the opinion of management reflect all normal
and recurring adjustments necessary for a fair representation of the results of
those periods.
The consolidated financial statements include the accounts of Showboat, Inc.
(SBO) and its wholly-owned subsidiaries which are Showboat Development Company
(SDC), Showboat Operating Company (SBOC) and Ocean Showboat, Inc. (OSI). They
also include SDC's wholly-owned subsidiaries, Lake Pontchartrain Showboat, Inc.
(LPSI) and Showboat Louisiana, Inc. (SBL), and OSI's wholly-owned subsidiaries
Atlantic City Showboat, Inc. (ACSI) and Ocean Showboat Finance Corporation
(OSFC). Showboat, Inc. and its subsidiaries own and operate hotel casinos in
Las Vegas, Nevada (Las Vegas Showboat) and Atlantic City, New Jersey (Atlantic
City Showboat) and own an equity interest in and manage a riverboat casino on
Lake Pontchartrain in New Orleans, Louisiana (Showboat Star Casino). All
material intercompany balances and transactions have been eliminated in
consolidation.
On March 1, 1994, the Company purchased an additional 20% equity interest
from its partner for $9 million, increasing its interest in Showboat Star
Partnership to 50%. The Company's equity in the income or loss of Showboat Star
Partnership is included in the Consolidated Statements of Income. LPSI receives
a management fee from Showboat Star Partnership of 5.0% of casino revenues net
of gaming taxes of 18.5% and boarding fees of $5.00 per person. Management fees
are included in other revenues in the Consolidated Statements of Income.
CASINO REVENUE AND COMPLIMENTARIES
In accordance with common industry practice, casino revenues are the net of
gaming wins less losses.
Complimentaries primarily consist of rooms, food and beverage furnished
gratuitously to customers. The sales values of such services are included in
the respective revenue classifications and are then deducted as
complimentaries. Complimentary rates are periodically reviewed and adjusted by
management.
CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all
highly liquid investments purchased with an original maturity of three months
or less to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method.
FAIR VALUE OF CERTAIN FINANCIAL INSTRUMENTS
The carrying amount of cash equivalents, accounts receivable and all current
liabilities approximates fair value because of the short maturity of these
instruments. See Notes 4 and 11 for additional fair value disclosures.
F-7
<PAGE>
SHOWBOAT, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation, including
amortization of capitalized leases, is computed using the straight-line method.
The cost of maintenance and repairs is charged to expense as incurred;
significant renewals and betterments are capitalized.
Estimated useful lives for property and equipment are 5 to 15 years for land
improvements, 10 to 40 years for buildings and 2 to 10 years for furniture and
equipment.
INTEREST COSTS
Interest is capitalized in connection with the construction of major
facilities. The capitalized interest is recorded as part of the asset to which
it relates and is amortized over the asset's estimated useful life. For the
year ended December 31, 1993, $1,085,000 of interest cost was capitalized. No
interest was capitalized in the years ended December 31, 1992 and 1991. For the
three-month periods ended March 31, 1994 and 1993, interest costs of $449,000
and $189,000, respectively, were capitalized (unaudited).
INCOME TAXES
In February 1992, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (FAS 109). Under the asset and liability method of FAS 109, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are
expected to be recovered or settled. Under FAS 109, the effect on deferred tax
assets and liabilities of a change in tax rates is recognized in the period
that includes the enactment date.
Effective January 1, 1993, the Company adopted FAS 109 and has reported the
cumulative effect of that change in accounting method in the 1993 Consolidated
Statement of Income.
The Company previously used the asset and liability method under Statement of
Financial Accounting Standards No. 96 (FAS 96). Under the asset and liability
method of FAS 96, deferred tax assets and liabilities were recognized for all
the events that had been recognized in the financial statements. Under FAS 96,
the future tax consequences of recovering assets or settling liabilities at
their financial statement carrying amounts were considered in calculating
deferred income taxes. Generally, FAS 96 prohibited consideration of any other
future events in calculating deferred income taxes.
The Company and its subsidiaries file a consolidated federal income tax
return. For tax reporting purposes, the Company has elected to continue its
fiscal year ending June 30.
POSTEMPLOYMENT AND POSTRETIREMENT BENEFITS
The Company does not currently provide any significant postemployment or
postretirement benefits.
AMORTIZATION OF ORIGINAL ISSUE DISCOUNT AND DEBT ISSUANCE COSTS
Original issue discount is amortized over the life of the related
indebtedness using the effective interest method.
Costs associated with the issuance of debt have been deferred and are being
amortized over the life of the related indebtedness using a weighted average
method based on retirement schedules specified in the debt indentures.
F-8
<PAGE>
SHOWBOAT, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
INCOME PER COMMON AND EQUIVALENT SHARE
Income per common and equivalent share is based on the weighted average
number of shares outstanding. Such averages were 15,099,147, 11,584,275 and
11,410,208 for the years ended December 31, 1993, 1992 and 1991, respectively
and 15,180,008 and 15,141,493 for the three-months ended March 31, 1994 and
1993, respectively (unaudited). Fully-diluted and primary income per common and
equivalent share are the same.
PREOPENING AND DEVELOPMENT COSTS
The Company is currently investigating expansion opportunities in new gaming
jurisdictions. Costs associated with these investigations are expensed as
incurred until such time as a particular opportunity is determined to be
viable, generally when the Company is selected as the operator of a new gaming
facility or a gaming license has been granted.
Costs incurred during the construction and preopening phase are capitalized.
Types of costs capitalized include professional fees, salaries and wages,
temporary office expenses, marketing expenses and training costs. When the new
operation opens for business, preopening costs will be amortized over a period
not to exceed 12 months using the straight-line method.
Costs associated with the preopening of the Showboat Star Casino on Lake
Pontchartrain in New Orleans, Louisiana were written-off upon commencement of
operations on November 8, 1993 and totaled $4,246,000. The Company's share of
those costs of $1,274,000 are included in equity in loss of unconsolidated
affiliate in the December 31, 1993 Consolidated Statement of Income.
RECLASSIFICATIONS
Certain prior period balances have been reclassified to conform to the
current year's presentation.
2. RECEIVABLES
Receivables consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
--------------- 1994
1993 1992 (UNAUDITED)
------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Casino.............................................. $ 6,816 $ 6,964 $6,621
Hotel............................................... 1,020 715 772
Employees........................................... 88 86 80
Other............................................... 935 406 1,248
------- ------- ------
8,859 8,171 8,721
Less allowance for doubtful accounts................ 2,946 3,079 2,635
------- ------- ------
Receivables, net.................................... $ 5,913 $ 5,092 $6,086
======= ======= ======
</TABLE>
F-9
<PAGE>
SHOWBOAT, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
--------------- 1994
1993 1992 (UNAUDITED)
------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest............................................ $ 4,240 $ 6,029 $10,599
Salaries and wages.................................. 8,289 7,540 7,918
Taxes, other than taxes on income................... 1,988 1,641 3,264
Medical and liability claims........................ 2,983 3,036 3,045
Advertising and promotion........................... 2,397 3,068 2,375
Outstanding chips and tokens........................ 1,204 1,308 1,066
Other............................................... 2,563 2,545 2,520
------- ------- -------
Total accrued liabilities........................... $23,664 $25,167 $30,787
======= ======= =======
</TABLE>
4. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
----------------- 1994
1993 1992 (UNAUDITED)
-------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
9 1/4% First Mortgage Bonds due 2008 (a)......... $275,000 $ -- $275,000
11 3/8% Mortgage-Backed Bonds Due 2002 (b)....... -- 149,444 --
13% Subordinated Sinking Fund Debentures Due Oc-
tober 1, 2004 (c)............................... -- 32,949 --
Construction and term loan, repaid in 1993....... -- 17,192 --
Capitalized lease obligations (Note 5)........... 5,617 9,531 4,570
-------- -------- --------
280,617 209,116 279,570
Less current maturities.......................... 3,574 54,055 2,549
-------- -------- --------
$277,043 $155,061 $277,021
======== ======== ========
</TABLE>
(a) On May 18, 1993, the Company issued $275,000,000 of 9 1/4% First Mortgage
Bonds due 2008 (First Mortgage Bonds). The proceeds from the sale of the First
Mortgage Bonds were $268,469,000, net of underwriting discounts and
commissions. Proceeds from the sale of the First Mortgage Bonds were used to
redeem all of the outstanding 11 3/8% Mortgage-Backed Bonds Due 2002 at 105.7%
of the principal amount plus accrued interest. The remaining proceeds were
reserved by the Company to benefit existing facilities and to expand into new
facilities or gaming jurisdictions.
The First Mortgage Bonds are unconditionally guaranteed by OSI, ACSI and
SBOC. Interest on the First Mortgage Bonds is payable semi-annually on May 1
and November 1 of each year commencing November 1, 1993. The First Mortgage
Bonds are not redeemable prior to May 1, 2000. Thereafter, the First Mortgage
Bonds will be redeemable, in whole or in part, at redemption prices specified
in the Indenture for the First Mortgage Bonds (Indenture). The First Mortgage
Bonds are senior secured obligations of the Company and rank senior in right of
payment to all existing and future subordinated indebtedness of the Company and
pari passu with the Company's senior indebtedness. The First Mortgage Bonds are
secured by a deed of trust representing a first lien on the Las Vegas Showboat
(other than certain assets), by a pledge of all outstanding shares of capital
stock of OSI, an intercompany note by ACSI in favor of SBO and a pledge of
certain intellectual property rights of the Company. OSI's obligation under its
guaranty is secured by a pledge of all outstanding shares of capital stock of
ACSI. ACSI's obligation under its guaranty is secured by
F-10
<PAGE>
SHOWBOAT, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
a leasehold mortgage representing a first lien on the Atlantic City Showboat
(other than certain assets). SBOC's guaranty is secured by a pledge of certain
assets related to the Las Vegas Showboat.
The Indenture places significant restrictions on SBO and its subsidiaries,
including restrictions on making loans and advances by SBO to subsidiaries
which are Non-Recourse Subsidiaries or subsidiaries in which SBO owns less than
50% of the equity. All capitalized terms not otherwise defined in this
paragraph have the meanings assigned to the Indenture. The Indenture also
places significant restrictions on the incurrence of additional Indebtedness by
SBO and its subsidiaries, the creation of additional Liens on the Collateral
securing the First Mortgage Bonds, transactions with Affiliates and the
investment of SBO and its subsidiaries in certain Investments. In addition, the
terms of the Indenture prohibit SBO and its subsidiaries from making a
Restricted Payment unless, at the time of such Restricted Payment: (i) no
Default or Event of Default has occurred or would occur as a consequence of
such restricted payment; (ii) SBO, at the time of Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made at
the beginning of the applicable four-quarter period, would have been permitted
to incur at least $1.00 of additional Indebtedness; and (iii) such Restricted
Payment, together with the aggregate of all other Restricted Payments by SBO
and its subsidiaries is less than the sum of (x) 50% of the Consolidated Net
Income of SBO for the period (taken as one accounting period) from April 1,
1993 to the end of SBO's most recently ended fiscal quarter for which internal
financial statements are available, plus (y) 100% of the aggregate net cash
proceeds received by SBO from the issuance or sale of Equity Interests of SBO
since the Issue Date, plus (z) Excess Non-Recourse Subsidiary Cash Proceeds
received after the Issue Date. The Term Restricted Payment does not include,
among other things, the payment of any dividend if, at the time of declaration
of such dividend, the dividend would have complied with the provisions of the
Indenture; the redemption, repurchase, retirement, or other acquisition of any
Equity Interest of SBO out of proceeds of, the substantially concurrent sale of
other Equity Interests of SBO; Investments by SBO in an amount not to exceed
$75,000,000 in the aggregate in any Non-Recourse Subsidiary engaged in a Gaming
Related Business; Investments by SBO in any Non-Recourse Subsidiary engaged in
a Gaming Related Business in an amount not to exceed in the aggregate 100% of
all cash received by SBO from any Non-Recourse Subsidiary up to $75,000,000 in
the aggregate and thereafter, 50% of all cash received by SBO from any Non-
Recourse Subsidiary other than cash required to be repaid or returned to such
Non-Recourse Subsidiary provided that the aggregate amount of Investments
pursuant thereto does not exceed $125,000,000 in the aggregate; and the
purchase, redemption, defeasance of any pari passu Indebtedness with a
substantially concurrent purchase, redemption, defeasance, or retirement of the
First Mortgage Bonds (on a pro rata basis).
