SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-7123
Showboat, Inc.
(Exact name of registrant as specified in its charter)
Nevada 88-0090766
(State or other (I.R.S. employer
jurisdiction of identification no.)
incorporation or
organization)
2800 Fremont Street, Las Vegas, Nevada 89104
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (702) 385-9141
Securities registered pursuant to section 12(b) of the Act:
Name of each
Title of each class exchange on which
registered
Common Stock, $1.00 par value, and New York Stock
Preferred Stock Purchase Rights Exchange
9 1/4% First Mortgage Bonds due 2008 New York Stock
Exchange
13% Senior Subordinated Notes due 2009 New York Stock
Exchange
Securities registered pursuant to section 12(g) of the Act: None
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Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [ X ] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting stock held by non-
affiliates of the registrant, based on the closing price of
registrant's common stock on the New York Stock Exchange on March
14, 1997, was approximately $280,626,000.
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of March 14, 1997:
16,184,420.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III of this Report is
incorporated by reference from the Showboat, Inc. Proxy Statement
to be filed with the Commission not later than 120 days after the
end of the fiscal year covered by this Report.
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PART I
ITEM 1. BUSINESS
GENERAL
Showboat, Inc., through subsidiaries, (collectively, the
"Company") is an international gaming company with over 40 years
of gaming experience that (i) owns and operates the Showboat
Casino Hotel fronting the Boardwalk in Atlantic City, New Jersey
(the "Atlantic City Showboat"), (ii) owns and operates the
Showboat Hotel, Casino and Bowling Center in Las Vegas, Nevada
(the "Las Vegas Showboat"), and (iii) beneficially owns a 24.6%
interest in, and manages, the Sydney Harbour Casino in Sydney,
New South Wales, Australia ("Sydney Harbour Casino"), which
commenced gaming operations in an interim casino on September 13,
1995. The Company, through subsidiaries, also (i) owns a 55%
partnership interest in Showboat Marina Casino Partnership, an
Indiana partnership ("SMCP"), which holds a certificate of
suitability for a riverboat owner's license in East Chicago,
Indiana; in connection therewith, SMCP is constructing a $200.0
million state-of-the-art cruising gaming vessel and related land-
based entertainment complex in East Chicago, Indiana (the "East
Chicago Showboat") which is scheduled to open, subject to
licensing, in the second quarter of 1997, (ii) owns an 80%
interest in Southboat Limited Partnership which has submitted an
application with the Missouri Gaming Commission for a riverboat
gaming license near Lemay, Missouri, and (iii) entered into a
contract to manage a tribal casino near Bellingham, Washington
(approximately 40 miles south of Vancouver, British Columbia,
Canada) for the Lummi Indian Nation on February 3, 1997. From
July 1993 to March 31, 1995, the Company owned an interest in,
and managed the Showboat Star Casino, a riverboat casino then
located on Lake Pontchartrain in New Orleans, Louisiana.
The Company commenced operations in September 1954 and was
incorporated in Nevada in 1960. The Company operated only in
Nevada until the Atlantic City Showboat commenced operations
in 1987. The Company became a publicly traded company on
December 9, 1968. It was listed on the American Stock
Exchange from 1973 to 1984 and on the New York Stock Exchange
from 1984 to the present. Unless the context otherwise
requires, the "Company" or "Showboat," as applicable, refers to
Showboat, Inc. and its subsidiaries. The Company's executive
offices are located at 2800 Fremont Street, Las Vegas, Nevada
89104, and its telephone number is (702) 385-9141.
FISCAL YEAR 1996 DEVELOPMENTS
SYDNEY, AUSTRALIA
STATUS OF CONSTRUCTION OF PERMANENT CASINO. In April 1996,
the Company, through its partially owned subsidiary, undertook
steps to upgrade the planned theming and decor of the permanent
Sydney Harbour Casino located in Sydney, New South Wales,
Australia. The design element changes were made with a
view toward improving the casino's operational efficiency
and product quality and to match the changing competitive
environment. In addition, the scheduled opening date of
the permanent casino was moved up and is currently
expected to be in December 1997, rather than April 1998. As
a result, the total project cost increased A$180.0 million to
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A$1,413.8 million from A$1,223.8 as previously disclosed by SHCH.
(As used in this Form 10-K amounts in Australian dollars are
denoted as "A$." As of December 31, 1996 the exchange rate was
approximately $0.794 for each A$1.00.) The increased
construction costs for the upgraded project are being funded by
increasing the available bank financing by A$150.0 million and
by the April 1996 sale of 35,250,000 preferred ordinary shares of
Sydney Harbour Casino Holdings Limited, the publicly traded
holding company of the casino licensee ("SHCH"), providing net
proceeds of approximately A$64.0 million. As with any
construction contract, the final amount of such contract will be
subject to modification based upon change orders and the costs
associated with certain types of construction delays. No
assurances can be given that the costs for the Sydney Harbour
Casino project will not exceed A$1,413.8 million. See "Item 1.
Business - Sydney Operations" and "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations."
The permanent casino will feature a 352 room hotel, 139
serviced apartments, a lyric theatre, a cabaret theatre,
convention and retail facilities, 2,500 underground car spaces
and a light rail link to the city. The Sydney Harbour Casino
entered into an eight-year agreement with Lord Andrew Lloyd
Webber's Really Useful Theatres Pty Ltd. for the management of
the Lyric Theatre. Of the 2,500 parking spaces being
constructed for use at the permanent casino, 1,400 spaces
became available for use at the interim casino at the end of
1996. Upon opening the permanent casino, the lease for the
interim casino will terminate and, as a result, the interim
Sydney Harbour Casino will cease operations.
AGREEMENT IN PRINCIPLE. On January 12, 1997, the Company,
and Publishing & Broadcasting Limited, a public company listed on
the Australian Stock Exchange ("PBL"), reached an agreement in
principle with respect to the acquisition by PBL of a significant
portion of the Company's interests in the Sydney Harbour Casino.
Through wholly-owned subsidiaries, the Company is the largest
single shareholder, holding 135 million ordinary shares or 24.6%
of the issued and outstanding ordinary shares of SHCH. In
addition, the Company holds, through subsidiaries, an option to
purchase approximately 37.4 million ordinary shares of SHCH at an
exercise price of A$1.15 per share. This option may be exercised
between July 1, 1998 and June 30, 2000.
The proposed acquisition contemplates that PBL will purchase
from the Company approximately 55 million ordinary shares of
SHCH, which represents approximately 10% of the issued voting
shares of SHCH, at a price of A$1.85 per share, subject to
certain adjustments. Additionally, the agreement in principle
contemplates PBL granting to the Company a put option to sell to
PBL another 54 million ordinary shares at an exercise price of
A$1.85 per share. The put option will expire March 31, 1999.
The acquisition further contemplates, under arrangements to be
concluded, that PBL would succeed to the management of the casino
in Sydney for which PBL would pay the Company A$204 million. The
acquisition is subject to the execution of definitive agreements
and the receipt of various governmental and regulatory consents
and approvals. Additionally, certain third parties will need to
consent to the acquisition prior to the acquisition's
consummation.
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EAST CHICAGO, INDIANA
CERTIFICATE OF SUITABILITY. On January 8, 1996, the Indiana
Gaming Commission (the "Indiana Commission") issued a certificate
of suitability to Showboat Marina Partnership, an Indiana general
partnership ("SMP"), for a gaming license to own and operate the
East Chicago Showboat. SMP is owned 55% by Showboat Indiana
Investment Limited Partnership, a wholly-owned limited
partnership of the Company, and 45% by Waterfront Entertainment
and Development, Inc. ("Waterfront"), an unrelated Indiana
corporation. The certificate of suitability was valid for a
period of 180 days from January 8, 1996. SMP applied with the
Indiana Commission to transfer the certificate of suitability to
a subsidiary partnership, and, on March 20, 1996, SMP received
permission to transfer the certificate of suitability to SMCP.
The Indiana Commission renewed the certificate of suitability in
July 1996 for a period of 180 days and renewed the certificate
again in January 1997 until June 1, 1997. For such time as the
certificate of suitability is effective, SMCP must meet certain
statutory requirements and special conditions must be followed in
order for SMCP to receive a permanent riverboat owner's license.
See also "Item 1. Business - Regulations and Licensing - Indiana
Gaming."
THE PROJECT. The operations of SMCP and of SMP, which
contributed all of its assets (except for the capital stock of
East Chicago Second Century, Inc.) and liabilities to SMCP as of
March 28, 1996, have been limited to applying for appropriate
gaming licenses and securing the land for, arranging for
construction of, finalizing the design of, constructing and
developing and obtaining financing for the East Chicago Showboat.
The budgeted $200.0 million East Chicago Showboat will contain
approximately 53,000 square feet of gaming space with
approximately 1,770 slot machines and approximately 90 table
games (includes five poker tables). The land based facility is
expected to consist of a pavilion, parking garage and surface
parking. The pavilion will be approximately 100,000 square feet
and will include a coffee shop, upscale restaurant, cocktail
lounge, gift shop, ticket/promotions area as well as
administrative offices. A parking garage containing 1,800 spaces
will connect to the pavilion through a climate controlled
corridor and surface parking for an additional 1,000 vehicles
will be available for use by patrons to the East Chicago
Showboat. Subject to obtaining the necessary gaming licenses,
other permits and financing, SMCP expects gaming operations at
East Chicago Showboat to commence during the second calendar
quarter of 1997.
The funds necessary to design, develop, construct, equip and
open the East Chicago Showboat were derived from funds
contributed to SMCP in March 1996, the proceeds from the sale of
debt securities also sold in March 1996 and capital lease
financing. SMCP is currently finalizing agreements with its
capital lease providers.
ISSUANCE OF DEBT SECURITIES. On March 28, 1996, SMCP and
Showboat Marina Finance Corporation, a Nevada corporation and
wholly owned subsidiary of SMCP ("SMFC"), sold $140.0 million,
13 1/2% Series A First Mortgage Notes due 2003 (the "Series A
Notes") through a private placement. The proceeds from the
offering were approximately $133.7 million, net of underwriting
discounts and commissions. The funds were raised to support the
development costs for the East Chicago Showboat. On August 12,
1996, SMCP and SMFC exchanged the Series A Notes with
notes registered under the Securities Act of 1933, as
amended, the 13 1/2% Series B First Mortgage Notes due 2003
(the "Series B Notes"). The Series B Notes and the
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Series A Notes were issued under the Indenture dated as
of March 28, 1996 (the "East Chicago Note Indenture") between
SMCP, SMFC and American Bank National Association as Trustee (in
such capacity, the Trustee or Registrar). The form and terms of
the Series A Notes were identical in all material respects to the
form and terms of the Series B Notes. The Series A Notes and the
Series B Notes are collectively referred to as the "East Chicago
Notes."
Interest is payable on the East Chicago Notes semiannually
on March 15 and September 15 of each year, commencing
September 15, 1996. The East Chicago Notes will not be
redeemable prior to March 15, 2000, except as otherwise required
by a gaming authority. On and after March 15, 2000, the East
Chicago Notes will be redeemable at the option of the SMCP, in
whole or in part, at redemption prices ranging from 106.75% in
2000 through 100.00% in 2002 and thereafter, as defined in the
East Chicago Note Indenture for the East Chicago Notes, plus
accrued and unpaid interest and liquidated damages, if any.
The East Chicago Notes are senior secured obligations of
SMCP and rank senior in right of payment to all existing and
future subordinated indebtedness of SMCP and pari passu with
SMCP's senior indebtedness. The East Chicago Notes are without
recourse to the general partners of SMCP or to the Company.
Terms not otherwise defined herein have the meanings assigned to
them in the East Chicago Note Indenture. The East Chicago Notes
are secured by a first lien on substantially all of SMCP's
assets. The East Chicago Note Indenture places significant
restrictions on SMCP for the incurrence of additional
Indebtedness, the creation of additional Liens (defined in the
East Chicago Note Indenture) on the Collateral (defined in the
East Chicago Note Indenture) securing the East Chicago Notes,
transactions with Affiliates (defined in the East Chicago Note
Indenture) and making Restricted Payments (defined in the East
Chicago Note Indenture) unless certain conditions are met.
Restricted Payments include paying a management fee to SMP, the
Manager of the East Chicago Showboat. In order to pay the
management fee, among other things, SMCP's Fixed Charge Coverage
Ratio (defined in the East Chicago Note Indenture) must be
greater than 1.5 to 1.0 for the most recently ended four full
fiscal quarters, after giving effect to such Restricted Payment.
To make any other Restricted Payment SMCP must, among other
things, have a Fixed Charge Coverage Ratio of 2.0 to 1.0 for the
most recently ended four full fiscal quarters, after giving
effect to such Restricted Payment.
In addition, subject to certain qualifications and
exceptions, the Company entered into a standby equity commitment
with SMCP, pursuant to which it will cause to be made up to an
aggregate of $30.0 million in additional capital contributions to
SMCP if, during the first three full four fiscal quarters
following the commencement of operations at the East Chicago
Showboat, the East Chicago Showboat's combined cash flow (as
defined) is less than $35.0 million for any one such full four
quarter period. However, in no event will the Company be
required to cause to be contributed to SMCP more than $15.0
million in respect of any such full four quarter period. In
addition, subject to certain qualifications and exceptions, the
Company entered into a completion guarantee with SMCP to complete
the East Chicago Showboat so that it becomes operational,
including the payment of all costs owing prior to such
completion, up to a maximum aggregate amount of $30.0 million.
The Company's obligation to complete the East Chicago Showboat
will be suspended during the pendency of any force
majeure event or other event outside the control of the
Company. The Company believes that SMCP has sufficient
funds for the design, development, construction, equipping
and opening of the East Chicago Showboat. For additional
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information relating to SMCP, please refer to the Form 10-K for
SMCP (SEC File No. 001-12419) for the year ended December 31,
1996, as filed with the Commission on March 25, 1997.
CHANGE OF LAW. A Coast Guard appropriations bill, which
included an amendment to the Johnson Act permitting the operation
of gaming equipment on the portion of Lake Michigan within
Indiana's borders and jurisdiction, was presented to and signed
by President William J. Clinton in November 1996. Previously,
the Johnson Act prohibited gaming on federal waterways, including
the Great Lakes. The Indiana casino excursion riverboats
operating on Lake Michigan prior to the passage of the Coast
Guard appropriations bill, were permitted to operate "mock"
cruises at the dock. As a result of the bill's enactment,
Indiana casino excursion riverboats will be permitted to cruise
on Lake Michigan within Indiana's borders.
RANDOLPH, MISSOURI
In March 1995, the Company, with an unrelated corporation,
formed Showboat Mardi Gras, L.L.C. ("SMG"), to own and operate,
subject to licensing, a riverboat casino near Kansas City,
Missouri. The Company owned 35% of the equity of SMG. SMG was
not selected by the Missouri Gaming Commission for investigation
for a gaming license. Due to a decline in the market value of
the assets of SMG, principally a riverboat, the Company recorded
a pre-tax write-down of $3.8 million. This write-down included
the Company's remaining investment in SMG, and the Company has no
further obligation to SMG.
LUMMI INDIAN NATION
The Company entered into a tribal management agreement and
related documents with the Lummi Indian Nation for the financing,
development and operation of a Class III casino located between
Bellingham, Washington and Vancouver, British Columbia, Canada.
The agreements are subject to necessary approvals and licensing
by various state and federal regulatory authorities. The casino,
which will be located on tribal land, will be 3 miles off of
Interstate 5, approximately 45 minutes from Vancouver. It is
anticipated that the casino will be approximately 65,000 square
feet, featuring table games, keno and several restaurants.
FUTURE EXPANSION
The Company regularly evaluates and pursues potential
expansion and acquisition opportunities in both domestic and
international markets. Such opportunities may include the
ownership, management and operation of gaming and entertainment
facilities, either alone or with joint venture partners.
Currently, the Company has announced gaming opportunities in
Lemay, Missouri, Rockingham Park in Salem, New Hampshire and the
Lummi Indian Nation, near Bellingham, Washington. See "Item 1.
Business -- Narrative Description of Business -- Development
Activities" "-- Rockingham Park, New Hampshire," "-- Lemay,
Missouri" or "-- Lummi Indian Nation." Development and operation
of any gaming facility is subject to numerous contingencies,
several of which are outside of the Company's control
and may include the enactment of appropriate gaming
legislation, the issuance of requisite permits, licenses and
approvals, the availability of appropriate financing and
the satisfaction of other conditions. There
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can be no assurance that the Company will elect or be able
to consummate any such acquisition or expansion opportunity. See
"Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations."
NARRATIVE DESCRIPTION OF BUSINESS
ATLANTIC CITY OPERATIONS
The Company's subsidiary, Atlantic City Showboat, Inc.
("ACSI"), owns and operates the Atlantic City Showboat, which
commenced operations in 1987. ACSI is a wholly-owned subsidiary
of Ocean Showboat, Inc. ("OSI"), which is a wholly-owned
subsidiary of the Company. The Atlantic City Showboat is located
at the eastern end of the Boardwalk on approximately 12 acres,
10 1/2 acres of which are leased to ACSI. In addition, ACSI owns
approximately nine acres of land adjacent to the Atlantic City
Showboat which are zoned for non-casino development and which are
currently used as surface parking lots.
The Atlantic City Showboat is a New Orleans-themed casino-
hotel featuring, as of March 1, 1997, approximately 97,000 square
feet of casino space. The casino, the other public areas and
administrative offices are located on the first four floors of a
24-story hotel tower. A 16-story hotel tower, constructed in
1994, is adjacent to the 24-story hotel tower. The Atlantic City
Showboat has been designed to promote ease of customer access to
the casino and all other public areas of the hotel-casino.
Access to the Atlantic City Showboat's casino is provided by two
main entrances, one on the Boardwalk and one on Pacific Avenue,
which runs parallel to the Boardwalk.
The Atlantic City Showboat contains two public levels. Two
pairs of large escalators, which are directly accessible from the
two ground level entrances, and ten elevators provide easy access
to the second public level. Public areas located on the ground
level, in addition to the casino space, include a show lounge,
five restaurants, two cocktail lounges, a pizza snack bar, an ice
cream parlor, and retail shopping. Public areas located on the
second level include a buffet, a coffee shop, a private players
club, a beauty salon, a health spa, a video game arcade,
approximately 27,000 square feet of meeting rooms, convention and
exhibition space and a 60-lane bowling center, including a snack
bar and cocktail lounge. As of March 1, 1997, the casino offered
approximately 3,600 slot machines, 100 table games, a horse race
simulcast facility and a keno facility. The second and fourth
floors of the 24-story hotel tower are occupied by kitchens,
storage for food, beverage and other perishables, surveillance
and security areas, an employee cafeteria, computer equipment and
executive and administrative offices.
The two hotel towers feature a total of 800 hotel rooms.
Many of the hotel rooms have a view of the ocean. Included in
the number of hotel rooms are 59 suites, 40 of which have ocean-
front decks. A nine-story parking garage is located on-site at
the Pacific Avenue entrance. The facility provides self-parking
for approximately 2,000 cars and a 14-bus depot integrated with
the 24-story hotel tower. In addition, on-site underground
parking accommodates valet parking for approximately 500 cars.
This design permits Atlantic City Showboat's customers to enter
the casino hotel protected from the weather. The Atlantic City
Showboat also has surface level self-parking for approximately
950 cars adjacent to the parking garage.
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Adjacent to the Atlantic City Showboat is the Taj Mahal
Casino Hotel (the "Taj Mahal"). The Taj Mahal is connected to
both the Atlantic City Showboat and Resorts International Casino
Hotel by pedestrian passageways. 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 connectors.
ATLANTIC CITY EMPLOYEES AND LABOR RELATIONS
As of March 1, 1997, the Atlantic City Showboat employed
approximately 3,300 persons on a full-time basis and
approximately 325 persons on a part-time basis. Approximately
1,300 or 39.4% of the Atlantic City Showboat's full-time
employees are covered by collective bargaining agreements. The
collective bargaining agreement covering 1,172 employees expires
in September 1999. The number of employees at the Atlantic City
Showboat is expected to fluctuate, with the highest number during
the summer months and the lowest number during the winter months.
All employees of the Atlantic City Showboat whose
responsibilities involve or relate to the casino or the simulcast
area must be licensed by or registered with the applicable New
Jersey regulatory authorities before commencing work at the
Atlantic City Showboat. The Company considers its current labor
relations to be satisfactory.
LAS VEGAS OPERATIONS
The Las Vegas Showboat is owned by the Company and it
commenced operations in September 1954. The Las Vegas Showboat
is managed by Showboat Operating Company ("SBOC"), a wholly-owned
subsidiary of the Company. The Las Vegas Showboat, which covers
approximately 26 acres, is located near the Boulder Highway
approximately two and one-half miles from the hotel-casinos in
downtown Las Vegas or on the Las Vegas Strip.
The Las Vegas Showboat is a New Orleans-themed hotel casino
in an 18-story hotel tower and low-rise complex. The Las Vegas
Showboat features an approximately 75,000 square foot casino, 451
hotel rooms, a 106-lane bowling center, two specialty
restaurants, a buffet, a coffee shop, an approximately 1,300-seat
bingo parlor garden and a showroom. In addition, 8,300 square
feet of meeting room area is available with a seating capacity of
1,000 persons. As of March 1, 1997, the Las Vegas Showboat's
casino offered approximately 1,480 slot machines, 28 table games,
a race and sports book and a keno facility. The Las Vegas
Showboat has developed a recreational vehicle park with
approximately 80 spaces on leased property contiguous to the Las
Vegas Showboat. The recreational vehicle park became operational
in March 1997.
LAS VEGAS EMPLOYEES AND LABOR RELATIONS
As of March 1, 1997, the Las Vegas Showboat employed
approximately 1,280 persons, of which approximately 720 or 57% of
the employees were represented by collective bargaining
agreements. The collective bargaining agreement covering
approximately 575 employees expires on June 1, 1997. The Company
considers its current labor relations to be satisfactory.
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SYDNEY OPERATIONS
The Company's wholly-owned subsidiary, Showboat Australia
Pty Limited ("SA"), invested approximately $100.0 million in
SHCH, which, through wholly-owned subsidiaries, owns the Sydney
Harbour Casino and holds the casino license required to operate
the Sydney Harbour Casino. SA also has an 85% interest in the
management company which manages the Sydney Harbour Casino. In
December 1994, the New South Wales Casino Control Authority
("NSWCCA") granted the only full-service casino license in the
State of New South Wales to Sydney Harbour Casino Pty Limited
("SHCL"). Upon issuance of the license, SHCL paid an aggregate
of A$376.0 million as a one time license fee and prepaid rent for
the casino site. The Sydney Harbour Casino commenced gaming
operations in an interim casino in Sydney, Australia on
September 13, 1995.
The interim casino, which has approximately 60,000 square
feet of casino space, is located approximately one mile from the
Sydney central business district at Pyrmont Bay adjacent to
Darling Harbour on Wharves 12 and 13. An existing building was
renovated to permit the operation of the interim casino
containing 500 slot machines and 150 table games. The interim
casino is open 24 hours per day, every day of the year. The
interim casino also features 3 restaurants, 5 bars, a sports
lounge and a gift shop. In December 1996, 1,400 parking
spaces constructed in connection with the permanent casino became
available for use by patrons of the interim casino.
The opening of the interim Sydney Harbour Casino marked the
beginning of Sydney Harbour Casino's 12-year monopoly as the only
full-service casino in the State of New South Wales. This
exclusive 12-year period is included in the 99-year casino
license awarded to SHCL.
Pursuant to the terms of a construction contract and subject
to certain exceptions, the permanent Sydney Harbour Casino must
be completed by February 1998. SHCH formed a wholly-owned
subsidiary, Sydney Harbour Casino Properties Pty Limited
("SHCP"), to lease the land for the Sydney Harbour Casino from
the NSWCCA and to construct the Sydney Harbour Casino. The
Company anticipates that the permanent Sydney Harbour Casino will
commence operations by the end of 1997. The permanent Sydney
Harbour Casino will be located at Pyrmont Bay next to the interim
casino site. Pursuant to the terms of the casino license, upon
opening the permanent casino, the interim casino lease will
terminate and operations at the interim casino will cease. The
permanent Sydney Harbour Casino will feature approximately
153,000 square feet of casino space, including an approximately
22,000 square foot private gaming area to be located on a
separate level which will service a premium clientele. The Sydney
Harbour Casino will have 1,500 slot machines and 200 table games.
The permanent Sydney Harbour Casino will also contain several
themed restaurants, cocktail lounges, a 2,000 seat lyric theatre,
a 900 seat cabaret style theatre and extensive public areas.
The Sydney Harbour Casino entered into an eight-year agreement
with Lord Andrew Lloyd Webber's Really Useful Theatres Pty Ltd.
for the management of the lyric theatre. The Sydney Harbour
Casino complex will include a 352 room hotel tower and an
adjacent condominium tower containing 139 privately-owned units
with full hotel services. (Of the 139 units, 78 units
have been sold as of March 7, 1997.) When
available, some of the 139 privately-owned units may
also be used by the hotel for its guests. The
complex will also include extensive retail facilities,
a station for Sydney's proposed light rail
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system, a bus terminal, docking facilities for commuter ferries
and parking for approximately 2,500 cars.
In April 1996, the Company, through its partially-owned
affiliate, undertook steps to upgrade the planned theming and
decor of the permanent Sydney Harbour Casino. The design element
changes were made with a view toward improving the casino's
operational efficiency and product quality and to match the
changing competitive environment. In addition, the scheduled
opening date was moved up and is currently expected to be
December 1997, rather than April 1998. As a result, the total
project cost increased A$180.0 million to A$1,413.8 million from
A$1,233.8 million as previously disclosed by SHCH. The current
project cost includes expenditures for property, plant and
equipment of approximately A$782.9 million and A$93.5 million for
the permanent and interim casinos, respectively. Other project
costs include preopening costs for both the permanent and interim
casinos which are budgeted at approximately A$44.8 million, the
license fee and prepaid rent which was A$376.0 million and equity
costs, financing fees, prelicensing costs and other expenses for
the project which total approximately A$116.6 million. The
increased construction costs for the upgraded project are
being funded by increasing the available bank financing by
A$150.0 and by the April 1996 sale of 35,250,000 preferred
ordinary shares of SHCH in providing net proceeds of
approximately A$64.0 million. As with any construction
contract, the final amount of such contract will be subject to
modification based upon change orders and the occurrence of
events such as costs associated with certain types of
construction delays. No assurances can be given that the costs
for the Sydney Harbour Casino project will not exceed A$1,413.8
million.
Under the terms of the construction contract and subject to
certain exceptions, the permanent casino must be completed by
February 1998. In the event that the permanent Sydney Harbour
Casino is not completed within such time period, the construction
contract provides for the payment of liquidated damages of not
more than A$150,000 per day to an aggregate maximum amount of
A$30.0 million. Additionally, SHCH is indemnified against any
loss arising from the contractor's failure to perform its
obligations under the construction contract.
In addition to its 24.6% equity interest in SHCH, SA has an
option to purchase an additional 37,446,553 ordinary shares of
SHCH at an exercise price of A$1.15 per share. SA's option may
be exercised no earlier than July 1, 1998 and expires June 30,
2000. SA is restricted to remain the beneficial owner of not
less than 10% of the issued capital of SHCH 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 capital of SHCH for an additional two years
thereafter. SHCH became a publicly listed company on the
Australian Stock Exchange in June 1995.
Sydney Casino Management Pty Limited (the "Manager"), a
company which is 85% owned by SA and 15% owned by National Mutual
Trustees Limited in trust for Leighton Properties Pty Limited
("Leighton Properties"), manages the interim casino and will
manage 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 SHCL or
SHCP 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
- 11 -
<PAGE>
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. SA has agreed to forego the first A$19.1 million of
its 85% portion of the fees due under the Management Agreement,
of which amount approximately A$4.6 million remains as of
December 31, 1996. 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 A$222.6 million (as adjusted) of gross
table game revenue with the rate increasing by 1.0% for each
additional A$5.0 million of gross table game revenue up to a
maximum rate of 45.0% payable on gross table game revenue in
excess of A$320.0 million per annum. The A$222.6 million of base
gross table game revenue will be adjusted annually in accordance
with changes in the Consumer Price Index (Sydney All Groups)
from the first week in July each year. The base year of the index
is 1992. SHCL will also pay a community benefit levy of 2.0% of
gross gaming revenue.
The Company has entered into an agreement in principle with
PBL to sell approximately 55 million ordinary shares of SHCH
owned by the Company and contemplates that PBL would succeed to
the management of the Sydney Harbour Casino for which PBL would
pay the Company A$204 million. See "Item 1. Business - Fiscal
Year 1996 Developments - Sydney, Australia" and "Item 7.
Management's Discussion and Analysis of Financial Conditions and
Results of Operations" for discussion regarding the Company's
agreement in principle with PBL.
As with any major construction effort, the permanent Sydney
Harbour Casino involves many risks, including, without
limitation, shortages of materials and labor, work stoppages,
labor disputes, weather interference, unforeseen engineering,
environmental or geological problems and unanticipated cost
increases, any of which could give rise to delays or cost
overruns. Construction, equipment or staffing problems or
difficulties in obtaining any of the requisite permits,
allocations and authorizations from regulatory authorities could
increase the cost or delay the construction or opening of the
permanent facilities or otherwise affect their design and
features. The final budgets and construction plans for the
permanent Sydney Harbour Casino may vary significantly from that
which is currently anticipated. Accordingly, there can be no
assurance that the permanent Sydney Harbour Casino will be
completed within the time periods or budgets which are currently
contemplated.
In addition, the Company's participation in foreign
operations in New South Wales, Australia involves a number of
risks. These risks include, without limitation, currency and
exchange control problems, operating in highly inflationary
environments, fluctuations in monetary exchange rates, the
possible inability to execute and enforce agreements, the future
regulations governing the repatriation of funds, political,
regulatory and economic instability or changes in policies of the
foreign government, and the dependence on other future events
which can influence the success or failure of such foreign
operations. There can be no assurance that these factors will
not have an adverse impact on the Company's operating results.
- 12 -
<PAGE>
SYDNEY EMPLOYEES AND LABOR RELATIONS
As of March 1, 1997, the Sydney Harbour Casino employed
approximately 2,805 persons, of which approximately 2,255 or 80%
of the employees were represented by a collective bargaining
agreement. The collective bargaining agreement expires in
February 1988. The Sydney Harbour Casino considers its current
labor relations to be satisfactory.
FINANCIAL INFORMATION ABOUT THE COMPANY
The primary source of revenue and income to the Company is
its casinos, although the hotels, restaurants, bars, buffets,
shops, bowling, sports and other special events and services are
important adjuncts to the casinos. At December 31, 1996, casinos
either owned or managed by the Company featured the following
approximate number of slot machines and table games:
<TABLE>
<CAPTION>
Interim
Atlantic Sydney
City Las Vegas Harbour
Showboat Showboat Casino Total
<S> <C> <C> <C> <C>
Slot Machines............ 3,605 1,478 500 5,583
"21" Tables.............. 48 15 81 144
Poker Tables............. 6 5 0 11
"Craps" Tables........... 10 2 2 14
Roulette Tables.......... 13 2 33 48
Caribbean Stud Poker..... 8 1 4 13
Pai Gow Poker Tables..... 2 1 2 5
Pai-Gow Tile Table....... 3 0 0 3
Baccarat Tables.......... 3 0 3 6
Mini-Baccarat Tables..... 1 0 18 19
Big Six Wheel............ 2 0 2 4
Sic Bo................... 1 0 4 5
Let It Ride.............. 5 2 0 7
Two Up................... 0 0 1 1
</TABLE>
The Atlantic City Showboat also contains a horse racing
simulcast area and a keno facility. The Las Vegas Showboat also
contains a race and sports book, a 1,300-seat bingo parlor and a
keno facility.
Slot machines have been the principal source of casino
revenues at the Atlantic City Showboat and the Las Vegas
Showboat. At the Atlantic City Showboat, slot machines accounted
- 13 -
<PAGE>
for 76.1%, 73.9%, and 73.6% of casino revenues for the years
ended December 31, 1996, 1995 and 1994, respectively. At the Las
Vegas Showboat, slot machines accounted for 85.2%, 85.5%, and
83.0% of casino revenues for the years ended December 31, 1996,
1995 and 1994, respectively. In contrast, table games have been
the principal source of casino revenues at the interim Sydney
Harbour Casino. For the year ended December 31, 1996 and for the
period from commencement of operations to December 31, 1995,
table games accounted for 82.2% and 86.1%, respectively, of
casino revenues at the Sydney Harbour Casino. Gaming operations
at the Atlantic City Showboat, the Las Vegas Showboat and the
interim Sydney Harbour Casino are each conducted 24 hours a day,
every day of the year.