(b) In March 1987, the Company issued $180,000,000 of 11 3/8% Mortgage-Backed
Bonds Due 2002 (11 3/8% Bonds). Interest was payable semi-annually on March 15
and September 15 of each year. During the years ended December 31, 1991 and
1990, the Company repurchased $12,096,000 and $18,460,000 face value,
respectively, of the 11 3/8% Bonds (Note 10). In accordance with the provisions
of the Indenture for the First Mortgage Bonds, the 11 3/8% Bonds were redeemed
on June 18, 1993 at 105.7% of par plus accrued interest.
(c) During fiscal year 1985, the Company issued $57,500,000 of 13% (effective
rate of 15.75%) Subordinated Sinking Fund Debentures Due October 1, 2004
(Debentures), with interest payable semi-annually. The Debentures were
redeemable at any time at the option of the Company, in whole or in part, at
par plus accrued interest or the Debentures may have been reacquired through
purchases in the open market. The Debentures had a mandatory sinking fund
requirement beginning October 1, 1991, designed to retire 80% of the issue
prior to maturity. On October 1, 1992 and 1991, the Company applied $2,875,000
of previously repurchased Debentures toward the sinking fund requirement. On
October 29, 1992, the Company made a redemption of $2,875,000 of Debentures. On
January 29, 1993, the Company redeemed in full the Debentures at par plus
accrued interest (Note 10).
F-11
<PAGE>
SHOWBOAT, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
At December 31, 1993 and March 31, 1994, the Company's Atlantic City
subsidiary, ACSI, had available an unsecured line of credit for general working
capital purposes totaling $15,000,000. Interest is payable monthly at the
bank's prime rate plus .5%. The Bank's prime rate was 6.0% and 6.75% at
December 31, 1993 and March 31, 1994, respectively. The line of credit is
guaranteed by OSI and expires in August 1994. Borrowings on this line of credit
may not be used for the payment of management fees or to fund ventures in other
jurisdictions. At December 31, 1993 and March 31, 1994, ACSI had all the funds
under this line of credit available for use.
Maturities of the Company's long-term debt are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Year Ending
December 31,
1994........................................................... $ 3,574
1995........................................................... 20
1996........................................................... 1,950
1997........................................................... 25
1998........................................................... 29
Thereafter....................................................... 275,019
--------
$280,617
========
</TABLE>
The fair value of the Company's First Mortgage Bonds was $283,250,000 at
December 31, 1993 based on the quoted market price of the First Mortgage Bonds.
The carrying amount of capital leases approximates fair value at December 31,
1993.
5. LEASES
The Company leases certain furniture and equipment and a warehouse under
long-term lease agreements. The leases covering furniture and equipment expire
in 1994 and the warehouse lease expires in 2001. The Company has the option to
purchase the warehouse from January 1, 1996 through March 31, 2001 at an option
price of approximately $1,928,000.
Property leased under capital leases by major classes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
MARCH 31,
1994
1993 1992 (UNAUDITED)
------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Building--warehouse................................. $ 2,050 $ 2,050 $ 2,050
Furniture and equipment............................. 22,621 23,417 22,262
------- ------- -------
24,671 25,467 24,312
Less accumulated amortization....................... 19,456 21,308 21,667
------- ------- -------
$ 5,215 $ 4,159 $ 2,645
======= ======= =======
</TABLE>
F-12
<PAGE>
SHOWBOAT, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
ACSI is leasing 10 1/2 acres of Boardwalk property in Atlantic City, New
Jersey for a term of 99 years commencing October 1983. Annual rent payments,
which are payable monthly, commenced upon opening of the Atlantic City
Showboat. The rent is adjusted annually based upon increases or decreases in
the Consumer Price Index. In April 1993, the annual rent increased $243,000 to
$8,118,000. ACSI is responsible for taxes, assessments, insurance and
utilities.
The following is a schedule of future minimum lease payments for capital
leases and operating leases (with initial or remaining terms in excess of one
year) as of December 31, 1993:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
(IN THOUSANDS)
<S> <C> <C>
Year ending December 31,
1994........................................................ $4,014 $ 9,537
1995........................................................ 286 9,773
1996........................................................ 1,961 9,629
1997........................................................ 33 9,783
1998........................................................ 33 9,916
Thereafter.................................................... 20 797,971
------ --------
Total minimum lease payments.................................. 6,347 $846,609
========
Less amount representing interest (10.4% to 12.9%)............ 730
------
Present value of net minimum capital lease payments........... $5,617
======
</TABLE>
Rent expense for all operating leases was $9,287,000, $8,659,000 and
$8,046,000 for the years ended December 31, 1993, 1992 and 1991, respectively
and $2,406,000 and $2,157,000 for the three-months ended March 31, 1994 and
1993.
6. STOCK PLANS
On May 17, 1990, the shareholders of SBO approved a long-term incentive plan
in which officers and key employees of the Company participate. Up to 600,000
shares of SBO common stock may be awarded to plan participants as either
restricted shares or stock options. Restricted shares and options shall vest
over a five-year period. The options are exercisable, subject to vesting, over
ten years at option prices determined by SBO's Compensation Committee provided
that the option price is not less than 100% of the fair market value of the
Company's common stock determined on the date of grant of the options. As of
December 31, 1993, 127,900 restricted shares have been issued from treasury.
On May 17, 1990, the shareholders of SBO approved the Directors' Stock Option
Plan whereby options to purchase up to 120,000 shares of SBO common stock may
be granted at an option price no less than 100% of the fair market value of the
shares on the date of grant. Under the terms of the Directors' Plan, each
option shall be exercisable in full one year after the date of grant. Unless
special circumstances exist, each option shall expire on the tenth anniversary
of the date of grant or two years after the director's retirement.
In April 1992, the Board of Directors of the Company adopted the 1992
Employee Stock Option Plan (Plan) for all full-time and part-time employees.
The Company reserved an aggregate of 1,000,000 shares of SBO common stock for
issuance under the Plan. The exercise price of an option awarded under the Plan
cannot be less than the fair market value of the Company's common stock on the
date of grant. The number of options granted to an employee is based on the
employee's years of service with the Company. Options, all of which expire ten
years from the date of grant, are subject to vesting and continued affiliation
with the Company.
F-13
<PAGE>
SHOWBOAT, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
A summary of certain stock option information is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Options outstanding at
January 1........................................ 901,080 393,570 386,850
Granted........................................... 96,550 521,550 21,000
Exercised......................................... (176,560) (6,840) (2,280)
Forfeited......................................... (8,750) (7,200) (12,000)
-------- -------- --------
Options outstanding at
December 31...................................... 812,320 901,080 393,570
======== ======== ========
Option price range at $6.50 to $6.50 to $6.50 to
December 31...................................... $18.00 $14.50 $8.00
Options exercisable at
December 31...................................... 529,495 120,430 82,245
</TABLE>
Unearned compensation in connection with restricted stock issued for future
services was recorded on the date of grant at the fair market value of SBO's
common stock and is being amortized ratably from the date of grant over the
five-year vesting period as it is earned. Compensation expense of $111,000,
$156,000 and $203,000 was recognized during the years ended December 31, 1993,
1992 and 1991, respectively. Unearned compensation has been shown as a
reduction of shareholders' equity in the accompanying Consolidated Balance
Sheets.
7. SHAREHOLDERS' EQUITY
On December 24, 1992, the Company issued 3,450,000 shares of its $1.00 par
value common stock in a public offering. The price to the public was $15.50 per
share. Net proceeds of the offering, after deducting all associated costs, was
$50,366,000 or $14.60 per newly issued share. Proceeds of the offering were
used in January 1993 to redeem all of SBO's 13% Subordinated Sinking Fund
Debentures Due 2004 and to fully prepay the balance outstanding on the
construction and term loan.
8. INCOME TAXES
As discussed in Note 1, the Company adopted FAS 109 effective January 1,
1993. The cumulative effect of the change in method of accounting for income
taxes of $556,000 is determined as of January 1, 1993 and is reported
separately in the Consolidated Statement of Income for the year ended December
31, 1993. Prior year financial statements have not been restated to apply the
provisions of FAS 109.
Total income tax expense for the year ended December 31, 1993 was allocated
as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Continuing operations...................................... $10,474
Extraordinary item......................................... (4,487)
Shareholders' equity, related to compensation expense de-
ferred and reported as a reduction of shareholders' equity
for financial reporting purposes.......................... (661)
-------
$ 5,326
=======
</TABLE>
F-14
<PAGE>
SHOWBOAT, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Income tax expense (benefit) attributable to income from continuing
operations consists of:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------ 1994
1993 1992 1991 (UNAUDITED)
-------- ------- ------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. federal
Current................................. $ 7,910 $ 6,519 $ 2,858 $1,260
Deferred................................ 965 238 1,230 853
-------- ------- ------- ------
8,875 6,757 4,088 2,113
-------- ------- ------- ------
State and local
Current................................. 1,195 -- -- 248
Deferred................................ 404 -- -- (112)
-------- ------- ------- ------
1,599 -- -- 136
-------- ------- ------- ------
Total
Current................................. 9,105 6,519 2,858 1,508
Deferred................................ 1,369 238 1,230 741
-------- ------- ------- ------
$ 10,474 $ 6,757 $ 4,088 $2,249
======== ======= ======= ======
</TABLE>
In 1992 and 1991, income tax expense of $6,757,000 and $4,088,000,
respectively, represents income tax expense from continuing operations before
extraordinary items. In 1992, as a result of an extraordinary loss of
$5,164,000 (Note 10), the Company recognized an income tax benefit of
$1,756,000 resulting in total income tax expense of $5,001,000. In 1991, as a
result of an extraordinary gain of $273,000 (Note 10), the Company recognized
additional income tax expense of $93,000 resulting in total income tax expense
of $4,181,000.
Income tax expense attributable to income from continuing operations differed
from the amounts computed by applying the U.S. federal income tax rate of 35%
for the year ended December 31, 1993 and 34% for the years ended December 31,
1992 and 1991 to pretax income from continuing operations as a result of the
following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1993 1992 1991
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Computed "expected" tax expense..................... $ 8,378 $ 7,689 $ 3,435
Increase (reduction) in income taxes resulting from:
Change in the beginning of the year balance of the
valuation allowance for deferred tax assets allo-
cated to income tax expense...................... 224 -- --
Adjustment to deferred tax assets and liabilities
for enacted changes in tax rates................. 383 -- --
State and local income taxes, net of federal tax
benefit.......................................... 930 -- --
Impact of settlement of Internal Revenue Service
examination...................................... -- (102) --
Restricted interest assessment, net of tax........ 619 -- --
Impact of graduated tax rates..................... (90) -- --
Other, net........................................ 30 (830) 653
-------- ------- -------
Income tax expense................................ $ 10,474 $ 6,757 $ 4,088
======== ======= =======
</TABLE>
F-15
<PAGE>
SHOWBOAT, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The significant components of deferred income tax expense attributable to
income from continuing operations for the year ended December 31, 1993 are as
follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Deferred tax expense (exclusive of other components listed
below).................................................... $ 762
Adjustment to deferred tax assets and liabilities for en-
acted changes in tax rates................................ 383
Change in beginning of the year balance of the valuation
allowance for deferred tax assets......................... 224
------
$1,369
======
</TABLE>
For the years ended December 31, 1992 and 1991, deferred income tax expense
of $238,000 and $1,230,000, respectively, results from temporary differences in
the recognition of income and expenses for income tax and financial reporting
purposes. The sources and tax effects of these temporary differences are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------
1992 1991
------- -------
(IN THOUSANDS)
<S> <C> <C>
Depreciation and amortization................................ $ 1,250 $ 556
Utilization of credit carryforwards, net..................... 1,145 (676)
Provisions for loss on Casino Reinvestment Development Au-
thority obligation.......................................... (1,496) 31
Allowance for doubtful accounts.............................. 309 342
Preopening costs............................................. 369 1,511
Accrued vacations............................................ (359) (149)
Impact of settlement of Internal Revenue Service examination. (625) --
Other, net................................................... (355) (385)
------- -------
$ 238 $ 1,230
======= =======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1993 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Deferred tax assets:
Casino Reinvestment Development Authority obligation........ $(1,566)
Accrued vacations........................................... (1,621)
Allowance for doubtful accounts............................. (1,210)
Alternative minimum tax credit carryforwards................ (2,423)
Other....................................................... (3,606)
-------
Total gross deferred tax assets............................. (10,426)
Less valuation allowance.................................... 601
-------
Net deferred tax assets.................................... (9,825)
-------
Deferred tax liabilities:
Depreciation and amortization.............................. 17,350
Capitalized interest....................................... 2,571
-------
Total gross deferred tax liabilities....................... 19,921
-------
Net deferred tax liability................................... $10,096
=======
</TABLE>
F-16
<PAGE>
SHOWBOAT, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Temporary differences between the financial statement carrying amounts and
tax bases of assets and liabilities that give rise to significant portions of
the net deferred tax liability at December 31, 1992 relate to the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Depreciation and amortization.............................. $13,931
Utilization of credit carryforwards........................ (2,032)
Capitalized interest....................................... 2,572
Allowance for doubtful accounts............................ (1,047)
Accrued vacations.......................................... (1,328)
Provisions for loss on Casino Reinvestment Development Au-
thority
obligation................................................ (1,496)
Other...................................................... (1,317)
-------
Net deferred tax liability................................. $ 9,283
=======
</TABLE>
The valuation allowance for deferred tax assets as of January 1, 1993 was
$377,000. The net change in the total valuation allowance for the year ended
December 31, 1993 was an increase of $224,000.