The following table sets forth the contribution to total net
revenues on a dollar and percentage basis of the Company's major
activities at the Atlantic City Showboat and the Las Vegas
Showboat for the years ended December 31, 1996, 1995 and 1994.
Net revenues for the interim Sydney Harbour Casino and the
Showboat Star Casino are not included in the table since the
Company accounts for its investment in SHCH and the Showboat Star
Partnership, the owner of the Showboat Star Casino ("SSP"),
respectively, under the equity method of accounting. The
Company's equity in the income or loss of SHCH, net of
intercompany elimination, was $4,086,000 for the year ended
December 31, 1996. For the year ended December 31, 1995, the
company reported no earnings for SHCH due to the write off of
preopening costs. The Company's equity in the income or loss of
SSP, net of intercompany elimination, was a loss of $22,000
through March 31, 1995 and income of $12,828,000 for the year
ended December 31, 1994. For additional financial information,
see the Company's financial statements contained in "Item 8.
Financial Statements and Supplementary Data."
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1996 December 31, 1995
(dollar amounts in thousands)
Amount Percent Amount Percent
<S> <C> <C> <C> <C>
Revenues:
Casino<F1>................. $382,980 88.3 $379,494 88.5
Food and beverage.......... 56,916 13.1 53,894 12.6
Rooms...................... 26,147 6.0 25,694 6.0
Sports and special events.. 3,682 .9 3,924 1.0
Other<F2>................... 5,876 1.4 5,379 1.2
Total gross revenues<F3>.... 475,601 109.7 468,385 109.3
Less complimentaries<F1>.... 41,896 9.7 39,793 9.3
Total net revenues<F3>...... $433,705 100.0 $428,592 100.0
<FN>
<F1> Casino revenues are the net difference between the sums
paid as winnings and the sums received as losses.
Complimentaries consist primarily of rooms, food and
beverages furnished gratuitously to customers. The sales
value of such services is included in the respective
revenue classifications and is then deducted as
complimentaries. Complimentary rates are periodically
reviewed and adjusted by management. See Note 1 of Notes
to Consolidated Financial Statements in Item 8. Financial
Statements and Supplementary Data.
<F2> Includes management fee revenues, net of intercompany
elimination, in the amount of $.2 million, and $1.9
million paid to Lake Pontchartrain Showboat, Inc., a
wholly-owned subsidiary of the Company, from SSP in
1995 and 1994, respectively.
<F3> Does not include interest income.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Year Ended
December 31, 1994
Amount Percent
<S> <C> <C>
Revenues:
Casino<F1>.................. $351,436 87.6
Food and beverage........... 50,624 12.6
Rooms....................... 20,587 5.1
Sports and special events... 4,168 1.0
Other<F2>................... 7,799 2.0
Total gross revenues<F3>..... 434,614 108.3
Less complimentaries<F1>..... 33,281 8.3
Total net revenues<F3>..... $401,333 100.0
<FN>
<F1> Casino revenues are the net difference between the sums
paid as winnings and the sums received as losses.
Complimentaries consist primarily of rooms, food and
beverages furnished gratuitously to customers. The sales
value of such services is included in the respective
revenue classifications and is then deducted as
complimentaries. Complimentary rates are periodically
reviewed and adjusted by management. See Note 1 of Notes
to Consolidated Financial Statements in Item 8. Financial
Statements and Supplementary Data.
<F2> Includes management fee revenues, net of intercompany
elimination, in the amount of $.2 million, and $1.9
million paid to Lake Pontchartrain Showboat, Inc., a
wholly-owned subsidiary of the Company, from SSP in
1995 and 1994, respectively.
<F3> Does not include interest income.
- 14 -
<PAGE>
</FN>
</TABLE>
The Atlantic City Showboat offers complimentary meals,
drinks and room accommodations to a larger percentage of
customers than does the Las Vegas Showboat or the Sydney Harbour
Casino. Such promotional allowances (complimentary services) at
the Atlantic City Showboat were 10.1%, 9.7%, and 8.8% of total
net revenues for the years ended December 31, 1996, 1995 and
1994, respectively. Such promotional allowances (complimentary
services) at the Las Vegas Showboat were 7.0%, 6.8%, and 6.5% of
total net revenues for the years ended December 31, 1996, 1995
and 1994, respectively. At the interim Sydney Harbour Casino,
such complimentary services were 2.7% of the total net revenues
for the period from commencement of operations to December 31,
1995 and 3.6% for the year ended December 31, 1996.
GAMING CREDIT POLICY
A relatively minimal dollar amount of credit is extended to
a limited number of gaming customers at the Las Vegas Showboat.
The Sydney Harbour Casino is prohibited by regulation from
extending any credit to its gaming customers. The Atlantic City
Showboat, however, offers substantially more credit to a greater
number of customers than the Las Vegas Showboat. At the Atlantic
City Showboat, gaming receivables were approximately $6.3 million
at December 31, 1996, before deducting allowance for doubtful
accounts of approximately $2.2 million. In comparison, gaming
receivables at the Atlantic City Showboat were approximately $7.1
million before deducting allowance for doubtful accounts of
approximately $2.5 million for the year ended December 31,
1995. The Atlantic City Showboat's gaming credit, as a percentage
of total gaming revenues, is at a level which is consistent with
that of the average credit levels for all other hotel-casinos in
Atlantic City. Overall, the Company's gaming receivables were
approximately $7.2 million at December 31, 1996, before deducting
allowance for doubtful accounts of approximately $2.6 million.
In comparison, the Company's gaming receivables were
approximately $7.0 million at December 31, 1995, before deducting
allowance for doubtful accounts of approximately $2.2 million.
The non-collectibility of gaming receivables can have a
material adverse effect on results of operations, depending upon
the amount of credit extended and the size of uncollected
amounts. The Company maintains strict controls over the issuance
of credit and aggressively pursues collection of its customer
receivables. These collection efforts parallel those procedures
commonly followed by most large corporations, including the
mailing of statements and delinquency notices, personal contacts,
the use of outside collection agencies and civil litigation.
Gaming debts evidenced by credit instruments are enforceable
under the laws of New Jersey and Nevada, respectively. All other
states are required to enforce a judgment on a gaming debt
entered in New Jersey or Nevada pursuant to the Full Faith and
Credit Clause of the United States Constitution. Although gaming
debts are not legally enforceable in some foreign countries, the
United States assets of foreign debtors may be reached to satisfy
a judgment entered in the United States. Annual gaming bad
debt expense at the Atlantic City Showboat was approximately
0.4% of casino revenues for the year ended December 31,
1996, as compared to approximately 0.4% and 0.2% for the
years ended December 31, 1995 and 1994, respectively. Annual
gaming bad debt expense at the Las Vegas Showboat was
approximately 0.3% of casino revenues for the year
- 15 -
<PAGE>
ended December 31, 1996, as compared to approximately 0.2% of
casino revenues for the years ended December 31, 1995 and 1994.
CONTROL PROCEDURES
In connection with its gaming activities, the Company
follows a policy of stringent internal controls, cross-checks and
recording of all receipts and disbursements in accordance with
industry practice. The audit and cash controls developed and
utilized by the Company include locked cash boxes, independent
counters, checkers and observers to perform the daily cash and
coin counts, floor observation of the gaming areas, closed-
circuit television observation of certain areas, daily computer
tabulation of receipts and disbursements for each slot machine,
table and other games, and the rapid identification, analysis and
resolution of discrepancies or deviations from normal
performance. All dealers and other personnel are internally
trained by the Company, however, dealers in New Jersey must also
obtain certification from an independent dealer's school in order
to meet licensing requirements. Gaming operations are subject to
risk of loss as a result of employee or customer dishonesty due
to the large amount of cash and gaming chips handled. However,
the Company has not experienced significant losses related to
employee dishonesty.
SEASONAL FACTORS
The Company does not believe that the gaming and hotel
revenues in Las Vegas, Nevada and the gaming revenues in Sydney,
Australia are significantly seasonal. In contrast, the Company
believes that gaming and hotel revenues are seasonal in Atlantic
City, New Jersey due to the harsher weather in the mid-eastern
seaboard during winter months.
COMPETITION
The gaming industry includes land-based casinos, dockside
casinos, riverboat casinos, casinos located on Native American
land, card parlors, state-sponsored lotteries, on-track and off-
track wagering and other forms of legalized gaming in the United
States and internationally. Competition is intense among
companies in the gaming industry, and the Company expects it to
remain so in the future. Many states have legalized, and other
states may in the future consider legalizing, casino gaming. The
Company believes that the growth in the legalization of gaming is
fueled by a combination of increasing popularity and
acceptability of gaming activities and the desire and need for
states and local communities to generate revenues without
increasing general taxation.
ATLANTIC CITY, NEW JERSEY
The Atlantic City Showboat competes with 11 other
hotel-casinos in Atlantic City containing a total of
approximately 1.1 million square feet of gaming space and
approximately 11,000 casino hotel rooms as of December 31,
1996 (including the Atlantic City Showboat). According to
the New Jersey Convention and Visitors Authority, eight
expansions of existing hotel-casinos have been announced
and are expected to be open and could be completed within the
next four years, which will add approximately 6,800 more hotel
rooms. There are several sites on the Boardwalk and in the Marina
Area of Atlantic City on which hotel-casino facilities could
- 16 -
<PAGE>
be built in the future. Several established gaming companies, are
at various stages in the licensing process with the New Jersey
Casino Control Commission to obtain licenses and permits to
develop major casino resorts in Atlantic City. Hotel-casinos in
Atlantic City generally compete on the basis of promotional
allowances, bus programs and packages, entertainment,
advertising, service provided to patrons, caliber of personnel,
attractiveness of the hotel-casino areas and related amenities.
The Atlantic City Showboat targets slot machine customers by
utilizing a variety of marketing techniques.
The Atlantic City Showboat also competes with Foxwood's High
Stakes Bingo and Casino on the Mashantucket Pequot Indian
Reservation in Ledyard, Connecticut and the Mohegan Sun Casino
near Montville, Connecticut. Delaware recently passed
legislation authorizing all three racetracks in its state to
operate in the aggregate 2,700 slot machines. As of December 29,
1996, Delaware racetracks operated a total of approximately 1,700
slot machines. To a lesser extent, the Atlantic City Showboat
competes with casinos in Nevada and other states of the United
States and internationally. The Company believes that the
commencement or expansion of casino and other gaming ventures in
states close to New Jersey, particularly, Delaware, Maryland, New
York or Pennsylvania, could have an adverse effect on the
Company's Atlantic City operations.
LAS VEGAS, NEVADA
The Las Vegas Showboat competes with casinos located in the
Las Vegas area, including competitors located on the Boulder
Strip, on the Las Vegas Strip, in downtown Las Vegas and at the
Nevada-California stateline. Such competition includes a number
of hotel-casinos, as well as numerous non-hotel gaming
facilities, targeted toward slot machine players and local
residents. As of December 31, 1996, there were two hotel-casinos
located on the Boulder Strip which the Company believes are its
primary competitors. Additionally, there are approximately 40
hotel-casinos located on or near the Las Vegas Strip, 14 located
in the downtown area and 11 located in other areas in or near Las
Vegas. Several of the Company's direct competitors have opened
new hotel-casinos or have commenced or completed major expansion
projects, and other expansions are in progress or are planned.
Two new hotel-casinos targeting a similar market as the Las Vegas
Showboat are scheduled to open in 1997 and 1998, respectively, in
Henderson, Nevada, approximately eight miles from the Las Vegas
Showboat. According to the Las Vegas Convention and Visitors
Authority, the Las Vegas hotel-motel room inventory was
approximately 99,072 rooms as of December 31, 1996, an increase
of approximately 10% from the prior year. Fifteen new hotel-
casinos and six hotel-casino expansions are under construction or
have been announced, which will add approximately 27,520 rooms to
the Las Vegas areas over the next approximately three years.
As a result of increased competition primarily for
slot machine players and Las Vegas area residents, the
Las Vegas Showboat has experienced declines in revenues
and earnings from operations. The Company has expanded
marketing and customer service programs in response to
increased casino capacity in the Las Vegas market. There can be
no assurance that the expanded marketing and customer service
programs will attract customers to the Las Vegas Showboat.
- 17 -
<PAGE>
To a lesser extent, the Las Vegas Showboat competes with
casinos located in Mesquite, Laughlin and Reno-Lake Tahoe areas
of Nevada and in New Jersey and other states of the United States
and internationally. The Company believes that the commencement
or expansion of casino and other gaming ventures in states close
to Nevada, particularly California, could have a material adverse
effect on the Company's Las Vegas operations.
SYDNEY, NEW SOUTH WALES
The Sydney Harbour Casino competes with casinos in Australia
and other casinos located within the Pacific Rim. Currently, 15
full-service casinos operate in Australia and New Zealand.
Sydney Harbour Casino will remain the only full-service casino in
the State of New South Wales until September 2007. While only
17.8% of casino revenues were generated by slot machines, in 1996
in excess of approximately 74,000 slot machines were permitted in
approximately 1,847 hotels and approximately 1,452 non-profit
private clubs in New South Wales. Hotels are currently limited
to a maximum of ten slot machines each and after April 1, 1997
hotels will be limited to a maximum of thirty slot machines each.
In 1995, over 75% of the private clubs contained 50 slot
machines or less; however, the largest private club contained
in excess of 800 slot machines (the most recently available
public information). Sydney Harbour Casino expects to compete
with the local slot clubs and with the casinos throughout
Australia and the Pacific Rim by offering excellent service and
an attractive facility containing hotel operations, bars and
restaurants, sports and recreation facilities, entertainment
centers, car parking, theaters, convention facilities and
retail shopping.
MARKETING
The Company's revenues and operating income depend primarily
upon the level of gaming activity at its casinos, although the
Company also seeks to maximize revenues from food and beverage,
lodging and other retail operations. Therefore, the primary goal
of the Company's marketing efforts is to attract gaming customers
to its casinos. Specifically, the Company's marketing strategy
at the Atlantic City Showboat and the Las Vegas Showboat is to
develop a high volume of traffic through the casinos, emphasizing
slot machine play which accounted for 76.1% and 85.0% of casino
revenues of the Atlantic City Showboat and the Las Vegas
Showboat, respectively, in 1996. The Atlantic City Showboat
targets slot machine customers by providing competitive games and
excellent service in an attractive convenient facility and by
using a variety of marketing techniques. 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 Sydney Harbour
Casino intends to target gaming patrons by positioning itself as
a complete entertainment venue with restaurants, bars, free live
entertainment and gaming. The Company advertises its hotel-
casinos on television and radio, in newspapers and magazines and
on outdoor signs and billboards. The Company markets its slot
machine customers by means of promotions, including players'
clubs, and direct mailings. The Company also sponsors special
events designed to attract its target customers.
- 18 -
<PAGE>
DEVELOPMENT ACTIVITIES
In 1993, the Company created a Development and
Management Services Division to investigate and secure new
properties in the United States and the world. 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. Such
opportunities may include the ownership, management and operation
of gaming and entertainment facilities, either alone or with
joint venture partners. 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.
The following is a listing of the Company's announced
expansion opportunities:
EAST CHICAGO, INDIANA
The East Chicago Showboat is located on approximately 27
acres of leased land at the Pastrick Marina, approximately 12
miles from Chicago, Illinois. The Pastrick Marina, previously
used for private pleasure craft docking only, was expanded to
serve as a marina for the East Chicago Showboat and a mooring
facility for SMCP's state-of-the-art cruising gaming vessel. The
East Chicago Showboat is located directly off Indiana State
Highway 912, a six-lane divided highway which connects 3.5 miles
south to Interstate Highway 90 and 5.5 miles south to Interstate
Highway 80/94. SMCP believes that the East Chicago Showboat will
have the most direct and convenient access from federal and state
highways of any existing or proposed gaming operation within a
120-mile radius of the East Chicago Showboat (the "Chicago Gaming
Market").
The East Chicago Showboat will consist of an approximately
100,000 square foot five level casino state-of-the-art cruising
gaming vessel, an approximately 100,000 square foot land-based
pavilion (the "Pavilion"), an approximately 1,800 space parking
garage and surface parking for an additional 1,000 automobiles.
The gaming vessel will include approximately 53,000 square feet
of gaming space on four of its five levels, feature
approximately 1,770 slot machines and approximately 90 table
games (includes five poker tables), and accommodate approximately
3,750 passengers. The cruising gaming vessel will resemble a
modern vacation cruise vessel, with escalators, elevators, eleven
foot to twelve and one-half foot high ceilings, and state-of-the-
art design features intended to provide customers with a smooth
and comfortable ride during cruises on Lake Michigan. The East
Chicago Showboat will offer gaming 365 days per year and will
provide its customers a wide variety of table games and slot
machines of varying denominations. SMCP expects to operate the
casino gaming vessel approximately 20 hours each day in a series
of excursions lasting two to three hours each.
A festive Mardi Gras party atmosphere will be
replicated through the use of murals, street performers
and entertainers. Customers will enter the casino gaming
vessel through its second or third floor via enclosed
ramps from the adjacent Pavilion. Of the casino gaming
vessel's five levels, the top four levels will be used
for gaming with three of the four gaming levels divided into
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<PAGE>
two distinct gaming areas separated by a lobby. The fourth
gaming level of the vessel will contain a single gaming area,
passenger lounge, snack bar and cocktail lounge. The lowest
level of the casino gaming casino will be utilized for
administrative support functions.
Customers will enter the Pavilion through the parking garage
or through the PORTE COCHERE, a covered driveway entrance.
Customers entering the Pavilion from the attached parking garage
will be protected by a climate controlled enclosed walkway and
directly enter the Pavilion's second floor. Customers entering
the Pavilion through the PORTE COCHERE will proceed from the
first floor lobby to the second floor public area. The second
floor public area of the Pavilion will include a reception desk,
a gift shop, a coffee shop, a hydraulic bandstand platform, an
upscale restaurant and a cocktail lounge. The first floor of the
Pavilion will include administrative offices, executive offices,
accounting and employee support areas and receiving platforms.
With respect to parking, the East Chicago Showboat will
provide secure, well-lit customer parking for approximately 2,800
vehicles - 1,800 spaces in the attached parking garage and 1,000
spaces in a surface parking area. The parking garage will
provide access to customers between floors via elevators,
escalators and stairways. In addition, there will be 600 off-
site parking spaces for employee parking.
SMCP intends to implement marketing programs previously
utilized by Showboat and its affiliates, such as a slot club and
special promotions, to attract patrons to the East Chicago
Showboat. SMCP's marketing programs will include data based
marketing which will offer complimentary merchandise, coin/cash
rebates based on play, complimentary food and free bus
transportation to and from the East Chicago Showboat. SMCP will
also utilize competitive payouts on gaming machines, value
pricing of food and other amenities, entertainment, and friendly,
quality customer service to maximize customer satisfaction.
SMCP currently has approximately 250 employees. When the
East Chicago Showboat commences operations, management
anticipates the employment of approximately 1,900 employees, some
of whom may be covered by a collective bargaining agreement.
SMCP entered into a fixed price contract for the
construction of the casino gaming vessel and entered into fixed
or guaranteed maximum price contracts with specific completion
dates for substantial portions of the Pavilion and other
structures comprising the East Chicago Showboat. Guaranteed
maximum price contracts, however, are subject to price adjustment
if the plans and specifications are changed. In October 1996,
the project budget for the East Chicago Showboat was revised
upward by $5.0 million to $200.0 million to provide for an
enhanced Pavilion and additional employee training. As of
January 1997, the breakwater for the Pastrick Marina was
substantially completed and the casino gaming vessel had arrived
in the City of East Chicago. As of December 31, 1996,
approximately $116.7 million had been spent on the construction
of the East Chicago Showboat. Subject to licensing, the East
Chicago Showboat will commence operations during the Second
Calendar Quarter of 1997.
SMCP will compete in the Chicago Gaming Market with
seven operating riverboat casinos, three of which are
located in Indiana and four of which are located in
Illinois, and two additional casinos (including the East
Chicago Showboat) have been proposed or are under
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<PAGE>
construction. Of the three Indiana operating riverboat casinos,
two commenced gaming operations in June 1996 and one commenced
gaming operations in July 1996. Four of the seven riverboat
casinos operate in Illinois (within fifty miles of the East
Chicago Showboat) and these riverboat casinos are limited to
1,200 gaming positions each by Illinois gaming law.
SMCP expects to compete with the riverboat casinos in the
Chicago Gaming Market based on its convenient and direct access
to and from state and federal highways, availability of a wide
variety of table games and slot machines of varying
denominations, its spacious comfortable environment, and its
Mardi Gras atmosphere.
In addition to traditional riverboat casino operations, SMCP
faces other forms of local competition as well. The Pokagon Band
of Potawatomi Indians (the "Pokagon Band") of southern Michigan
and northern Indiana has been federally recognized as an Indian
tribe. In February 1995, the Pokagon Band voted to build at
least one land-based casino in southern Michigan and, in April
1995, voted to accept a casino development proposal from a
national casino operator. The Governor of Michigan signed a
compact with the Pokagon Band in November 1995 and the Governor
of Indiana has not yet begun compact negotiations with the
Pokagon Band with respect to a land-based casino in Indiana. In
addition, the Indiana Horse Racing Commission has issued a permit
for pari-mutuel wagering on a horse racetrack in Anderson,
Indiana, and that permit holder also has been issued licenses for
three satellite wagering facilities, including one in
Merrillville, Indiana located in the same county as the East
Chicago Showboat. The legalization of additional or larger
casino gaming operations in jurisdictions in close proximity to
the East Chicago Showboat would have a material adverse effect on
SMCP.
SMCP anticipates that activity at the East Chicago Showboat
will be affected by weather conditions typical to the region.
Although SMCP has no operating history, SMCP anticipates that
most business activity will occur from May to September rather
than October through April when the region experiences harsher
weather.
ROCKINGHAM PARK, NEW HAMPSHIRE
In July 1995, the Company, through its wholly-owned
subsidiary, Showboat New Hampshire, Inc. ("SNHI"), entered into
definitive agreements with Rockingham Venture, Inc. ("RVI")
regarding the proposed development and management of a non-racing
gaming project ("Showboat Rockingham Park") at Rockingham Park in
Salem, New Hampshire. RVI is the owner and operator of
Rockingham Park which is a thoroughbred racetrack. In December
1994, the Company loaned approximately $8.9 million to RVI
accruing interest at 8.3%, which loan is secured by a second
mortgage on Rockingham Park. As of the date hereof, RVI has made
all payments required to be made by the promissory note.
The development of Showboat Rockingham Park, among other things,
is subject to the passage of enabling gaming legislation by
the State of New Hampshire and the Town of Salem. SNHI owns
a 50% interest in Showboat Rockingham Company, L.L.C. ("SRC")
that was formed for the purpose of developing and owning
Showboat Rockingham Park. Depending upon the number and
types of games, if any, legalized by the necessary
authorities, SNHI and RVI will make certain capital
contributions to SRC. At a minimum, the Company will
contribute the promissory note representing the loan. If
enabling gaming legislation permits more than 500
slot machines or any combination of slot
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machines and table games, the Company, subject to available
financing, will contribute funds not to exceed 30% of the cash
funds required for the project. At this time, the cost of the
project has not been determined nor has the State of New
Hampshire enacted any gaming legislation.
Pursuant to the terms of a management agreement, an
administrative services agreement and a trademark license
agreement, each dated June 1995, the Company has agreed to manage
and to provide other services to the proposed operations at
Showboat Rockingham Park. The Company will receive an aggregate
fee equal to (i) 1.5% of gross gaming revenue up to a maximum fee
of $1.0 million per year, and (ii) 7% of earnings before any
interest expense, income taxes, capital lease rentals,
depreciation and amortization. The horse racing activities will
continue to be operated by RVI.
LEMAY, MISSOURI
On May 1, 1995, Southboat Limited Partnership ("SLP") was
formed by Showboat Lemay, Inc. ("Showboat Lemay"), a corporation
wholly-owned by the Company, and Futuresouth, Inc.
("Futuresouth"), an unrelated corporation, for the purpose of
designing, developing, constructing, owning and operating a
riverboat casino and related facilities (collectively, the
"Southboat Casino Project"). SLP is owned 80% by Showboat Lemay,
the sole general partner, and 20% by Futuresouth, the sole
limited partner. The Southboat Casino Project is expected to be
located on approximately 29 acres at the southernmost portion of
the St. Louis County Port Authority Site on the Mississippi River
near Lemay, Missouri (the "Southboat Casino Site"). The
Southboat Casino Project is intended to be a multi-level gaming
and entertainment facility within a New Orleans-themed riverboat
and permanently-moored barge complex. The total cost of the
Southboat Casino Project is proposed to be approximately $117.0
million. The limited partnership agreement provides that the
Company's initial capital contribution is $19.5 million and that
Showboat Lemay, on behalf of SLP, will arrange for a $75.0
million loan to develop the Southboat Casino Project and to
arrange for equipment financing for the remaining costs of the
project. No assurance can be given that SLP will be successful
in obtaining the necessary funds to finance the Southboat Casino
Project or that SLP will be successful in obtaining a casino
license. The Company has also agreed to provide a loan to SLP in
the amount of approximately $4.5 million to assist in the
development of the Southboat Casino Project.
Pursuant to the terms of a management agreement, an
administrative services agreement and a trademark license
agreement, each dated May 2, 1995, the Company has agreed to
manage and to provide other services to the proposed operations
at the Southboat Casino Project. The Company will receive an
aggregate fee equal to 5 1/4% of gross gaming revenues net of all
gaming taxes, plus an incentive management fee equal to (i) 20%
of earnings between $30.0 to $35.0 million before any interest
expense, income taxes, capital lease rent, depreciation and
amortization, and (ii) 10% of earnings in excess of $35.0 million
before any interest expense, income taxes, capital lease rent,
depreciation and amortization.
On October 13, 1995, SLP entered into a lease and
development agreement with the St. Louis County Port Authority
("Port Authority") for the lease of the Southboat Casino Site for
a term of 99 years, commencing upon the investigation of SLP for
a Missouri gaming license and the receipt of all permits from
the U.S. Army Corps of Engineers. Fees and rent for the
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Southboat Casino Site are payable as follows: (i)
a $500,000 acceptance fee upon completion of a due
diligence period (which was paid in May 1996); (ii) a
$750,000 security deposit on the commencement date of the
lease; (iii) a $2.5 million fee on the commencement date
of the lease; (iv) a $2.5 million fee on the opening date of
the Southboat Casino Project; (v) rent in the amount
of $2.0 million per annum payable in equal monthly
installments, beginning on the commencement date and continuing
until the opening of the Southboat Casino Project; and (iv) rent
in the amount of the greater of 4% of adjusted gross receipts or
Minimum Rent (as defined below), beginning on the opening date of
the Southboat Casino Project and continuing until the expiration
of the term of the lease. "Minimum Rent" means $3.0 million
during the first 12-month period occurring after the opening of
the Southboat Casino Project; $2.8 million during the second 12-
month period; $2.6 million during the third 12-month period; $2.4
million during the fourth 12-month period; $2.2 million during
the fifth 12-month period; and $2.0 million beginning on the
fifth anniversary of the opening of the Southboat Casino Project
and continuing through the 15th lease year ("Guarantee Period").
The Company has guaranteed SLP's payment of Minimum Rent (which
in the aggregate is $35.0 million) for the Guarantee Period and
SLP's timely completion of, construction of, and payment for all
improvements and installations in connection with SLP's
development of the Southboat Casino Project. If SLP fails to pay
any monthly installment of Minimum Rent, or if the lease is
terminated at any time within the Guarantee Period due to an
event of default by SLP, the Company must pay either (i) the full
sum of unpaid Minimum Rent due for the remainder of the Guarantee
Period, or (ii) if it posts a $2.0 million letter of credit, make
monthly payments of Minimum Rent. In addition, the Company
agreed to provide a Guarantee of Completion to the Port Authority
which provides, in material part, that the Company will complete
the construction of the Southboat Casino Project should SLP,
after the commencement of work, abandon the project for a period
of 30 days after receipt of notice from the Port Authority.
On October 17, 1995, SLP submitted an application to the
Missouri Gaming Commission (the "Missouri Commission") for the
necessary gaming licenses to own and operate the Southboat Casino
Project. In the event SLP is selected for investigation by the
Missouri Commission for a casino license, SLP will submit an
application to the U.S. Army Corps of Engineers for the necessary
permits. In the event that SLP is issued such permits by the
U.S. Army Corps of Engineers, SLP will commence construction of
the Southboat Casino Project, which construction the Company
believes will take approximately 12 to 18 months to complete. As
of March 15, 1997, SLP had not been selected for investigation by
the Missouri Commission for a casino license and there can be no
assurance that such a selection will occur or, if such selection
occurs, that a gaming license will be granted to SLP.
LUMMI INDIAN NATION
The Company entered into a tribal management agreement and
related documents with the Lummi Indian Nation for the financing,
development and operation of a Class III casino located between
Bellingham, Washington and Vancouver, British Columbia. The
agreements are subject to the necessary approvals and licensing
by various state and federal regulatory authorities. The casino,
which will be located on tribal land, will be 3 miles off of
Interstate 5, approximately 45 minutes from Vancouver. It is
expected that the casino will be approximately 65,000 square
feet, featuring table games, keno and several restaurants.
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REGULATION AND LICENSING
NEW JERSEY GAMING
Casino gaming activities in Atlantic City are subject to the
New Jersey Casino Control Act ("New Jersey Act") and the
regulations of the New Jersey Casino Control Commission (the "New
Jersey Commission"). No casino may operate unless the required
licenses and approvals are obtained from the New Jersey
Commission. The New Jersey Commission is authorized under the
New Jersey Act to adopt regulations covering a broad spectrum of
gaming, gaming-related activities and non-gaming-related
activities and to prescribe the methods and forms of applications
for licenses. The New Jersey Commission: (i) approves license
applications; (ii) regulates the design of casino facilities and
determines the allowable amount of casino space based upon the
number of hotel rooms; (iii) monitors operating methods and
financial accounting practices of licensees; and (iv) determines
and imposes sanctions for violations of the New Jersey Act and
the New Jersey Commission regulations. The New Jersey Act also
establishes a Division of Gaming Enforcement (the "Division")
which is a branch of the New Jersey Attorney General's office.
The Division investigates all applications for the granting and
renewal of licenses, enforces the provisions of the New Jersey
Act and prosecutes before the New Jersey Commission proceedings
for violations of the New Jersey Act. The Division conducts
audits and continuing reviews of all casino operations.
The New Jersey Commission has extremely broad discretion
with regard to the issuance, renewal and revocation or suspension
of licenses. A casino license is not transferable and must be
renewed by the licensee at certain intervals. The casino
licenses may be renewed for up to four years, subject to the New
Jersey Commission's authority to reconsider license eligibility
during any term. A casino license may be revoked or suspended at
any time by the New Jersey Commission upon a finding of
disqualification or noncompliance. The holder of a casino license
must also obtain an operation certificate which may be revoked or
suspended at any time by the New Jersey Commission upon a finding
of noncompliance.
In order to obtain or renew a casino license, an applicant
must demonstrate to the New Jersey Commission: (i) its financial
stability, integrity and responsibility; (ii) its business
ability and casino experience; (iii) its good character, honesty
and integrity; and (iv) the qualification of all its financial
sources, security holders and holding and intermediate companies.
Moreover, each officer, director, principal employee, lender or
person directly or indirectly holding any beneficial interest or
ownership of the securities of the corporate licensee, and any
person deemed by the New Jersey Commission as having the ability
to control the corporate licensee or elect a majority of the
board of directors of the corporate licensee or other person
deemed appropriate by the New Jersey Commission must be found
qualified. ACSI's casino license was granted on March 27, 1987,
effective April 2, 1987. ACSI's casino license was renewed on
January 22, 1997 for the period commencing February 1, 1997 and
ending January 31, 2001. In connection therewith, the Company
and OSI were required to satisfy the licensure standards set
forth above.
The New Jersey Commission imposes certain restrictions
upon the ownership of securities issued by a corporation
which holds a casino license or is a holding company
of a corporate casino licensee. Among other restrictions,
the sale, assignment, transfer, pledge or other
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disposition of any security issued by a corporation which holds a
casino license is subject to approval by the New Jersey
Commission. If the New Jersey Commission finds an individual
owner or holder of any security of a corporate casino licensee or
any of its holding companies or a "financial source," or any of
its security holders to be disqualified, the New Jersey
Commission may take any necessary remedial action, including
requiring divestiture by the disqualified security holder. If
disqualified security holders of either the corporate licensee or
the holding company fail to divest themselves of such security
interests, the New Jersey Commission may revoke or suspend ACSI's
casino license. Disqualified security holders are prohibited
from: (i) receiving any dividends or interest on their
securities; (ii) exercising, directly or through any trustee or
nominee, any rights conferred by such securities; and (iii)
receiving any remuneration in any form from the corporate
licensee for services rendered or otherwise. The corporate
licensee and its non-publicly traded holding companies are
required to include in their charter or articles of incorporation
a provision establishing the right of prior approval by the New
Jersey Commission with regard to transfers of securities, shares
and other interests in the corporation. The corporate licensees'
publicly traded holding companies are required to provide in
their charter or articles of incorporation a provision that any
securities of the corporation are held subject to the condition
that if a holder thereof is disqualified, such holder shall
dispose of his interest. The Company and OSI are holding
companies of ACSI, a New Jersey casino licensee. The Company,
OSI and ACSI have charters or articles of incorporation that
comply with these regulatory requirements.
The New Jersey Commission regulations include detailed
provisions concerning, among others: (i) the rules of games,
including minimum and maximum wagers, and methods of supervision
of games and of selling and redeeming gaming chips; (ii) the
granting and duration of credit, the operation of junkets, and
the extension of and accounting for complimentary services;
(iii) the manufacture, distribution and sale of gaming equipment;
(iv) the security standards, management control procedures,
accounting and cash control methods and the reporting of such
matters to gaming authorities; (v) casino advertising; (vi) the
deposit of checks from patrons of casinos; (vii) the reporting of
currency transactions with patrons in amounts exceeding $10,000
to the Division; and (viii) the standards for entertainment and
distribution of alcoholic beverages in hotel-casinos.
All contracts and leases entered into by a casino licensee
are subject to the review of the New Jersey Commission and, if
reviewed and found unacceptable, may be voided. All enterprises
providing gaming-related equipment or services to a casino
licensee must be licensed or good cause must be shown for a
waiver of such licensing requirements. All other enterprises
dealing with a casino licensee must register with the New Jersey
Commission, which may require that they be licensed if they
regularly engage in business with casino licensees.
The New Jersey Commission could appoint a conservator upon
the revocation of or failure to renew a casino license. A
conservator would be vested with title to the hotel-casino of the
former or suspended licensee, subject to valid liens and
encumbrances. The conservator would act subject to the general
supervision of the New Jersey Commission and would be charged
with the duty of conserving, preserving and continuing the
operation of the hotel-casino. During the period of any such
conservatorship, the conservator may not make any distributions
of net earnings without the prior approval of the New Jersey
Commission. The New Jersey Commission may direct that all or a
portion of such net earnings be paid to the Casino Revenue Fund,
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provided, however, that a suspended or former licensee is
entitled to a fair rate of return out of net earnings, if any.
Except during the pendency of a suspension or during any appeal
from any action precipitating the appointment of a conservator,
and after appropriate consultations with the former licensee, a
conservator, subject to the prior approval of the New Jersey
Commission, would be authorized to sell, assign, convey or
otherwise dispose of the hotel-casino of a former licensee
subject to all valid liens, claims and encumbrances, and to remit
the net proceeds to the former licensee.
After completion of its first full year of operation, and
continuing for 30 years thereafter, a casino licensee is subject
to a New Jersey investment obligation. ACSI will fulfill its
investment obligation in 2015. To satisfy this obligation, the
Company may either: (i) pay an investment alternative tax equal
to 2 1/2% of its annual gross revenues from gaming operations; or
(ii) purchase bonds issued by, or invest in other development
projects approved by, the Casino Reinvestment Development
Authority, a state agency, in an amount equal to 1 1/4% of its
annual gross revenues from gaming operations net of provision for
bad debt.
All corporations doing business in New Jersey are subject to
a corporate franchise tax, based on allocated net income, at a 9%
annual rate. Interest on indebtedness is deductible under New
Jersey law. There is also an 8% tax on the gross win revenues of
New Jersey casinos, in addition to an annual $500 fee for each
slot machine.
Atlantic City imposes a real property tax and a luxury tax
applicable to certain sales, including, but not limited to, the
sale of alcoholic beverages, tickets to entertainment events and
rental of hotel rooms. The state of New Jersey imposes a fee of
$2.00 per occupied casino hotel room per day ($1.00 for non-
casino hotel rooms). These fees are dedicated exclusively to a
fund to market Atlantic City as a tourist destination and resort.
In addition, the state of New Jersey also imposes a $1.50 per day
fee for each patron's car that is parked at an Atlantic City
casino. Unlike a majority of other Atlantic City casinos, ACSI
has elected to absorb the parking fee as a marketing expense and
not to collect the fee from patrons.
From time to time new laws and regulations, as well as
amendments to existing laws and regulations, relating to gaming
activities in New Jersey are proposed or adopted.
In addition, the New Jersey casino regulatory authorities
from time to time may change their laws, regulations or
procedures, including their procedures for renewing licenses.
The Company cannot predict what effect, if any, new or amended
laws, regulations or procedures would have on the Company. While
in the last few years the changes to New Jersey gaming laws,
regulations or procedures have generally not been restrictive to
New Jersey licenses, changes in such laws, regulations or
procedures could have an adverse effect on the Company.
The Company, through SBOC, conducts casino gaming operations
in Las Vegas, Nevada. The Company is not required to obtain the
prior approval of the Nevada Gaming Authorities to conduct casino
gaming operations outside Nevada.
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NEVADA GAMING
The ownership and operation of casino gaming facilities in
Nevada are subject to: (i) the Nevada Gaming Control Act and the
regulations promulgated thereunder (collectively "Nevada Act");
and (ii) various local regulations. The Company's gaming
operations are subject to the licensing and regulatory control of
the Nevada Gaming Commission ("Nevada Commission"), the Nevada
State Gaming Control Board ("Nevada Board"), and the City Council
of the City of Las Vegas ("City Board"). The Nevada Commission,
the Nevada Board, and the City Board are collectively referred to
as the "Nevada Gaming Authorities."
The laws, regulations and supervisory procedures of the
Nevada Gaming Authorities are based upon declarations of public
policy which are concerned with, among other things: (i) the
prevention of unsavory or unsuitable persons from having a direct
or indirect involvement with gaming at any time or in any
capacity; (ii) the establishment and maintenance of responsible
accounting practices and procedures; (iii) the maintenance of
effective controls over the financial practices of licensees,
including the establishment of minimum procedures for internal
fiscal affairs and the safeguarding of assets and revenues,
providing reliable record keeping and requiring the filing of
periodic reports with the Nevada Gaming Authorities; (iv) the
prevention of cheating and fraudulent practices; and (v) to
provide a source of state and local revenues through taxation and
licensing fees. Change in such laws, regulations and procedures
could have an adverse effect on the Company's gaming operations.
SBOC, which operates the Las Vegas Showboat, is required to
be licensed by the Nevada Gaming Authorities. The gaming license
requires the periodic payment of fees and taxes and is not
transferable. The Company is registered by the Nevada Commission
as a publicly traded corporation ("Registered Corporation") and
as such, it is required periodically to submit detailed financial
and operating reports to the Nevada Commission and furnish any
other information which the Nevada Commission may require. No
person may become a shareholder of, or receive any percentage of
profits from, SBOC without first obtaining licenses and approvals
from the Nevada Gaming Authorities. The Company and SBOC have
obtained from the Nevada Gaming Authorities the various
registrations, approvals, permits and licenses required in order
to engage in gaming activities in Nevada.
The Nevada Gaming Authorities may investigate any individual
who has a material relationship to, or material involvement with,
the Company or SBOC in order to determine whether such individual
is suitable or should be licensed as a business associate of a
gaming licensee. Officers, directors and certain key employees
of SBOC must file applications with the Nevada Gaming Authorities
and may be required to be licensed or found suitable by the
Nevada Gaming Authorities. Officers, directors and key employees
of the Company who are actively and directly involved in gaming
activities of SBOC may be required to be licensed or found
suitable by the Nevada Gaming Authorities. The Nevada Gaming
Authorities may deny an application for licensing for any cause
which they deem reasonable. A finding of suitability is
comparable to licensing, and both require submission of detailed
personal and financial information followed by a thorough
investigation. The applicant for licensing or a finding of
suitability must pay all the costs of the investigation.
Changes in licensed positions must be reported to the
Nevada Gaming Authorities and in addition to their authority
to deny an application for a finding of suitability or
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licensure, the Nevada Gaming Authorities have jurisdiction to
disapprove a change in a corporate position.
If the Nevada Gaming Authorities were to find an officer,
director or key employee unsuitable for licensing or unsuitable
to continue having a relationship with the Company or SBOC, the
companies involved would have to sever all relationships with
such person. In addition, the Nevada Commission may require the
Company or SBOC to terminate the employment of any person who
refuses to file appropriate applications. Determinations of
suitability or of questions pertaining to licensing are not
subject to judicial review in Nevada.
The Company and SBOC are required to submit detailed
financial and operating reports to the Nevada Commission.
Substantially all material loans, leases, sales of securities and
similar financing transactions by SBOC must be reported to, or
approved by, the Nevada Commission.
If it were determined that the Nevada Act was violated by
SBOC the gaming licenses it holds could be limited, conditioned,
suspended or revoked, subject to compliance with certain
statutory and regulatory procedures. In addition, SBOC, the
Company, and the persons involved could be subject to substantial
fines for each separate violation of the Nevada Act at the
discretion of the Nevada Commission. Further, a supervisor could
be appointed by the Nevada Commission to operate the Company's
gaming properties and, under certain circumstances, earnings
generated during the supervisor's appointment (except for the
reasonable rental value of the Company's gaming properties) could
be forfeited to the state of Nevada. Limitation, conditioning or
suspension of any gaming license or the appointment of a
supervisor could (and revocation of any gaming license would)
materially adversely affect the Company's gaming operations.
Any beneficial holder of the Company's voting securities,
regardless of the number of shares owned, may be required to file
an application, be investigated, and have his suitability as a
beneficial holder of the Company's voting securities determined
if the Nevada Commission has reason to believe that such
ownership would otherwise be inconsistent with the declared
policies of the state of Nevada. The applicant must pay all
costs of investigation incurred by the Nevada Gaming Authorities
in conducting any such investigation.
The Nevada Act requires any person who acquires more than 5%
of the Company's voting securities to report the acquisition to
the Nevada Commission. The Nevada Act requires that beneficial
owners of more than 10% of the Company's voting securities apply
to the Nevada Commission for a finding of suitability within
thirty days after the Chairman of the Nevada Board mails the
written notice requiring such filing. Under certain
circumstances, an "institutional investor," as defined in the
Nevada Act, which acquires more than 10%, but not more than 15%,
of the Company's voting securities may apply to the Nevada
Commission for a waiver of such finding of suitability if such
institutional investor holds the voting securities for investment
purposes only. An institutional investor shall not be deemed to
hold voting securities for investment purposes unless the voting
securities were acquired and are held in the ordinary course of
business as an institutional investor and not for the purpose of
causing, directly or indirectly, the election of a majority of
the members of the board of directors of the Company, any change
in the Company's corporate charter, bylaws, management, policies
or operations of the Company, or any of its gaming affiliates, or
any other action which the Nevada Commission finds to be
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inconsistent with holding the Company's voting securities for
investment purposes only. Activities which are not deemed to be
inconsistent with holding voting securities for investment
purposes only include: (i) voting on all matters voted on by
stockholders; (ii) making financial and other inquiries of
management of the type normally made by securities analysts for
informational purposes and not to cause a change in its
management, policies or operations; and (iii) such other
activities as the Nevada Commission may determine to be
consistent with such investment intent. If the beneficial holder
of voting securities who must be found suitable is a corporation,
partnership or trust, it must submit detailed business and
financial information including a list of beneficial owners. The
applicant is required to pay all costs of investigation.
Any person who fails or refuses to apply for a finding of
suitability or a license within 30 days after being ordered to do
so by the Nevada Commission, or the Chairman of the Nevada Board,
may be found unsuitable. The same restrictions apply to a record
owner if the record owner, after request, fails to identify the
beneficial owner. Any shareholder found unsuitable and who
holds, directly or indirectly, any beneficial ownership of the
common stock of the Company beyond such period of time as may be
prescribed by the Nevada Commission may be guilty of a criminal
offense. The Company is subject to disciplinary action if, after
it receives notice that a person is unsuitable to be a
shareholder or to have any other relationship with the Company or
SBOC, the Company (i) pays that person any dividend or interest
upon voting securities of the Company, (ii) allows that person to
exercise, directly or indirectly, any voting right conferred
through securities held by that person, (iii) pays remuneration
in any form to that person for services rendered or otherwise, or
(iv) fails to pursue all lawful efforts to require such
unsuitable person to relinquish his voting securities for cash at
fair market value.
The Nevada Commission may, in its discretion, require the
holder of any debt security of a Registered Corporation to file
applications, be investigated and be found suitable to own the
debt security of a Registered Corporation. If the Nevada
Commission determines that a person is unsuitable to own such
security, then pursuant to the Nevada Act, the Registered
Corporation can be sanctioned, including the loss of its
approvals, if without the prior approval of the Nevada
Commission, it: (i) pays to the unsuitable person any dividend,
interest, or any distribution whatsoever, (ii) recognizes any
voting right by such unsuitable person in connection with such
securities, (iii) pays the unsuitable person remuneration in any
form, or (iv) makes any payment to the unsuitable person by way
of principal, redemption, conversion, exchange, liquidation, or
similar transaction.
The Company is required to maintain a current stock ledger
in Nevada which may be examined by the Nevada Gaming Authorities
at any time. If any securities are held in trust by an agent or
by a nominee, the record holder may be required to disclose the
identity of the beneficial owner to the Nevada Gaming
Authorities. A failure to make such disclosure may be grounds
for finding the record holder unsuitable. The Company is also
required to render maximum assistance in determining the identity
of the beneficial owner. The Nevada Commission has the power at
any time to require the Company's stock certificates to bear a
legend indicating that the securities are subject to the Nevada
Act. However, to date, the Nevada Commission has not imposed
such a requirement on the Company.
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The Company may not make a public offering of its securities
without the prior approval of the Nevada Commission if the
securities or the proceeds therefrom are intended to be used to
construct, acquire or finance gaming facilities in Nevada, or
retire or extend obligations incurred for such purposes. In
November 1996, the Nevada Commission granted the Company prior
approval to make public offerings for a period of one year,
subject to certain conditions ("Shelf Approval"). The Shelf
Approval also applies to any affiliated company wholly owned by
the Company (a "Gaming Affiliate") which is a publicly traded
corporation or would thereby become a publicly traded corporation
pursuant to a public offering. The Shelf Approval also includes
approval for the Company's licensed Nevada subsidiaries to
guaranty any security issued by, or to hypothecate their assets
to secure the payment or performance of any obligations issued by
the Company or a Gaming Affiliate in a public offering under the
Shelf Approval. However, the Shelf Approval may be rescinded for
good cause without prior notice upon the issuance of an
interlocutory stop order by the Chairman of the Nevada Board and
the Shelf Approval must be renewed annually. The Shelf Approval
does not constitute a finding, recommendation or approval by the
Nevada Commission or the Nevada Board as to the accuracy or
adequacy of the prospectus or the investment merits of the
securities offered. Any representation to the contrary is
unlawful.
Changes in control of the Company through merger,
consolidation, stock or asset acquisitions, management or
consulting agreements, or any act or conduct by a person whereby
he obtains control, may not occur without the prior approval of
the Nevada Commission. Entities seeking to acquire control of a
Registered Corporation must satisfy the Nevada Board and Nevada
Commission in a variety of stringent standards prior to assuming
control of such Registered Corporation. The Nevada Commission
may also require controlling stockholders, officers, directors
and other persons having a material relationship or involvement
with the entity proposing to acquire control, to be investigated
and licensed as part of the approval process relating to the
transaction.
The Nevada legislature has declared that some corporate
acquisitions opposed by management, repurchases of voting
securities and corporate defense tactics affecting Nevada gaming
licensees, and Registered Corporations that are affiliated with
those operations, may be injurious to stable and productive
corporate gaming. The Nevada Commission has established a
regulatory scheme to ameliorate the potentially adverse effects
of these business practices upon Nevada's gaming industry and to
further Nevada's policy to: (i) assure the financial stability of
corporate gaming operators and their affiliates; (ii) preserve
the beneficial aspects of conducting business in the corporate
form; and (iii) promote a neutral environment for the orderly
governance of corporate affairs. Approvals are, in certain
circumstances, required from the Nevada Commission before the
Company can make exceptional repurchases of voting securities
above the current market price thereof and before a corporate
acquisition opposed by management can be consummated. The Nevada
Act also requires prior approval by the Nevada Commission of a
plan of recapitalization proposed by the Company's Board of
Directors in response to a tender offer made directly to its
shareholders for the purpose of acquiring control of the Company.
The sale of alcoholic beverages by the casino is subject to
licensing, control and regulation by the applicable local
authorities. All licenses are revocable and are not
transferable. The agencies involved have full power to limit,
condition, suspend or revoke any such license, and any
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such disciplinary action could (and revocation would) have a
material adverse affect upon the operations of the casino.
License fees and taxes, computed in various ways depending
on the type of gaming or activity involved, are payable to the
state of Nevada and to the counties and cities in which the
Nevada licensee's respective operations are conducted. Depending
upon the particular fee or tax involved, these fees and taxes are
payable either monthly, quarterly or annually and are based upon
either: (i) a percentage of the gross revenues received;
(ii) the number of gaming devices operated; or (iii) the number
of table games operated. A casino entertainment tax is also paid
by casino operations where entertainment is furnished in
connection with the selling of food or refreshments. Nevada
licensees that hold a license as an operator of a slot route, or
a manufacturer's or distributor's license, also pay certain fees
and taxes to the state of Nevada.
Any person who is licensed, required to be licensed,
registered, required to be registered, or is under common control
with such persons (collectively, "Licensees"), and who proposes
to become involved in a gaming venture outside of Nevada is
required to deposit with the Nevada Board, and thereafter
maintain, a revolving fund in the amount of $10,000 to pay the
expenses of investigation of the Nevada Board of their
participation in such foreign gaming. The revolving fund is
subject to increase or decrease in the discretion of the Nevada
Commission. Thereafter, Licensees are required to comply with
certain reporting requirements imposed by the Nevada Act.
Licensees are also subject to disciplinary action by the Nevada
Commission if it knowingly violates any laws of the foreign
jurisdiction pertaining to the foreign gaming operation, fails to
conduct the foreign gaming operation in accordance with the
standards of honesty and integrity required of Nevada gaming
operations, engages in activities that are harmful to the state
of Nevada or its ability to collect gaming taxes and fees, or
employs a person in the foreign operation who has been denied a
license or finding of suitability in Nevada on the ground of
personal unsuitability.
NEW SOUTH WALES GAMING
The NSWCCA was created pursuant to the Casino Control Act
1992 (NSW) ("Casino Act") to maintain and administer systems for
licensing, supervision and control of a casino.
In considering an application for a casino license,
Section 11 of the Casino Act requires the NSWCCA to have regard
to the following matters: (i) the suitability of applicants and
close associates of applicants; (ii) the standard and nature of
the proposed casino, and the facilities to be provided in, or in
conjunction with, the proposed casino; (iii) the likely impact of
the use of the premises concerned as a casino on tourism,
employment and economic development generally in the place or
region in which the premises are located; (iv) the expertise of
the applicant, having regard to the obligations of the holder of
a casino license under the Casino Act; and (v) such other matters
as the NSWCCA considers relevant.
The NSWCCA is to determine an application by either granting
a casino license to the applicant or declining to grant
a casino license. The casino license may be granted
subject to such conditions as the NSWCCA thinks fit and
is granted for the location specified in the casino
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license. A casino license confers no right of property and
cannot be assigned or mortgaged, charged or otherwise encumbered.
The conditions of a casino license may be amended by being
substituted, varied, revoked or added to by the NSWCCA subject to
the right of the licensee to make submissions to the NSWCCA in
regard to any such proposal. The NSWCCA may also cancel or
suspend, or amend the terms or conditions, of a casino license
where there are grounds for disciplinary action, including:
(i) the casino license being improperly obtained; (ii) the casino
operator, a person in charge of the casino, an agent of the
casino operator or a casino employee contravening a provision of
the Casino Act or a condition of the license; (iii) the casino
premises no longer being suitable for the conduct of the casino
operations; (iv) the licensee being considered to be no longer a
suitable person to give effect to the casino license and the
Casino Act; and (v) the public interest that the casino license
should no longer remain in force. No right of compensation
against the government arises for the cancellation, suspension or
variation of the terms and conditions of the casino license.
The NSWCCA must not grant an application for a casino
license unless it is satisfied that the applicant and each close
associate is a suitable person to be concerned in or associated
with the management and operation of a casino. In making the
determination as to the suitability of the applicant, the NSWCCA
must consider whether: (a) the applicant and each close
associate are of good repute, having regard to character, honesty
and integrity; (b) the applicant and each close associate is of
sound and stable financial background; (c) in the case of an
applicant that is not a natural person, the applicant has or has
arranged a satisfactory ownership, trust or corporate structure;
(d) the applicant has or is able to obtain financial resources
that are both suitable and adequate for insuring the financial
viability of the proposed casino; (e) the applicant has or is
able to obtain the services of persons who have sufficient
experience in the management and operation of a casino; (f) the
applicant has sufficient business ability to establish and
maintain a successful casino; (g) the applicant or any close
associate who has any business association with any person, body
or association who, in the opinion of the NSWCCA is not of good
repute, having regard to character, honesty and integrity or has
undesirable or unsatisfactory financial sources; and (h) each
director, partner, trustee, executive officer and secretary and
any other officer or person determined by the NSWCCA to be
associated or connected with the ownership, administration or
management of the operations or business of the applicant or a
close associate of the applicant is a suitable person to act in
that capacity.
On receiving an application for a casino license, the NSWCCA
must carry out all such investigations and inquiries as it deems
necessary. The costs of the investigation by the NSWCCA are
payable to the NSWCCA by the applicant unless the NSWCCA
determines otherwise.
The NSWCCA may give written direction to a casino operator
as to the conduct, supervision or control of operations of the
casino. The NSWCCA may investigate a casino from time to time at
the discretion of the NSWCCA. Not later than three years after
the grant of the casino license, and thereafter in intervals not
exceeding three years, the NSWCCA must investigate and form an
opinion as to whether or not the casino operator is a suitable
person to continue to give effect to the casino license and
determine that it is in the public interest the casino
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license should continue in force. SHCL and the Company applied
to the NSWCCA for the renewal of the gaming license and the
NSWCCA commenced its investigation on November 8, 1996. The
NSWCCA announced that the investigation would include public
hearings. On February 13, 1997, the NSWCCA announced that
it had received 31 submissions in relation to its investigation
and made all of the submissions available to the public.
Additionally, the NSWCCA is investigating PBL in connection
with its purchase of approximately 55 million ordinary shares
of SHCH and Showboat's interest in the management of the Sydney
Harbour Casino. The NSWCCA also indicated that it would accept
submissions from the public in relation to the PBL transaction
once the NSWCCA receives the definitive agreements. The NSWCCA
announced that it has combined the investigations of SHCL and
PBL and has indicated the investigations may take until
September 1997 to complete. The investigation for the license
renewal must be completed by December 14, 1997. See "Item 1.
Business - Fiscal Year 1996 Developments - Sydney, Australia."
A casino operator must not enter into a controlled contract
without first notifying the NSWCCA. A controlled contract is a
contract that relates wholly or partly to the supply of goods or
services to a casino, but does not include a contract that
relates solely to the construction of the casino or to the
alteration of premises used or to be used as a casino, or such
other contracts as may be defined by the NSWCCA.
Gaming is not to be conducted in the casino unless the
facilities provided in relation to the conduct and monitoring of
operations of the casino are in accordance with the plans,
diagrams and specifications that are approved by the NSWCCA. The
NSWCCA may approve the games to be played in the casino. A
casino operator must not conduct a game in a casino unless there
is an order in force approving the game and the game is conducted
in accordance with the rules approved by such order.
The casino is to be open to the public on such days and at
such times as are directed by the NSWCCA in writing. The casino
must be closed on days and at times that are not days or times
specified by the NSWCCA.
A casino operator must not (i) accept a wager made otherwise
than by means of money or chips, (ii) lend money, chips or any
other valuable thing; provide money or chips as part of a
transaction involving a credit card or debit card, (iii) extend
any other form of credit, or (iv) wholly or partly discharge any
debt. The casino operator may issue chips in exchange for
checks if the person has established a deposit account with the
casino operator. Checks accepted by the casino operator must be
presented to the bank within one working day after the check is
accepted by the casino operator. Notwithstanding the foregoing,
the NSWCCA agreed to vary the presentment requirement so that
Sydney Harbour Casino may hold checks drawn on an Australian
bank/branch in an amount of or over A$5,000 for up to 10 banking
days and may hold checks drawn on a non-Australian bank/branch
for up to 20 banking days regardless of the amount of the
check prior to presenting the checks for payment.
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INDIANA GAMING
In 1993, the State of Indiana passed a Riverboat Gambling
Act which created the Indiana Commission. The Indiana Commission
is given extensive powers and duties for the
purposes of administering, regulating and enforcing the
system of riverboat gaming. It is authorized to award no
more than 11 gaming licenses (five to counties contiguous to
Lake Michigan, five to counties contiguous to the Ohio River and
one to a county contiguous to Patoka Lake).
With the exception of Lake County, a county must pass a
referendum approving (by a majority of those who voted) riverboat
gaming before riverboat gaming can be legalized in that county.
If a referendum fails to pass in any county, another referendum
may not be held for another two years. Once a referendum has
passed in a county, the Riverboat Gambling Act requires any
proposed riverboat to operate from the most populous city in that
county, unless such city passes a resolution authorizing
a riverboat to operate elsewhere in the county. For
Lake County, the Riverboat Gambling Act provides that the
second and third most populous cities of the county,
Hammond and East Chicago, respectively, according to the
1990 census, may authorize riverboat gaming within such
cities, by passage of a municipal referendum. Voters in both
cities have passed such referenda. Gary, Lake County's most
populous city, is exempted by the Riverboat Gambling Act from the
gaming referendum requirement altogether. Pursuant to Indiana
Commission resolution, the cost of any referendum is to be borne
by all license applicants for the voting county or municipality.
The Indiana Commission has jurisdiction and supervision over
all riverboat gaming operations in Indiana and all persons on
riverboats where gaming operations are conducted. These powers
and duties include authority to (1) investigate all applicants
for riverboat gaming licenses, (2) select among competing
applicants those that promote the most economic development in a
home dock area and that best serve the interest of the citizens
of Indiana, (3) establish fees for licenses, and (4) prescribe
all forms used by applicants. The Indiana Commission shall adopt
rules pursuant to statute for administering the gaming statute
and the conditions under which riverboat gaming in Indiana may be
conducted. The Indiana Commission has promulgated certain final
rules and has proposed additional rules governing the application
procedure and all other aspects of riverboat gaming in Indiana.
The Indiana Commission may suspend or revoke the license of a
licensee or a certificate of suitability or impose civil
penalties, in some cases without notice or hearing for any act in
violation of the Riverboat Gambling Act or for any other
fraudulent act or if the licensee or holder of such certificate
of suitability has not begun regular riverboat excursions prior
to the end of the twelve month period following the Indiana
Commission's approval of the application for an owner's license.
In addition, the Indiana Commission may revoke an owner's license
if it is determined by the Indiana Commission that revocation is
in the best interests of the state of Indiana. The Indiana
Commission will (1) authorize the route of the riverboat and
stops that the riverboat may make, (2) establish minimum amounts
of insurance and (3) after consulting with the Corps of
Engineers, determine which waterways are navigable waterways for
purposes of the Riverboat Gambling Act and determine which
navigable waterways are suitable for the operation of riverboats.
The Riverboat Gambling Act requires an extensive disclosure
of records and other information concerning an applicant,
including disclosure of all directors, officers and persons
holding one percent (1%) or more direct or indirect beneficial
interest.
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In determining whether to grant an owner's license to an
applicant, the Indiana Commission shall consider (1) the
character, reputation, experience and financial integrity of the
applicant and any person who (a) directly or indirectly controls
the applicant, or (b) is directly or indirectly controlled by
either the applicant or a person who directly or
indirectly controls the applicant, (2) the facilities or
proposed facilities for the conduct of riverboat gaming,
(3) the highest total prospective revenue to be
collected by the state from the conduct of riverboat gaming, (4)
the good faith affirmative action plan to recruit, train and
upgrade minorities in all employment classifications, (5) the
financial ability of the applicant to purchase and maintain
adequate liability and casualty insurance, (6) whether the
applicant has adequate capitalization to provide and maintain the
riverboat for the duration of the license and (7) the extent to
which the applicant meets or exceeds other standards adopted by
the Indiana Commission. The Indiana Commission may also give
favorable consideration to applicants for economically depressed
areas and applicants who provide for significant development of
a large geographic area. Each applicant must pay an application
fee of $50,000 and an additional investigation fee of $55,000.
If the applicant is selected, the applicant must pay an initial
license fee of $25,000 and post a bond. The Indiana Commission
has issued 6 of these eleven licenses--three in Lake County
Indiana (2 in Gary; 1 in Hammond); one in Vanderburgh County; One
in Ohio County; and one in Dearborn County. SMCP and two other
applicants (one in Michigan City, LaPorte County, and one in
Harrison County) have been selected by the Indiana Commission
as suitable for licensure and have been awarded a certificate of
suitability. The certificate of suitability for SMCP expires June
1, 1997, and is subject to renewal. A person holding an owner's
gaming license issued by the Indiana Commission may not own more
than a 10% interest in another such license. An owner's license
expires five years after the effective date of the license;
however, after three years the holder of an owner's license will
undergo a reinvestigation to ensure continued suitability for
licensure. Unless the license has been terminated, expired or
revoked, the gaming license may be renewed if the Indiana
Commission determines that the licensee has satisfied all
statutory and regulatory requirements. In connection with its
application for an owner's license, SMP, Waterfront, Showboat,
Inc., and its affiliates declared to the Indiana Commission that
if SMP, or upon the transfer of the certificate of suitability
to SMCP, the SMCP, receives a riverboat owner's license for
East Chicago, Indiana, they shall not commence more than one other
casino gaming operation within a fifty-mile radius of East
Chicago Showboat for a period of five years beginning on the date
of issuance of an owner's license by the Indiana Commission to
SMP or SMCP, as applicable. Adherence to the non-competition
declaration is a condition of the Certificate of Suitability
and the owner's license. A gaming license is a revocable
privilege and is not a property right. There can be no assurance
that SMCP will obtain an Indiana Gaming license.
Minimum and maximum wagers on games are not established by
regulation but are left to the discretion of the licensee.
Wagering may not be conducted with money or other negotiable
currency. Riverboat gaming excursions shall be at least two
hours, but not more than four hours in duration unless expressly
approved by the Indiana Commission. No gaming may be conducted
while the boat is docked except (1) for 30-minute time periods at
the beginning and end of a cruise while the passengers are
embarking and disembarking, (2) if the master of the riverboat
reasonably determines that specific weather or water conditions
present a danger to the riverboat, its passengers and crew, (3)
if either the vessel or the docking facility is undergoing
mechanical or structural repair, (4) if water traffic conditions
present a danger to (A) the riverboat, riverboat passengers, and
crew, or (B) other vessels on the water, or (5) if the master has
been notified that a condition exists that would cause a
violation of federal law if the riverboat were to cruise. The
Indiana Commission has adopted rules governing
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cruising on Lake Michigan by a riverboat casino. The period of
time during which passengers embark and disembark constitutes
a portion of the gambling excursion if gambling is allowed. At
the conclusion of the thirty-minute embarkation period, the
gangway or its equivalent must be closed. A standard excursion
schedule for a casino vessel on Lake Michigan must include at
least one full excursion (a cruise into the open water on Lake
Michigan, not more than three statute miles from the
dock site July through September and not more than one statute
mile October through June) and one intermediate excursion during
which the vessel cruises in protected navigable water on or
accessible to Lake Michigan. An intermediate excursion is to be
conducted if the statutory conditions that permit dockside gaming
are not present and if sea conditions or weather conditions, or
both, do not permit a full excursion. If a casino vessel remains
dockside because of statutory conditions, the embarkation and
disembarkation rules still apply. Legislation has been
introduced in the Indiana General Assembly to permit unlimited
dockside gaming in Lake County.