At December 31, 1993, the Company had available $2,423,000 of alternative
minimum tax credit carryforwards which are available to reduce future federal
regular income taxes, if any, over an indefinite period.
For State of New Jersey income tax purposes, the Company has available
$1,144,000 of net operating loss carryforwards which expire through 1997.
9. EMPLOYEE BENEFIT PLANS
The Company maintains a profit sharing and retirement plan for eligible
employees who are not covered by a collective bargaining agreement or by
another retirement plan to which the Company is required to contribute.
Contributions to the plan are made at the discretion of the Board of Directors
of SBO. The benefits are limited to the allocated interest in the fund assets
and each participant's account vests over a seven-year period. Contributions
accrued by the Company were $195,000, $175,000 and $150,000 for the years ended
December 31, 1993, 1992 and 1991, respectively.
The Company maintains a retirement and savings plan for eligible employees of
ACSI and OSI. Under the terms of the plan, eligible employees may defer up to
3% of their compensation, as defined, of which 100% of the deferral is matched
by ACSI. Eligible employees may contribute an additional 12% of their
compensation which will not be matched by the Company. Contributions by the
Company vest over a five-year period. The Company contributed $1,330,000,
$1,110,000 and $776,000 to this plan for the years ended December 31, 1993,
1992 and 1991, respectively.
Effective January 1, 1994, SBOC and LPSI adopted the provisions of the
retirement and savings plan previously available to the eligible employees of
ACSI and OSI. The Company has requested a determination letter from the
Internal Revenue Service to allow the Company to merge the present profit
sharing plan and the retirement and savings plan.
The Company's union employees are covered by union-sponsored, collectively-
bargained, multi-employer pension plans. The Company contributed and charged to
expense $1,197,000, $1,182,000 and $1,184,000 during the years ended December
31, 1993, 1992 and 1991, respectively. These contributions are
F-17
<PAGE>
SHOWBOAT, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
determined in accordance with the provisions of negotiated labor contracts and
generally are based on the number of hours worked.
10. EXTRAORDINARY ITEMS
On June 18, 1993, the Company redeemed all of its remaining 11 3/8% Bonds at
105.7% plus accrued and unpaid interest up to and including the redemption
date. The Company recognized an extraordinary loss before any income tax
benefit of $11,166,000 as a result of the write-off of the unamortized debt
issuance costs of $2,666,000 and the payment of a 5.7% redemption premium of
$8,500,000. The after tax loss was $6,679,000 or $.44 per share.
On December 30, 1992, the Company notified debentureholders of its intent to
redeem all of the outstanding Debentures at par plus accrued interest on
January 29, 1993. Accordingly, at December 31, 1992, the Company reclassified
the outstanding principal balance of $32,949,000 to current maturities of long-
term debt and recognized an extraordinary loss of $5,164,000 before an income
tax benefit of $1,756,000 as a result of the write-off of the unamortized
discount and debt issuance costs. The after tax loss was $3,408,000 or $.29 per
share.
In 1991, OSI purchased $12,096,000 face value of the Company's 11 3/8% Bonds
for $11,696,000. Accordingly, after a charge of $127,000 for unamortized bond
issuance costs, the Company realized an extraordinary gain of $273,000 before
income taxes of $93,000 resulting in an after tax gain of $180,000 or $.02 per
share.
11. NEW JERSEY INVESTMENT OBLIGATION
The New Jersey Casino Control Act (Act) provides, among other things, for an
assessment on a gaming licensee based upon its gross casino revenues after
completion of its first full year of operation. This assessment may be
satisfied by investing in qualified direct investments, purchasing bonds issued
by the Casino Reinvestment Development Authority (CRDA), or paying an
"alternative tax." In order for direct investments to be eligible, they must be
approved by the CRDA.
Deposits with the CRDA bear interest at two-thirds of market rates resulting
in a current value lower than cost. At December 31, 1993 and 1992, deposits and
other assets include $5,010,000 and $9,431,000, respectively, representing the
Company's deposit with the CRDA of $7,488,000 as of December 31, 1993 and
$14,121,000 as of December 31, 1992, net of a valuation allowance of $2,478,000
and $4,690,000, respectively. The carrying value of these deposits, net of the
valuation allowance, approximates fair value.
The CRDA, as an agency of the City of Atlantic City, is responsible for the
redevelopment of the area surrounding the Boardwalk. The Company has requested
and the CRDA has approved that $8,000,000 of the Company's deposits with the
CRDA will be used in connection with the expansion of a City street leading to
the Atlantic City Showboat. In connection with its approval, the CRDA required
the Company to donate $2,000,000 of its deposits with the CRDA to certain
public programs. Construction of the City street commenced in the fourth
quarter of 1993 and is expected to be completed in 1994. The Company has
reclassified these CRDA deposits, net of the valuation allowance, totaling
$6,667,000 to construction in progress. When construction is complete, these
costs will be amortized over seven years. The CRDA has set aside these deposits
in a restricted account and the Company no longer receives the benefit of
investment income on these funds.
The Company has applied for and received approval for approximately
$8,800,000 in funding credits from the CRDA in connection with the construction
of Atlantic City Showboat's additional hotel rooms.
F-18
<PAGE>
SHOWBOAT, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Pending the execution of a Credit Agreement with the CRDA, which states the
terms and conditions by which the Company may receive funding credit, the
Company may begin applying for and receiving funds from the CRDA as
expenditures are made for the construction of the hotel rooms to the extent
ACSI has available funds on deposit with the CRDA. The Company has
approximately $2,500,000 in available deposits with the CRDA which they may
apply for upon execution of the Credit Agreement, with the balance being
applied to portions of future CRDA deposits.
12. COMMITMENTS AND CONTINGENCIES
During 1993, the Company entered into construction contracts which commit the
Company to approximately $39,000,000 in expenditures in 1994 and approximately
$7,000,000 in 1995.
In December 1993, the Company agreed to purchase an additional 20% equity
interest in Showboat Star Partnership from a partner for $9,000,000, increasing
the Company's interest in the partnership to 50% subject to the approval of the
Louisiana Riverboat Gaming Commission. The Louisiana Riverboat Gaming
Commission approved the transaction in February 1994 and effective March 1,
1994, the Company acquired the additional 20% equity interest in Showboat Star
Partnership.
In February 1994, Showboat and Waterfront Entertainment and Development, Inc.
formed the Showboat Marina Partnership (Indiana Partnership). The Indiana
Partnership has filed a gaming application with the Indiana Gaming Commission
to operate a riverboat on Lake Michigan in East Chicago, Indiana. Under the
terms of the partnership agreement, Showboat will own 55% of the Indiana
Partnership and is required to make an initial capital contribution of
$1,000,000 and an additional contribution of $16,500,000 at such later dates as
specified in an initial development budget.
The Company is involved in various claims and legal actions arising in the
ordinary course of business. Additionally, the Company is presently undergoing
an audit by the Internal Revenue Service for the tax years ending June 30, 1989
and 1990. The State of New Jersey is currently auditing the Company's state
income tax returns for the tax years ended June 30, 1986 through 1992. In the
opinion of management, the ultimate disposition of these matters will not have
a material adverse effect on the Company's financial position or results of
operations.
F-19
<PAGE>
SHOWBOAT, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
13. SELECTED QUARTERLY DATA (UNAUDITED)
Summarized unaudited financial data for interim periods for the years ended
December 31, 1993 and 1992 are as follows:
<TABLE>
<CAPTION>
QUARTER ENDED (A) YEAR
-------------------------------------- ENDED
3/31/93 6/30/93 9/30/93 12/31/93 12/31/93
-------- -------- --------- --------- --------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net revenues.................. $ 85,496 $ 92,706 $ 108,005 $ 89,520 $375,727
Income from operations (b).... 7,685 11,983 18,250 7,501 45,419
Income before extraordinary
loss and cumulative effect
adjustment (c)(d)............ 1,921 3,751 7,356 436 13,464
Net income (loss)............. 2,477 (2,928) 7,356 436 7,341
Income before extraordinary
loss and cumulative effect
adjustment per share (c)(d).. .13 .24 .48 .03 .89
Net income (loss) per share... .16 (.20) .48 .03 .49
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED (A) YEAR
--------------------------------------- ENDED
3/31/92 6/30/92 9/30/92 12/31/92 12/31/92
--------- --------- --------- --------- --------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net revenues................. $ 85,523 $ 89,250 $ 99,105 $ 81,358 $355,236
Income from operations....... 10,074 12,224 18,981 5,229 46,508
Income before extraordinary
loss (e).................... 2,628 3,973 8,426 830 15,857
Net income (loss)............ 2,628 3,973 8,426 (2,578) 12,449
Income before extraordinary
loss per share(e)........... .23 .34 .73 .07 1.37
Net income (loss) per share.. .23 .34 .73 (.22) 1.08
</TABLE>
- ---------------------
(a) Quarterly results may not be comparable due to the seasonal nature of the
Atlantic City operation.
(b) In 1993, the Company acquired a 30% equity interest in Showboat Star
Partnership which was engaged in the development of a riverboat casino on
Lake Pontchartrain in New Orleans, Louisiana. Operation of the riverboat
casino commenced on November 8, 1993. The Company's share of the
partnership's loss from the commencement of operations through December 31,
1993, including the write-off of preopening costs of $1,274,000, is
included in income from operations for the quarter ended December 31, 1993.
(c) The Company adopted FAS 109 in 1993 and reported the cumulative effect of
the change in method of accounting for income taxes as of January 1, 1993
in the 1993 Consolidated Statement of Income.
(d) In the quarter ended June 30, 1993, the Company recognized an extraordinary
loss of $6,679,000, net of tax, as a result of the redemption of all of its
outstanding 11 3/8% Bonds (Note 10).
(e) In the quarter ended December 31, 1992, the Company recognized an
extraordinary loss of $3,408,000, net of tax, as a result of the planned
redemption of all of its outstanding Debentures (Note 10).
14. SUBSEQUENT EVENTS (UNAUDITED)
On May 6, 1994, the New South Wales Casino Control Authority announced that
Sydney Harbour Casino Pty Limited, a wholly owned subsidiary of a company in
which Showboat, Inc. is a principal founding shareholder, was the preferred
applicant to develop a casino in Sydney, Australia. The preferred applicant
will work during the next six months to obtain all the necessary regulatory
approvals. Subsequently, the Authority will enter into a 99-year lease for the
site of the casino in New South Wales and issue an exclusive casino license for
12 years to cover the State of New South Wales. The Company will have an
approximate 27% equity interest in the casino at a cost of approximately $98.7
million. The Company anticipates making its investment in November 1994.
F-20
<PAGE>
On March 24, 1994, SBO secured a line of credit for A$8.4 million (U.S.
dollar equivalent approximately $6.1 million) in compliance with the New South
Wales Casino Control Authority's licensing requirements. This line of credit is
secured by a $6.3 million certificate of deposit. Interest on this line of
credit is payable at the bank's prime rate plus 2.0%. This line of credit
expires in December 1994. At March 31, 1994, ACSI had all the funds under this
line of credit available for use.
On May 25, 1994, the Shareholders approved an increase in the number of
Shares of Common Stock authorized from 20,000,000 to 50,000,000 Shares.
On May 25, 1994, the Shareholders approved a long-term incentive plan in
which officers and most management level employees of the Company participate.
Up to 2,000,000 Shares of SBO Common Stock may be awarded to plan participants
as either restricted shares or stock options. Restricted shares and options
generally vest over a five-year period. The options are exercisable, subject to
vesting, over ten years at option prices determined by SBO's Compensation
Committee provided that the option price is not less than 100% of the fair
market value of the Company's Common Stock determined on the date of grant of
the options.
F-21
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESMAN OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING MADE HEREBY. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHO-
RIZED BY THE COMPANY OR THE UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OFFERED
HEREBY IN ANY JURISDICTION IN WHICH OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCE, CREATE ANY IMPLICATION
THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Available Information..................................................... 3
Incorporation of Certain Documents by Reference........................... 3
Prospectus Summary........................................................ 4
The Company............................................................... 10
Certain Considerations.................................................... 18
Use of Proceeds........................................................... 23
Capitalization............................................................ 24
Selected Consolidated Financial Data...................................... 25
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 26
Management................................................................ 34
Regulation................................................................ 36
Description of Notes...................................................... 37
Underwriting.............................................................. 60
Legal Matters............................................................. 60
Experts................................................................... 60
Index to Consolidated Financial Statements................................ F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$150,000,000
LOGO
SHOWBOAT, INC.
% SENIOR SUBORDINATED NOTES DUE 2009
----------------
PROSPECTUS
----------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
, 1994
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses of the issuance and distribution of the Notes, as set
forth below, will be borne entirely by the Company:
<TABLE>
<CAPTION>
ITEM AMOUNT
---- ----------
<S> <C>
Securities and Exchange Commission Registration Fee.............. $ 51,725
Blue Sky Fees*................................................... 20,000
NASD Fees........................................................ 15,500
Rating Agency Fees*.............................................. 10,000
Printing and Engraving Fees and Expenses*........................ 100,000
Legal Fees and Expenses*......................................... 350,000
Accounting Fees and Expenses*.................................... 55,000
Trustee's Fees*.................................................. 15,000
Miscellaneous Expenses*.......................................... 382,775
----------
Total........................................................ $1,000,000
==========
</TABLE>
- ---------------------
*Estimated
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION/1/
------- --------------
<C> <S>
1.01 Form of Underwriting Agreement./2/
3.01 Restated Articles of Incorporation of the Company dated June 23, 1994.
4.01 Specimen Common Stock Certificate for the Common Stock of the Company.
4.03 Restated Bylaws of the Company dated February 25, 1993 are
incorporated herein by reference from the Company's Form 10-K for the
Year Ended December 31, 1992, Part IV, Item 14(a)(3), Exhibit 3.02.
4.04 Indenture relating to the 9 1/4% First Mortgage Bonds due 2008 is
incorporated by reference from the Company's Form 8-K dated May 18,
1993, Item 5, Exhibit 28.01.
4.05 Bond Certificate relating to the 9 1/4% First Mortgage Bonds due 2008
is incorporated herein by reference from the Company's Form 8-K dated
May 18, 1993, Item 5, Exhibit 28.01.
4.06 Form of Indenture relating to the % Senior Subordinated Notes due
2009, including form of Note./2/
5.01 Opinion and consent of Kummer Kaempfer Bonner & Renshaw as to the
legality of securities being registered.
12.01 Statement re: Computation of Ratios of Earnings to Fixed Charges.
23.01 Consent of Kummer Kaempfer Bonner & Renshaw, contained in Exhibit
5.01.
23.02 Consent of KPMG Peat Marwick.
24.01 Powers of Attorney./2/
25.01 Form T-1 Statement of Eligibility and Qualification under the Trust
Indenture Act of 1939 of Marine Midland Bank.
</TABLE>
- ---------------------
/1/All exhibits which are incorporated by reference are incorporated from
the Company's respective periodic reports, Securities and Exchange Commission
File No. 1-7123.
/2/Previously filed.
II-1
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANTS
CERTIFY THAT THEY HAVE REASONABLE GROUNDS TO BELIEVE THAT THEY MEET ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAVE DULY CAUSED THIS AMENDMENT NO. 1
TO THE REGISTRATION STATEMENT TO BE SIGNED ON THEIR BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED IN THE CITY OF LAS VEGAS, STATE OF NEVADA ON JULY 8,
1994.
Showboat, Inc. Atlantic City Showboat, Inc.
/S/ R. CRAIG BIRD /S/ JOHN N. BREWER
By: ________________________________ By: __________________________________
R. CRAIG BIRD JOHN N. BREWER
EXECUTIVE VICE ASSISTANT SECRETARY
PRESIDENT--FINANCE AND
DEVELOPMENT
Showboat Operating Company
Ocean Showboat, Inc.
/S/ LEANN K. SCHNEIDER
/S/ JOHN N. BREWER By: __________________________________
By: ________________________________
LEANN K. SCHNEIDER
JOHN N. BREWER VICE PRESIDENT-- FINANCE
ASSISTANT SECRETARY AND CHIEF FINANCIAL OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS OF
SHOWBOAT, INC. IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURES TITLE DATE
*
- ------------------------------------ Chairman of the
J.K. HOUSSELS Board
*
- ------------------------------------ Director, President
J. KELL HOUSSELS, III and Chief
Executive Officer
(Principal
Executive Officer)
/S/ LEANN K. SCHNEIDER
____________________________________ Vice President-- July 8, 1994
LEANN K. SCHNEIDER Finance and Chief
Financial Officer
(Principal
Financial Officer
and Principal
Accounting
Officer)
*
- ------------------------------------ Director
WILLIAM C. RICHARDSON
II-2
<PAGE>
SIGNATURES TITLE DATE
*
- ------------------------------------- Director
JOHN D. GAUGHAN
*
- ------------------------------------- Director
JEANNE S. STEWART
*
- ------------------------------------- Director, Executive
FRANK A. MODICA Vice President and
Chief Operating
Officer
*
- ------------------------------------- Directory and
H. GREGORY NASKY Secretary
*
- ------------------------------------- Director
GEORGE A. ZETTLER
*
- ------------------------------------- Director
CAROLYN M. SPARKS
/s/ LEANN K. SCHNEIDER July 8, 1994
*By: ___________________________ (Attorney-in-fact)
LEANN K. SCHNEIDER
II-3
<PAGE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS OF
ATLANTIC CITY SHOWBOAT, INC. IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
*
- ------------------------------------
FRANK A. MODICA Chairman of the Board
*
- ------------------------------------
J. KELL HOUSSELS, III Director, President and
Chief Executive Officer
(Principal Executive
Officer)
*
- ------------------------------------
KATHY CARACCIOLO Vice President--Finance
(Principal Financial
Officer and Principal
Accounting Officer)
*
- ------------------------------------
JOHN D. GAUGHAN Director
*
- ------------------------------------
J.K. HOUSSELS Director
*
- ------------------------------------
H. GREGORY NASKY Director and Secretary
/s/ LEANN K. SCHNEIDER
*By ________________________________
LEANN K. SCHNEIDER (Attorney-in-fact) July 8, 1994
</TABLE>
II-4
<PAGE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS OF
OCEAN SHOWBOAT, INC. IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
*
- ------------------------------------
J.K. Houssels Chairman of the Board
*
- ------------------------------------
Frank A. Modica Director, President and
Chief Executive Officer
(Principal Executive
Officer)
*
- ------------------------------------
Mark J. Miller Executive Vice President--
Finance and Chief Operating
Officer (Principal
Financial Officer and
Principal Accounting
Officer)
*
- ------------------------------------
William C. Richardson Director
*
- ------------------------------------
John D. Gaughan Director
*
- ------------------------------------
Jeanne S. Stewart Director
*
- ------------------------------------
H. Gregory Nasky Director and Secretary
*
- ------------------------------------
J. Kell Houssels, III Director and Executive Vice
President
*
- ------------------------------------
George A. Zettler Director
*
- ------------------------------------
Carolyn M. Sparks Director
/s/ LEANN K. SCHNEIDER
*By ________________________________
Leann K. Schneider (Attorney-in-fact) July 8, 1994
</TABLE>
II-5
<PAGE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS OF
SHOWBOAT OPERATING COMPANY IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
*
- ------------------------------------
J.K. Houssels Chairman of the Board
*
- ------------------------------------
Frank A. Modica Director, President and
Chief Executive Officer
(Principal Executive
Officer)
/s/ LEANN K. SCHNEIDER
____________________________________
Leann K. Schneider Vice President--Finance and July 8, 1994
Chief Financial Officer
(Principal Financial
Officer and Principal
Accounting Officer)
*
- ------------------------------------
John D. Gaughan Director
*
- ------------------------------------
H. Gregory Nasky Directory and Secretary
*
- ------------------------------------
J. Kell Houssels, III Director
/s/ LEANN K. SCHNEIDER
*By ________________________________
Leann K. Schneider (Attorney-in-fact) July 8, 1994
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ------
<C> <S> <C>
3.01 Restated Articles of Incorporation of the Company dated June
23, 1994.
4.01 Specimen Common Stock Certificate for the Common Stock of the
Company.
5.01 Opinion and consent of Kummer Kaempfer Bonner & Renshaw as to
the legality of securities being registered.
12.01 Statement re: Computation of Ratios of Earnings to Fixed
Charges.
23.01 Consent of Kummer Kaempfer Bonner & Renshaw, contained in
Exhibit 5.01.
23.02 Consent of KPMG Peat Marwick.
25.01 Form T-1 Statement of Eligibility and Qualification under the
Trust Indenture Act of 1939 of Marine Midland Bank.
</TABLE>
<PAGE>
GRAPHICS APPENDIX LIST
PAGE WHERE
GRAPHIC
APPEARS DESCRIPTION OF GRAPHIC OR CROSS REFERENCE
- --------------------------------------------------------------------------------
Inside Front Cover 1 Graphic No. 1 - An artist's rendering of the
contains graphics No. 1, Atlantic City Showboat expansion.
2 and 3
Graphic No. 2 - A picture of the renovated Pacific
Avenue entrance to the Atlantic City Showboat.
Graphic No. 3 - A picture of the Showboat Star
Casino riverboat.
- --------------------------------------------------------------------------------
Inside Front Cover 2 Graphic No. 4 - An artist's rendering of the
contains graphics No. 4 proposed Sydney Harbour Casino.
and 5
Graphic No. 5 - An artist's rendering of the lobby
at the proposed Sydney Harbour Casino.
- --------------------------------------------------------------------------------
Inside Front Cover 3 Graphic No. 6 - A world map with a yellow dot
contains graphics No. 6, marking Showboat's existing properties at Atlantic
7 and 8 City, New Jersey, Las Vegas, Nevada and Lake
Pontchartrain, Louisiana and a red dot marking
Showboat's announced expansion opportunities as of
June 1994: Sydney, Australia, East Chicago, Indiana
and St. Regis Mohawk, New York.