An admission tax of $3.00 for each person admitted to the
gaming excursion is imposed upon the license owner. An additional
20% tax is imposed on the adjusted gross receipts received from
gaming operations, which is defined as the total of all cash and
property (including checks received by the licensee whether
collected or not) received, less the total of all cash paid out
as winnings to patrons and uncollected gaming receivables (not to
exceed 2%). The gaming license owner shall remit the admission and
wagering taxes before the close of business on the day following
the day on which the taxes were incurred. Legislation has been
introduced and passed one house in the 1997 Session of the Indiana
General Assembly, and passed by the House Ways and Means
Committee, which if enacted, would increase the tax for admission
from $3 to $4 for each person admitted to a gaming excursion. In
1996, legislation was enacted in Indiana permitting the
imposition of property taxes on the riverboats at rates to be
determined by local taxing authorities of the jurisdiction in
which a riverboat operates. The Riverboat Gambling Act requires
a riverboat owner licensee to directly reimburse the Indiana
Commission for the costs of inspectors and agents required to
be present during the conduct of gaming operations. Pursuant to
agreements with the City, and as reflected in the certificate of
suitability issued by the Commission, SMCP has agreed to (1)
provide certain fixed incentives of approximately $16.4 million
to the City of East Chicago and its agencies for transportation,
job training, home buyer assistance and discrete economic
development initiatives, (2) pay 3% of adjusted gross receipts
to the City and two not-for-profit foundations for its public
schools and housing and commercial development, and (3) pay 0.75%
of adjusted gross receipts for community development projects
to East Chicago Second Century, Inc., a for-profit corporation
owned by SMP ("Second Century") and (4) complete the Washington
High School Site town home development with a total projected cost
of $5.0 million. Funding for the Washington High School Site
project will be derived from contributions to Second Century from
SMCP as well as funds from other third-party sources.
The Indiana Commission is authorized to license suppliers
and certain occupations related to riverboat gaming. Gaming
equipment and supplies customarily used in conducting riverboat
gaming may be purchased or leased only from licensed suppliers.
The Indiana Riverboat Gambling Act places special emphasis
upon minority and women's business enterprise participation in
the riverboat industry. Any person issued a riverboat owner's
license must establish goals of expending at least 10% of the
total dollar value of the licensee's contracts for goods and
services with minority business enterprises and 5% of the total
dollar value of the licensee's contracts for goods and services
with women's business enterprises. The Indiana Commission may
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suspend, limit or revoke the gaming owner's license or impose a
fine for failure to comply with statutory requirements.
An institutional investor which acquires 5% or
more of any class of voting securities of a holding
company of a licensee is required to notify the
Indiana Commission and to provide additional
information, and may be subject to a finding of suitability.
A person who acquires 5% or more of any class of voting
securities of a holding company of a licensee is required to
apply to the Indiana Commission for a finding of suitability.
A riverboat owner licensee may not enter into or perform any
contract or transaction in which it transfers or receives
consideration which is not commercially reasonable or which does
not reflect the fair market value of the goods or services
rendered or received. All contracts are subject to disapproval
by the Indiana Commission.
A riverboat licensee or an affiliate may not enter into a
debt transaction of $1 million or more without the prior approval
of the Indiana Commission. A riverboat owner licensee or any
other person may not lease, hypothecate, borrow money against or
loan money against a riverboat owner's license.
The Riverboat Gambling Act prohibits contributions to a
candidate for a state, legislative, or local office, or to a
candidate's committee or to a regular party committee by the
holder of a riverboat owner's license or a supplier's license, by
an officer of a licensee, by an officer of a person that holds at
least a 1% interest in the licensee, or by a person holding at
least a 1% interest in the licensee; and, the Indiana Commission
is in the process of promulgating a rule requiring the quarterly
reporting by such licensees, officers, and persons.
Legislation has been introduced in the 1997 Session of the
Indiana General Assembly, which if enacted, would prohibit the
expansion of authorized gambling until the earlier of December
31, 1999, or the date the Governor has certified that the
Commission has completed its study. Additionally, the Indiana
legislature formed an Interim Study Committee on Public Gaming
Issues which conducted public forums on gaming and is expected to
provide a report on gaming to the legislature.
A lawsuit was filed on October 25, 1996, in Harrison County
Indiana by three individuals residing in counties abutting the
Ohio River, which challenges the constitutionality of the
Riverboat Gambling Act on grounds that (i) it allegedly creates
an unequal privilege because under the Act supporters of
riverboat casino gambling, having lost a county-wide vote, are
allowed to resubmit a proposal to county voters for approval of
riverboat casino gambling while opponents of riverboat casino
gambling, having lost a county-wide vote, are not allowed to
resubmit a proposal; and (ii) it was enacted as a provision
attached to a state budget bill allegedly in violation of an
Indiana constitutional provision requiring legislative acts to be
confined to one subject and matters properly connected with the
subject. The State of Indiana recently filed an answer to the
complaint. The Indiana Supreme Court has previously upheld the
constitutionality of the Riverboat Gambling Act, although the
prior challenge was on different grounds than those contained in
the recently filed lawsuit. If the Riverboat Gambling Act
ultimately was held unconstitutional it would, absent timely
corrective legislation, have a material adverse effect on SMCP's
operations.
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MISSOURI GAMING
Gaming was originally authorized in the state of Missouri in
November 1992. On April 29, 1993, new legislation (the "Missouri
Act") was enacted which replaced the 1992 legislation. On
November 8, 1994, the people of Missouri passed an amendment to
the Missouri constitution to allow slot machine gaming
in the state. The Missouri Act provides for the
licensing and regulation of excursion gambling boat operations on
the Mississippi and Missouri Rivers in the state of Missouri and
the licensing and regulation of persons who distribute gaming
equipment and supplies to gaming licensees. An excursion
gambling boat is a boat, ferry or other floating facility on
which gaming is allowed. The Missouri Act limits the loss per
individual on each excursion to $500, but does not otherwise
limit the amount which may be wagered on any bet or the amount of
space in the vessel which may be utilized for gaming.
The Missouri Act is to be implemented and enforced by a
five-member Missouri Commission. The Missouri Commission is
empowered to issue such number of riverboat gaming licenses
as it determines to be appropriate. A gaming license cannot be
granted to any gaming operator unless the voters in such
operator's "home dock" city or county have authorized gaming
activities on gaming riverboats.
Gaming boats in Missouri must generally resemble boats from
Missouri's riverboat history and must contain nongaming areas,
food service and a Missouri theme gift shop. The boats must
cruise unless public safety requires continuous docking. Annual
license fees will be set by the Missouri Commission but may not
be less than $25,000. Each licensee also must post a bond or
other form of surety (in an amount determined by the Missouri
Commission) to secure performance of its obligations under the
Missouri Act and the regulations of the Missouri Commission.
On September 1, 1993, the Missouri Commission adopted rules
and regulations (the "Missouri Regulations") governing the
licensing, operation and administration of riverboat gaming in
the state of Missouri and the form of application for such
licensure. SLP has submitted its gaming application. There can
be no assurance that SLP will be selected for investigation for
licensing or if so selected that a Missouri gaming license will
be issued. In addition, the Missouri Regulations remain subject
to amendment and interpretation, and may further limit or
otherwise adversely affect the Company and its Missouri gaming
operations.
Directors and certain officers and key persons of the
Company and SLP must file personal disclosure forms with the
gaming license application and must be found suitable by the
Missouri Commission. Further, the Missouri Regulations require
that all employees of SLP who are involved in gaming operations
must file applications for and receive Missouri gaming
occupational licenses. The Missouri Regulations require
disclosure by the Company and SLP of any person or entity holding
any direct or indirect ownership interest in SLP. SLP is also
required to disclose the names of the holders of all of SLP's
debt including a description of the nature and terms of such
debt. The Missouri Commission may, in its sole discretion,
request additional information with respect to such holders.
Missouri gaming licenses must be renewed annually during the
first two years of an entity's licensure and renewed every two
years thereafter.
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Under Missouri law, gaming licenses are not transferable,
and under the Missouri Regulations the transfer of (i) any
ownership interest in a privately held business entity or (ii) a
5% or greater interest in a publicly traded company directly or
indirectly holding a Missouri gaming license is prohibited
without the approval of the Missouri Commission. Further,
without the prior approval of the Missouri Commission,
the Missouri Regulations prohibit withdrawals of
capital, loans, advances or distribution of any assets in excess
of 5% of accumulated earnings by a license holder to anyone
with an ownership interest in the license holder.
The Missouri Regulations specifically provide that any
action of the Missouri Commission shall not indicate or suggest
that the Missouri Commission has considered or passed in any way
on the marketability of the applicant or licensee's securities,
or on any other matter, other than the applicant or licensee's
suitability for licensure under Missouri law. A Missouri gaming
license holder can be disciplined in Missouri for gaming related
acts occurring in another jurisdiction which results in
disciplinary action in the other jurisdiction.
In addition to any other taxes or fees payable to state and
local governmental authorities, gaming licensure in the state of
Missouri will subject SLP to a 20% Adjusted Gross Receipts tax.
Adjusted Gross Receipts is generally defined as gross receipts
from gaming less payouts to customers as winnings. Also, a $2.00
admission is payable to the Missouri Commission for each person
admitted to the riverboat.
The Missouri Commission has broad powers to require
additional disclosure by an applicant during the processing of a
gaming application, to deny gaming licensure and to
administratively fine or suspend or revoke a gaming license for
failure to comply with or for violation of the Missouri Act or
Missouri Regulations. Further, in certain situations, the
Missouri Commission can appoint a supervisor to continue the
operations of a license holder after lapse, suspension or
revocation of a gaming license.
The supervisor may operate and sell the facility with
earnings or proceeds being paid to the former owners only after
deduction of the costs and expenses of the supervisorship and
establishment of reserves.
U.S. COAST GUARD
Each riverboat also is regulated by the U.S. Coast Guard,
whose regulations affect vessel design, construction, operation
(including requirements that each vessel be operated by a minimum
complement of licensed personnel) and maintenance, in addition to
restricting the number of persons who can be aboard the boat at
any one time. All vessels operated by the Company must hold a
Certificate of Inspection. Loss of the Certificate of Inspection
of a vessel would preclude its use as an operating riverboat. A
vessel is subject to annual, quarterly, as well as unannounced,
inspection by the U.S. Coast Guard and must be drydocked every
five years for inspection of the hull. Such drydockings remove
the vessel from service for a period of time and can result in
required repairs. Less stringent rules apply to permanently
moored vessels. The Company believes that these regulations, and
the requirements of operating and managing cruising gaming
vessels generally, make it more expensive to conduct riverboat
gaming than to operate land-based casinos.
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All shipboard employees of the Company employed on U.S.
Coast Guard regulated vessels, even those who have nothing to do
with the actual operation of the vessel, such
as dealers, cocktail hostesses and security personnel,
may be subject to the Jones Act which, among
other things, exempts those employees from state limits on
workers' compensation awards. The Company intends to obtain
such insurance to cover employee claims.
SHIPPING ACT OF 1916; MERCHANT MARINE ACT OF 1936
In order for the Company's vessels to have United States
flag registry, the Company must maintain "United States
citizenship" as defined in the Merchant Marine Act of 1920, as
amended, and the Shipping Act of 1916. A corporation or
partnership operating any vessel in the coastwise trade is not
considered a United States citizen unless United States citizens
own 75% of the equity of the Company or the partnership and, if a
partnership, all general partners must be United States citizens.
INDIAN GAMING
The terms and conditions of management contracts and the
operation of casinos and all gaming on Indian land in the United
States are subject to the Indian Gaming Regulatory Act of 1988
("IGRA"), which is administered by the National Indian Gaming
Commission ("NIGC"). IGRA is subject to interpretation by the
Secretary of the Interior (the "Secretary") and the NIGC and may
be subject to judicial and legislative clarification or
amendment.
IGRA requires NIGC approval of management contracts for
Class II and Class III gaming as well as the review of all
agreements collateral to the management contracts. The NIGC will
not approve a management contract if a director or a 10%
shareholder of the management company: (i) is an elected member
of the Indian tribal government which owns the facility
purchasing or leasing the games; (ii) has been or is convicted of
a felony gaming offense; (iii) has knowingly and willfully
provided materially false information to the NIGC or the tribe;
(iv) has refused to respond to questions from the NIGC; or (v) is
a person whose prior history, reputation and associates pose a
threat to the public interest or to effective gaming regulation
and control, or create or enhance the chance of unsuitable
activities in gaming or the business and financial arrangements
incidental thereto. In addition, the NIGC will not approve a
management contract if the management company or any of its
agents have attempted to unduly influence any decision or process
of tribal government relating to gaming, or if the management
company has materially breached the terms of the management
contract or the tribe's gaming ordinance, or a trustee,
exercising due diligence, would not approve such management
contract.
A management contract can be approved only after the NIGC
determines that the contract provides, among other things, for:
(i) adequate accounting procedures and verifiable financial
reports, which must be furnished to the tribe; (ii) tribal access
to the daily operations of the gaming enterprise, including the
right to verify daily gross revenues and income; (iii) minimum
guaranteed payments to the tribe, which must have priority over
the retirement of development and construction costs; (iv) a
ceiling on the repayment of such development and construction
costs and (v) a contract term not exceeding five years and a
management fee not exceeding 30% of net revenues (as determined
by the NIGC); provided that the NIGC may approve up to a seven
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year term and a management fee not to exceed 40% of net revenues
if NIGC is satisfied that the capital investment required, and
the income projections for the particular gaming activity justify
the larger fee and longer term.
There is no periodic or ongoing review of approved contracts
by the NIGC. The only post-approval action which could result in
possible modification or cancellation of a contract would be as
the result of an enforcement action taken by the NIGC based on a
violation of the law or an issue affecting suitability.
IGRA established three separate classes of tribal gaming--
Class I, Class II and Class III. Class I includes all
traditional or social games solely for prizes or minimal value
played by a tribe in connection with celebrations or ceremonies.
Class II gaming includes games such as bingo, pulltabs,
punchboards, instant bingo and non-banked card games (those that
are not played against the house), such as poker. Class III
gaming is casino-style gaming and includes banked table games such
as blackjack, craps and roulette, and gaming machines such as
slots, video poker, lotteries and pari-mutuel wagering.
IGRA prohibits all forms of Class III gaming unless the
tribe has entered into a written agreement with the state that
specifically authorizes the types of Class III gaming the tribe
may offer (a "tribal-state compact"). IGRA requires states to
negotiate in good faith with tribes that seek tribal-state
compacts and grants Indian tribes the right to seek a federal
court order to compel such negotiations. Some states have
refused to enter into such negotiations. Tribes in several
states have sought federal court orders to compel such
negotiations. The issue of whether this provision of IGRA is
unconstitutional as a violation of the Eleventh Amendment to the
United States Constitution which immunizes states from suit
without the state's consent is presently pending before the U.S.
Supreme Court in the case of SEMINOLE V. STATE OF FLORIDA AND
LAWTON CHILES. If Indian tribes are unable to compel states to
negotiate tribal-state compacts, the Company will not be able to
develop and manage casinos offering Class III games in states
that refuse to enter into tribal-state compacts.
If the decision of the U.S. Supreme Court in the SEMINOLE
case has the effect of voiding IGRA in its entirety, this would
end the exemption provided by IGRA to the Johnson Act (15 USC
1171) concerning prohibition of gambling devices on Indian land.
These compacts provide among other things, the manner and
extent to which each state will conduct background investigations
and certify the suitability of the manager, its officers,
directors, and key employees to conduct gaming on tribal lands.
The Company has not yet submitted its application to the State of
Washington to conduct gaming on the Lummi Indian Nation tribal
land.
Title 25, Section 81 of the United States Code states that
"no agreement shall be made by any person with any tribe of
Indians, or individual Indians not citizens of the United States,
for the payment or delivery of any money or other thing of value
. . . in consideration of services for said Indians relative to
their lands . . . unless such contract or agreement be executed
and approved: by the Secretary of the Interior (the
"Secretary") or his or her designee. An agreement or
contract for services relative to Indian lands which fails
to conform with the requirements of Section 81 is
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void and unenforceable. All money or other thing of value paid
to any person by any Indian or tribe for or on his or their
behalf, on account of such services, in excess of any amount
approved by the Secretary or his or her authorized representative
will be subject to forfeiture. The Company intends to comply
with Section 81 with respect to any contract to manage casinos
located on Indian land in the United States.
Indian tribes are sovereign with their own governmental
systems, which have primary regulatory authority over gaming on
land within the tribes' jurisdiction. Therefore, persons engaged
in gaming activities, including the Company, are subject to the
provisions of tribal ordinances and regulations on gaming. These
ordinances are subject to review by NIGC under certain standards
established by IGRA. NIGC may determine that some or all of the
ordinances require amendment, and that additional requirements,
including additional licensing requirements, may be imposed on
the Company.
OTHER FEDERAL, STATE AND LOCAL LEGISLATION AND REGULATIONS
The Company is subject to various other federal, state and
local laws and regulations and, on a periodic basis, has to
obtain various licenses and permits, including those required to
sell alcoholic beverages. In particular, the United States
Department of the Treasury has adopted regulations pursuant to
which a casino is required to file a report of each deposit,
withdrawal or exchange of currency or other payment or transfer
by, through or to a casino which involves a transaction in
currency of more than a predetermined amount ($10,000 for 1996)
per gaming day. Such reports are required to be made on forms
prescribed by the Secretary of the Treasury and must be filed
with the Commissioner of the Internal Revenue Service. In
addition, a casino is required to maintain detailed records
(including the names, addresses, social security numbers or other
information with respect to its customers) dealing with, among
other items, a customer's deposit and withdrawal of funds and the
maintenance of a line of credit.
Additionally, various federal, state and local legislation
and regulations relating to safety, health and environmental
matters that apply to businesses in general, such as the Clean
Air Act, the Clean Water Act, the Occupational Safety and Health
Act, the Resource Conservation Recovery Act and the Comprehensive
Environmental Response, Compensation and Liability Act, apply to
the Company as well. In addition, certain legislation and
regulations that apply generally to vessels operating in United
States waters, such as the Oil Pollution Act of 1990 (which among
other things, deals with liability for oil spills and requires a
certificate of financial responsibility for vessels operating in
United States waters), or within the jurisdiction of various
states would apply to SMCP. One major development in federal
legislation was the passage of the Coast Guard Authorization Act
of 1996 which amends a provision of the Johnson Gambling Devices-
Transportation Act of 1951 prohibiting gaming on federal waters,
including Lake Michigan. As a result of this amendment,
riverboat casinos, such as the casino vessel to be operated by
SMCP, will be able to conduct cruises on Lake Michigan within
boundaries of the State of Indiana and "mock cruises" will only
be permitted pursuant to the exceptions authorized by the
Riverboat Gambling Act.
In addition, Congress has passed a bill which would
establish a National Gambling Impact and Policy Commission (the
"Policy Commission") to study the economic impact of gambling on
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the United States, the individual States and Native American
tribes. Additional federal regulation may occur due to the
initiation of hearings by the Policy Commission. Any new federal
legislation could have a material adverse effect on
the Company. Although the Company does not anticipate
making material expenditures with respect to such laws and
regulations, the applicability of such laws and regulations
may result in additional costs to the Company.
ITEM 2. PROPERTIES.
The Company believes that its properties are generally in
good condition, are well maintained, and are generally suitable
and adequate to carry on the Company's business. In 1996, the
Company's gaming properties operated at satisfactory levels of
utilization.
ATLANTIC CITY FACILITIES
The Atlantic City Showboat is located on approximately 12
acres, 10 1/2 acres of which is leased from Sun International,
Inc., successor in interest to Resorts International, Inc.(1)
("Sun International") pursuant to a 99-year lease dated October
26, 1983 (as amended, "Lease"). The remaining acreage is held
in fee by ACSI. In addition, ACSI owns approximately nine acres
of land adjacent to the Atlantic City Showboat which are zoned
for non-casino development and which are currently used as
surface level parking lots.
Under the New Jersey Act, both Sun International and ACSI,
because of their lessor-lessee relationship, are jointly and
severally liable for the acts of the other with respect to any
violations of the New Jersey Act by the other. In order to limit
the potential liability which could result from this provision,
ACSI, OSI, and Sun International have agreed to indemnify each
other from all liabilities and losses which may arise as a result
of the joint and several liability imposed by the New Jersey Act.
However, the New Jersey Commission could determine that the party
seeking indemnification is not entitled to or is barred from such
indemnification.
Pursuant to the New Jersey Act, the New Jersey Commission
approved, subject to certain changes, an Assumption Agreement
("Assumption Agreement") executed by Trump Taj Mahal Associates
Limited Partnership and Trump Taj Mahal Realty Corp.
(collectively, "Trump Taj"), ACSI and Resorts International,
Inc., in connection with Trump Taj's acquisition of the land on
which the Taj Mahal Casino Hotel is constructed and pursuant to
which Trump Taj assumed some of Sun International's obligations
in the Lease. The New Jersey Commission ruled that the
Assumption Agreement is a lease under the New Jersey Act for
casino regulatory purposes. As a result, for casino regulatory
purposes, a lessor-lessee relationship is deemed to exist among
ACSI, Sun International, and Trump Taj making them jointly and
severally liable for the acts of the other with respect to any
violations of the New Jersey Act by the others. In order to
limit their potential liability, ACSI, Sun International and
Trump Taj have entered into an agreement to indemnify each other
from all liabilities and losses which may arise as a
result of the joint and several liability imposed upon them
by the New Jersey Act. However, the New Jersey
_________________
(1) Resorts International, Inc. and the Company had entered into
the Lease and certain other documents relating to the Atlantic
City Showboat (the "Atlantic City Showboat Agreements"). As a
result of Sun International's acquisition of Resorts
International, Inc. during 1996, Sun International succeeded to
the rights, duties and obligations of Resorts International,
Inc. under the Atlantic City Showboat Agreements.
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Commission could determine that the party seeking indemnification
is not entitled to or is barred from such indemnification.
In the event Sun International is unable under the laws of
New Jersey to act as lessor of the site to the Atlantic City
Showboat ("Premises"), ACSI has an option to
purchase the Premises for the greater of $66.0 million
or the fair market value of the "leased fee estate" (determined
by appraisal in the case of disagreement), subject to
a maximum purchase price of 11 times the
annual rent in the option year. However, if the appraisal is not
completed within the time period specified by the New Jersey
Commission, the purchase price is equal to the lesser of $66.0
million or 11 times the annual rent in the option year. If ACSI
is unable to continue operating the Atlantic City Showboat under
the New Jersey gaming laws, Sun International has a similar option
to purchase ACSI's interest in the Premises together with the
Atlantic City Showboat building and all furniture, fixtures
and equipment thereon for their fair market value as of the
option date (determined by appraisal in the case of disagreement).
Also, should Sun International elect to sell its interest in the
Lease or the Premises to an unaffiliated third party, ACSI has a
first right of purchase unless such sale is made to a person
who acquires all of the assets and liabilities of Sun
International (subject to the Lease). Similarly, Sun International
has a first right of purchase of ACSI's leasehold interest in the
Premises or the Atlantic City Showboat if ACSI elects to sell
the same to any person other than an affiliate of ACSI or a
mortgagee of ACSI's leasehold interest and improvements on the
leased land. Any such transfer by ACSI, other than to a permitted
transferee, requires Sun International's consent which cannot be
unreasonably withheld.
The Lease and all amendments thereto are subject to review
and approval by the New Jersey Commission, and Sun International
and ACSI have agreed that they will accept any reasonable
modification to the Lease that may be required by the New Jersey
Commission. If either party determines that the requested Lease
modifications are unduly burdensome, the Lease may be terminated,
subject to arbitration in the case of disagreement. The Lease,
as amended to date, has been approved by the New Jersey
Commission. In addition, Sun International, pursuant to a
ruling by the New Jersey Commission, in its capacity as lessor
of the site of the Atlantic City Showboat, must obtain a casino
service industry license. Sun International presently holds a
casino service industry license, which must be renewed every
three years.
The 9 1/4% First Mortgage Bonds due 2008 (the "9 1/4%
Bonds") and the Company's $25.0 million revolving loan ("$25.0
Million Revolving Loan") from Fleet Bank are each secured by
leasehold mortgages on (i) ACSI's interest in the Lease, (ii) the
Atlantic City Showboat (including the 24-story hotel tower as
well as certain personal property therein) and future
improvements on the leased rea l property, (iii) the 16-story
hotel tower as well as certain personal property therein and
the underlying real property held in fee, and (iv) the two
surface parking lots held in fee. Such mortgages are subject
and subordinate to Sun International's rights under the Lease
and its fee interest in the Premises. Subject to certain
limited exceptions, the Lease may not be amended without the
consent of the trustee under the Indenture governing the
9 1/4% Bonds unless certain opinions are delivered to the effect
that the amendment does not materially impair the security
of the mortgage. An event of default under the Lease
constitutes an event of default under the respective mortgage and
Indenture.
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In addition to its rental payment obligations under the
Lease, ACSI is obligated to contribute up to one-third of the
costs of certain infrastructure improvements to be constructed on
a 56-acre tract ("Urban Renewal Tract"). The Atlantic City
Showboat is located on a portion of the Urban Renewal Tract owned
by Resorts. ACSI is obligated to contribute only toward
improvements of which it is the beneficiary or which are expected
to benefit ACSI and all future occupants of the Urban Renewal
Tract. ACSI has contributed to infrastructure improvements
involving the construction of certain sewer and water lines and
the realigning of a portion of Delaware Avenue ("Realigned
Delaware Avenue") to permit direct ingress and egress from the
Realigned Delaware Avenue to the Atlantic City Showboat, which
improvements have been completed.
Realigned Delaware Avenue has not yet been dedicated to the
City of Atlantic City. Pending dedication of the Realigned
Delaware Avenue to the City, the Housing Authority granted to
ACSI a permanent easement and right of way ("Easement") for the
Realigned Delaware Avenue for the benefit of ACSI and ACSI's
employees, agents, guests, suppliers, visitors, invitees and all
others seeking access to the Atlantic City Showboat. Until
acceptance of a deed of dedication of the Realigned Delaware
Avenue by the City of Atlantic City, ACSI shall maintain at
its expense and pay, if billed separately, the real property
taxes associated with the Easement, or reimburse Resorts for its
allocable share of such real property taxes for the Easement.
ACSI leases a 63,200 square-foot warehouse and office in Egg
Harbor Township, New Jersey, approximately 15 miles from the
Atlantic City Showboat. The lease term is through July 31, 2001.
ACSI holds an option to purchase the warehouse for $1.9 million.
This option may be exercised by ACSI on or after January 1, 1996,
and shall remain in effect until March 31, 2001.
ACSI leases a parking area for its employees for 300 parking
spaces. The lease term is 3 years unless terminated by the
landlord upon one year's written notice or upon 90 days written
notice by ACSI. Only in the event that the property is condemned
may the lease be terminated by either party before September 15,
1998. ACSI provides, through an independent contractor, a
shuttle service for its employees between the employee parking
area and the Atlantic City Showboat.
LAS VEGAS FACILITIES
The facilities at the Las Vegas Showboat are constantly
monitored to make sure that the needs of the Company's business
and customers are met. During 1995, the Company completed an
approximately $21.0 million renovation of the casino, dining
rooms and bar areas, all of which were substantially completed in
1995. The renovation, which was initiated to bring the building
into compliance with the current building code, included the
replacement of the roof over a portion of the casino.
Additionally, the facilities power plant and HVAC systems were
replaced, a new pool building was constructed, new carpeting was
installed throughout the property, the buffet and coffee shop
kitchens and the employee dining room were remodeled and enlarged
and an employee learning center was added. As a result of this
extensive renovation construction during 1995, approximately
40% of the main casino space of the Las Vegas
Showboat was closed for approximately six months of 1995. The
Las Vegas Showboat has developed a recreational
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vehicle park with approximately 80 spaces on leased property
contiguous to the Las Vegas Showboat. The recreational vehicle
park became operational in March 1997.
The Company holds fee title to approximately 26 acres which
comprises the Las Vegas Showboat. Of the 26 acres, 19.25 acres
are used for buildings and improvements at the Las Vegas
Showboat, which secures the Company's 9 1/4% Bonds and the
$25.0 Million Revolving Loan. The Company leases such property,
buildings and improvements to SBOC.
SYDNEY FACILITIES
SHCP subleases a site located at Wharves 12 and 13 at
Pyrmont Bay in Sydney, Australia from the NSWCCA, which site is
owned by the City West Development Corporation ("CWDC"). SHCH
renovated an existing building on the interim site to permit the
operation of the interim casino. The subleases for the interim
site have a combined term which commenced on December 14, 1994
and continue until the commencement of operations at the
permanent Sydney Harbour Casino. SCHP is not required to
perform any material work on the interim site after the interim
casino ceases operation as, at such time, the lease terminates
and the site reverts to CWDC with no further obligation to SHCP.
For the first three years following completion of the interim
casino, SHCP pays net annual rent to the NSWCCA in the amount of
A$4.125 million. After the initial three year period, the rent
is subject to adjustment in accordance with the terms of the
lease. Use of the interim site is restricted to the operation of
the interim casino and the term of the lease expires on the
commencement of commercial operations of the permanent Sydney
Harbour Casino.
SHCP also entered into leases with the NSWCCA for the
permanent Sydney Harbour Casino site, which site is located on
8.4 acres on Pyrmont Bay adjacent to Darling Harbour. The
permanent site is approximately one mile from Sydney's central
business district and within walking distance of a monorail
station. The permanent site will have a light rail station and
is anticipated to have access to a ferry wharf. The permanent
site is also close to four major parking garages in Darling
Harbour and has good access to arterial road routes. The leases
for the permanent site have a combined term of 99 years
commencing on December 14, 1994. SHCP prepaid the net rent to
the NSWCCA for the first 12 years under the leases with a payment
of A$120.0 million. For the remaining term, the net annual rent
is A$250,000. Upon termination of the leases, title to the
improvements reverts to the NSWCCA without payment or
compensation. Alternatively, SHCP could be directed by the
NSWCCA to demolish any and all improvements erected on the land,
leaving it in a safe condition.
EAST CHICAGO FACILITIES
On October 19, 1995, SMP entered into a Redevelopment
Project Lease (the "Redevelopment Lease") with the City of East
Chicago, Department of Redevelopment, pursuant to which the City
of East Chicago granted SMP a leasehold interest for
approximately 27 acres in East Chicago, Indiana on which to
construct and operate the East Chicago Showboat for a period of
thirty (30) years from the date SMP received the
certificate of suitability from the Indiana Commission
(the "Commencement Date"). As a result of the March 28, 1996
transfer of assets from SMP to SMCP, SMP assigned the
Redevelopment Lease to SMCP. SMCP may elect to
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renew the term for two additional thirty year terms. The
Redevelopment Lease obligates SMCP to pay the City of
East Chicago $400,000 in annual rent with an
adjustment every three years by the same percentage
as the percentage increase in the Consumer Price Index
over the previous three years not to exceed 105% of the
previous annual rental. The interests of SMCP in the
Redevelopment Lease are subject to a leasehold mortgage executed
in conjunction with the East Chicago Notes.
In addition to these leasehold interests, SMCP will own the
casino gaming vessel which arrived in the City of East Chicago
from Jacksonville, Florida in December 1996 and continues to
be constructed at its berth in the Pastrick Marina. SMCP's
interests in the casino gaming vessel will be subject to a first
preferred ship mortgage executed in conjunction with the East
Chicago Notes at such time as the title to the casino gaming
vessel is transferred from the builder of the vessel to SMCP.
All of the assets of SMCP, other than certain equipment,
secures the East Chicago Notes.
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ITEM 3. LEGAL PROCEEDINGS.
DARLING CASINO LIMITED ("DCL") V. NSWCCA, SHCL AND
CHIEF SECRETARY AND MINISTER FOR ADMINISTRATIVE SERVICES
("MINISTER FOR ADMINISTRATIVE SERVICES"), Case No. 30091/94,
instituted in December 1994, in the Administrative Law Division
of the Supreme Court of New South Wales, Sydney Registry. DCL,
the unsuccessful applicant for the casino license in New South
Wales, initiated an action against NSWCCA, SHCL and the Minister
for Administrative Services seeking, among other things, the
revocation of the casino license awarded to SHCL on December 14,
1994. On November 8, 1995, the New South Wales Court of Appeal
dismissed the legal proceedings filed by DCL. DCL has been
granted leave to appeal to the High Court of Australia. The High
Court proceedings were heard on June 17 and 18, 1996. The Court
reserved it's decision and no indication has been given as to
when the Court will deliver its judgment. Management believes
that the DCL's action is without merit and intends to defend
vigorously the action.
DCL V. NSWCCA, SHCL AND NEW SOUTH WALES MINISTER FOR
PLANNING ("MINISTER FOR PLANNING"), Case No. 40227/94 and
40230/94, instituted in December 1994, in the Land and
Environment Court of the State of New South Wales, Australia.
DCL initiated an action against the NSWCCA and the Minister for
Planning alleging that the development plans for Sydney Harbour
Casino were improperly approved. SHCL was joined as a party to
those proceedings in view of its interest in their outcome. On
April 21, 1995, the Land and Environmental Court dismissed the
legal proceedings filed by DCL. On August 18, 1995, DCL filed
an appeal with the New South Wales Court of Appeal against the
April 21, 1995 decision of the Land and Environment Court.
Management believes that DCL's action is without merit and
intends to defend vigorously the action.
WILLIAM H. AHERN V. CAESARS WORLD, INC., ET AL., Case No.