- --------------------------------------------------------------------------------
<PAGE>
GRAPHICS APPENDIX LIST
PAGE WHERE
GRAPHIC
APPEARS DESCRIPTION OF GRAPHIC OR CROSS REFERENCE
- ---------------------------------------------------------------------------
Graphic No. 7 - A map of portions of Wisconsin,
Michigan, Illinois and Indiana with a black star
marking the location of the proposed East Chicago
riverboat and a black circle marking the city of
Chicago, each within the center of a bullseye with
three lines indicating a 30, 60 and 120 mile radius.
Graphic No. 8 - A map of portions of Quebec,
Ontario, New York and Vermont with a black star in
the center of a bullseye marking the location of the
proposed St. Regis Casino in Hoganrburg, New York
and a black circle marking the city of Montreal with
distances marked for 30, 60 and 120 miles.
- --------------------------------------------------------------------------------
Inside Back Cover Graphic No. 9 - A picture of the Las Vegas Showboat.
contains graphics
No. 9 and 10 Graphic No. 10 - An artist's rendering of the Las
Vegas Showboat's proposed renovation and expansion.
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT 3.01
FILED
IN THE OFFICE OF THE
SECRETARY OF STATE OF THE
STATE OF NEVADA
JUN 23 1994
209-60
CHERYL A.LAU SECRETARY OF STATE
/s/ Cheryl A.Lau
AMENDED AND RESTATED
ARTICLES OF INCORPORATION OF
SHOWBOAT, INC.
Nevada State File No. 209-60
The undersigned hereby certify:
1. That they are the President and Assistant Secretary,
respectively, of Showboat, Inc., a Nevada corporation.
2. That at a meeting of the Board of Directors of the Company duly
held in Las Vegas, Nevada on February 23, 1994, the Board of Directors
unanimously adopted, approved and recommended to its shareholders to amend the
Company's Articles of Incorporation to increase the amount of authorized common
stock the Company may issue to 50,000,000.
3. That at a duly held annual meeting of the shareholders of the
Company, held at 801 Boardwalk, Atlantic City, New Jersey on May 25, 1994 the
shareholders of the Company approved and adopted the following amendment to the
first paragraph of Article IV of the Articles of Incorporation previously deemed
advisable and proposed to the shareholders by the Board of Directors as follows:
The amount of the total authorized capital stock of the
Company is Fifty-One Million Dollars ($51,000,000) consisting of
fifty million (50,000,000) shares of common stock of the par
value of One Dollar ($1) per share ("Common Stock") and One
Million (1,000,000) shares of preferred stock of the par value of
One Dollar ($1) per share ("Preferred Stock").
4. That the required number of shares of common stock entitled to
vote on the proposed amendments was 14,992,195 shares, and that a vote of sixty-
six and two-thirds percent (66 2/3%) or more than 9,994,797 shares was required
to approve the foregoing amendment. No shares of preferred stock are issued.
<PAGE>
5. That the vote on the proposed amendment was as follows:
For 11,415,350
Against 1,248,556
Abstain 47,557
The vote on the foregoing proposed amendment exceeded that required to
approve said amendment.
6. The Articles of Incorporation as amended are restated as follows:
RESTATED ARTICLES OF INCORPORATION
----------------------------------
OF
--
SHOWBOAT, INC.
--------------
I
The name of the corporation is SHOWBOAT, INC.
II
The principal office of the corporation in Nevada is to be located at
Showboat, Inc., 2800 Fremont Street, Las Vegas, Nevada.
III
The nature of the business, or objects or purposes proposed to be
transacted, promoted, or carried on by the corporation are: To engage in any
lawful activity.
(a) In addition thereto, said corporation shall conduct a gaming
business in the State of Nevada, in accordance with the laws of the State of
Nevada and the United States of America.
IV
The amount of the total authorized capital stock of the corporation is
Twenty One Million Dollars ($21,000,000.00) consisting of Twenty Million
(20,000,000) shares of common stock of the par value of One Dollar ($1.00) per
share ("Common Stock") and One Million (1,000,000) shares of preferred stock of
the par value of One Dollar ($1.00) per share ("Preferred Stock").
The Preferred Stock may be divided into and issued in series. If the
shares of any such class are to be issued in series, then
<PAGE>
each series shall be so designated as to distinguish the shares thereof from the
shares of all other series and classes. Any or all of the series of any such
class and variations and the relative rights and preferences as between
different series can be fixed and be determined by the Board of Directors. The
authority of the Board of Directors with respect to each series shall include,
without limitation thereto, the determination of any or all of the following and
the shares of each series may vary from the shares of any other series in the
following respects:
The Board of Directors of this corporation is hereby authorized to issue
the Preferred Stock at any time and from time to time, in one or more series and
for such consideration as may be fixed from time to time by the then Board of
Directors, but not less than the par value thereof. The number of shares to
comprise each such series, which number may be increased (except where otherwise
provided by the Board of Directors in creating such series) or decreased (but
not below the number of shares thereof then outstanding) shall be determined
from time to time by the Board of Directors. The Board of Directors is hereby
expressly authorized, before issuance of any shares of a particular series, to
determine any and all designations, preferences and relative, participating,
optional or other special rights, or qualifications, restrictions or limitations
thereof, pertaining to such series including but not limited to:
(1) Voting rights, if any, including, without limitation, the authority to
confer voting rights as to specified matters or issues such as
mergers, consolidations or sales of assets, or voting rights to be
exercised either together with holders of common stock as a single
class, or independently as a separate class;
(2) Rights, if any, permitting the conversion or exchange of any such
shares, at the option of the holder, into any other class or series of
shares of this corporation and the price or prices or the rates of
exchange and any adjustment thereto at which such shares will be
convertible or exchangeable;
(3) The rate of dividends, if any, payable on shares of such series, the
conditions and the dates upon which such dividends shall be payable
and whether such dividends shall be cumulative or non-cumulative;
(4) The amount payable on shares of such series in the event of any
liquidation, dissolution or distribution of the assets of or winding
up of the affairs of this corporation;
<PAGE>
(5) Redemption, repurchase, retirement and sinking fund rights,
preferences and limitations, if any, the amount payable on shares of
such series in the event of such redemption, repurchase or retirement,
the terms and conditions of any sinking fund, the manner of creating
such fund or funds and whether any of the foregoing shall be payable
in preference to, or in relation to, the dividends payable on any
other class or classes of stock, or cumulative or non-cumulative; and
(6) Any other preference and relative, participating, optional or other
special rights and qualifications, limitations or restrictions of
shares of such series not fixed and determined herein, to the extent
permitted to do so by law.
All shares of Preferred Stock shall be of equal rank and shall be identical
except with respect to the particulars that may be fixed by the Board of
Directors as above provided and as to the date from which dividends thereon, if
any, shall be cumulative if made cumulative by the Board of Directors.
(a) No holders of shares of the corporation of whatever class shall have
any preference or right of subscription to any share of any class of shares of
the corporation authorized, issued or sold, or to be authorized, issued or sold,
or to any obligations or shares authorized or issued or to be authorized or
issued, and convertible into shares of any class or classes of the corporation,
nor to any right of subscription thereto, other than the extent, if any, as the
Board of Directors in its discretion may determine, in respect thereof, whether
in respect of any portion unissued or unsold of any original authorized issue or
otherwise.
(b) Deleted.
(c) Said corporation shall not make a public offering of any stock or
security of this corporation, unless such public offering or sale of security
has been first approved by the Nevada Gaming Commission.
(d) If at any time the Nevada Gaming Commission finds that any individual
owner of any stock or security of this corporation, pursuant to the laws of the
State of Nevada or regulations of the Gaming Commission, is unsuitable to
continue as a gaming licensee in this State, such owner shall immediately offer
such security or stock for purchase. If this corporation does not purchase any
such stock or security, the owner may offer it to other purchasers subject to
prior approval of the Nevada Gaming Commission, as provided by the laws of the
State of Nevada and regulations pursuant thereto.
<PAGE>
V
The members of the governing board shall be styled directors, and the
number, names and Post Office addresses of the Board of Directors are as
follows, there being eight directors:
J.K. HOUSSELS, SR. 1012 South Sixth Street
Las Vegas, Nevada
J.K. HOUSSELS, JR. 1425 Aztec Way
Las Vegas, Nevada
FRED MORLEDGE 2040 Edgewood Avenue
Las Vegas, Nevada
NELSON CONWAY 1317 South Sixth Street
Las Vegas, Nevada
JUDD PARKER 605 Lacy Lane
Las Vegas, Nevada
JOSEPH KELLEY 830 Kenny Way
Las Vegas, Nevada
JULIAN MOORE 701 Vegas Drive
Las Vegas, Nevada
HAROLD VALENTINE 3627 Medlock Drive
Phoenix, Arizona
VI
The capital stock of the corporation, after the amount of the subscription
price has been paid in, shall not be subject to assessment.
VII
The name and Post Office addresses of each of the incorporators signing the
Articles of Incorporation are:
C.R. TICE 320 W. Cleveland, Apt. 8
Las Vegas, Nevada
FRIEDA FIFIELD 1703 Carson Avenue
Las Vegas, Nevada
LEE B. DIAL 1337 Darmak Drive
Las Vegas, Nevada
<PAGE>
VIII
The corporation shall have perpetual existence.
IX
The affirmative vote of voting shares necessary to approve a sale,
lease or exchange of property or assets of this corporation, or a merger or
consolidation involving this corporation, shall be 66-2/3# of the outstanding
voting shares.
X
The affirmative vote of voting shares necessary to approve an
amendment to the Articles of Incorporation of this corporation shall be 66-2/3%
of the outstanding voting shares.
XI
A director or officer of the corporation shall not be personally
liable to this corporation or its stockholders for damages for breach of
fiduciary duty as a director or officer, but this article shall not eliminate or
limit the liability of a director or officer for (i) acts or omissions which
involve intentional misconduct, fraud or a knowing violation of law or (ii) the
unlawful payment of dividends. Any repeal or modification of this article by
the stockholders of the corporation shall be prospective only, and shall not
adversely affect any limitation on the personal liability of a director or
officer of the corporation for acts or omissions prior to such repeal or
modification.
XII
Pursuant to the requirements of the Nevada Gaming Control Act ("Nevada
Act") and the New Jersey Casino Control Act ("New Jersey Act") and so long as it
remains, either a holding company or intermediary company as to the holder of a
gaming or casino license in either Nevada or New Jersey, all securities of this
corporation shall be held subject to the condition that if a holder thereof is
found to be unsuitable pursuant to the Nevada Act by the Nevada Gaming
Commission ("Nevada Commission") or is found to be disqualified pursuant to the
New Jersey Act by the New Jersey Casino Control Commission ("New Jersey
Commission"), such holder shall dispose of his interest in this corporation
promptly after such holder's receipt of written notice of his unsuitability or
disqualification. Promptly following its own receipt of notice from the Nevada
Commission or the New Jersey Commission, the corporation shall either deliver
such written notice personally to the unsuitable or disqualified holder or shall
mail it to such holder by certified mail, return receipt requested, to the
address shown on the corporation's books and records. Once such holder has been
found unsuitable by the Nevada Commission or disqualified by
<PAGE>
the New Jersey Commission, this corporation shall take all steps required under
the Nevada Act or the New Jersey Act with respect to such unsuitable or
disqualified holder. If any unsuitable or disqualified holder fails to dispose
promptly of his securities, such unsuitable or disqualified holder shall
indemnify the cor-poration for any and all direct or indirect costs, including
attorneys' fees, incurred by the corporation as a result of such holder's
continuing ownership or failure to divest promptly.
XIII
The corporation is authorized to redeem control shares (as that term
is defined in NRS 78.3781, et seq.), as provided in NRS 78.3792, as amended from
time to time.
XIV
A. In addition to any affirmative vote required by law or these
Articles of Incorporation or the Bylaws of the corporation, and except as
otherwise expressly provided in Section B of this Article XIV, a Business
Combination (as hereinafter defined) with, or proposed by or on behalf of, an
Interested Stockholder (as hereinafter defined) or any Affiliate or Associate
(as hereinafter defined) of such Interested Stockholder or any person who
thereafter would be an Affiliate or Associate of such Interested Stockholder
shall require the affirmative vote of not less than sixty-six and two-thirds
percent (66-2/3%) of the votes entitled to be cast by the holders of all the
then outstanding shares of Voting Stock (as hereinafter defined), voting
together as a single class, excluding Voting Stock beneficially owned by such
Interested Stockholder. Such affirmative vote shall be required notwithstanding
the fact that no vote may be required, or that a lesser percentage or separate
class vote may be specified, by law or in any agreement with any national
securities exchange or otherwise.