94-532-Civ-Orl-22, instituted on May 10, 1994 in the United
States District Court for the Middle District of Florida,
transferred to the United States District court for the
District of Nevada, Southern Division; WILLIAM POULOS V. CAESARS
WORLD, INC., ET AL., Case No. 94-478-Civ-Orl-22, instituted on
April 26, 1994 in the United States District Court for the
Middle District of Florida, transferred to the United States
District court for the district of Nevada, Southern Division.
LARRY SCHREIER V. CAESARS WORLD, INC. ET AL., Case No. 95-923-
LDG (RJJ), instituted on September 26, 1995, in the United
States District Court for the District of Nevada, Southern
Division. Plaintiffs in these actions, each purportedly
representing a class, filed complaints against manufacturers,
distributors and casino operators of video poker and electronic
slot machines, including the Company, alleging that the
defendants have engaged in a course of conduct intended to
induce persons to play such games based on a false belief
concerning how the gaming machines operate, as well as the
extent to which there is an opportunity to win on a given play.
The Complaints charge defendants with violations of the
Racketeer Influenced and Corrupt Organizations Act, as well as
claims of common law fraud, unjust enrichment and negligent
misrepresentation, and seek damages in excess of $1 billion
without any substantiation of that amount. The Company filed
motions to dismiss Complaints. The Nevada District Court
dismissed the Complaints, granting leave to Plaintiffs to
re-file, and denying as moot all other pending
motions, including those of the Company. The Plaintiffs
filed an amended complaint on or about May 31, 1996.
The Company renewed its motions to dismiss based on
abstention and related doctrines, and joined in the
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motions to dismiss filed by other defendants, which
were based on defects in the pleadings. The Nevada District
Court consolidated the actions (and one other action styled
William Poulos v. American Family Cruise Line, N.V.
et al., Case No. CV-S-95-936-LDG (RLH), in which the Company is
not a named defendant), ordered Plaintiffs to file a
consolidated amended complaint on or before February 14, 1997,
and ordered all defense motions, including those of the Company,
withdrawn without prejudice. The parties have established a
steering committee to address motion practice, scheduling and
discovery matters. Plaintiffs filed their consolidated amended
complaint on February 14, 1997. Management believes that the
substantive allegations in the Complaints are without merit and
that the consolidated amended complaint will be subject to the
same defects addressed in earlier motions, and intends
vigorously to defend the allegations.
GLOBAL GAMING TECHNOLOGY, INC. V. TRUMP PLAZA FUNDING, INC.,
ET AL., Case No. 94-2021 (JHR), instituted on May 5, 1994, in the
United States District Court for the District of New Jersey. The
plaintiff, Global Gaming Technology, Inc., filed a complaint
against eight casino operators in Atlantic City, New Jersey. The
complaint alleges a patent infringement with respect to certain
of the electronic slot machines used by the defendants, including
the Atlantic City Showboat. The plaintiff seeks to recover
damages for copyright infringement in excess of $500 million.
The manufacturers of the slot machines in question have assumed
the defense and have indemnified the Atlantic City Showboat and
other casinos in this matter. The manufacturers filed a
complaint against the plaintiff in the United States District
Court for the District of Nevada, Southern District. The United
States District Court for the District of New Jersey stayed the
New Jersey action pending resolution of the issues in the pending
Nevada action. Several of the manufacturers have reached a
settlement with the plaintiff for the release of all claims. The
United States District Court for the District of Nevada issued
its decision in February 1997 which found that although the
manufacturers infringed on Global Gaming Technology's patent, no
liability occurred since the manufacturers sold the slot machines
more than one year before Global Gaming Technology, Inc. filed
its patent application.
PROGRESSIVE GAMES, INC. V. ARIZONA CHARLIE'S ET AL., Case
No. CV-S-96-00489-PMP (RJJ), instituted on June 5, 1996 in the
United States District Court for the District of Nevada. The
plaintiff filed a Complaint against 62 casinos located in Nevada,
including the Las Vegas Showboat. The complaint alleges a patent
infringement in connection with a live casino game including an
electronic jackpot feature known as "Let It Ride the Tournament"
used by the defendants. The plaintiff seeks to recover damages
for patent infringement, including punitive damages. The
licensor of the casino game has assumed the defense and has
agreed to indemnify the Las Vegas Showboat and other casinos in
this matter. On July 28, 1996, the licensor filed a motion to
dismiss the action against the casino defendants until such time
as certain issues in the pending action between plaintiff and
licensor have been resolved.
ITSI TV PRODUCTIONS, INC. V. BALLY'S GRAND, INC., ET AL.,
Case No. CV-N-90-314-HDM, instituted on June 29, 1990 in the
United States Court, District of Nevada (the "Nevada action").
The plaintiff claims that the Company infringed on the
plaintiff's copyright by displaying to the Company's sports book
customers certain horse race broadcasts. Numerous other hotel-
casinos located in Las Vegas, Nevada are defendants in this
lawsuit. The plaintiff seeks to recover damages for copyright
infringement in an unknown amount. A motion to dismiss the
complaint has been filed on behalf of the Company
denying the existence of an enforceable copyright and
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asserting statute of limitations defenses. The motion is
currently pending. The same factual issues were presented in an
action filed in the United States District Court for the
Eastern District of California (the "California action") in
which Showboat is not a party. The United States District
Court for the District of Nevada has stayed and
administratively stayed the Nevada action pending resolution
of the liability issues in the pending California action. The
California action was tried in 1993 and therein the Court found
that although the plaintiff owned the copyright, there was no
infringement. The Ninth Circuit Court of Appeals subsequently
affirmed the decision of the trial court in the California
action. As a result of the decision in the California action the
Plaintiff has executed a stipulation for dismissal of the action
filed in Nevada and the dismissal is currently being circulated
among all defendants.
The Company (including its subsidiaries) is also a defendant
in various other lawsuits, most of which relate to routine
matters incidental to its business. Management does not believe
that the outcome of such pending litigation, in the aggregate,
will have a material adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of security
holders during the fourth quarter of 1996.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The Company's common stock is listed on the New York Stock
Exchange under the symbol SBO. The range of high and low sales
prices for the Company's common stock for each quarter in the
last two years is as follows:
<TABLE>
<CAPTION>
Dividends
High Low Declared
<S> <C> <C> <C>
First quarter (through March 14, 1997) 23 3/4 17 1/4 .000
1996
First quarter 28 1/2 21 .025
Second quarter 35 1/2 24 1/2 .025
Third quarter 30 3/8 18 3/4 .025
Fourth quarter 22 5/8 17 .025
1995
First quarter 15 3/4 13 1/2 .025
Second quarter 18 5/8 13 1/2 .025
Third quarter 24 3/8 17 1/2 .025
Fourth quarter 29 3/8 21 .025
</TABLE>
On March 14, 1997, the closing price of the Company's common
stock on the New York Stock Exchange was $20 1/8.
The Company has paid quarterly dividends since 1970. The
declaration and payment of dividends is at the discretion of the
Board of Directors. The Board of Directors considers, among
other factors, the Company's earnings, financial condition and
capital spending requirements in determining an appropriate
dividend.
The Company is restricted in the payment of dividends, loans
or other similar transactions by the terms of the Indentures
executed by it in connection with the issuance of 9 1/4% Bonds
and the 13% Senior Subordinated Notes due 2009 (the "13% Notes"),
respectively. Under both of the Indentures, the declaration and
making of a dividend is a Restricted Payment. The Company may
declare and make a dividend as long as (a) no default or event of
default exists under the Indentures and (b) the sum of all
Restricted Payments, including dividends, since May 18, 1993 (the
"Issue Date") is less than (x) 50% of the Consolidated Net Income
(defined in the Indentures) from April 1, 1993 to the end
of the Company's most recently ended fiscal quarter for
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<PAGE>
which internal financial statements are available, plus (y) 100%
of the aggregate net cash proceeds from the sale of equity
interests (other than Disqualified Stock), plus (z) Excess
Non-Recourse Subsidiary Proceeds (defined in the Indentures)
after the Issue Date. See Note 6 to the Consolidated Financial
Statements for additional discussion of the restrictions
contained in the Indentures and see "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations."
Under the East Chicago Indenture, SMCP cannot make a
Restricted Payment, including distributions to the holders of its
partnership interests, unless, among other things, SMCP has a
Fixed Charge Coverage Ratio of 2.0 to 1.0 for the most recently
ended four full fiscal quarters, after giving effect to such
Restricted Payment. Notwithstanding the foregoing, the East
Chicago Indenture permits SMCP to distribute good faith estimates
of maximum payments for state and federal income tax liabilities
of the Company and Waterfront. See also "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations."
The approximate number of shareholders of record of the
common stock as of March 14, 1997 was 1,418.
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994 1993 1992
INCOME STATEMENT DATA: (In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net revenues............................... $433,705 $428,592 $401,333 $375,727 $355,236
Income from operations..................... 42,121 46,674 51,828 45,419 46,508
Income before extraordinary
items and cumulative effect
of change in method of
accounting for income
taxes (a)(b)(c)(d)(f)..................... 6,003 13,175 15,699 13,464 15,857
Net income................................. 6,003 13,175 15,699 7,341 12,449
Income before extraordinary
items and cumulative effect
of change in method of
accounting for income
taxes per share (a)(b)(c)(d)
(f)...................................... .37 .84 1.02 .89 1.37
Net income per share...................... .37 .84 1.02 .49 1.08
Cash dividends declared per
common share............................. .10 .10 .10 .10 .10
- 52 -
<PAGE>
December 31,
1996 1995 1994 1993 1992
(In thousands)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets (e)......................... $814,669 $649,395 $623,691 $470,700 $384,900
Long-term recourse debt
(including current
maturities) (a)(b)(e)................... 392,744 392,391 392,035 280,617 209,116
Long-term nonrecourse debt
(including current
maturities (g).......................... 140,000 -- -- -- --
Shareholders' equity (e)................. 192,145 173,941 157,461 135,158 126,018
Shares outstanding at year-
end (e)................................. 16,181 15,720 15,369 14,980 14,804
</TABLE>
(a) In the year ended December 31, 1992, the Company recognized
an extraordinary loss of $3.4 million net of tax, as a
result of the planned redemption of all of its outstanding
13% Subordinated Sinking Fund Debentures ("Debentures").
(b) 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.
(c) In the year ended December 31, 1993, the Company recognized
an extraordinary loss of $6.7 million, net of tax, as a
result of the redemption of all of its outstanding
Mortgage-Backed Bonds.
(d) In 1993, the Company acquired a 30% equity interest in SSP
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, is
included in income from operations for the year ended
December 31, 1993, including the write-off of preopening
costs, of $1.3 million. In March 1994, the Company increased
its equity interest in SSP to 50%. The Company's share of
the net income of the partnership was $12.8 million and is
included in income from operations for the year ended
December 31, 1994. In March 1995, the Company acquired the
remaining 50% of the equity of SSP. In March 1995, SSP sold
certain of its assets, and the Company sold all of its
equity in SSP, resulting in a pretax gain of $2.6 million to
the Company which is included in the 1995 Consolidated
Statement of Income as gain on sale of affiliate.
(e) In the year ended December 31, 1992, the Company sold 3.45
million shares of its common stock in a public offering.
Net proceeds of the offering were $50.4 million. Proceeds
of the offering were used in January 1993 to redeem all of
the Company's Debentures and to prepay the outstanding
balance of its construction and term loan.
(f) In the years ended December 31, 1996 and 1995, the Company
recognized a pre-tax write-down of $3.8 million and $1.4
million respectively on its investment in SMG.
(g) In March 1996, SMCP and SMFC issued $140.0 million East
Chicago Notes for the development of the East Chicago
Showboat.
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
GENERAL
Showboat, Inc. and Subsidiaries (collectively, the "Company"
or "SBO"), is an international gaming company with over 40 years
of gaming experience that owns and operates the Atlantic City
Showboat Casino Hotel in Atlantic City, New Jersey (the "Atlantic
City Showboat"), the Las Vegas Showboat Casino, Hotel and Bowling
Center in Las Vegas, Nevada (the "Las Vegas Showboat"), owns a
24.6% equity interest in, and manages through subsidiaries, the
Sydney Harbour Casino located in Sydney, Australia, and owns
through subsidiaries a 55% interest in, and will manage, the
East Chicago Showboat riverboat casino project in East Chicago,
Indiana, (the "East Chicago Showboat"), which is under
construction and scheduled to open, subject to licensing, in the
second quarter of 1997. Until March 31, 1995, the Company owned
an equity interest in and managed a riverboat casino on Lake
Pontchartrain in New Orleans, Louisiana (the "Star Casino").
The consolidated financial statements include all domestic
and foreign subsidiaries which are more than 50% owned and
controlled by the Company. Investments in unconsolidated
affiliates which are at least 20% owned by the Company are
carried at cost plus equity in undistributed earnings or loss
since acquisition. All material intercompany balances have been
eliminated in consolidation.
As discussed in detail in the Liquidity and Capital
Resources section of this report, the Company, on January 12,
1997, announced that the Company and Publishing & Broadcasting
Limited ("PBL"), a public company listed on the Australian Stock
Exchange, have reached an agreement in principle with respect to
the acquisition by PBL of a significant portion of the Company's
equity interests and the management company for the casino
operations in Sydney, Australia. The agreement in principle is
subject to the execution of definitive agreements and the receipt
of certain approvals and consents of governmental authorities and
third parties. Following the consummation of acquisition, the
Company's equity interest in the Sydney casino will be 14.6%.
As used in this management's discussion and analysis of
financial condition and results of operations, amounts in
Australian dollars are denoted as "A$". As of December 31, 1996,
the exchange rate was approximately $0.794 for each A$1.00.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996 (1996)
COMPARED TO YEAR ENDED DECEMBER 31, 1995 (1995)
REVENUES
Net revenues for the Company increased to $433.7 million in
1996 from $428.6 million in 1995, an increase of $5.1 million or
1.2%. Casino revenues increased $3.5 million or 0.9% to
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<PAGE>
$383.0 million in 1996 from $379.5 million in 1995. Nongaming
revenues, which consist principally of room, food, beverage,
management fee and bowling revenues, were $92.6 million in 1996
compared to $88.7 million in 1995, an increase of $3.9 million or
4.4%. The Company received no management fees in 1996 due to the
Company's agreement to forgive the first A$19.1 million of
management fees due it from Sydney Harbour Casino. As of December
31, 1996, approximately A$4.6 million of management fees remain
to be forgiven. The $.2 million management fee received in 1995
was attributable to the Company's investment in the Star Casino
which was sold in March of 1995.
- 55 -
<PAGE>
<TABLE>
<CAPTION>
Revenues
Year Ended ended December 31,
(Unaudited)
(Dollars in thousands)
1996 1995 Variance Percent
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Consolidated:
Casino revenues $ 382,980 $ 379,494 $ 3,486 0.9%
Non casino revenues 92,621 88,701 3,920 4.4%
Management fees 190 (190) -100.0%
Less complimentaries 41,896 39,793 (2,103) -5.3%
Net revenues Consolidated $ 433,705 $ 428,592 $ 5,113 1.2%
Atlantic City:
Table game revenues $ 77,822 $ 82,887 $ (5,065) -6.1%
Slot revenues 258,892 249,161 9,731 3.9%
Other gaming revenues 3,312 5,104 (1,792) -35.1%
Total casino 340,026 337,152 2,874 0.9%
Non casino revenues 67,984 67,449 535 0.8%
Less complimentaries 37,473 35,731 (1,742) -4.9%
Net revenues Atlantic City $ 370,537 $ 368,870 $ 1,667 0.5%
Las Vegas:
Table game revenues $ 5,310 $ 4,532 $ 778 17.2%
Slot revenues 36,521 36,195 326 0.9%
Other gaming revenues 1,123 1,614 (491) -30.4%
Total casino 42,954 42,341 613 1.4%
Non casino revenues 24,637 21,252 3,385 15.9%
Less complimentaries 4,423 4,062 (361) -8.9%
Net revenues Las Vegas $ 63,168 $ 59,531 $ 3,637 6.1%
</TABLE>
The Atlantic City Showboat generated $370.5 million of net
revenues in the year ended December 31, 1996 compared to $368.9
million for the same period in the prior year, an increase of
$1.7 million or 0.5%. Casino revenues were $340.0 million for
the year ended December 31, 1996 compared to $337.2 million
for the same period in the prior year, an increase of
$2.9 million or 0.9%. The increase in casino revenues was due
primarily to an increase in slot revenues of
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<PAGE>
$9.7 million or 3.9% which was attributable to an 11.6% increase
in average slot units at the Atlantic City Showboat. The increase
in slot revenues at the Atlantic City Showboat compares to a 2.1%
growth in slot revenues in the Atlantic City market for the year
ended December 31, 1996 and a 10.5% increase in average slot
units in the Atlantic City market. The increase in slot revenues
at the Atlantic City Showboat was partially offset by a table
game revenue decrease of $5.1 million or 6.1% to $77.8 million
for the year ended December 31, 1996 compared to $82.9 million
for the same period in the prior year. This decline in table
game revenues is attributable to a reduction in table games
marketing. The Company's table game revenue decline compares to a
1.4% growth in table game revenues in the Atlantic City market
for the year ended December 31, 1996.
The Las Vegas Showboat achieved net revenues of $63.2
million for the year ended December 31, 1996, compared to $59.5
million in the same period in 1995, an increase of $3.6 million
or 6.1%. Casino revenues increased $0.6 million or 1.4% in 1996
to $42.9 million compared to $42.3 million in 1995. The 1995
revenues reflect a reduced casino capacity due to the property's
renovation project in the last six months of 1995. During 1996
the Las Vegas Showboat increased marketing to attempt to
recapture its market share of slot machine players and local area
residents lost to competitors during the 1995 renovation. The
Company expects that the recapture, if it occurs at all, will
occur over a period of years. Non-casino revenues increased to
$24.6 million for the year ended December 31, 1996 from $21.3
million in the same period in 1995, an increase of $3.4 million
or 15.9%. The increases in revenues were attributable to
increased food and beverage capacity in 1996 as compared to the
same period in the prior year. The coffee shop was closed during
a portion of the renovation of the Las Vegas Showboat during
1995.
INCOME FROM OPERATIONS
The Company's income from operations declined $4.6 million
or 9.8% to $42.1 million in 1996 from $46.7 million in 1995. The
decrease is attributable to the decline in income from operations
at both the Atlantic City Showboat and the Las Vegas Showboat.
These declines were partially offset by the $3.9 million
contribution from the Company's Australian operation and the $6.5
million or 29.5% decrease in operating expenses for the Company's
corporate and development functions.
- 57 -
<PAGE>
<TABLE>
<CAPTION>
Income From Operations
Year ended December 31,
(Unaudited)
(in thousands)
1996 1995 Variance Percent
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Income from operations:
Atlantic City $ 63,687 $ 72,450 $ (8,763) -12.1%
Las Vegas (10,065) $ (3,749) $ (6,316) -168.5%
Australia 3,918 (150) 4,068 2712.0%
Corporate and
development (15,419) (21,877) 6,458 29.5%
Consolidated $ 42,121 $ 46,674 $ (4,553) -9.8%
EBITDA:*
Atlantic City $ 90,184 $ 99,747 $ (9,563) -9.6%
Las Vegas (4,119) 229 (4,348) -1898.7%
Australia<F1> 3,918 (150) 4,068 2712.0%
Corporate and
development (15,044) (21,619) 6,575 30.4%
Consolidated $ 74,939 $ 78,207 $ (3,268) -4.2%
<FN>
<F1>Net of operating expenses and amortization of equity and debt
costs at Showboat, Inc.
</FN>
*EBITDA is defined as income from operations before
depreciation and amortization. EBITDA should not be construed as
a substitute for income from operations, net earnings (loss) and
cash flows from operating activities determined in accordance
with Generally Accepted Accounting Principles ("GAAP"). The
Company has included EBITDA because it believes it is commonly
used by certain investors and analysts to analyze and compare
gaming companies on the basis of operating performance, leverage
and liquidity and to determine a company's ability to service
debt.
</TABLE>
Atlantic City Showboat's income from operations, before
management fees, decreased to $63.7 million in the year ended
December 31, 1996 compared to $72.4 million from the same period
in 1995, a decrease of $8.7 million or 12.1%. This decrease is
attributable to an increase in operating expenses at the Atlantic
City Showboat of $10.4 million or 3.5% to $306.9 million. The
increase in operating expenses is primarily attributable to
increased marketing expenses, which consisted mostly of an $8.6
million increase in slot coin expense in response to aggressive
competition for slot patrons in the Atlantic City market during
1996. The Atlantic City Showboat's operating margin, before
management fees, decreased to 17.2 % in 1996 compared to 19.6%
in 1995. The negative variance caused by the increase in
operating expenses in 1996 was partially offset by the $1.6
million increase in net revenues for 1996 as compared to 1995.
For the year ended December 31, 1996, the Las Vegas Showboat
had a loss from operations, before management fees
and intercompany rent, of $10.1 million compared
to a loss of $3.7 million in the same period
in 1995. This decline is due principally to an
increase in operating expenses, partially offset by
an increase in net revenues. Operating expenses increased
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<PAGE>
$9.6 million to $73.2 in 1996 compared to $63.6 million for the
same period in 1995, an increase of 15.1%. The increase in
operating expense is due primarily to the property operating at
full capacity for the entire year in 1996 and increased marketing
costs to offset the intensified competition for slot players in
the local market. During the last six months of 1995, the casino
was operating at approximately 60% of capacity due to the
property's renovation project.
Income from operations in 1996 included, for the first time,
a contribution from Showboat's Australian operation of $3.9
million. This compared to a $0.2 million loss in 1995 due to the
write-off of preopening costs, and administrative costs incurred.
Corporate and development expenses totaled $15.4 million for
the year ended December 31, 1996 compared to $21.9 million for
the year ended December 31, 1995. This $6.5 million decrease is
attributable to a reduction in the scope of development
activities and general and administrative expenses in 1996 as
compared to 1995.
OTHER (INCOME) EXPENSE
In 1996, other (income) expense consisted of $57.6 million
of gross interest expense, $17.1 million of capitalized interest
and $9.6 million of interest income. Interest expense increased
due to the East Chicago project's interest expense of $14.3
million, capitalized interest of $5.0 million and interest
income of $4.9 million. The East Chicago project's net interest
expense was offset by the $2.0 million minority interest share of
loss. The write-down of the investment in Showboat Mardi Gras,
L.L.C. (the "Randolph Project") was $3.8 million in 1996. In
1995, other (income) expense consisted of $42.8 million of gross
interest expense, $13.1 million of capitalized interest and $6.2
million of interest income. During 1995, the Company realized a
net gain on the sale and write-down of affiliates totaling $1.1
million. In connection with the Company's investment in Sydney
Harbour Casino, the Company capitalized interest of $12.1 million
in 1996 compared to $12.6 million in 1995.
INCOME TAXES
In 1996, the Company incurred income taxes of $3.5 million,
or an effective tax rate of 36.7% compared to $11.4 million or an
effective tax rate of 46.5% in 1995. Differences between the
Company's effective tax rate and the statutory federal tax rates
are due to permanent differences between financial and tax
reporting, state income taxes and the impact of foreign earnings
which were not subjected to U.S. taxes.
NET INCOME
In 1996, the Company realized net income of $6.0 million or
$.37 per share compared to net income of $13.2 million or $.84
per share in 1995. The 1996 results reflect an after tax loss of
$2.4 million or $.15 per share for the write down of the
Company's investment in a riverboat casino operation in Randolph,
Missouri and the after tax increase in interest expense, net of
interest income, capitalized interest and minority interest,
totaling $1.5 million or $.09 per share caused by the East
Chicago, Indiana project financing.
- 59 -
<PAGE>
YEAR ENDED DECEMBER 31, 1995 (1995)
COMPARED TO YEAR ENDED DECEMBER 31, 1994 (1994)
REVENUES
Net revenues for the Company increased to $428.6 million in
1995 from $401.3 million in 1994, an increase of $27.3 million or
6.8%. Casino revenues increased $28.1 million or 8.0% to $379.5
million in 1995 from $351.4 million in 1994. Nongaming revenues,
which consist principally of room, food, beverage, management fee
and bowling revenues, were $88.9 million in 1995 compared to
$83.2 million in 1994, an increase of $5.7 million or 6.9%.
The Atlantic City Showboat generated $368.9 million of net
revenues in the year ended December 31, 1995 compared to $320.2
million for the same period in the prior year, an increase of
$48.7 million or 15.2%. Casino revenues were $337.2 million for
the year ended December 31, 1995 compared to $292.4 million for
the same period in the prior year, an increase of $44.8 million
or 15.3%. The increase in casino revenues was due primarily to
an increase in gross slot revenues of $35.4 million or 16.1% with
a 14.7% increase in slot units at the Atlantic City Showboat.
The increase in slot revenues compares to a 12.0% growth in slot
revenues in the Atlantic City market for the year ended December
31, 1995 and a 10.0% increase in average slot units in the
Atlantic City market. Also contributing to the increase in
casino revenues was the mild winter weather during the first
quarter 1995 compared to the harsh winter weather during the same
period in the prior year. The favorable comparison to the prior
year is attributed to the addition of 15,000 square feet of
casino space and approximately 600 slot machines added throughout
1994, and the addition of approximately 200 slot machines in May
1995. The Atlantic City Showboat also added approximately 200
slot machines in December 1995 raising the total number of
machines to approximately 3,450 as of December 31, 1995.
Atlantic City Showboat slot revenues accounted for 73.9% of total
casino revenues for the year ended December 31, 1995 and 73.6%
for the year ended December 31, 1994. Table game revenues
increased $11.3 million or 15.9% to $82.9 million for the year
ended December 31, 1995 compared to $71.6 million for the same
period in the prior year. Contributing to the increase in table
game revenues was the 1995 expanded marketing programs and the
introduction of the Caribbean stud poker in late 1994. The
Company's table game growth of 15.9% compares to a 4.5% growth in
table game revenues in the Atlantic City market for the year
ended December 31, 1995. Food and beverage revenues were $42.1
million for the year ended December 31, 1995 compared to $36.2
million for the same period in the prior year, an increase of
$5.9 million or 16.4%. This increase is attributable to increased
food promotional programs during the year ended December 31,
1995.
The Las Vegas Showboat achieved net revenues of $59.5
million for the year ended December 31, 1995, compared to $79.2
million in the same period in 1994, a decrease of $19.7 million
or 24.9%. Casino revenues decreased to $42.3 million in 1995
from $59.0 million in 1994, a decrease of $16.7 million or 28.3%.
Food and beverage revenues decreased to $11.8 million for the
year ended December 31, 1995 from $14.4 million in the same
period in 1994, a decrease of $2.6 million or 18.1%. The
decreases in revenues were attributable to construction
activities within the property for the second half of 1995 and
increased competition along the Boulder Strip throughout
the entire year. The Company anticipates that revenues
at the Las Vegas Showboat will continue to be impacted
until the excess casino capacity is absorbed by the
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<PAGE>
Las Vegas market. During the construction period, casino
capacity was reduced by approximately 40% and service to food
outlets was substantially disrupted.
INCOME FROM OPERATIONS
The Company's income from operations declined $5.1 million
or 9.9% to $46.7 million in 1995 from $51.8 million in 1994. The
decline is attributable to the cessation of operations of SSP
(which resulted in a $12.8 million reduction in income from
operations), a decline in operating results at the Las Vegas
Showboat and an increase in corporate and development expenses.
These decreases were partially offset by the improved performance
at the Atlantic City Showboat.
Atlantic City Showboat's income from operations, before
management fees, increased to $72.4 million in the year ended
December 31, 1995 compared to $50.7 million from the same period
in 1994, an increase of $21.7 million or 42.9%. Operating
expenses at the Atlantic City Showboat increased $26.9 million or
10.0% to $296.4 million for the year ended December 31, 1995
compared to $269.5 million for the same period in the prior year.
The increased operating expenses included a $14.2 million
increase in casino division expenses (which includes: $4.1
million increase in marketing expenses, $5.4 million increase in
promotional allowance costs and $3.6 million increase in gaming
taxes), a $8.0 million increase in general and administrative
expenses which is primarily related to increased payroll, real
estate taxes, and rent related to the expanded property, and a
$3.4 million increase in depreciation expense for the Atlantic
City Showboat's expanded facility. The Atlantic City Showboat's
operating margin, before management fees, increased to 19.6% in
1995 compared to 15.8% in 1994.
For the year ended December 31, 1995, the Las Vegas Showboat
had a loss from operations, before management fees and
intercompany rent, of $3.7 million compared to income of $4.4
million in the same period in 1994. Operating expenses declined
to $63.3 million in 1995 compared to $74.8 million in 1994, a
decrease of $11.6 million or 15.5%. The Company anticipated a
reduction in revenues during the construction period and
concentrated on reducing expenses. Expenses declined in all
departments for the year ended December 31, 1995. However,
significant decreases were not realized in certain promotional
and marketing utilized at the Las Vegas Showboat in order to
compete with the other gaming facilities on the Boulder Strip
during the renovation of the facility.
Corporate and development expenses totaled $21.7 million in
1995 compared to $17.0 million in 1994. The increased
development expense is attributed to (i) the maintenance of a
comprehensive development effort to pursue expansion
opportunities, which includes $2.9 million expended for the
proposed riverboat casino project near Lemay, Missouri, (ii)
preopening support for new projects, and (iii) $1.2 million for
insurance costs which were previously recorded by the respective
operating properties.
OTHER (INCOME) EXPENSE
In 1995, other (income) expense consisted of $29.7
million of interest expense, net of $13.1 million of capitalized
interest, and $6.2 million of interest income. Foreign
currency gain was $.3 million during 1995 and a net
gain on the sale and write- down of affiliates totaled $1.1
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<PAGE>
million. In 1994, other (income) expense consisted of $29.5
million of interest expense, net of $3.3 million of capitalized
interest, and $4.9 million of interest income. In connection
with its renovation project at the Las Vegas Showboat and the
Company's investment in Sydney Harbour Casino, the Company
capitalized interest of $.5 million and $12.6 million
respectively in 1995.
INCOME TAXES
In 1995, the Company incurred income taxes of $11.4 million,
or an effective tax rate of 46.5% compared to $11.5 million or an
effective tax rate of 42.4% in 1994. Differences between the
Company's effective tax rate and the statutory federal tax rates
are due to permanent differences between financial and tax
reporting and state income taxes.
NET INCOME
In 1995, the Company realized net income of $13.2 million or
$.84 per share. In 1994, the Company realized net income of
$15.7 million or $1.02 per share.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1996 the Company held cash and cash
equivalents of $60.3 million compared to $106.9 million at
December 31, 1995. This decline is due principally to the $36.9
million funding of the East Chicago Showboat and an increase in
short-term investments.
The Company's cash flow from operations was $50.9 million in
1996 compared to $53.2 million in 1995. Cash used in investing
activities was $235.2 million in 1996 compared to $41.2 million
in 1995. The increase in investing activities is due primarily
to the East Chicago Showboat and an increase in short-term
investments. Cash provided from financing activities was $137.7
million in 1996 compared to $4.5 million in 1995. The increase
was primarily due to the issuance in 1996 by the East Chicago
Showboat of $140.0 million of 13 1/2% First Mortgage Notes due
2003(the "East Chicago Notes").
In 1996, the Company expended approximately $115.0 million
on capital improvements at the Atlantic City Showboat, the Las
Vegas Showboat and construction costs at the East Chicago
Showboat (which were principally funded from a portion of the
proceeds of the East Chicago Notes). Approximately $89.6 million
of the $115.0 million related to the East Chicago Showboat. The
Company's Board of Directors has authorized a capital budget for
the Atlantic City Showboat and the Las Vegas Showboat for 1997
totaling $26.7 million and $11.0 million, respectively.
The Company is eligible to receive approximately $8.8
million in funding credits reserved by the Casino Reinvestment
Development Authority (CRDA), as a result of the completion of
the hotel expansion program at the Atlantic City Showboat,
completed in 1994. To date, the Company has received
approximately $2.9 million of the $8.8 million. In 1995,
a court ruling disallowed the payment of CRDA credits.
As a result, the CRDA suspended disbursement of the
Company's funding credit. Legislation was passed in
September, 1996, which allowed the CRDA to commence disbursement
of funding credits to the Company. As of December 31, 1996,
approximately $3.5 million in funding credits is available for
distribution to the company. The remaining $2.4 million of
reserved funding credits will be distributed in the future.
- 62 -
<PAGE>
On August 4, 1995, the Company obtained a two year secured
line of credit for general working capital purposes totaling
$25.0 million. At the end of the two year term, any outstanding
funds may convert to a three year term loan. The bank received
security pari passu with the holders of the Company's $275.0
million 9 1/4% First Mortgage Bonds due 2008. As of December 31,
1996, all of the funds under this line of credit were available
for use by the Company.