B. The provisions of Section A of this Article XIV shall not be
applicable to any particular Business Combination, and such Business Combination
shall require only such affirmative vote, if any, as is required by law or by
any other provision of these Articles of Incorporation or the Bylaws of the
corporation, or any agreement with any national securities exchange, if all the
conditions specified in either of the following Paragraphs 1 or 2 are met or, in
the case of a Business Combination not involving the payment of consideration to
the holders of the Corporation's outstanding Capital Stock (as hereinafter
defined), if the condition specified in the following Paragraph 1 is met:
1. The Business Combination shall have been approved, either
specifically or as a transaction which is within an approved category of
transactions, by a majority (whether such
<PAGE>
approval is made prior to or subsequent to the acquisition of, or
announcement of public disclosure of the intention to acquire, beneficial
ownership of the Voting Stock that caused the Interested Stockholder to
become an Interested Stockholder) of the Continuing Directors (as
hereinafter defined).
2. All of the following conditions shall have been met:
(a) The aggregate per share amount of cash and the Fair Market
Value (as hereinafter defined), as of the date of the consummation of
the Business Combination, of consideration other than cash to be
received by holders of common stock in such Business Combination shall
be at least equal to the highest amount determined under clauses (i),
(ii), (iii), and (iv) below:
(i) (if applicable) the highest per share price (including
any brokerage commissions, transfer taxes and soliciting dealers'
fees) paid by or on behalf of the Interested Stockholder for any
share of common stock in connection with the acquisition by the
Interested Stockholder of beneficial ownership of shares of
common stock (x) within the two-year period immediately prior to
the first public announcement of the proposed Business
Combination (the "Announcement Date") or (y) in the transaction
in which it became an Interested Stockholder, whichever is
higher, in either case as adjusted for any subsequent stock
split, stock dividend, subdivision or reclassification affecting
or relating to the common stock;
(ii) the Fair Market Value per share of common stock on the
Announcement Date or on the date on which the Interested
Stockholder became an Interested Stockholder (the "Determination
Date"), whichever is higher, as adjusted for any subsequent stock
split, stock dividend, subdivision or reclassification affecting
or relating to the common stock;
(iii) (if applicable) the price per share equal to the Fair
Market Value per share of common stock determined pursuant to the
immediately preceding clause (ii), multiplied by the ratio of (x)
the highest per share price (including brokerage commissions,
transfer taxes and soliciting dealers' fees) paid by or on behalf
of the Interested Stockholder for any share of common
<PAGE>
stock in connection with the acquisition by the Interested
Stockholder of beneficial ownership of shares of common stock
within the two-year period immediately prior to the Announcement
Date, as adjusted for any subsequent stock split, stock dividend,
subdivision or reclassification affecting or relating to the
common stock to (y) the Fair Market Value per share of common
stock on the day immediately preceding the first day in such two-
year period on which the Interested Stockholder acquired
beneficial ownership of any share of common stock, as adjusted
for any subsequent stock split, stock dividend, subdivision or
reclassification affecting or relating to the common stock; and
(iv) the corporations' net income per share of common stock
for the four full consecutive fiscal quarters immediately
preceding the Announcement Date, multiplied by the higher of the
then price/earnings multiple (if any) of such Interested
Stockholder or the highest price/earnings multiple of the
corporation within the two-year period immediately preceding the
Announcement Date (such price/earnings multiples being determined
as customarily computed and reported in the financial community).
(b) The aggregate amount per share of cash and the Fair Market
Value, as of the date of the consummation of the Business Combination,
of consideration other than cash to be received by holders of shares
of any class or series of outstanding Capital Stock, other that common
stock, shall be at least equal to the highest amount determined under
clauses (i), (ii), (iii), and (iv) below:
(i) (if applicable) the highest per share price (including
any brokerage commissions, transfer taxes and soliciting dealers'
fees) paid by or on behalf of the Interested Stockholder for any
share of such class or series of Capital Stock in connection with
the acquisition by the Interested Stockholder or beneficial
ownership of shares of such class or series of Capital Stock (x)
within the two-year period immediately prior to the Announcement
Date or (y) in the transaction in which it became an interested
Stockholder, whichever is higher, in either case as adjusted for
any subsequent stock split, stock dividend, subdivision or
reclassification affecting or relating to such class or series of
Capital Stock;
<PAGE>
(ii) the Fair Market Value per share of such class or series
of Capital Stock on the Announcement Date or on the Determination
Date, whichever is higher, as adjusted for any subsequent stock
split, stock dividend, subdivision or reclassification affecting
or relating to such class or series of Capital Stock;
(iii) (if applicable) the price per share equal to the Fair
Market Value per share of such class or series of Capital Stock
determined pursuant to the immediately preceding clause (ii),
multiplied by the ratio of (x) the highest per share price
(including any brokerage commissions, transfer taxes and
soliciting dealers' fees) paid by or on behalf of the Interested
Stockholder for any share of such class or series of Capital
Stock in connection with the acquisition by the Interested
Stockholder of beneficial ownership of shares of such class or
series of Capital Stock within the two-year period immediately
prior to the Announcement Date, as adjusted for any subsequent
stock split, stock dividend, subdivision or reclassification
affecting or relating to such class or series of Capital Stock to
(y) the Fair Market Value per share of such class or series of
Capital Stock on the day immediately preceding the first day in
such two year period on which the Interested Stockholder acquired
beneficial ownership of any share of such class or series of
Capital Stock, as adjusted for any subsequent stock split, stock
dividend, subdivision or reclassification affecting or relating
to such class or series of Capital Stock; and
(iv) (if applicable) the highest preferential amount per
share to which the holders of shares of such class or series of
Capital Stock would be entitled in the event of any voluntary or
involuntary liquidation, dissolution or winding up of the affairs
of the corporation regardless of whether the Business Combination
to be consummated constitutes such an event.
The provisions of this Paragraph 2 shall be required to be met with respect
to every class or series of outstanding Capital Stock, whether or not the
Interested Stockholder has previously acquired beneficial ownership of any
shares of a particular class or series of Capital Stock.
<PAGE>
(c) The consideration to be received by holders of a particular
class or series of outstanding Capital Stock shall be in cash or in
the same form as previously has been paid by or on behalf of the
Interested Stockholder in connection with its direct or indirect
acquisition of beneficial ownership of shares of such class or series
of Capital Stock. If the consideration so paid for shares of any
class or series of Capital Stock varied as to form, the form of
consideration for such class or series of Capital Stock shall be
either cash or the form used to acquire beneficial ownership of the
largest number of shares of such class or series of Capital Stock
previously acquired by the Interested Stockholder.
(d) After the Determination Date and prior to the consummation of
such Business Combination: (i) except as approved by a majority of
the Continuing Directors, there shall have been no failure to declare
and pay at the regular dates therefor any full quarterly dividends
(whether or not cumulative) payable in accordance with the terms of
any outstanding Capital Stock; (ii) there shall have been no reduction
in the annual rate of dividends paid on the common stock (except as
necessary to reflect any stock split, stock dividend or subdivision of
the common stock), except as approved by a majority of the Continuing
Directors; (iii) there shall have been an increase in the annual rate
of dividends paid on the common stock as necessary to reflect any
reclassification (including any reverse stock split),
recapitalization, reorganization or any similar transaction that has
the effect of reducing the number of outstanding shares of common
stock, unless the failure so to increase such annual rate is approved
by a majority of the Continuing Directors; and (iv) such Interested
Stockholder shall not have become the beneficial owner of any
additional shares of Capital Stock except as part of the transaction
that results in such Interested Stockholder becoming an Interested
Stockholder and except in a transaction that, after giving effect
thereto, would not result in any increase in the Interested
Stockholder's percentage beneficial ownership of any class or series
of Capital Stock.
(e) A proxy or information statement describing the proposed
Business Combination and complying with the requirements of the
Securities Exchange Act of 1934, as amended, and the rules and
regulations thereunder (the "Exchange Act") or, any subsequent
provisions replacing the Exchange Act, shall be mailed to all
shareholders of the corporation at least 30 days prior to the
consummation of such Business Combination (whether or not
<PAGE>
such proxy or information statement is required to be mailed pursuant
to the Exchange Act or subsequent provisions). The proxy or
information statement shall contain on the first page thereof, in a
prominent place, any statement as to the advisability (or
inadvisability) of the Business Combination that the Continuing Direc-
tors, or any of them, may choose to make and, if deemed advisable by a
majority of the Continuing Directors, the opinion of an investment
banking firm selected by a majority of the Continuing Directors as to
the fairness (or absence thereof) of the terms of the Business
Combination from a financial point of view to the holders of the
outstanding shares of Capital Stock other than the Interested
Stockholder and its Affiliates or Associates, such investment banking
firm to be paid a reasonable fee for its services by the corporation.
(f) Such Interested Stockholder shall not have made any major
changes in the corporation's business or equity capital structure
without the approval of a majority of the Continuing Directors.
C. The following definitions shall apply with respect to this Article XIV:
1. The term "Business Combination" shall mean:
(a) Any merger or consolidation of the Corporation or any
Subsidiary (as hereinafter defined) with (i) any Interested
Stockholder or (ii) any other company (whether or not itself an
Interested Stockholder) which is or after such merger or consolidation
would be an Affiliate or Associate of an Interested Stockholder; or
(b) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition or security arrangement, investment, loan, advance,
guarantee, agreement to purchase, agreement to pay, extension of
credit, joint venture participation or other arrangement (in one
transaction or a series of transactions) with or for the benefit of
any Interested Stockholder or any Affiliate or Associate of any
Interested Stockholder involving any assets, securities, obligations
or commitments of the corporation, any Subsidiary or any Interested
Stockholder or any Affiliate or Associate of any Interested
Stockholder which has aggregate Fair Market Value and/or involves
aggregate commitments of $10,000,000 or more or constitutes more than
5 percent of the book value of the total assets (in the case of
transactions involving assets or commitments other than capital stock)
or 5 percent of the shareholders' equity (in the case of
<PAGE>
transactions in capital stock) of the entity in question (the
"Substantial Part"), as reflected in the most recent fiscal year end
consolidated balance sheet of such entity existing at the time the
shareholders of the corporation would be required to approve or
authorize the Business Combination involving the assets, securities,
obligations and/or commitments constituting any Substantial Part;
provided that any arrangement, whether as employee, consultant or
otherwise, other than as a director, pursuant to which any Interested
Stockholder or any Affiliate or Associate thereof shall, directly or
indirectly, have any control over or management of any aspect of the
business or affairs of the corporation, shall be deemed to be a
"Business Combination" irrespective of the value test set forth above;
or
(c) the adoption of any plan or proposal for the liquidation or
dissolution of the corporation or for any amendment to the
corporation's Bylaws; or
(d) any reclassification of securities (including any reverse
stock split), or recapitalization of the corporation, or any merger or
consolidation of the corporation with any of its Subsidiaries or any
other transaction (whether or not with or otherwise involving an
Interested Stockholder) that has the effect, directly or indirectly,
of increasing the proportionate shares of any class or series of
Capital Stock, or any securities convertible into Capital Stock or
into equity securities of any Subsidiary, that is beneficially owned
by any Interested Stockholder or any affiliate or Associate of any
Interested Stockholder; or
(e) any agreement, contract or other arrangement providing for
any one or more of the actions specified in the foregoing clauses (a)
to (d).
2. The term "Capital Stock" shall mean all capital stock of the
corporation authorized to be issued from time to time under Article IV of
these Articles of Incorporation, and the term "Voting Stock" shall mean all
Capital Stock which by its terms may be voted on all matters submitted to
shareholders of the corporation generally.