On May 18, 1993, the Company issued $275.0 million of 9 1/4%
First Mortgage Bonds due 2008 (the "9 1/4% Bonds"). The 9 1/4%
Bonds were issued primarily to redeem the Company's 11 3/8%
Mortgage Backed Bonds and to expand the Atlantic City Showboat.
Interest on the Bonds is payable semi-annually on May 1 and
November 1 of each year. The 9 1/4% Bonds are not redeemable
prior to May 1, 2000. The 9 1/4% Bond Indenture was amended in
July, 1994 and permitted the Company to issue up to $150.0
million of debt. On August 10, 1994, the Company issued $120.0
million of 13% Senior Subordinated Notes due 2009 (the "13%
Notes"). The 13% Notes were issued in order to invest in Sydney
Harbour Casino and to renovate the Las Vegas Showboat. Interest
on the 13% Notes is payable semi-annually on February 1 and
August 1 of each year commencing on February 1, 1995. The 13%
Notes are not redeemable prior to August 1, 2001. The 13% Note
Indenture permits the issuance of an additional $30.0 million of
Notes at the discretion of the Company. As of December 31, 1996
the Company had not issued the additional $30.0 million of Notes.
The 9 1/4% Bond Indenture and the 13% Note Indenture contain
customary financial and other covenants which, among other
things, govern the Company's ability to incur indebtedness.
The Company continues to examine, and if appropriate, may
pursue potential gaming opportunities in jurisdictions where
gaming is legalized and in other jurisdictions that, in the
future, may legalize private for profit casino gaming. There can
be no assurance that legislation 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 jurisdictions or the Company will be able to
obtain the required licenses in any jurisdiction. Further, no
assurance can be given that any of the announced or unannounced
projects under development will be financed, 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 developments are subject to a number of risks and
uncertainties, many of which are beyond the Company's control.
The Company, on January 12, 1997, announced that Showboat,
Inc. and Publishing & Broadcasting Limited ("PBL"), a public
company listed on the Australian Stock Exchange, have reached
an agreement in principle with respect to the acquisition
by PBL of a significant portion of the Company's interests
in its casino operations in Sydney, Australia. The
transaction contemplates that PBL will acquire from
the Company approximately 55 million ordinary shares of
Sydney Harbour Casino Holdings Limited ("SHCH") (approximately
10% of the issued voting shares of SHCH) at a price
per share of A$1.85 subject to adjustments in certain
circumstances. It also contemplates that PBL grant a put to
Showboat, Inc. to sell to PBL an additional 54 million ordinary
shares at A$1.85 per share until March 31, 1999. The transaction
further contemplates that PBL will succeed to the management of
the casino in Sydney, under arrangements to be concluded, for
which PBL will pay to the Company A$204.0 million, US
- 63 -
<PAGE>
$162.0 million. The transaction is subject to the execution
of definitive agreements, the receipt of all necessary government
and regulatory consents and approvals, certain third party
consents and the fulfillment of other closing conditions. The New
South Wales Casino Control Authority ("CCA") has received a copy
of the agreement in principle, but will require extensive
additional submissions in order for the CCA to consider the
consents and approvals which will be required before any final
agreement becomes effective. SHCH and other relevant companies
are not parties to the agreement in principle, nor did they
participate in its negotiations. Their consent or agreement will
be required. A subsidiary of the Company will continue to own
approximately 80 million ordinary shares of SHCH (original
ownership of 135 million shares less 55 million shares
contemplated to be sold to PBL) and the existing option to
purchase approximately 37.4 million ordinary shares of SHCH at an
exercise price of A$1.15 per share. This option may be exercised
between July 1, 1998 and June 30, 2000. Both the 9 1/4% Bond and
the 13% Note Indentures place significant restrictions on the
Company, one of which is the use of funds from the sale of a
significant portion of the assets of a subsidiary such as SHCH.
On March 28, 1996, the Company's 55% owned subsidiaries,
Showboat Marina Casino Partnership ("SMCP") and Showboat Marina
Finance Corporation ("SMFC"), sold the East Chicago Notes to
support the development of the East Chicago Showboat.
Additionally, the Company contributed $36.9 million to SMCP
through Intermediary Partnerships, of which $8.9 million was
contributed prior to 1996. The Company anticipates funding an
additional $3.1 million in 1997 related to certain payments due
to Waterfront Entertainment and Development, Inc. ("Waterfront"),
its 45% partner. The Company will receive a 12% preferred return
on its $40.0 million investment . In addition to its $40.0
million investment, subject to certain qualifications and
exceptions, the Company entered into a standby equity commitment
with SMCP, pursuant to which it will cause to be made up to an
aggregate of $30.0 million in additional capital contributions to
SMCP if, during the first three full four fiscal quarters
following the commencement of operations at the East Chicago
Showboat, the project's combined cash flow (as defined) is less
than $35.0 million for any one such full four quarter period.
However, in no event will the Company be required to cause to be
contributed to SMCP more than $15.0 million in respect of any
such full four quarter period. Subject to certain qualifications
and exceptions, the Company entered into a completion guarantee
with SMCP to complete the East Chicago Showboat so that it
becomes operational, including the payment of all costs owing
prior to such completion, up to a maximum aggregate amount of
$30.0 million. Waterfront agreed to compensate the Company $5.2
million for the standby equity commitment. The $5.2 million due
the company shall accrue interest at 12% per annum until paid
from Waterfront's share of distributable cash from SMCP.
Currently, the Company believes that SMCP has sufficient
resources to complete the East Chicago Showboat. However, no
assurance can be given that SMCP will be able to complete the
East Chicago Showboat from its available financing resources or
that SMCP's annual cash flow will exceed $35.0 million. The East
Chicago Note Indenture contains restrictions on payments to
affiliates, including the Company, by SMCP. As a result of these
restrictions, the distributable cash flow from SMCP is limited to
good faith estimates of maximum payments for state and federal
income tax liabilities of the Company and Waterfront,
until certain financial ratios are met by SMCP. There can be no
assurance that SMCP will meet their required financial ratios in
order to distribute cash flow to the Company in excess of the
federal and state tax liabilities.
- 64 -
<PAGE>
The Company through its subsidiary, Showboat Lemay, Inc.
("Showboat Lemay"), has an 80% general partner interest in
Southboat Limited Partnership ("SLP") which, subject to
licensing, plans to build and operate a riverboat casino project
and related facilities (the "Southboat Casino Project") on the
Mississippi River near Lemay, Missouri (the "Southboat Casino
Site"). SLP entered into a lease agreement with the St. Louis
County Port Authority ("Port Authority") for the lease of the
Southboat Casino Site for a term of 99 years, commencing upon the
investigation of SLP for a Missouri gaming license and the
receipt of all permits from the U.S. Army Corps of Engineers. The
Company has guaranteed SLP's payment of Minimum Rent for the
Guarantee Period, and SLP's timely completion and construction of
and payment for all improvements and installations in connection
with SLP's development of the Southboat Casino Project. The
aggregate gross minimum lease payments for 15 years are
approximately $35.0 million In addition, the Company agreed to
provide a Guarantee of Completion to the Port Authority which
provides, in material part, that the Company will complete the
construction of the Southboat Casino Project should SLP, after
the commencement of work, abandon the project for a period of 30
days after receipt of notice from the Port Authority. The limited
partnership agreement provides that the Company's initial capital
contribution is $19.5 million and that Showboat Lemay, on behalf
of SLP, will arrange for a $75.0 million loan to develop the
Southboat Casino Project and to arrange for equipment financing
for the remaining costs of the Southboat Casino Project. The
Company has also agreed to provide a loan to SLP in the amount of
approximately $4.5 million to assist in the development of the
Southboat Casino Project.
The Company and Rockingham Venture, Inc. ("RVI"), which owns
the Rockingham Park, a thoroughbred racetrack in New Hampshire,
entered into agreements to develop and manage any additional
gaming that may be authorized at Rockingham Park. In December
1994, the Company loaned RVI approximately $8.9 million, which
loan is secured by a second mortgage on Rockingham Park. At this
time, casino gaming is not permitted in the State of New
Hampshire. If casino gaming is legalized, the Company will, at a
minimum, contribute the promissory note as a capital
contribution. Should enabling legislation permit more than 500
slot machines or any combination of slot machines and table
games, then the Company, subject to available financing, will
contribute funds not to exceed 30% of cash funds required for the
project. At this time, the cost of the project has not been
determined.
On February 4, 1997, the Company announced that it had
entered into a Tribal Management Agreement, and other related
agreements, with the Lummi Indian Nation for the purpose of
developing a Class III casino to be located between Bellingham,
Washington and Vancouver, British Columbia. The Company will be
required to be licensed by the state of Washington. The
agreements are subject to the necessary approvals by various
state and federal authorities including the National Indian
Gaming Commission. The Company's Board of Directors has approved
an expenditure of up to $25.0 million to fund this project.
The Company believes that it has sufficient capital
resources, including its existing cash balances, cash provided by
operations and existing borrowing capacity, 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. As the Company realizes
- 65 -
<PAGE>
expansion opportunities, the Company will need to make
significant capital investments in such opportunities and
additional financing will be required. The Company anticipates
that additional funds will be obtained through loans or public
offerings of equity or debt securities, although no assurance can
be made that such funds will be available or at interest rates
acceptable to the Company.
All statements contained herein that are not historical
facts, including but not limited to, statements regarding the
Company's current business strategy, the Company's prospective
joint ventures, expansions of existing projects, and the
Company's plans for future development and operations, are based
upon current expectations. These statements are forward-looking
in nature and involve a number of risks and uncertainties.
Actual results may differ materially. Among the factors that
could cause actual results to differ materially are the
following: the availability of sufficient capital to finance the
Company's business plan on terms satisfactory to the Company;
competitive factors, such as legalization of gaming in
jurisdictions from which the Company draws significant numbers of
patrons and an increase in the number of casinos serving the
markets in which the Company's casinos are located; changes in
labor, equipment and capital costs; the ability of the Company to
consummate its contemplated joint ventures on terms satisfactory
to the Company and to obtain necessary regulatory approvals
therefore; changes in regulations affecting the gaming industry;
the ability of the Company to comply with its Indentures for its
9 1/4% Bonds and 13% Notes; future acquisitions or strategic
partnerships; general business and economic conditions; and other
factors described from time to time in the Company's reports
filed with the Securities and Exchange Commission. The Company
wishes to caution the readers not to place undue reliance on any
such forward-looking statements, which statements are made
pursuant to the Private Litigation Reform Act of 1995 and, as
such, speak only as of the date made.
- 66 -
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Independent Auditors' Report;
Consolidated Balance Sheets as of December 31, 1996 and
1995;
Consolidated Statements of Income for the Years Ended
December 31, 1996, 1995 and 1994;
Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 1996, 1995 and 1994;
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994; and
Notes to Consolidated Financial Statements
- 67 -
<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, 1996 and
1995, 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, 1996. 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, 1996 and 1995, and the results of their operations
and their cash flows for each of the years in the three-year
period ended December 31, 1996, in conformity with generally
accepted accounting principles.
Las Vegas, Nevada KPMG PEAT MARWICK LLP
February 21, 1997
- 68 -
<PAGE>
<TABLE>
<CAPTION>
SHOWBOAT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS 1996 1995
-------- --------
(In thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents $60,287 $106,927
Short-term investments 28,848 -
Receivables, net 12,402 8,448
Income tax receivable 2,396 2,076
Inventories 2,785 2,808
Prepaid expenses 4,470 4,728
Current deferred income taxes 7,802 9,744
---------- ----------
Total current assets 118,990 134,731
---------- ----------
Property and equipment:
Land 11,545 11,536
Land improvements 14,461 12,184
Buildings 332,265 316,723
Furniture and equipment 191,872 176,127
Construction in progress 101,343 25,216
---------- ----------
651,486 541,786
Less accumulated depreciation
and amortization 211,298 186,872
---------- ----------
440,188 354,914
---------- ----------
Other assets:
Restricted cash 69,601 -
Investments in unconsolidated affiliates 138,964 120,090
Deposits and other assets 30,963 28,911
Debt issuance costs, net of
accumulated amortization of $ 2,942,000
and $ 1,860,000 at December 31, 1996 and 1995,
respectively 15,963 10,749
---------- ----------
255,491 159,750
---------- ----------
$814,669 $649,395
---------- ----------
(CONTINUED)
</TABLE>
- 69 -
<PAGE>
<TABLE>
<CAPTION>
SHOWBOAT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(CONTINUED)
LIABILITIES AND SHAREHOLDERS' EQUITY 1996 1995
-------- --------
(In thousands)
<S> <C> <C>
Current liabilities:
Current maturities of long-term debt $25 $22
Accounts payable 17,688 15,143
Dividends payable 405 392
Accrued liabilities 41,933 38,158
--------- --------
Total current liabilities 60,051 53,715
Long-term debt, excluding current maturities:
Debt with recourse 392,719 392,369
Debt without recourse 140,000 -
--------- --------
532,719 392,369
Other liabilities 4,753 5,028
--------- --------
Deferred income taxes 24,888 22,319
--------- --------
Minority Interest 113 2,023
--------- --------
Commitments and contingencies
Shareholders' equity:
Preferred stock, $1 par value; 1,000,000
shares authorized; none issued
Common stock, $1 par value; 50,000,000 shares
authorized; issued 16,181,199 shares and 15,794,578
shares at December 31, 1996 and 1995, respectively 16,181 15,795
Additional paid-in capital 87,698 80,078
Retained earnings 84,828 80,434
188,707 176,307
---------- --------
Cumulative foreign currency translation adjustment 4,773 285
Cost of shares in treasury, 0 shares and 74,333
shares at December 31, 1996 and 1995,
respectively - (587)
Unearned compensation for restricted stock (1,335) (2,064)
Total Shareholders' equity ---------- ---------
192,145 173,941
---------- ---------
$814,669 $649,395
---------- ---------
---------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
- 70 -
<PAGE>
<TABLE>
<CAPTION>
SHOWBOAT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS EXCEPT PER SHARE DATA)
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Casino $382,980 $379,494 $351,436
Food and beverage 56,916 53,894 50,624
Rooms 26,147 25,694 20,587
Sports and special events 3,682 3,924 4,168
Management fees - 190 1,861
Other 5,876 5,189 5,938
-------- -------- -------
475,601 468,385 434,614
Less complimentaries 41,896 39,793 33,281
-------- -------- -------
Net revenues 433,705 428,592 401,333
-------- -------- -------
Operating costs and expenses:
Casino 193,537 177,644 169,786
Food and beverage 32,287 32,150 34,287
Rooms 7,261 8,339 7,847
Sports and special events 2,774 3,206 3,321
General and administrative 117,355 119,568 109,058
Selling, advertising and promotion 9,638 9,456 9,647
Depreciation and amortization 32,818 31,533 28,387
-------- -------- --------
395,670 381,896 362,333
-------- -------- --------
Income from operations from
consolidated subsidiaries 38,035 46,696 39,000
Equity in income (loss) of
unconsolidated affiliates 4,086 (22) 12,828
-------- -------- --------
Income from operations 42,121 46,674 51,828
-------- -------- --------
</TABLE>
(CONTINUED)
- 71 -
<PAGE>
<TABLE>
<CAPTION>
SHOWBOAT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS EXCEPT PER SHARE DATA)
(CONTINUED)
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Income from operations $42,121 $46,674 $51,828
-------- -------- --------
Other (income) expense:
Interest income (9,572) (6,225) (4,872)
Gain on sale of affiliate (2,558) -
Write-down of investment in affiliate 3,789 1,426 -
Foreign currency transaction gain (100) (271) -
Interest expense, net of
amounts capitalized 40,510 29,692 29,452
-------- -------- --------
34,627 22,064 24,580
-------- -------- --------
Income before income tax expense
and minority interest 7,494 24,610 27,248
Minority interest share of loss 1,987 - -
-------- -------- --------
Income before income tax expense 9,481 24,610 27,248
-------- -------- --------
Income tax expense 3,478 11,435 11,549
-------- -------- --------
Net income $6,003 $13,175 $15,699
-------- -------- --------
-------- -------- --------
Net income per common and equivalent share $ 0.37 $ 0.84 $ 1.02
-------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
- 72 -
<PAGE>
<TABLE>
<CAPTION>
SHOWBOAT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Cumulative
Additional foreign currency
Common paid-in Retained translation
stock capital earnings adjustment
------- ------- -------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Balance, December 31,
1993 $15,795 $71,162 $54,628 -
Net income - - 15,699 -
Cash dividends ($.10
per share) - - (1,518) -
Warrants issued - 1,953 - -
Share transactions
under stock plans - 3,730 - -
Amortization of unearned
compensation - - - -
Foreign currency trans-
lation adjustment,
net of tax - - - 3,490
------ ------- ------- --------
Balance, December 31,
1994 15,795 76,845 68,809 3,490
Net income - - 13,175 -
Cash dividends ($.10
per share) - - (1,550) -
Share transactions
under stock plans - 3,233 - -
Amortization of unearned
compensation - - - -
Foreign currency trans-
lation adjustment,
net of tax - - - (3,205)
------ ------ ------- ---------
Balance, December 31,
1995 15,795 80,078 80,434 285
Net income - - 6,003 -
Cash dividends ($.10
per share) - - (1,609) -
Share transactions
under stock plans 386 7,620 - -
Amortization of un-
earned compensation - - -
Foreign currency trans-
lation adjustment,
net of tax - - - 4,488
------- ------- ------- --------
Balance, December 31,
1996 $16,181 $87,698 $84,828 $4,773
------- ------- ------- --------
------- ------- ------- --------
</TABLE>
<TABLE>
<CAPTION>
Unearned
Treasury compen-
stock sation Total
---------- ---------- ----------
<S>
Balance, December 31,
1993 ($6,370) ($57) 135,158
Net income - - 15,699
Cash dividends ($.10
per share) - - (1,518)
Warrants issued - - 1,953
Share transactions
under stock plans 3,006 (6,021) 715
Amortization of unearned
compensation - 1,964 1,964
Foreign currency trans-
lation adjustment,
net of tax - - 3,490
---------- ---------- ----------
Balance, December 31, <C> <C> <C>
1994 (3,364) (4,114) 157,461
Net income - - 13,175
Cash dividends ($.10
per share) - - (1,550)
Share transactions
under stock plans 2,777 (116) 5,894
Amortization of unearned
compensation - 2,166 2,166
Foreign currency trans-
lation adjustment,
net of tax - - (3,205)
---------- ---------- ----------
Balance, December 31,
1995 (587) (2,064) 173,941
Net income - - 6,003
Cash dividends ($.10
per share) - - (1,609)
Share transactions
under stock plans 587 (912) 7,681
Amortization of un-
earned compensation - 1,641 1,641
Foreign currency trans-
lation adjustment,
net of tax - 4,488
---------- ---------- ----------
Balance, December 31,
1996 $0 ($1,335) $192,145
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
- 73 -
<PAGE>
<TABLE>
<CAPTION>
SHOWBOAT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $6,003 $13,175 $15,699
Adjustments to reconcile net income to
net cash provided by operating
activities:
Allowance for doubtful accounts 1,557 1,605 950
Depreciation and amortization 32,818 31,533 28,387
Amortization of original issue
discount and debt issuance costs 1,458 1,281 820
Provision for deferred income taxes 2,094 2,069 256
Amortization of unearned
compensation 1,641 2,166 1,964
Provision for loss on Casino
Reinvestment Development
Authority obligation 497 1,414 1,018
(Earnings) loss of unconsolidated
affiliate, net of distributions (4,086) 2,768 (3,596)
(Gain) loss on sale and write-down
of affiliates 3,789 (1,132) -
(Gain) loss on disposition of
property and equipment 147 (36) (251)
Increase in receivables, net (2,695) (2,492) (2,580)
Decrease (increase) in inventories
and prepaid expenses 281 (209) (924)
Increase in deposits and
other assets (202) (656) (1,378)
Pension costs, net of payments 1,954 882 995
Increase in accounts payable 2,096 4,566 396
Increase (decrease) in income
taxes payable 1,849 (5,168) 3,051
Increase in accrued
liabilities 3,644 1,384 10,566
Minority interest share of loss (1,987) - -
--------- --------- ---------
Net cash provided by operating
activities 50,858 53,150 55,373
--------- --------- ---------
</TABLE>
(CONTINUED)
- 74 -
<PAGE>
<TABLE>
<CAPTION>
SHOWBOAT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(CONTINUED)
1996 1995 1994
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Cash flows from investing activities:
Acquisition of property and equipment ($115,038) ($49,573) ($72,471)
Proceeds from sale of property
and equipment 477 1,065 290
Proceeds from sale of affiliate - 51,366 -
Investments in unconsolidated
affiliates (11,647) (36,551) (110,979)
(Advances to) repayments from
unconsolidated affiliates 390 1,210 (899)
Increase in restricted cash (69,601) - -
Increase in deposits and
other assets (6,762) (4,639) (8,850)
Deposit for Casino Reinvestment
Development Authority obligation,
net of refunds (4,140) (4,052) (599)
Purchase of short-term investments (28,848) - -
---------- ---------- ----------
Net cash used in investing
activities (235,169) (41,174) (193,508)
---------- ---------- ----------
Cash flows from financing activities:
Principal payments of long-term debt (22) (20) (3,575)
Proceeds from issuance of
long-term debt 140,000 - 120,000
Proceeds from employee stock option
exercises 5,510 - -
Debt issuance costs (6,297) (542) (4,474)
Payment of dividends (1,597) (1,543) (1,509)
Distribution to bond holders - - (5,195)
Issuance of common stock - 4,604 530
Minority interest contributions 77 2,023 -
---------- ---------- ----------
Net cash provided by financing
activities 137,671 4,522 105,777
---------- ---------- ----------
Net increase (decrease) in cash and
cash equivalents (46,640) 16,498 (32,358)
Cash and cash equivalents
at beginning of year 106,927 90,429 122,787
Cash and cash equivalents ---------- ---------- ----------
at end of year $60,287 $106,927 $90,429
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
(CONTINUED)
- 75 -
<PAGE>
<TABLE>
<CAPTION>
SHOWBOAT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(CONTINUED)
1996 1995 1994
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Supplemental disclosures of cash flow
information and non-cash investing and
financing activities:
Cash paid (refunded) during the year for:
Interest, net of amount capitalized $33,306 $28,021 $22,522
Income taxes (465) 14,533 8,242
Foreign currency translation
adjustment 4,488 (3,205) 3,490
</TABLE>
See accompanying notes to consolidated financial statements.
- 76 -
<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"
or "SBO"), is an international gaming company with over 40 years
of gaming experience that owns and operates the Atlantic City
Showboat Casino and Hotel in Atlantic City, New Jersey (the
"Atlantic City Showboat"), the Las Vegas Showboat Casino, Hotel
and Bowling Center in Las Vegas, Nevada (the "Las Vegas
Showboat"), owns a 24.6% equity interest in, and manages through
subsidiaries, the Sydney Harbour Casino located in Sydney,
Australia, and owns through subsidiaries a 55% interest in, and
will manage through subsidiaries, the East Chicago Showboat
riverboat casino project in East Chicago, Indiana, (the "East
Chicago Showboat"), which is under construction and scheduled to
open, subject to licensing, in the second quarter of 1997. Until
March 31, 1995, the Company owned an equity interest in and
managed a riverboat casino on Lake Pontchartrain in New Orleans,
Louisiana (Star Casino).
The consolidated financial statements include all domestic
and foreign subsidiaries which are more than 50% owned and
controlled by Showboat, Inc. Investments in unconsolidated
affiliates which are at least 20% owned by Showboat, Inc. are
carried at cost plus equity in undistributed earnings or loss
since acquisition. All material intercompany balances have been
eliminated in consolidation.
CASINO REVENUE AND COMPLIMENTARIES
Casino revenues represent the net win from gaming wins and
losses. Revenues include the retail value of room, food,
beverage, and other goods and services provided to customers
without charge. Such amounts are then deducted as promotional
allowances. The estimated cost of providing these promotional
allowances was charged to the casino department in the following
amounts:
<TABLE>
<CAPTION>
Year Ending December 31,
1996 1995 1994
(In thousands)
<S> <C> <C> <C>
Food and beverage $ 28,421 $ 27,119 $ 23,893
Room 8,559 7,197 5,883
Other 1,249 1,346 2,066
Total $ 38,229 $ 35,662 $ 31,842
</TABLE>
CASH EQUIVALENTS AND RESTRICTED CASH
The Company considers all highly liquid investments
purchased with an original maturity of three months or less to be
cash equivalents. Restricted cash consists of cash and short-term
investments held by the East Chicago Showboat for construction
and development.
- 77 -
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
SHORT-TERM INVESTMENTS
Short-term Investments as of December 31, 1996 consist of
U.S. Treasury bills, mortgage-backed corporate debt securities
and certificates of deposit with financial institutions which
have an average maturity date of less than seven months. The
Company classifies these securities as available-for-sale as they
will be liquidated as needed to fund cash requirements of the
Company. These securities are recorded at fair value as of
December 31, 1996. Unrealized holding gains and losses, net of
the related tax effect, on available-for-sale securities are
excluded from earnings and are reported as a separate component
of shareholders' equity until realized. Realized gains and losses
from the sale of available-for-sale securities are determined on
a specific identification basis. Unrealized and realized gains
were not material as of or for the period ended December 31,
1996.
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, receivables and all
current liabilities approximates fair value because of the short
term maturity of these instruments. The fair value of a
financial instrument is the amount at which the instrument could
be exchanged in a current transaction between willing parties.
See Notes 5 and 6 for additional fair value disclosures.
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. Further, interest is capitalized on
investments in unconsolidated companies accounted for by the
equity method of accounting during the period the investee
company is undergoing activities necessary to start its planned
principal operations. 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 years ended December 31,
1996, 1995, and 1994, $17,081,000, $13,148,000, and $3,378,000,
respectively, of interest cost was capitalized.
- 78 -
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
PREOPENING AND DEVELOPMENT COSTS
The Company is currently investigating expansion
opportunities in new and existing gaming jurisdictions. Costs
associated with these investigations are capitalized and a
reserve is established based on an evaluation of the viability of
the development projects. The viability of a project is based on
numerous factors including current or proposed gaming
legislation, competition, cost of entry into a new or existing
market and return on investment.
Costs incurred during the preopening phase are capitalized.
Types of costs capitalized include salaries and wages, temporary
office expenses, marketing expenses and training costs. When the
new operation opens for business, preopening costs will be
expensed over a period not to exceed twelve months.
INCOME TAXES
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.
The Company and its domestic subsidiaries file a
consolidated federal income tax return. For tax reporting
purposes, the Company files on a fiscal year ending June 30. The
Company has filed for a change in tax year end with the Internal
Revenue Service. If approved the Company's tax year end will be
changed to December 31. The change will be effective December
31, 1996.
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 the straight line method which approximates
the effective interest method.
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 16,347,058, 15,730,478, and 15,457,061 for the years ended
December 31, 1996, 1995 and 1994, respectively. Equivalent shares
include stock options and warrants when dilutive. Fully-diluted
and primary income per common and equivalent share are the same.
- 79 -
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
STOCK BASED COMPENSATION
Prior to January 1, 1996, the Company accounted for its
stock option plans in accordance with the provisions of
Accounting Principles Board ("APB") Opinion No. 25, Accounting
for Stock-Issued to Employees, and related interpretations. As
such, compensation expense would be recorded on the date of grant
only if the current market price of the underlying stock exceeded
the exercise price. On January 1, 1996, the Company adopted SFAS
No. 123, Accounting for Stock-Based Compensation, which permits
entities to recognize as expense over the vesting period the fair
value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to
apply the provisions of APB Opinion No. 25 and provide proforma
net income and proforma earnings per share disclosures for
employee stock option grants made in 1995 and future years as if
the fair-value-based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma
disclosure provisions of SFAS No. 123.
FOREIGN CURRENCY TRANSLATION
The financial statements of foreign subsidiaries are
adjusted to U.S. generally accepted accounting principles.
Balance sheet accounts are then translated into U.S. dollars at
current exchange rates in effect at the balance sheet date.
Items of revenue and expense are translated at average exchange
rates during the reporting period.
Gains and losses resulting from translation of financial
statements are excluded from the Consolidated Statements of
Income and are credited or charged directly to a separate
component of Shareholders' Equity, net of taxes. Gains and losses
resulting from foreign currency transactions are included in
income currently.
LONG-LIVED ASSETS
In March 1995, the FASB issued Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of
Long-lived Assets and for Long-lived Assets to Be Disposed of",
which requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are
present and the undiscounted cash flow estimated to be generated
by those assets are less than the assets' carrying amount.
Statement 121 also addresses the accounting for long-lived assets
that are expected to be disposed of. The Company adopted
Statement 121 in the first quarter of 1996 and there was no
write-down of assets.
USE OF ESTIMATES
Management of the Company has made estimates and assumptions
relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these
financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those
estimates.
- 80 -
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
RECLASSIFICATIONS
Certain prior year balances have been reclassified to
conform to the current year's presentation.
2. RECEIVABLES, NET
Receivables, net consist of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------
1996 1995
------------ -----------
(In thousands)
<S> <C> <C>
Casino $6,524 $7,224
Hotel 760 1,113
Other 7,535 2,792
------------ ------------
14,819 11,129
Less allowance for doubtful accounts 2,417 2,681
------------ ------------
Receivables, net $12,402 $8,448
============ ============
</TABLE>
3. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
December 31,
------------ ------------
1996 1995
------------ ------------
(In thousands)
<S> <C> <C>
Interest $16,296 $10,740
Salaries and wages 11,985 12,827
Medical and liability claims 4,572 4,125
Taxes, other than taxes on income 2,346 4,032
Advertising and promotion 2,326 2,113
Outstanding chips and tokens 1,692 1,713
Other 2,716 2,608
------------ ------------
Total accrued liabilities $41,933 $38,158
============ ============
</TABLE>
- 81 -
<PAGE>
4. INVESTMENTS IN UNCONSOLIDATED AFFILIATES
The Company's wholly-owned subsidiary, Showboat Australia
Pty. Ltd., (SA), invested approximately $100.0 million for
135,000,000 shares (approximately 24.6% interest) in Sydney
Harbour Casino Holdings Limited, (SHCH), which through its wholly
owned subsidiaries, owns the Sydney Harbour Casino and holds the
casino license required to operate the Sydney Harbour Casino.
SA also owns 85% of the company engaged to manage the casino for
a management fee. On September 13, 1995, the Sydney Harbour
Casino commenced gaming operations in an interim facility and is
expected to commence operations in a permanent facility in late
1997. For the year ended December 31, 1996, $4,086,000 of net
income from the interim casino is included in equity in income
(loss) of unconsolidated affiliates in the Consolidated Statement
of Income. For the year ended December 31, 1995, no earnings
were reported from the interim casino due to the write-off of
preopening costs.
In addition to its 24.6% equity interest in SHCH, SA has an
option to purchase an additional 37,446,553 ordinary shares of
the fully diluted equity of SHCH at an exercise price of A$1.15
per share. SA's option may be exercised no earlier than July 1,
1998 and expires June 30, 2000.
In March 1995, the Company, with an unrelated corporation,
formed Showboat Mardi Gras, L.L.C. (SMG), formerly known as
Randolph Riverboat Company, L.L.C., to own and operate, subject
to licensing, a riverboat casino near Kansas City, Missouri. The
Company invested approximately $5,200,000 in a combination of
both equity and advances to SMG for the completion of the
riverboat, costs incurred in the licensing process and other
general and administrative expenses. SMG was not selected by the
Missouri Gaming Commission for investigation for a gaming
license. Due to a decline in the market value of the assets of
SMG, principally a riverboat, the Company recorded a pre-tax
write-down of $3,789,000 and $1,426,000 in the years ended
December 31, 1996 and 1995, respectively, which is included in
the Consolidated Statements of Income as write-down of investment
in affiliate. The 1996 write-down includes the Company's
remaining investment in SMG, and the Company has no further
obligations to SMG.
Showboat Louisiana, Inc.(SLI) was formed in 1993 to hold a
30% equity interest in Showboat Star Partnership (SSP) which
owned a riverboat casino and was managed by Lake Pontchartrain
Showboat, Inc. (LPSI), a wholly-owned subsidiary of the Company.
In 1993, the Company invested $18,600,000 in SSP for its 30%
equity interest in the riverboat casino. Operation of the
riverboat casino commenced on November 8, 1993. Effective March
1, 1994, the Company purchased an additional 20% equity interest
from its partner for $9,000,000. In March 1995, the Company
purchased an additional 50% of the equity of SSP bringing the
Company's total equity interest in SSP to 100%. The purchase
price of the additional equity interest was $25.0 million coupled
with a distribution of certain of the current assets of SSP to
partners other than the Company. On March 9, 1995, the Company
ceased all operations at the Showboat Star Casino as a result of
certain legal issues related to conducting dockside gaming in
Orleans Parish. In a series of unrelated transactions, SSP sold
certain of its assets and the Company sold its equity interest in
SSP resulting in a net pretax gain of $2,558,000 which is
included in the 1995 Consolidated Statement of Income as gain on
sale of affiliate.