3. The term "person" shall mean any individual, firm, company or
other entity and shall include any group comprised of any person and any
other person with whom such person or any Affiliate or Associate of such
person has any agreement, arrangement or understanding, directly or
indirectly, for the purpose of acquiring, holding, voting or disposing of
Capital Stock.
<PAGE>
4. The term "Interested Stockholder" shall mean any person (other than the
corporation or any Subsidiary and other than any profit-sharing, employee
stock ownership or other employee benefit plan of the corporation or any
Subsidiary or any trustee of or fiduciary with respect to any such plan
when acting in such capacity) who (a) is, or has announced or publicly
disclosed a plan or intention to become, the beneficial owner of Voting
Stock representing fifteen percent (15#) or more of the votes entitled to
be cast by the holders of all then outstanding shares of Voting Stock; or
(b) is an Affiliate or Associate of the corporation and at any time within
the two-year period immediately prior to the date in question was the
beneficial owner of Voting Stock representing fifteen percent (15#) or more
of the votes entitled to be cast by the holders of all then outstanding
shares of Voting Stock.
5. A person shall be a "beneficial owner" of any Capital Stock (a)
which such person or any of its Affiliates or Associates beneficially owns,
directly or indirectly; (b) which such person or any of its Affiliates or
Associates has, directly or indirectly, (i) the right to acquire (whether
such right is exercisable immediately or subject only to the passage of
time), pursuant to any agreement, arrangement or understanding or upon the
exercise of conversion rights, exchange rights, warrants or options, or
otherwise, or (ii) the right to vote pursuant to any agreement, arrangement
or undertaking; or (c) which are beneficially owned, directly or
indirectly, by any other person with which such person or any of its
Affiliates or Associates has any agreement, arrangement or understanding
for the purpose of acquiring, holding, voting or disposing of any shares of
Capital Stock. For the purposes of determining whether a person is an
Interested Stockholder pursuant to Paragraph 4 of this Section C, the
number of shares of Capital Stock deemed to be outstanding shall include
shares deemed beneficially owned by such person through application of this
Paragraph 5 of Section C, but shall not include any other shares of Capital
Stock that may be issuable pursuant to any agreement, arrangement or
understanding, or upon exercise of conversion rights, warrants or options,
or otherwise.
6. The terms "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 under the Exchange Act (the
term "registrant" in said Rule 12b-2 meaning in this case the corporation).
7. The term "Subsidiary" means any company of which a majority of any
class of equity security is beneficially owned by the corporation;
provided, however, that for the purposes of the definition of Interested
Stockholder set forth in Paragraph 4 of this Section C, the term
"Subsidiary" shall
<PAGE>
mean only a company of which a majority of each class of equity security is
beneficially owned by the corporation.
8. The term "Continuing Director" means (i) any member of the Board
of Directors of the corporation (the "Board of Directors"), while such
person is a member of the Board of Directors, who is not an Interested
Stockholder or an Affiliate or Associate or representative of the
Interested Stockholder and was a member of the Board of Directors prior to
the time that the Interested Stockholder became an Interested Stockholder,
and (ii) any person who subsequently becomes a member of the Board of
Directors, while such person is a member of the Board of Directors, who is
not an Interested Stockholder or an Affiliate or Associate or
representative of the Interested Stockholder, if such person's nomination
for election or election to the Board of Directors is recommended or
approved by a majority of the Continuing Directors then in office.
9. The term "Fair Market Value" means (a) in the case of cash, the
amount of such cash; (b) in the case of stock, the highest closing sale
price during the 30-day period immediately preceding the date in question
of a share of such stock on the Composite Tape for New York Stock Exchange-
Listed Stocks, or, if such stock is not quoted on the Composite Tape, on
the New York Stock Exchange, or, if such stock is not listed on such
Exchange, on the principal United States securities exchange registered
under the Exchange Act on which such stock is listed, or, if such stock is
not listed on any such exchange, the highest closing bid quotation with
respect to a share of such stock during the 30-day period preceding the
date in question on the National Association of Securities Dealers, Inc.
Automated Quotation System or any similar system then in use, or if no such
quotations are available, the fair market value on the date in question of
a share of such stock as determined by a majority of the Continuing
Directors in good faith; and (c) in the case of property other than cash or
stock, the fair market value of such property on the date in question as
determined in good faith by a majority of the Continuing Directors.
10. In the event of any Business Combination in which the corporation
survives the phrase "consideration other than cash to be received" as used
in Paragraphs 2.a and 2.b of Section B of this Article XIV shall include
the shares of common stock and/or the shares of any other class or series
of Capital Stock retained by the holders of such shares.
D. A majority of the Continuing Directors shall have the power and duty to
determine for the purposes of this Article XIV, on the basis of information
known to them after reasonable inquiry,
<PAGE>
all questions arising under this Article XIV, including, without limitation, (a)
whether a person is an Interested Stockholder, (b) the number of shares of
Capital Stock or other securities beneficially owned by any person, (c) whether
a person is an Affiliate or Associate of another (d) whether a Proposed Action
(as hereinafter defined) is with, or proposed by, or on behalf of an Interested
Stockholder or an Affiliate or Associate of an Interested Stockholder, (e)
whether the assets that are the subject of any Business Combination have, or the
consideration to be received for the issuance or transfer of securities by the
corporation or Subsidiary in any Business Combination has, an aggregate Fair
Market Value of $10,000,000 or more, (f) whether the assets or securities that
are the subject of any Business Combination constitute a Substantial Part and
(g) to what extent an adjustment is appropriate (including an adjustment to
paragraph 2 of Section B of this Article XIV) in respect of any provision
contained within this Article XIV as a result of a merger, consolidation, stock
split, stock dividend, extraordinary cash dividend, subdivision,
reclassification, recapitalization or similar transaction. Any such
determination made in good faith shall be binding and conclusive on all parties.
For purposes of this Article XIV (including without limitation paragraph 2 of
Section B and subparagraph (g) of this Section D of this Article XIV), the term
"corporation" including, without limitation, any reference to any shares of
capital stock of the corporation or the holders or prices or value of such
shares shall be deemed to include any predecessor corporation and the
corresponding shares of capital stock of such predecessor corporation and the
holders and prices and value of such shares.
E. Nothing contained in this Article XIV shall be construed to relieve any
Interested Stockholder from any fiduciary obligation imposed by law.
F. The fact that any Business Combination complies with the provisions of
Section B of this Article XIV shall not be construed to impose any fiduciary
duty, obligation or responsibility on the Board of Directors, or any member
thereof, to approve such Business Combination or recommend its adoption or
approval to the stockholders of the corporation, nor shall such compliance
limit, prohibit or other wise restrict in any manner the Board of Directors, or
any member thereof, with respect to evaluations of or actions and responses
taken with respect to such Business Combination.
G. For the purposes of this Article XIV, a Business Combination or any
proposal to amend, repeal or adopt any provision of this Certificate of
Incorporation inconsistent with this Article XIV (collectively, "Proposed
Action") is presumed to have been proposed by, or on behalf of, an Interested
Stockholder or an Affiliate or Associate of an Interested Stockholder or a
person who
<PAGE>
thereafter would become such if (1) after the Interested Stockholder became
such, the Proposed Action is proposed following the election of any director of
the Corporation who with respect to such Interested Stockholder, would not
qualify to serve as a Continuing Director, or (2) such Interested Stockholder,
Affiliate, Associate or person votes for or consents to the adoption of any such
Proposed Action, unless as to such Interested Stockholder, Affiliate, Associate
or person a majority of the Continuing Directors makes a good faith
determination that such Proposed Action is not proposed by or on behalf of such
Interested Stockholder, Affiliate, Associate or person, based on information
known to them after reasonable inquiry.
H. Notwithstanding any other provision of these Articles of Incorporation
or the Bylaws of the corporation (and notwithstanding the fact that a lesser
percentage or separate class vote may be specified by law, these Articles of
Incorporation or the Bylaws of the corporation), any proposal to amend, repeat
or adopt any provision of these Articles of Incorporation inconsistent with this
Article XIV which is proposed by or on behalf of an Interested Stockholder or an
Affiliate or Associate of an Interested Stockholder shall require the
affirmative vote of the holders of not less than 66-2/3# of the votes entitled
to be cast by the holders of all the then outstanding shares of Voting Stock,
voting together as a single class and excluding Voting Stock beneficially owned
by such Interested Stockholder.
IN WITNESS WHEREOF, the undersigned have executed the Amended and
Restated Articles of Incorporation of Showboat, Inc. on June 10, 1994.
--
/s/ J.K. Houssels, III /s/ John N. Brewer
- ----------------------------- -----------------------------------
J.K. Houssels, III, President John N. Brewer, Assistant Secretary
STATE OF NEW JERSEY )
) ss:
COUNTY OF ATLANTIC )
On this 10th day of June, 1994, before me, the undersigned, a Notary
----
Public in and for the County of Atlantic, State of New Jersey, duly commissioned
and sworn, personally appeared J.K. HOUSSELS, III, known/proved to me to be the
PRESIDENT of SHOWBOAT, INC., that executed the within instrument and known to be
the person who affixed his name thereto as such J.K. HOUSSELS, III, PRESIDENT,
and who acknowledged to me that he executed the
<PAGE>
same freely and voluntarily and for the uses and purposes therein mentioned.
BRENDA SUE WALLACE /s/ Brenda Sue Wallace
NOTARY PUBLIC OF NEW JERSEY ------------------------------
My Commission Expires Jan 30, 1996 NOTARY PUBLIC
STATE OF NEVADA)
) ss:
COUNTY OF CLARK)
On this 10th day of June, 1994, before me, the undersigned, a Notary
----
Public in and for the County of Clark, State of Nevada, duly commissioned and
sworn, personally appeared JOHN N. BREWER, known/proved to me to be the
ASSISTANT SECRETARY of SHOWBOAT, INC., that executed the within instrument and
known to be the person who affixed his name thereto as such JOHN N. BREWER,
ASSISTANT SECRETARY, and who acknowledged to me that he executed the same freely
and voluntarily and for the uses and purposes therein mentioned.
SEAL
ANGELA M. PETERSON /s/ Angela M. Peterson
------------------------------
Notary Public - Nevada NOTARY PUBLIC
Clark County
My appt. exp. Nov. 15, 1997
<PAGE>
EXHIBIT 4.01
[GRAPHIC OF CERTIFICATE OF STOCK APPEARS HERE]
<PAGE>
SHOWBOAT, INC.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common UNIF GIFT MIN ACT --______Custodian_______
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right under Uniform Gifts to Minors
of survivorship and not as Act:_________________
tenants in common (State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED _____ HEREBY SELL, ASSIGN AND TRANSFER UNTO
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ---------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES
- ----------------------------------------------------------------------
OF THE COMMON STOCK REPRESENTED BY THE WITHIN CERTIFICATE AND DO HEREBY
IRREVOCABLY CONSTITUTE AND APPOINT
ATTORNEY
- ----------------------------------------------------------------------
TO TRANSFER THE SAID STOCK ON THE BOOKS OF THE WITHIN-NAMED CORPORATION WITH
FULL POWER OF SUBSTITUTION IN THE PREMISES.
DATED
----------------------
- --------------------------------------------------------------------------------
NOTICE: THE SIGNATURE IN THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERATIONS OF ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature Guarantee
- --------------------------------------------------------------------------------
Signature must be guaranteed by an officer of a commercial bank or by a
stockbroker who is a member of a national stock exchange.
<PAGE>
EXHIBIT 4.01
GRAPHICS APPENDIX LIST
PAGE WHERE
GRAPHIC
APPEARS DESCRIPTION OF GRAPHIC OR CROSS REFERENCE
- --------------------------------------------------------------------------------
Front Page contains Graphic No. 1 - A picture of J.K. Houssels, Sr.
Graphics No. 1 and
No. 2 Graphic No. 2 - A picture of Joseph H. Kelley
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT 5.01
July 8, 1994
Securities and Exchange Commission
450 Fifth Street
Washington, D.C. 20549
Re: Showboat, Inc.