- 82 -
<PAGE>
4. INVESTMENTS IN UNCONSOLIDATED AFFILIATES (continued)
The investment by SLI in SSP has been accounted for under
the equity method of accounting. The Company's equity in the
income or loss of SSP is included in the Consolidated Statement
of Income as equity in income or loss of unconsolidated
affiliates. LPSI received a management fee from SSP of 5.0% of
casino revenues net of gaming taxes of 18.5% and boarding fees.
Intercompany management fees have been eliminated in
consolidation.
Summarized condensed financial information of SHCH and SSP
(the only significant unconsolidated affiliates) as of and for
the years ending December 31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
(In thousands)
<S> <C> <C>
Sydney Harbour Casino Holdings Ltd.
(Unaudited)
Income statement data:
Net revenues $295,600 $90,800
Net income 17,700 -
Company's share of net income $4,086 $ -
Balance sheet data:
Assets:
Property and equipment, net $460,300 $229,100
Other assets 349,400 325,400
------------ ------------
Total assets $809,700 $554,500
============ ============
Liabilities and shareholders'
equity:
Liabilities $342,400 $182,200
Shareholders' equity:
Company's 115,000 97,900
Other shareholders' 352,300 274,400
------------ ------------
Total liabilities and
shareholders' equity $809,700 $554,500
============ ============
</TABLE>
The difference between the Company's equity in SHCH shown
above and the amounts reported as investments in unconsolidated
affiliates in the Company's Consolidated Balance Sheets is
primarily due to capitalized interest of approximately
$24,200,000 and $13,100,000 in 1996 and 1995, respectively, and
the Company's investment in SMG.
- 83 -
<PAGE>
4. INVESTMENTS IN UNCONSOLIDATED AFFILIATES (continued)
<TABLE>
<CAPTION>
1995 1994
------------ ------------
(In thousands)
<S> <C> <C>
Showboat Star Partnership (Unaudited):
Income statement data:
Net revenues $11,044 $97,989
Net income (loss) (10,719) 24,782
Company's share of net income (loss)
including closing costs and loss
on sale of assets (5,211) 12,828
Balance sheet data:
Assets
Current assets $ - $16,624
Property and equipment, net - 35,135
Other assets 19,522
------------ ------------
Total assets $ - $71,281
============ ============
Liabilities and partners'
capital accounts:
Current liabilities $ - $3,950
Partners' capital accounts - 67,331
------------ ------------
Total liabilities and
partners' capital accounts $ - $71,281
============ ============
</TABLE>
The amount reported above as the Company's share of net loss
for the year ended December 31, 1995 from SSP is exclusive of the
gain the Company realized on the ultimate disposition of its
ownership interest in SSP. The Consolidated Statement of Income
includes the Company's share of the loss on operations
(approximately $22,000) of SSP for 1995 as equity in income
(loss) of unconsolidated affiliates. The Company's share of
additional losses incurred by SSP related to closing costs and
sale of certain assets were offset against the Company's gain on
sale of its equity interest in SSP resulting in a net gain of
$2,558,000, which is reported as gain on sale of affiliate.
5. NEW JERSEY INVESTMENT OBLIGATION
The New Jersey Casino Control Act (Act) provides, among
other things, for an assessment on a gaming licensee based upon
1 1/4% of its gross casino revenues. This assessment is satisfied
by investing in qualified direct investments or purchasing bonds
issued by the Casino Reinvestment Development Authority (CRDA).
In order for direct investments to be eligible, they must be
approved by the CRDA.
- 84 -
<PAGE>
5. NEW JERSEY INVESTMENT OBLIGATION (CONTINUED)
Deposits with the CRDA bear interest at two-thirds of market
rates resulting in a current value lower than cost. At December
31, 1996 and 1995, deposits and other assets include $7,009,000
and $7,198,000, respectively, representing the Company's bond
purchases and deposits with the CRDA of $10,616,000 as of
December 31, 1996 and $10,458,000 as of December 31, 1995, net of
a valuation allowance of $3,607,000 and $3,260,000, respectively.
The carrying value of these deposits, net of the valuation
allowance, approximates fair value.
The Company is eligible to receive approximately $8,800,000
in funding credits reserved by the Casino Reinvestment
Development Authority (CRDA), as a result of the completion of
the hotel expansion program at the Atlantic City Showboat,
completed in 1994. To date, the Company has received
approximately $2,900,000. As of December 31, 1996, approximately
$3,500,000 in funding credits is available for distribution to
the company. The remaining $2,400,000 of reserved funding
credits is expected to be distributed in the future.
6. LONG-TERM DEBT
The Company's debt is categorized separately as debt
guaranteed by the Company (generally known as recourse debt) and
debt not guaranteed by the Company (generally known as non-
recourse debt).
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
------------ ------------
1996 1995
------------ ------------
(In thousands)
<S> <C> <C>
Recourse Debt:
9 1/4% First Mortgage Bonds (Bonds) due 2008
net of unamortized discount of
$4,257,000 and $4,632,000 at
December 31, 1996 and 1995, respectively $270,743 $270,368
13% Senior Subordinated Notes (Notes) due 2009 120,000 120,000
Capital lease obligations 2,001 2,023
Non-recourse Debt:
13 1/2% First Mortgage Notes (East
Chicago Notes) due 2003 140,000 -
------------ ------------
532,744 392,391
Less current maturities 25 22
------------ ------------
$532,719 $392,369
============ ============
</TABLE>
- 85 -
<PAGE>
6. LONG-TERM DEBT (CONTINUED)
On July 1, 1994, the Company obtained consents to amend
(Amendments) its Indenture governing its Bonds (Bond Indenture).
The Company received consents from holders of approximately
$259,772,000 or 94% of the Bonds approving the Amendments. In
consideration for their consent, the consenting Bond holders
received 2% of the face value of the Bonds. On July 28, 1994,
the Company paid $5,195,000 to the consenting Bond holders. As
the amount paid does not represent a significant modification of
the terms of the Bonds, it is reflected as a discount on the
Bonds and is being amortized as an adjustment to yield over the
remaining life of the Bonds using the effective interest method.
The Bonds are unconditionally guaranteed by Ocean Showboat,
Inc. (OSI), Atlantic City Showboat, Inc. (ACSI) and Showboat
Operating Company (SOC),subsidiaries effectively owned 100% by
the Company. Interest on the Bonds is payable semi-annually on
May 1 and November 1 of each year. The Bonds are not redeemable
prior to May 1, 2000. Thereafter, the Bonds will be redeemable,
in whole or in part, at redemption prices specified in the Bond
Indenture. The 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 Bonds are
collateralized by substantially all the assets of the Company.
The Bond Indenture, as amended, places significant
restrictions on the incurrence of additional indebtedness by SBO
and its subsidiaries, the creation of additional liens on the
collateral securing the Bonds, transactions with affiliates and
payment of certain restricted payments (as defined), including
certain investments made by SBO and its subsidiaries. The
Company was in compliance with the Bond Indenture Covenants as of
December 31, 1996.
On August 10, 1994, the Company issued its $120,000,000 13%
Notes. The proceeds from the sale of the Notes (Note Offering)
were $116,520,000, net of underwriting discounts and commissions.
Proceeds from the Note Offering were used to renovate the Las
Vegas Showboat, and to invest approximately $100,000,000 for an
approximately 24.6% equity interest in SHCH.
The Notes are unconditionally guaranteed by OSI, ACSI and
SOC. Interest on the Notes is payable semi-annually on February
1 and August 1 of each year. The Notes will be redeemable, in
whole or in part, at the option of the company at any time on or
after August 1, 2001 at redemption prices specified in the
Indenture for the Notes (Note Indenture). The Notes are general
obligations of the Company, subordinated in right of payment to
all Senior Debt (as defined in the Note Indenture) of the
Company. The Note Indenture permits the issuance of an
additional $30,000,000 of Notes at the discretion of the Company.
The Note Indenture places significant restrictions on the
Company, many of which are substantially similar to the
restrictions placed on the Company by the Bond Indenture, as
amended. The Company was in compliance with all the Note
Indenture Covenants as of December 31, 1996.
- 86 -
<PAGE>
6. LONG-TERM DEBT (CONTINUED)
On March 28, 1996 the Company's 55% owned subsidiaries,
Showboat Marina Casino Partnership (SMCP) and Showboat Marina
Finance Corporation (SMFC), sold its $140.0 million 13 1/2% East
Chicago Notes. The net proceeds from the sale were $133,700,000
net of financing costs. The funds were raised to support the
development of the East Chicago Showboat.
The East Chicago Notes are senior secured obligations of
SMCP and rank senior in right of payment to all existing and
future subordinated indebtedness of SMCP and pari passu with
SMCP's senior indebtedness. Interest is payable semi-annually on
March 15, and September 15, of each year. The East Chicago Notes
will be redeemable at the option of SMCP, in whole or in part, on
or after March 15, 2000, at the redemption prices set forth in
the Indenture. The East Chicago Notes are without recourse to the
Company.
On August 4, 1995, the Company obtained a two year secured
line of credit for general working capital purposes totaling
$25.0 million. At the end of the two year term, any outstanding
funds may convert to a three year term loan. As of December 31,
1996, all of the funds under this line of credit were available
for use by the Company. This line of credit replaced the
Atlantic City Showboat's unsecured line of credit which expired
in August of 1995.
Maturities of the Company's long-term debt exclusive of
unamortized discount are as follows:
Year Ending December 31,
1997 $ 25
1998 29
1999 19
2000 -
2001 1,928
Thereafter 535,000
----------
$ 537,001
==========
The fair value of the Company's Bonds, Notes and East
Chicago Notes were $273,625,000, $134,400,000 and $154,700,000
respectively, at December 31, 1996 based on the quoted market
prices. The carrying amount of capital leases approximates fair
value at December 31, 1996.
- 87 -
<PAGE>
7. LEASES
The Company leases certain furniture and equipment and a
warehouse under long-term capital lease agreements. The leases
covering furniture and equipment expire in 1999 and the warehouse
lease expires in 2001. The Company has an 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,
-----------------------------
1996 1995
---------- ----------
(In thousands)
<S> <C> <C>
Building - warehouse $2,050 $2,050
Furniture and equipment 152 152
------ ------
2,202 2,202
------ ------
Less accumulated amortization 1,520 1,361
------ ------
$ 682 $ 841
======= ======
</TABLE>
ACSI is leasing 10 1/2 acres of Boardwalk property in
Atlantic City, New Jersey for a term of 99 years which commenced
October 1983. Annual rent payments, which are payable monthly,
commenced upon opening of the Atlantic City Showboat. The rent
is adjusted annually based upon changes in the Consumer Price
Index. In April 1996, the annual rent increased $245,000 to
$8,805,000. 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, 1996:
<TABLE>
<CAPTION>
Capital Operating
Year ending December 31, Leases Leases
- --------------------------------------------------- --------- -----------
(In thousands)
<S> <C> <C> <C>
1997 $ 286 $ 10,967
1998 286 9,979
1999 272 9,372
2000 253 9,165
2001 1,991 8,805
Thereafter - 713,028
-------- ----------
Total minimum lease payments $3,088 $761,316
-------- ==========
Less amount representing interest (10.4% to 12.9%) 1,087
Present value of net minimum capital lease payments $2,001
=========
</TABLE>
Rent expense for all operating leases was $11,356,000,
$11,241,000 and $10,380,000 for the years ended December 31,
1996, 1995 and 1994, respectively.
- 88 -
<PAGE>
8. INCOME TAXES
Total income tax expense was allocated as follows:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------ ------------
1996 1995 1994
------------------------------ ------------
(In thousands)
<S> <C> <C> <C>
Continuing operations $3,478 $11,435 $11,549
Shareholders' equity, related to
cumulative foreign currency
translation adjustment 2,417 (1,726) 1,879
Shareholders' equity, primarily due
to the tax benefit related to
the exercise of stock options (2,170) (1,471) (241)
------------------------------ ------------
$3,725 $8,238 $13,187
============================== ============
</TABLE>
Income tax expense (benefit) attributable to income from
continuing operations consists of:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------ ------------
1996 1995 1994
------------------------------ ------------
(In thousands)
<S> <C> <C> <C>
U.S. federal
Current ($587) $5,489 $8,793
Deferred 1,786 2,477 323
------------------------------ ------------
1,199 7,966 9,116
------------------------------ ------------
State and local
Current 1,971 3,877 2,500
Deferred 308 (408) (67)
------------------------------ ------------
2,279 3,469 2,433
------------------------------ ------------
Total
Current 1,384 9,366 11,293
Deferred 2,094 2,069 256
------------------------------ ------------
$3,478 $11,435 $11,549
============================== ============
</TABLE>
- 89 -
<PAGE>
8. INCOME TAXES (CONTINUED)
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 years ended December
31, 1996, 1995 and 1994 to pretax income from continuing
operations as a result of the following:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------ ------------
1996 1995 1994
------------------------------ ------------
(In thousands)
<S> <C> <C> <C>
Computed "expected" tax expense $3,318 $8,614 $9,537
Increase (reduction) in income
taxes resulting from:
Equity in income from foreign
unconsolidated affiliate not
subject to US tax (1,413) - -
State and local income taxes,
net of federal tax benefit 1,523 2,174 1,715
Other, net 50 647 297
------------------------------ ------------
Income tax expense $3,478 $11,435 $11,549
============================== ============
</TABLE>
- 90 -
<PAGE>
8. INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities at December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
(In thousands)
<S> <C> <C>
Deferred tax assets:
Alternative minimum tax credit
carryforwards $5,496 $572
Preopening costs 2,234 2,236
Accrued vacations 1,992 1,786
Executive deferred compensation 1,370 657
Casino Reinvestment Development
Authority obligation 1,085 1,332
Long-term incentive plan 1,064 1,005
Accrued medical claims 1,022 803
Allowance for doubtful accounts 984 1,091
Accrued bonuses 382 2,191
Other 2,510 2,852
------------ ------------
Total gross deferred tax assets 18,139 14,525
Less valuation allowance - 916
------------ ------------
Net deferred tax assets 18,139 13,609
------------ ------------
Deferred tax liabilities:
Depreciation and amortization 20,639 18,894
Capitalized interest 11,056 7,034
Cumulative foreign currency
translation adjustment 2,570 153
Other 960 103
------------ ------------
Total gross deferred tax liabilities 35,225 26,184
------------ ------------
Net deferred tax liability $17,086 $12,575
============ ============
</TABLE>
At December 31, 1996, the Company had available $5,496,000
of alternative minimum tax credit carryforwards which are
available to reduce future federal regular income taxes, if any,
over an indefinite period.
- 91 -
<PAGE>
9. EMPLOYEE BENEFIT PLANS
The Company maintains a retirement and savings plan for
eligible employees who are not covered by a collective bargaining
agreement or by another plan to which the Company contributes.
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 the Company. 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 an aggregate of
$1,947,000, $1,932,000 and $1,826,000 to this plan for the years
ended December 31, 1996, 1995 and 1994, respectively.
The Company's union employees are covered by union-
sponsored, collectively-bargained, multi-employer pension plans.
The Company contributed and charged to expense $1,315,000,
$1,326,000 and $1,298,000 during the years ended December 31,
1996, 1995 and 1994, respectively. These contributions are
determined in accordance with the provisions of negotiated labor
contracts and generally are based on the number of hours worked.
In August 1994, the Company implemented a Supplemental
Executive Retirement Plan (SERP) for a select group of management
personnel to ensure that the Company's overall executive
compensation program will attract, retain and motivate qualified
senior management personnel. The participants receive benefits
based on years of service and final compensation. This defined
benefit plan is noncontributory and unfunded. The pension costs
are determined actuarially and are based on the assumption that
all eligible personnel will participate in the SERP.
The net pension cost for the years ended December 31, 1996,
1995 and 1994 consists of the following:
<TABLE>
<CAPTION>
December 31,
------------------------------
1996 1995 1994
--------- -------- --------
(In thousands)
<S> <C> <C> <C>
Service costs of benefits earned $ 391 $ 368 $376
Interest cost on projected benefit obligation 422 387 335
Amortization of unrecognized prior service costs 284 284 284
--------- -------- --------
$1,097 $1,039 $995
========= ======== ========
</TABLE>
- 92 -
<PAGE>
9. EMPLOYEE BENEFIT PLANS (CONTINUED)
The status of the defined benefit plan at December 31, 1996
and 1995 is as follows:
<TABLE>
<CAPTION>
December 31,
------------ ------------
1996 1995
------------ ------------
(In thousands)
<S> <C> <C>
Fair value of plan assets $ - $ -
------------ ------------
Actuarial present value of benefit obligation:
Vested benefit obligation 2,489 2,558
Non-vested benefit obligation 1,210 2,470
------------ ------------
Accumulated benefit obligation 3,699 5,028
Effect of projected future salary increases 1,955 711
------------ ------------
Projected benefit obligation 5,654 5,739
------------ ------------
Plan assets less than projected
benefit obligation (5,654) (5,739)
Unrecognized prior service costs 3,408 3,692
Unrecognized (gain)loss (531) 170
Adjustment to recognize minimum liability (922) (3,151)
------------ ------------
Accrued pension cost included in
other liabilities ($3,699) ($5,028)
------------ ------------
</TABLE>
Prior service costs to be recognized in income in future
years of $922,000 and $3,151,000 at December 31, 1996 and 1995,
respectively, are included in deposits and other assets in the
Consolidated Balance Sheet.
The assumptions used in computing the information above were
as follows:
1996 1995
------- -------
Discount rate 7.25% 7.00%
Future compensation growth rate 4.50% 4.50%
- 93 -
<PAGE>
10. STOCK PLANS
The Company has various incentive plans under which stock
options or restricted shares may be granted to key employees,
members of the Board of Directors and all other full and part-
time employees. A total of 3,720,000 shares have been reserved
for issuance as stock options or restricted shares under these
plans. Restricted shares and options granted to key employees
vest over a five-year period. All other options vest over a one-
year period. The options are exercisable, subject to vesting,
over ten years at option prices not less than 100% of the fair
market value of the Company's common stock determined on the date
of grant of the options.
Unearned compensation in connection with restricted stock
issued for future services is 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
$1,641,000, $2,166,000, and $1,964,000 was recognized for the
years ended December 31, 1996, 1995, and 1994, respectively.
Unearned compensation has been shown as a reduction of
shareholders' equity in the accompanying Consolidated Balance
Sheets.
The Company has four fixed option plans. Under the 1989
Long Term Incentive Plan, the Company may grant options and
restricted shares to its employees for up to 600,000 shares of
stock. Under the Directors Plan, the Company may grant options
to the directors for up to 120,000 shares of stock. Under the
1994 Long Term Incentive Plan, the Company may grant options and
restricted shares to its employees for up to 2,000,000 shares of
stock. Under the 1992 Employee Plan, The Company may grant
options and restricted shares to its employees for up to
1,000,000 shares of stock.
The fair value of each option grant is estimated on the date
of grant using the Black-Scholes option-pricing model with the
following weighted average assumptions: dividend yield of .47%,
expected volatility of 45%, risk free interest rate of 6.15%, and
expected life of 5 years for the options.
- 94 -
<PAGE>
10. STOCK PLANS (CONTINUED)
A summary of the status of the Company's fixed stock option
plans as of December 31, 1996, 1995 and 1994, and changes during
the years then ended is presented below:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
Shares Shares Shares
(In Thousands)
--------- ----------- ---------
<S> <C> <C> <C>
Outstanding at beginning of year 1,646 1,916 812
Granted 306 240 1,228
Exercised (355) (345) (37)
Forfeited (153) (165) (87)
--------- ----------- ---------
Outstanding at end of year 1,444 1,646 1,916
========== ============ ==========
Options exercisable at year-end 630 670 750
Weighted average fair value of
options granted during the year $11.49 $6.71 $9.30
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
Weighted Weighted Weighted
Avg. Avg. Avg.
exercise exercise exercise
price price price
---------- ---------- ----------
<S> <C> <C> <C>
Outstanding at beginning of year $17 $17 $12
Granted 25 15 20
Exercised 16 13 14
Forfeited 20 19 14
Outstanding at end of year $19 $17 $17
</TABLE>
- 95 -
<PAGE>
10. STOCK PLANS (CONTINUED)
The following table summarizes information about fixed stock
options outstanding at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------ ------------ ------------- ----------- ------------- -----------
Range of Number Weighted Weighted Number Weighted
Exercise Outstanding Average Average Exercisable Average
Price at 12/31/96 Remaining Exercise at Exercise
Contractual Price 12/31/96 Price
Life
------------ ------------ ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
$7 to 8 143,000 3.1 years $8 143,000 $8
$15 to 19 280,000 7.8 15 208,000 15
$20 to 29 1,021,000 8.5 21 279,000 21
---------- -----------
$7 to 29 1,444,000 7.8 $19 630,000 $16
=========== ===========
</TABLE>
The Company applies APB Opinion No. 25 and related
Interpretations in accounting for its fixed stock option plans.
Accordingly, no compensation cost has been recognized for its
fixed stock options plans. Had compensation cost for the
Company's stock-based compensation plans been determined
consistent with FASB Statements No. 123, the Company's net income
and earnings per share would have been reduced to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
1996 1995
----------- ----------
(Thousands except for per share data)
<S> <C> <C>
Net income as reported $6,003 $13,175
Pro forma $5,468 $12,988
Fully diluted earnings per share:
As reported $ 0.37 $ 0.84
Pro forma $ 0.33 $ 0.83
</TABLE>
Pro forma net income reflects only options granted in 1996
and 1995. Therefore, the full impact of calculating compensation
cost for stock options under SFAS No. 123 is not reflected in the
pro forma net income amounts presented above because compensation
cost is reflected over the options' vesting period of five years
and compensation cost for options granted prior to January 1,
1995 is not considered. Also, the impact discussed above may not
be indicative of the impact of future years.
- 96 -
<PAGE>
10. STOCK PLANS (CONTINUED)
In 1996, the Company adopted a Stock Appreciation Rights
Plan (the "Rights Plan"), subject to shareholder approval at the
annual meeting to be held in May 1997. The Rights Plan provides
for the granting of stock appreciation rights ("Rights") to
certain key employees of the Company. Holders of Rights will be
entitled to receive from the Company cash in the amount equal to
the excess, if any, of the market price of the common stock on
the date of change in control of the Company (as defined in the
Rights Plan) over the exercise price of the Rights.
11. SHAREHOLDERS' EQUITY
On May 6, 1994, in connection with the Company's investment
in SHCH, the Company issued warrants to purchase 150,000 shares
of Showboat, Inc. common stock with an exercise price of $15.50
per share. The warrants were exercisable on issuance. All
150,000 warrants were exercised during 1996 in a cashless
exercise. The value of the warrants of $1,953,000 has been
reported as part of the investment in SHCH and will be amortized
over the life of the principal assets.
On October 5, 1995, the Board of Directors of the Company
declared a dividend distribution of one Preferred Stock Purchase
Right ("Right") for each outstanding share of common stock of the
Company. The distribution was payable as of October 16, 1995 to
stockholders of record on that date. Each Right entitles the
registered holder to purchase from the Company one one-hundredth
(1/100th) of a share of preferred stock of the Company,
designated as a Series A Junior Preferred Stock at a price of
$120.00 per one one-hundredth (1/100th) of a share. The Rights
expire on October 5, 2005, unless earlier redeemed. The Company
may redeem the rights in whole, but not in part, at a price of
$.01 per Right. The Rights, unless earlier redeemed by the
Company, will become exercisable following a public announcement
that a person or group has acquired 15% or more of the common
stock or has commenced (or announced an intention to make) a
tender or exchange offer for 30% or more of the common stock.
200,000 shares of preferred stock have been reserved for issuance
upon exercise of the Rights. The Company did not believe the
Rights had a material value upon declaration of the dividend.
Each share of Preferred Stock will be entitled to receive
when, as and if declared, a quarterly dividend in an amount equal
to the greater of $120.00 per share or 100 times the cash
dividends declared on the Company's common stock. In the event
of liquidation, the holders of Preferred Stock will be entitled
to receive for each share of Series A Preferred Stock, a
liquidation payment in an amount equal to the greater of
$12,000.00 or 100 times the payment made per share of common
stock. Each share of Preferred Stock will have 100 votes, voting
together with the common stock. In the event of any merger,
consolidation or other transaction in which common stock is
exchanged, each share of Preferred Stock will be entitled to
receive 100 times the amount received per share of common stock.
The rights of Preferred Stock as to dividends, liquidation and
voting are protected by anti-dilution provisions.
- 97 -
<PAGE>
12. SELECTED QUARTERLY DATA (UNAUDITED)
Summarized unaudited financial data for interim periods for
the years ended December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
Quarter Ended (a) Year
---------------------------------------------------------- Ended
3/31/96 6/30/96 9/30/96 12/31/96 12/31/96
------------- ------------- ------------------------------ ------------
(In thousands except per share data)
<S> <C> <C> <C> <C> <C>
Net revenues $102,590 $109,225 $122,242 $99,648 $433,705
Income from
operations 8,439 10,082 16,593 7,007 42,121
Net income
(loss)(b) (801) 1,136 4,901 767 6,003
Net income (loss)
per share (0.05) 0.07 0.30 0.05 0.37
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended (a) Year
---------------------------------------------------------- Ended
3/31/95 6/30/95 9/30/95 12/31/95 12/31/95
------------- ------------- ------------------------------ ------------
(In thousands except per share data)
<S> <C> <C> <C> <C> <C>
Net revenues $98,679 $111,864 $119,569 $98,480 428,592
Income from
operations 7,424 14,274 18,994 5,982 46,674
Net income (loss)
(c) (d) 1,783 4,959 7,826 (1,393) 13,175
Net income per
share 0.12 0.32 0.50 (0.10) 0.84
</TABLE>
(a) Quarterly results may not be comparable due to the
seasonal nature of operations.
(b) In March 1996 the Company recognized an after tax loss
of $2.0 million or $.12 per share for the write down of the
Company's investment in SMG.
(c) In March 1995, SSP sold certain of its assets and the
Company sold its equity interest in SSP resulting in a net pretax
gain of $2.6 million.
(d) In the quarter ended December 31, 1995, the Company
recognized a $1.4 million pretax write-down related to its
investment in SMG.
- 98 -
<PAGE>
13. SUPPLEMENTAL FINANCIAL INFORMATION
A summary of additions and deductions to the allowance for
doubtful accounts receivable for the years ended December 31,
1996, 1995, and 1994 follows:
<TABLE>
<CAPTION>
Balance at Balance
beginning at end of
Year Ended of year Additions Deductions Year
<S> <C> <C> <C> <C>
--------------- ---------- ---------- ---------- ----------
December 31, 1996 $2,681 $1,557 $1,821 $2,417
---------------
December 31, 1995 $2,400 $1,605 $1,324 $2,681
---------------
December 31, 1994 $2,946 $950 $1,496 $2,400
---------------
</TABLE>
14. COMMITMENTS AND CONTINGENCIES
On March 28, 1996, the Company's 55% owned subsidiaries,
SMCP and SMFC, sold the East Chicago Notes to support the
development of the East Chicago Showboat. Additionally, the
Company contributed $36.9 million to SMCP through intermediary
partnerships, of which $8.9 million was contributed prior to
1996. The Company anticipates funding an additional $3.1 million
in 1997 related to certain payments due to Waterfront
Entertainment and Development, Inc. ("Waterfront"), its 45%
partner. The Company will receive a 12% preferred return on its
$40.0 million investment. In addition to its $40.0 million
investment, subject to certain qualifications and exceptions, the
Company entered into a standby equity commitment with SMCP,
pursuant to which it will cause to be made up to an aggregate of
$30.0 million in additional capital contributions to SMCP if,
during any of the first three full four quarter periods following
the commencement of operations at the East Chicago Showboat, the
project's combined cash flow (as defined) is less than $35.0
million for any such full four quarter period. However, in no
event will the Company be required to cause to be contributed to
SMCP more than $15.0 million in respect of any one such full four
quarter period. Waterfront agreed to compensate the Company
$5.2 million for the standby equity commitment. The $5.2 million
due the Company shall accrue interest at 12% per annum until paid
from Waterfront's share of distributable cash flow from SMCP.
Subject to certain qualifications and exceptions, the Company
entered into a completion guarantee with SMCP to complete the
East Chicago Showboat so that it becomes operational, including
the payment of all costs owing prior to such completion, up to a
maximum aggregate amount of $30.0 million.
- 99 -
<PAGE>
14. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Currently, the Company believes that SMCP has sufficient
resources to complete the East Chicago Showboat. However, no
assurance can be given that SMCP will be able to complete the
East Chicago Showboat from its available financing resources or
that SMCP's annual cash flow will exceed $35.0 million. SMCP has
entered into numerous agreements and financial commitments for
the construction of the East Chicago Showboat that must be
completed whether or not an owner's license is issued to SMCP.
In the event an owner's license is not issued, the potential
failure to realize the costs already expended could have an
adverse impact on the financial condition of the Company. The
East Chicago First Mortgage Note Indenture contains restrictions
on payments to affiliates, including the Company, by SMCP. As a
result of these restrictions, the distributable cash flow from
SMCP is limited to good faith estimates of maximum payments for
state and federal income tax liabilities of the Company and
Waterfront, until certain financial ratios are met by SMCP.
There can be no assurance that SMCP will meet their required
financial ratios in order to distribute cash flow to the Company
in excess of the federal and state tax liabilities.
The Company through its subsidiary, Showboat Lemay, Inc.
("Showboat Lemay"), has an 80% general partner interest in
Southboat Limited Partnership ("SLP") which, subject to
licensing, plans to build and operate a riverboat casino project
and related facilities (the "Southboat Casino Project") on the
Mississippi River near Lemay, Missouri (the "Southboat Casino
Site"). SLP entered into a lease agreement with the St. Louis
County Port Authority ("Port Authority") for the lease of the
Southboat Casino Site for a term of 99 years, commencing upon the
investigation of SLP for a Missouri gaming license and the
receipt of all permits from the U.S. Army Corps of Engineers.
The Company has guaranteed SLP's payment of Minimum Rent for the
Guarantee Period (15 years), and SLP's timely completion and
construction of and payment for all improvements and
installations in connection with SLP's development of the
Southboat Casino Project.
The aggregate gross minimum lease payments for 15 years are
approximately $35.0 million. In addition, the Company agreed to
provide a Guarantee of Completion to the Port Authority which
provides, in material part, that the Company will complete the
construction of the Southboat Casino Project should SLP, after
the commencement of work, abandon the project for a period of 30
days after receipt of notice from the Port Authority. The
limited partnership agreement provides that the Company's initial
capital contribution is $19.5 million and that Showboat Lemay, on
behalf of SLP, will arrange for a $75.0 million loan to develop
the Southboat Casino Project and to arrange for equipment
financing for the remaining costs of the Southboat Casino
Project. The Company has also agreed to provide a loan to SLP in
the amount of approximately $4.5 million to assist in the
development of the Southboat Casino Project. The investigation
of SLP for a Missouri Gaming License has not yet commenced.
- 100 -
<PAGE>
14. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company and Rockingham Venture, Inc. ("RVI"), which owns
the Rockingham Park, a thoroughbred racetrack in New Hampshire,
entered into agreements to develop and manage any additional
gaming that may be authorized at Rockingham Park. In December
1994, the Company loaned RVI approximately $8.9 million, bearing
interest at 8.3%, which loan is secured by a second mortgage on
Rockingham Park. At this time, casino gaming is not permitted in
the State of New Hampshire. If casino gaming is legalized, the
Company will, at a minimum, contribute the promissory note as a
capital contribution to a joint venture. Should enabling
legislation permit more than 500 slot machines or any combination
of slot machines and table games, then the Company, subject to
available financing, will contribute funds not to exceed 30% of
cash funds required for the project. At this time, the cost of
the project has not been determined.
On February 4, 1997, the Company announced that it had
entered into a Tribal Management Agreement, and other related
agreements, with the Lummi Indian Nation for the purpose of
developing a Class III casino to be located between Bellingham,
Washington and Vancouver, British Columbia. The Company will be
required to be licensed by the state of Washington. The
agreements are subject to the necessary approvals of various
state and federal authorities including the National Indian
Gaming Commission. The Company's Board of Directors has approved
an expenditure of up to $25.0 million to fund this project.
The Company is involved in various claims and legal actions
arising in the ordinary course of business. In the opinion of
management, the ultimate disposition of these matters will not
have a material adverse effect on the Company's financial
statements taken as a whole.