Registration Statement on Form S-3
Registration No. 33-54325
Ladies and Gentlemen:
As counsel to Showboat, Inc., a Nevada corporation (the "Company"), we are
rendering this opinion letter in connection with the registration by the Company
of __% Senior Subordinated Notes due 2009 in the principal aggregate amount of
$150,000,000 (the "Notes") and the proposed sale thereof. The Notes will be
unsecured general obligations of the Company, subordinated in right of payment
to all Senior Debt (as defined in the Indenture)of the Company. The Notes will
be jointly and severally guaranteed on an unsecured, senior subordinated basis
by certain of the Company's subsidiaries.
We have examined the proposed form of indenture (the "Indenture") among the
Company, as issuer, the Guarantors and Marine Midland Bank & Trust Company (the
"Trustee"), and we have examined such other papers, documents, records of the
Company and the Guarantors, and certificates of public officials as we have
deemed relevant and necessary as a basis for the opinions hereinafter set forth.
In such examinations, we have assumed the genuineness of all signatures and the
authenticity of all documents submitted to us as originals and the conformity to
originals of documents submitted to us as conformed or photostatic copies. We
have also assumed that the Indenture and the Underwriting Agreement among the
Company, the Guarantors and Donaldson, Lufkin & Jenrette Securities Corporation
(the "Underwriting Agreement") will, when executed and delivered, be
substantially in the forms submitted to
<PAGE>
Securities and Exchange Commission
July 8, 1994
Page 2
us for examination. As to various questions of fact material to such opinions,
we have relied upon resolutions of the Board of Directors of the Company and the
Guarantors as well as the representations and warranties of the Company and the
Guarantors contained in the proposed form of Underwriting Agreement.
On the basis of the foregoing and in reliance thereon, we are of the
opinion that when: (i) the Registration Statement on Form S-3 covering the Notes
shall have become effective under the Securities Act of 1933, as amended (the
"Act"); (ii) the Indenture shall have become qualified under the Trust Indenture
Act of 1939, as amended; (iii) the securities, Blue Sky, real estate syndication
and gaming laws of certain states shall have been complied with; (iv) the
Indenture shall have been executed and delivered by the Company, the Guarantors,
and the Trustee; and (v) the Notes shall have been authenticated and issued as
provided in the Indenture and sold pursuant to the Underwriting Agreement and
the proceeds from the sale of the Notes received by the Company:
(a) the Indenture will constitute a valid and binding obligation of the
Company; and
(b) the Notes and the Guarantees will be valid and binding obligations of
the Company and the Guarantors, respectively.
The obligations referred to in clauses (a) and (b) will be enforceable in
accordance with their respective terms, except as the same may be limited by,
and subject to, applicable bankruptcy, insolvency, reorganization, moratorium
and other laws now or hereafter in effect relating to or affecting creditors'
rights generally and by general principles of equity. Further, enforceability
of provisions contained in the Indenture relating to the Guarantors are subject
to the New Jersey Casino Control Act and the Nevada Gaming Control Act and the
regulations promulgated under such acts, and may be subject to such other gaming
acts and regulations pursuant to which the Company may operate. Notwithstanding
the foregoing, we express no opinion as to the validity or enforceability of the
waiver of usury as a defense or the payment of interest on interest as provided
in the Indenture.
We hereby consent to the filing of this opinion letter as an exhibit to the
above-referenced registration statement filed with the Securities and Exchange
Commission under the Act and the
<PAGE>
Securities and Exchange Commission
July 8, 1994
Page 3
use of our name under the caption "Legal Matters" in the Registration Statement
and in the Prospectus contained therein.
Very truly yours,
/S/ KUMMER KAEMPFER BONNER & RENSHAW
-----------------------------------
KUMMER KAEMPFER BONNER & RENSHAW
<PAGE>
EXHIBIT 12.01
SHOWBOAT, INC. AND SUBSIDIARIES
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------- ----------------
1989 1990 1991 1992 1993 1993 1994
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT RATIO DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Income before income
taxes and extraordinary
items.................. $11,134 $ 2,529 $10,102 $22,614 $23,938 $ 3,186 $ 5,689
------- ------- ------- ------- ------- ------- -------
Add:
Fixed Charges:
Interest--expensed.. 28,038 28,099 27,497 25,335 24,696 4,900 6,202
Interest--capital-
ized............... 248 1,085 189 449
Portion of rents
representative of
the interest
factor............. 6,965 7,471 7,710 8,096 8,467 2,031 2,148
------- ------- ------- ------- ------- ------- -------
Total fixed charges (1). 35,003 35,818 35,207 33,431 34,248 7,120 8,799
------- ------- ------- ------- ------- ------- -------
Less:
Interest--capitalized. 248 1,085 189 449
------- ------- ------- ------- ------- ------- -------
Earnings as adjusted(2). $46,137 $38,099 $45,309 $56,045 $57,101 $10,117 $14,039
======= ======= ======= ======= ======= ======= =======
Ratio of earnings to
fixed charges(2)/(1)... 1.32x 1.06x 1.29x 1.68x 1.67x 1.42x 1.60x
======= ======= ======= ======= ======= ======= =======
</TABLE>
<PAGE>
Exhibit 23.02
ACCOUNTANT'S CONSENT
The Board of Directors
Showboat, Inc.
We consent to the use of our reports included and incorporated herein by
reference and to the references to our Firm under the headings "Selected
Consolidated Financial Data" and "Experts" in the prospectus.
KPMG PEAT MARWICK
Las Vegas, Nevada
July 7, 1994
<PAGE>
EXHIBIT 25.01
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST
INDENTURE ACT OF 1939 OF A CORPORATION
DESIGNATED TO ACT AS TRUSTEE
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CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2)
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MARINE MIDLAND BANK
(Exact name of trustee as specified in its charter)
New York 16-1057879
(Jurisdiction of incorporation (I.R.S. Employer
or organization if not a U.S. Identification No.)
national bank)
140 Broadway, New York, N.Y. 10005-1180
(212) 658-1000 (Zip Code)
(Address of principal executive offices)
SHOWBOAT, INC.
(Exact name of obligor as specified in its charter)
Nevada 88-0090766
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2800 Fremont Street
Las Vegas, Nevada 89104
(702) 385-9141
(Address of principal executive offices) (Zip Code)
% Senior Subordinated Notes due 2009
(Title of Indenture Securities)
<PAGE>
General
Item 1. General Information.
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Furnish the following information as to the trustee:
(a) Name and address of each examining or supervisory
authority to which it is subject.
State of New York Banking Department.
Federal Deposit Insurance Corporation, Washington, D.C.
Board of Governors of the Federal Reserve System,
Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
Item 2. Affiliations with Obligor.
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If the obligor is an affiliate of the trustee, describe
each such affiliation.
None
<PAGE>
Item 16. List of Exhibits.
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<TABLE>
<CAPTION>
Exhibit
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<S> <C>
T1A(i) * - Copy of the Organization Certificate of
Marine Midland Bank.
T1A(ii) * - Certificate of the State of New York
Banking Department dated December
31, 1993 as to the authority of Marine
Midland Bank to commence business.
T1A(iii) - Not applicable.
T1A(iv) * - Copy of the existing By-Laws of Marine
Midland Bank as adopted on January
20, 1994.
T1A(v) - Not applicable.
T1A(vi) * - Consent of Marine Midland Bank
required by Section 321(b) of the Trust
Indenture Act of 1939.
T1A(vii) Copy of the latest report of condition
of the trustee (March 31, 1994),
published pursuant to law or the
requirement of its supervisory or
examining authority.
T1A(viii) - Not applicable.
T1A(ix) - Not applicable.
</TABLE>
* Exhibits previously filed with the Securities and Exchange Commission
with Registration No. 33-53693 and incorporated herein by reference
thereto.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the Trustee,
Marine Midland Bank, a banking corporation and trust company organized under the
laws of the State of New York, has duly caused this statement of eligibility to
be signed on its behalf by the undersigned, thereunto duly authorized, all in
the City of New York and State of New York on the 6th day of July, 1994.
MARINE MIDLAND BANK
By: /s/ Eileen M. Hughes
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Eileen M. Hughes
Corporate Trust Officer
<PAGE>
Exhibit T1A(vii)
REPORT OF CONDITION
Consolidated Report of Condi-
tion of Marine Midland Bank of
Buffalo, New York and Foreign
and Domestic Subsidiaries, a
member of the Federal Reserve
System, at the close of business
on March 31,1994, pub-
lished in accordance with a call
made by the Federal Reserve
Bank of this District pursuant to
the provisions of the Federal
Reserve Act.
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<CAPTION>
(Dollar Amounts in
Thousands)
<S> <C>
ASSETS
0
from depositary institu-
tions:
Noninterest-bearing
balances and currency
and coin................... $ 654,847
Interest-bearing bal-
ances...................... 1,652,505
Securities:
Held-to-maturity
securities................. 1,766,401
Available-for-sale
securities................. 41,769
Federal funds sold and
securities purchased
under agreements to
resell in domestic of-
fices of the bank and of
its Edge and Agree-
ment subsidiaries, and
in IBF's
Federal funds sold......... 66,000
Securities purchased
under agreements to
resell..................... 493,541
Loans and lease financing
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
receivables:
Loans and leases, net
of unearned
income..................... 10,181,278
LESS: Allowance for
loan and lease
losses..................... 342,271
LESS: Allocated
transfer risk
reserve.................... 0
Loans and lease, net of
unearned income, al-
lowance, and reserve....... 9,839,007
Assets held in trading ac-
counts..................... 1,494,020
Premises and fixed assets
(including capitalized
leases).................... 186,463
Other real estate owned....... 118,747
Investments in unconsoli-
dated subsidiaries and
associated companies....... 0
Customers' liability to this
bank on acceptances
outstanding................ 17,055
Intangible assets............ 67,022
Other assets.................. 437,953
Total assets.................. 16,835,330
LIABILITIES
Deposits:
In domestic
offices.................... 12,231,288
Noninterest-
bearing.................... 3,020,414
Interest-
bearing.................... 9,210,874
In foreign offices, Edge
and Agreement Subsid-
iaries, and IBF's.......... 1,143,633
Noninterest-
bearing.................... 0
Interest-
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
bearing.................... 1,143,633
Federal funds purchased
securities sold un-
der agreements to re-
purchase in domestic
offices of the bank and
of its Edge and Agree-
ment subsidiaries, and
in IBF's
Federal funds purchased.... 790,500
Securities sold under
agreements to repur-
chase...................... 199,290
Demand notes issued to
the U.S. Treasury.......... 300,000
Trading Liabilities........... 88,811
Other borrowed money:
With original maturity
of one year or less........ 64,734
With original maturity
of more than one year...... 0
Mortgage indebtedness
and obligations under
capitalized leases......... 41,237
Bank's liability on accep-
tances executed and
outstanding................ 18,486
Subordinated notes and
debentures................. 225,000
Other liabilities............. 368,487
Total
Liabilities................ 15,471,466
Limited-Life preferred
stock and related sur-
plus....................... 0
EQUITY CAPITAL
Perpetual preferred stock
and related surplus........ 0
Common Stock.................. 185,000
Surplus....................... 1,182,745
Undivided profits and
capital reserves........... (3,881)
LESS: Net unrealized loss
</TABLE>
<PAGE>
<TABLE>
<S> <C>
on marketable equity
securities................. 0
Cumulative foreign cur-
rency translation ad-
justments.................. 0
Total equity capital.......... 1,363,864
Total
Liabilities, limited-life
preferred stock and eq-
uity capital..................................... 16,835,330
</TABLE>
I, Gerald A. Ronning, Executive Vice
President & Controller of the above-
named bank do hereby declare that
this Report of Condition has been pre-
pared in conformance with the instruc-
tions issued by the Board of Governors
of the Federal Reserve System and is
true to the best of my knowledge and
belief.
GERALD A. RONNING
We the undersigned directors, attest
to the correctness of this Report of
Condition and declare that it has been
examined by us and to the best of our
knowledge and belief has been pre-
pared in conformance with the instruc-
tions issued by the Board of Governors
of the Federal Reserve System and is
true and correct.
James H. Cleave
Northrup R. Knox
Aman Mehta