15. SUBSEQUENT EVENT
The Company, on January 12, 1997, announced that SBO and
Publishing & Broadcasting Limited ("PBL"), a public company
listed on the Australian Stock Exchange, have reached an
agreement in principle with respect to the acquisition by PBL of
a significant portion of the Company's interests in its casino
operations in Sydney, Australia. The transaction contemplates
that PBL will acquire from the Company approximately 55 million
ordinary shares of SHCH (approximately 10% of the issued voting
shares of SHCH) at a price per share of A$1.85 subject to
adjustments in certain circumstances. It also contemplates that
PBL grant a put to SBO to sell to PBL an additional 54 million
ordinary shares at A$1.85 per share until March 31, 1999.
- 101 -
<PAGE>
15. SUBSEQUENT EVENT (CONTINUED)
The transaction further contemplates that PBL will succeed
to the management of the Sydney Harbour Casino under arrangements
to be concluded for which PBL will pay A$204 million to the
Company. The transaction is subject to the execution of
definitive agreements, the receipt of all necessary government
and regulatory consents and approvals, certain third party
consents and the fulfillment of other closing conditions. The
New South Wales Casino Control Authority ("CCA") has received a
copy of the agreement in principal, but will require extensive
additional submissions in order for the CCA to consider the
consents and approvals which will be required before any final
agreement becomes effective. SHCH and other relevant companies
are not parties to the agreement in principle, nor did they
participate in its negotiations. Their consent or agreement will
be required. A subsidiary of the Company will continue to own
approximately 80 million ordinary shares of SHCH (original
ownership of 135 million shares less 55 million shares
contemplated to be sold to PBL) and an existing option to
purchase approximately 37.4 million ordinary shares of SHCH at an
exercise price of A$1.15 per share. This option may be exercised
between July 1, 1998 and June 30, 2000. Both the 9 1/4% Bonds and
the 13% Note Indenture place significant restrictions on the
Company, one of which is the use of funds from the sale of a
significant portion of the assets of a subsidiary such as SHCH.
- 102 -
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
This information is incorporated by reference from the
Company's Proxy Statement to be filed with the Commission in
connection with the Company's Annual Meeting of Shareholders on
May 29, 1997.
ITEM 11. EXECUTIVE COMPENSATION.
This information is incorporated by reference from the
Company's Proxy Statement to be filed with the Commission in
connection with the Company's Annual Meeting of Shareholders on
May 29, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
This information is incorporated by reference from the
Company's Proxy Statement to be filed with the Commission in
connection with the Company's Annual Meeting of Shareholders on
May 29, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
This information is incorporated by reference from the
Company's Proxy Statement to be filed with the Commission in
connection with the Company's Annual Meeting of Shareholders on
May 29, 1997.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.
(a)(l) The following consolidated financial statements of the
Company and its subsidiaries have been filed as a part
of this report (See "Item 8: Financial Statements and
Supplementary Data"):
Independent Auditors' Report;
Consolidated Balance Sheets as of December 31, 1996 and
1995;
Consolidated Statements of Income for the Years Ended
December 31, 1996, 1995 and 1994;
- 103 -
<PAGE>
Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 1996, 1995 and 1994;
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1996, 1995 and 1994; and
Notes to Consolidated Financial Statements
(a)(2) All schedules are omitted because they are not
required, inapplicable, or the information is otherwise
shown in the financial statements or notes thereto.
(a)(3) Exhibits<F2>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
<S> <C>
3.01 Restated Articles of Incorporation of Showboat, Inc.
dated June 10, 1994, is incorporated herein by
reference to Showboat, Inc.'s Amendment No. 1 to
Registration Statement on Form S-3 (file no. 33-54325)
dated July 8, 1994, Item 16, Exhibit 4.02.
3.02 Restated Bylaws of Showboat, Inc. dated October 24,
1995, is incorporated herein by reference to Showboat,
Inc.'s Form 10-Q (file no. 1-7123) for the nine month
period ended September 30, 1995, Part II, Item 6(a),
Exhibit 3.01.
4.01 Specimen Common Stock Certificate for the Common Stock
of Showboat, Inc. is incorporated herein by reference
to Showboat, Inc.'s Amendment No. 1 to Registration
Statement on Form S-3 (file no. 33-54325) dated July 8,
1994, Item 16, Exhibit 4.01.
4.02 Rights Agreement dated October 5, 1995, between
Showboat, Inc. and American Stock Transfer and Trust
Company; Form of Right Certificate; and Certificate of
Designation of Rights and Preferences of Series A
Junior Preferred Stock of Showboat, Inc., are
incorporated herein by reference to Showboat, Inc.'s
Form 8-K (file no. 1-7123) dated October 5, 1995, Item
7(c), Exhibit 4.01.
4.03 Indenture dated May 18, 1993, for the 9 1/4% First
Mortgage Bonds due 2008 among Showboat, Inc., Ocean
Showboat, Inc., Atlantic City Showboat, Inc., Showboat
Operating Company, and IBJ Schroder Bank & Trust
Company; Guaranty by Ocean Showboat, Inc., Atlantic
City Showboat, Inc. and Showboat Operating Company in
favor of IBJ Schroder Bank & Trust Company; and Form of
Bond Certificate for the 9 1/4% First Mortgage Bonds
due 2008, are incorporated herein by reference to
Showboat, Inc.'s Form 8-K (file no. 1-7123) dated
May 18, 1993, Item 7(c), Exhibit 28.01. First
Supplemental Indenture dated July 18, 1994, for
the 9 1/4% First Mortgage Bonds due 2008 among
Showboat, Inc., Ocean Showboat, Inc., Atlantic
City Showboat, Inc., Showboat Operating Company and IBJ
<FN>
<F2> Copies of exhibits to this Form 10-K will be furnished to
any requesting security holder who furnishes the Company a
list identifying the exhibits to be copied by the Company
at a charge of $.25 per page.
</FN>
</TABLE>
- 104 -
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
<S> <C>
Schroder Bank & Trust Company is incorporated herein by
reference to Showboat, Inc.'s Form 10-K (file no. 1-
7123) for the year ended December 31, 1994, Part IV,
Item 14(a)(3), Exhibit 4.02.
4.04 Indenture dated August 10, 1994, for the 13% Senior
Subordinated Notes due 2009 among Showboat, Inc., Ocean
Showboat, Inc., Atlantic City Showboat, Inc., Showboat
Operating Company, and Marine Midland Bank; Guaranty by
Ocean Showboat, Inc., Atlantic City Showboat, Inc. and
Showboat Operating Company in favor of Marine Midland
Bank; and Form of Note Certificate for the 13% Senior
Subordinated Notes due 2009, are incorporated herein by
reference to Showboat, Inc.'s Form 8-K (file no. 1-
7123) dated August 10, 1994, Item 7(c), Exhibit 4.01.
4.05 Indenture dated as of March 28, 1996, among Showboat
Marina Casino Partnership, Showboat Marina Finance
Corporation, Donaldson, Lufkin & Jenrette Securities
Corporation, Nomura Securities International, Inc.,
Bear, Stearns & Co., Inc. and American Bank National
Association, as trustee, relating to the 13 1/2 Series
A and Series B First Mortgage Notes due 2003, is
incorporated herein by reference to Showboat, Inc.'s
Form 10-Q (file no 1-7123) for the six month period
ended June 30, 1996, Part II, Item 6(a), Exhibit 4.01.
10.01 Parent Services Agreement dated November 21, 1985,
between Showboat, Inc. and Atlantic City Showboat,
Inc., is incorporated herein by reference to Showboat,
Inc.'s Form 8-K (file no. 1-7123) dated November 25,
1985, Item 7(c), Exhibit 10.01. Amendment No. 1 to
Parent Services Agreement dated February 1, 1987,
between Showboat, Inc. and Atlantic City Showboat,
Inc., is incorporated herein by reference to Showboat,
Inc.'s Form 10-K (file no. 1-7123) for the year ended
June 30, 1987, Part IV, Item 14(a)(3), Exhibit 10.17.
Amendment No. 2 to Parent Services Agreement dated
December 31, 1990, between Showboat, Inc. and Atlantic
City Showboat, Inc., is incorporated herein by
reference to Showboat, Inc.'s Form 8-K (file no. 1-
7123) dated December 31, 1990, Item 7(c),
Exhibit 28.01. Amendment No. 3 to Parent Services
Agreement dated May 8, 1991, between Showboat, Inc. and
Atlantic City Showboat, Inc., is incorporated herein by
reference to Showboat, Inc.'s Form 10-K (file no. 1-
7123) for the year ended December 31, 1991, Part IV,
Item 14(a)(3), Exhibit 10.14. Amendment No. 4 to
Parent Services Agreement dated August 17, 1993,
between Showboat, Inc. and Atlantic City Showboat,
Inc., is incorporated herein by reference to Showboat,
Inc.'s Form 10-K (file no. 1-7123) for the year ended
December 31, 1993, Part IV, Item 14(a)(3), Exhibit
10.11.
10.02 Tax Allocation Agreement effective May 10, 1993, among
Showboat, Inc. and each of its subsidiaries, is
incorporated herein by reference to Showboat, Inc.'s
Form 10-K (file no. 1-7123) for the year ended June 30,
1987, Part IV, Item 14(a)(3), Exhibit 10.11. First
Amendment to Tax Allocation Agreement effective May 10,
1993, among Showboat, Inc. and each of its
subsidiaries, is incorporated herein by reference to
Showboat, Inc.'s Form 10-K (file no. 1-7123) for the
year ended December 31, 1993, Part IV, Item 14(a)(3),
- 105 -
<PAGE>
EXHIBIT
NO. DESCRIPTION
Exhibit 10.07.
10.03 Management Services Agreement dated January 1, 1989,
between Showboat, Inc. and Showboat Operating Company,
is incorporated herein by reference to Showboat, Inc.'s
Form 8-K (file no. 1-7123) dated January 1, 1989, Item
7(c), Exhibit 28.03.
10.04 Showboat, Inc. 1989 Long Term Incentive Plan, as amended
and restated on February 25, 1993, is incorporated
herein by reference to Showboat, Inc.'s Form 10-K
(file no. 1-7123) for the year ended December 31,
1992, Part IV, Item 14(a)(3), Exhibit 10.23.
10.05 Showboat, Inc. 1989 Directors' Stock Option Plan, as
amended and restated February 25, 1993, is incorporated
herein by reference to Showboat, Inc.'s Form 10-K (file
no. 1-7123) for the year ended December 31, 1992,
Part IV, Item 14(a)(3), Exhibit 10.27.
10.06 Showboat, Inc. 1994 Executive Long Term Incentive Plan
effective May 25, 1994, is incorporated herein by
reference to Showboat, Inc.'s Form 10-K (file no. 1-
7123) for the year ended December 31, 1994, Part IV,
Item 14(a)(3), Exhibit 10.36.
10.07 Showboat, Inc. Supplemental Executive Retirement Plan
effective April 1, 1994, is incorporated herein by
reference to Showboat, Inc.'s Form 10-K (file no. 1-
7123) for the year ended December 31, 1994, Part IV,
Item 14(a)(3), Exhibit 10.37.
10.08 Showboat, Inc. Restoration Plan effective April 1,
1994, is incorporated herein by reference to Showboat,
Inc.'s Form 10-K (file no. 1-7123) for the year ended
December 31, 1994, Part IV, Item 14(a)(3), Exhibit
10.38.
10.09 Statement regarding Showboat, Inc.'s Incentive Bonus
Plans, is incorporated herein by reference to Showboat,
Inc.'s Form 10-K (file no. 1-7123) for the year ended
December 31, 1992, Part IV, Item 14(a)(3), Exhibit
10.12.
10.10 Atlantic City Showboat, Inc. Executive Medical
Reimbursement Plan, effective August 15, 1991, is
incorporated herein by reference to Showboat, Inc.'s
Form 10-K (file no. 1-7123) for the year ended
December 31, 1991, Part IV, Item 14(a)(3), Exhibit
10.23.
10.11 Atlantic City Showboat, Inc. Executive Health
Examinations Plan effective January 1, 1989, is
incorporated herein by reference to Showboat, Inc.'s
Form 10-K (file no. 1-7123) for the year ended
December 31, 1989, Part IV, Item 14(a)(3), Exhibit
10.24.
10.12 Form of Severance Agreement between Showboat, Inc. and
certain executive officer and key employees of
Showboat, Inc. and its subsidiaries, is incorporated
herein by reference to Showboat, Inc.'s Form 10-K (file
no. 1-7123) for the year ended December 31, 1994, Part
IV, Item 14(a)(3), Exhibit 10.39.
- 106 -
<PAGE>
EXHIBIT
NO. DESCRIPTION
10.13 Form of Indemnification Agreement between Showboat,
Inc. and each director and officer of Showboat, Inc.,
is incorporated herein by reference to Showboat, Inc.'s
Form 10-K (file no. 1-7123) for the year ended
December 31, 1987, Part IV, Item 14(a)(3), Exhibit
10.13.
10.14 Lease dated January 1, 1989, between Showboat, Inc. and
Showboat Operating Company, is incorporated herein by
reference to Showboat, Inc.'s Form 8-K (file no. 1-
7123) dated January 1, 1989, Item 7(c), Exhibit 28.01.
10.15 Lease dated January 14, 1994, between Showboat, Inc.
and Exber, Inc.; and Sublease dated November 5, 1966,
between Dodd Smith and John D. Gaughan and Leslie C.
Schwartz, is incorporated herein by reference to
Showboat, Inc.'s Form 10-K (file no. 1-7123) for the
year ended December 31, 1993, Part IV, Item 14(a)(3),
Exhibit 10.39.
10.16 Lease of Retail Store No. 7 dated April 10, 1987, among
Atlantic City Showboat, Inc., R. Craig Bird and Debra
E. Bird; and Guaranty of Lease among Atlantic City
Showboat, Inc., R. Craig Bird and Debra E. Bird, are
incorporated herein by reference to Showboat, Inc.'s
Form 10-K (file no. 1-7123) for the year ended
December 31, 1988, Part IV, Item 14(a)(3), Exhibit
10.24.
10.17 Promissory Note dated August 5, 1993, in the principal
amount of $20,400.69 among Showboat, Inc., R. Craig
Bird and Debra E. Bird, is incorporated herein by
reference to Showboat, Inc.'s Form 10-K for the year
ended December 31, 1993, Part IV, Item 14(a)(3),
Exhibit 10.15.
10.18 Ground Lease dated October 26, 1983, between Ocean
Showboat, Inc. and Resorts International, Inc., is
incorporated herein by reference to Showboat, Inc.'s
Form 8-K (file no. 1-7123) as amended by a Form 8 filed
with the Securities and Exchange Commission on
November 28, 1983. Assignment and Assumption of Leases
dated December 3, 1985, between Ocean Showboat, Inc.
and Atlantic City Showboat, Inc.; First Amendment to
Lease Agreement dated January 15, 1985, between Resorts
International, Inc. and Atlantic City Showboat, Inc.;
Second Amendment to Lease Agreement dated July 5, 1985,
between Resorts International, Inc. and Atlantic City
Showboat, Inc., are incorporated herein by reference to
the Form 10-K (file no. 1-7123) for the year ended
June 30, 1985, Part IV, Item 14(a)(3), Exhibit 10.02.
Restated Third Amendment to Lease Agreement dated
August 28, 1986, between Resorts International, Inc.
and Atlantic City Showboat, Inc., is incorporated
herein by reference to the Form 10-K (file no. 1-7123)
for the year ended June 30, 1986, Part IV, Item
14(a)(3), Exhibit 10.08; Fourth Amendment to Lease
Agreement dated December 16, 1986, between Resorts
International, Inc. and Atlantic City Showboat, Inc.;
Fifth Amendment to Lease Agreement dated March 2, 1987,
between Resorts International, Inc. and Atlantic
City Showboat, Inc.; Sixth Amendment to Lease
Agreement dated March 13, 1987, between
Resorts International, Inc. and Atlantic
City Showboat, Inc.; Indemnity Agreement dated
January 15, 1985, among Resorts
- 107-
<PAGE>
EXHIBIT
NO. DESCRIPTION
International, Inc., Atlantic City Showboat
Inc . and Ocean Showboat, Inc.; and Amended
Indemnity Agreement dated December 3, 1985, among
Resorts International, Inc., Atlantic City Showboat,
Inc. and Ocean Showboat, Inc., are incorporated herein
by reference to Showboat, Inc.'s Form 10-K (file no. 1-
7123) for the year ended June 30, 1987, Part IV, Item
14(a)(3), Exhibit 10.02; Seventh Amendment to Lease
Agreement dated October 18, 1988, between Resorts
International, Inc. and Atlantic City Showboat, Inc.,
is incorporated herein by reference to Showboat, Inc.'s
Form 8-K (file no. 1-7123) dated November 16, 1988,
Item 7(c), Exhibit 28.01; Eighth Amendment to Lease
Agreement between Atlantic City Showboat, Inc. and
Resorts International, Inc. International, Inc. dated
May 18, 1993, is incorporated herein by reference to
Showboat, Inc.'s Form 8-K (file no. 1-7123) dated
May 18, 1993, Item 7(c), Exhibit 28.06.
10.19 Closing Escrow Agreement dated September 21, 1988,
among Housing Authority and Urban Redevelopment Agency
of the City of Atlantic City, Resorts International,
Inc., Atlantic City Showboat, Inc., Trump Taj Mahal
Associates Limited Partnership, and Clapp & Eisenberg,
P.C.; Agreement as to Assumption of Obligations with
respect to Properties dated September 21, 1988, among
Atlantic City Showboat, Inc., Trump Taj Mahal
Associates Limited Partnership and Trump Taj Mahal
Realty Corp.; First Amendment of Agreement as to
Assumption of Obligations with respect to Properties
dated September 21, 1988, among Atlantic City Showboat,
Inc., Trump Taj Mahal Associates Limited Partnership
and Trump Taj Mahal Realty Corp.; Settlement Agreement
dated October 18, 1988, among Atlantic City Showboat,
Inc., Trump Taj Mahal Associates Limited Partnership,
Trump Taj Mahal Realty Corp., Resorts International,
Inc. and the Housing Authority and Urban Redevelopment
Agency of the City of Atlantic City; Tri-Party
Agreement dated October 18, 1988, among Resorts
International, Inc., Atlantic City Showboat, Inc. and
Trump Taj Mahal Associates Limited Partnership;
Declaration of Easement and Right of Way Agreement
dated October 18, 1988, between the Housing Authority
and Urban Redevelopment Agency of the City of Atlantic
City, and Atlantic City Showboat, Inc.; and Certificate
of Trump Taj Mahal Associates Limited Partnership and
Resorts International, Inc. dated November 16, 1988,
are incorporated herein by reference to Showboat,
Inc.'s Form 8-K (file no. 1-7123) dated November 16,
1988, Item 7(c), Exhibit 28.01. Revised Second
Amendment to Agreement as to Assumption of Obligations
with respect to Properties dated May 24, 1989, among
Atlantic City Showboat, Inc., Trump Taj Mahal
Associates Limited Partnership and Trump Taj Mahal
Realty Corp., is incorporated herein by reference to
Showboat, Inc.'s Form 10-K (file no. 1-7123) for the
year ended December 31, 1989, Part IV, Item 14(a)(3),
Exhibit 10.17.
10.20 Letter agreement dated September 23, 1992, between
Trump Taj Mahal Associates and Atlantic City Showboat,
Inc.; and letter agreement dated October 26, 1992 to
Trump Taj Mahal Associates from Atlantic City Showboat,
Inc., are incorporated herein by reference to Showboat,
Inc.'s Form 10-K (file no. 1-7123) for the year ended
December 31, 1992, Part IV, Item 14(a)(3), Exhibit
10.24.
- 108 -
<PAGE>
EXHIBIT
NO. DESCRIPTION
10.21 Lease dated December 22, 1994, between
Housing Authority and Urban Redevelopment
Agency of the City of Atlantic City and Atlantic City
Showboat, Inc.; Tri-Party Agreement dated May 26, 1994,
among Housing Authority and Urban Redevelopment Agency
of the City of Atlantic City, Forest City Ratner
Companies and Atlantic City Showboat, Inc.; Terms and
Conditions Part II of Contract for Sale of Land for
Private Redevelopment between Housing Authority and
Urban Redevelopment Agency of the City of Atlantic City
and Atlantic City Showboat, Inc.; and Rider to Contract
for Sale of Land for Private Redevelopment between
Housing Authority and Urban Redevelopment Agency of the
City of Atlantic City and Atlantic City Showboat, Inc.,
are incorporated herein by reference to Showboat,
Inc.'s Form 10-K (file no. 1-7123) for the year ended
December 31, 1994, Part IV, Item 14(a)(3), Exhibit
10.46.
10.22 Agreement Amending and Restating the Tri-Party
Agreement Dated as of May 26, 1994, among the Housing
Authority and Urban Redevelopment Agency of the City of
Atlantic City, Forest City Ratner Companies and
Atlantic City Showboat, Inc. regarding Development of a
Portion of the Uptown Urban Renewal Tract dated
December 14, 1995; Release and Subordination Agreement
dated December 14, 1995, between IBJ Schroder Bank &
Trust Company and Atlantic City Showboat, Inc.; First
Amendment to Leasehold in Pari Passu Mortgage,
Assignment of Rents and Security Agreement and
Collateral Assignment of Easement Rights-Mortgage
Spreader Agreement dated December 15, 1995, between
Atlantic City Showboat, Inc. and NatWest Bank, N.A.;
Third Amendment to Leasehold Mortgage, Assignment of
Rents and Security Agreement Dated as of May 19, 1993 -
Mortgage Spreader Agreement dated December 14, 1995,
between Atlantic City Showboat, Inc. and IBJ Schroder
Bank & Trust Company; Fourth Amendment to Leasehold
Mortgage, Assignment of Rents and Security Agreement
Dated as of May 18, 1993 - Release of Part of Mortgaged
Property and Subordination Agreement dated December 14,
1995, between IBJ Schroder Bank & Trust Company and
Atlantic City Showboat, Inc., are incorporated herein
by reference to Showboat, Inc.'s Form 10-K (file no. 1-
7123) for the year ended December 31, 1995, Part IV,
Item 14(a)(3), Exhibit 10.24.
10.23 Securities Purchase Contract dated March 29, 1988,
between the Casino Reinvestment Development Authority
and Atlantic City Showboat, Inc., is incorporated
herein by reference to Showboat, Inc.'s Form 10-K (file
no. 1-7123) for the year ended December 31, 1988, Part
IV, Item 14(a)(3), Exhibit 10.23.
10.24 Deed of Trust, Assignment of Rents, and Security
Agreement dated May 18, 1993, by Showboat, Inc. to
Nevada Title Company in favor of IBJ Schroder
Bank & Trust Company; Showboat, Inc. Security and Pledge
Agreement dated May 18, 1993, between Showboat, Inc. and
the IBJ Schroder Bank & Trust Company; Trademark
Security Agreement dated May 18, 1993, by Showboat, Inc.
in favor of IBJ Schroder Bank & Trust Company;
Unsecured Indemnity Agreement dated May 18, 1993,
by Showboat, Inc. in favor of IBJ Schroder
Bank & Trust Company; and Showboat Operating
Company Security Agreement dated May 18, 1993,
between Showboat Operating Company and IBJ
- 109 -
<PAGE>
EXHIBIT
NO. DESCRIPTION
Schroder Bank & Trust Company, are incorporated by
reference to Showboat, Inc.'s Form 8-K (file no.
1-7123) dated May 18, 1993, Item 5, Exhibit 28. 02.
Leasehold Mortgage, Assignment of Rents, and Security
Agreement dated May 18, 1993, by Atlantic City
Showboat, Inc. in favor of IBJ Schroder Bank & Trust
Company; Assignment of Leases and Rents dated May 18,
1993, between Atlantic City Showboat, Inc. and IBJ
Schroder Bank & Trust Company; and Ocean Showboat, Inc.
Security and Pledge Agreement dated May 18, 1993,
between Ocean Showboat, Inc. and IBJ Schroder Bank
& Trust Company, are incorporated by reference to
Showboat, Inc.'s Form 8-K (file no. 1-7123) dated May
18, 1993, Item 7(c), Exhibit 28.03. Intercompany Note
dated May 18, 1993, in the principal amount of $215.0
million; Assignment of Lease and Rents dated May 18,
1993, between Atlantic City Showboat, Inc. and Showboat,
Inc.; and Issuer Collateral Assignment dated May 18,
1993, by Atlantic City Showboat, Inc. in favor of
IBJ Schroder Bank & Trust Company, are incorporated
by reference to Showboat, Inc.'s Form 8-K (file no.
1-7123) dated May 18, 1993, Item 7(c), Exhibit 28.04.
Showboat Development Company Security and Pledge
Agreement dated July 18, 1994, between Showboat
Development Company and IBJ Schroder Bank & Trust
Company; and Showboat Louisiana, Inc. Security and
Pledge Agreement dated July 18, 1994, between Showboat
Louisiana, Inc. and IBJ Schroder Bank & Trust Company,
are incorporated herein by reference to Showboat, Inc.'s
Form 10-K (file no. 1-7123) for the year ended December
31, 1994, Part IV, Item 14(a)(3), Exhibit 4.02.
10.25 First Amendment to the Leasehold Mortgage, Assignment
of Rents and Security Agreement dated July 9, 1993,
between Atlantic City Showboat, Inc. and Showboat,
Inc., is incorporated by reference to Showboat, Inc.'s
Form 8-K (file no. 1-7123) dated July 7, 1993,
Item 7(c), Exhibit 28.01. First Amendment to the
Leasehold Mortgage, Assignment of Rents and Security
Agreement dated July 9, 1993, between Atlantic City
Showboat, Inc. and IBJ Schroder Bank & Trust Company,
is incorporated by reference to Showboat, Inc.'s Form 8-
K (file no. 1-7123) dated July 7, 1993, Item 7(c),
Exhibit 28.02. Assignment of Rights under Agreement
dated July 9, 1993, by Atlantic City Showboat, Inc. in
favor of IBJ Schroder Bank & Trust Company, is
incorporated by reference to Showboat, Inc.'s Form 8-K
(file no. 1-7123) dated July 7, 1993, Item 7(c),
Exhibit 28.03. Form of Deed for Sale of Land for
Private Redevelopment for Tract 1 and Tract 2 each
dated July 7, 1993, is incorporated by reference to
Showboat, Inc.'s Form 8-K (file no. 1-7123) dated
July 7, 1993, Item 7(c), Exhibit 28.04. Use and
Occupancy Agreement dated July 7, 1993, between
Atlantic City Housing Authority and Urban Redevelopment
Agency and Atlantic City Showboat, Inc., is
incorporated by reference to Showboat, Inc.'s Form 8-K
(file no. 1-7123) dated July 7, 1993, Item 7(c),
Exhibit 28.05.
10.26 Agreement for Sale of Partnership interests dated
March 31, 1995, among Lake Pontchartrain Showboat,
Inc., Showboat Louisiana, Inc., Showboat, Inc., Player
Riverboat, LLC, Players Riverboat Management, Inc. and
Players International, Inc., is incorporated herein by
reference to Showboat, Inc.'s Form 8-K (file no. 1-
7123) dated March 31, 1995, Item 7(c), Exhibit 28.01.
- 110 -
<PAGE>
EXHIBIT
NO. DESCRIPTION
10.27 Casino Operations Agreement (excluding exhibits) dated
April 22, 1994, among Leighton Properties Pty Limited,
New South Wales Casino Control Authority, Showboat
Australia Pty Limited, Showboat Operating Company,
Sydney Casino Management Pty Limited, Sydney Harbour
Casino Holdings Limited, Sydney Harbour Casino Pty
Limited and Sydney Harbour Casino Properties Pty
Limited; First Amending Deed dated October 6, 1994;
Second Amending Deed (undated); Third Amending Deed
dated December 13, 1994; Casino Complex Management
Agreement dated April 21, 1994, among Sydney Harbour
Casino Properties Pty Limited, Showboat Australia Pty
Limited and Sydney Casino Management Pty Limited; and
Development Agreement dated April 21, 1994, between
Leighton Properties Pty Limited and Sydney Harbour
Casino Properties Pty Limited, are incorporated herein
by reference to Showboat, Inc.'s 10-K (file no.
1-7123) for the year ended December 31, 1995, Part IV,
Item 14(a)(3), Exhibit 10.32. Amending Deed to Casino
Complex Management Agreement among Showboat
Australia Pty Limited, National Mutual Trustees
Limited, Sydney Casino Management Pty Limited, Sydney
Harbour Casino Properties Pty Limited and Sydney
Harbour Casino Pty Limited - undated.
10.28 Agreement dated September 13, 1993, among Showboat,
Inc., Showboat Indiana, Inc., Showboat Operating
Company, Showboat Development Company, Showboat Indiana
Investment Limited Partnership and Waterfront
Entertainment and Development, Inc.; and Showboat Marina
Partnership Agreement dated January 31, 1994, between
Waterfront Entertainment and Development, Inc. and
Showboat Investment Limited Partnership, are
incorporated herein by reference to Showboat, Inc.'s
Form 10-K (file no. 1-7123) for the year ended
December 31, 1993, Part IV, Item 14(a)(3), Exhibit
10.38. Amended and Restated Showboat Marina Partnership
Agreement dated March 1, 1996, between Waterfront
Entertainment and Development, Inc. and Showboat
Indiana Investment Limited Partnership; Agreement of
Partnership of Showboat Marina Investment Partnership
dated March 1, 1996, between Showboat Indiana
Investement Limited Partnership and Waterfront
Entertainment and Development, Inc.; Agreement of
Partnership of Showboat Marina Casino Partnership
dated March 1, 1996, between Showboat Marina
Partnership and Showboat Marina Investment
Partnership; Letter agreement regarding economic
development dated April 8, 1994, by Showboat Marina
Partnership in favor of the City of East Chicago;
Letter agreement regarding economic development
dated April 18, 1995, by Showboat Marina Partnership
in favor of the City of East Chicago; and
Redevelopment Project Lease dated October 19, 1995,
between Showboat Marina Partnership and the City of
East Chicago, are incorporated herein by reference
to Showboat, Inc.'s Form 10-K (file no. 1-7123)
for the year ended December 31, 1995, Part IV, Item
14(a)(3), Exhibit 10.33. Second Amended and Restated
Showboat Marina Partnership Agreement dated June 30,
1996, between Waterfront Entertainment and Development,
Inc. and Showboat Indiana Investment Limited
Partnership; and Promissory Note dated January 1, 1997,
in principal amount of $41,887,158 by Showboat Indiana
Investment Limited Partnership in favor of Showboat,
Inc.
- 111 -
<PAGE>
EXHIBIT
NO. DESCRIPTION
10.29 Agreement of Limited Partnership of Soutboat Limited
Partnership effective May 1, 1995, between Showboat
Lemay, Inc. and Futuresouth, Inc.; Management Agreement
dated May 2, 1995, between Southboat Partnership (a
predecessor of Southboat Limited Partnership) and
Showboat Operating Company; Trademark Licese Agreement
dated May 2, 1995, between Southboat Partnership and
Showboat, Inc.; Lease and Development Agreement dated
October 13, 1995, between the St. Louis Port Authority
and Southboat Limited Partnership; Escrow Agreement
dated October 13, 1995, between the St. Louis Port
Authority, Southboat Limited Partnership, Showboat, Inc.
and Boatmen's Trust Company; Guarantee of Minimum Rent
dated October 13, 1995, by Showboat, Inc.; Guarantee
of Completion dated October 13, 1995, by Showboat, Inc.,
are incorporated herein by reference to Showboat, Inc.'s
Form 8-K (file no. 1-7123) dated October 1, 1995, Item
7(c), Exhibits 10.01 through 10.06, inclusive. First
Amendment to Lease and Development Agreement by and
between St. Louis County Port Authority and Southboat
Limited Partnership dated May 1996; Second
Amendment to lease and Development Agreement by and
between St. Louis County Port Authority and Southboat
Limited Partnership dated December 12, 1996.
10.30 Non-Negotiable Mortgage Promissory Note dated December
28, 1994, in the principal amount of $8,850,000, by
Rockingham Venture, Inc. in favor of Showboat, Inc.;
Mortgage and Security Agreement dated December 28, 1994,
between Rockingham Venture, Inc. and Showboat, Inc., is
incorporated herein by reference to Showboat, Inc.'s
Form 10-K (file no. 1-7123) for the year ended December
31, 1994, Part IV, Item 14(a)(3), Exhibit 10.42.
Limited Liability Company Agreement of Showboat
Rockingham Company, L.L.C. dated July 27, 1995, among
Rockingham Venture, Inc., Showboat New Hampshire, Inc.
and Showboat Rockingham Company, L.L.C.; Management
Agreement dated July 27, 1995, amon g Showboat
Rockingham Company L.L.C., Showboat Operating Company
and Rockingham Venture, Inc.; Administrative Services
Agreement dated July 27, between Showboat Operating
Company and Showboat Rockingham Company, L.L.C.; and
Trademark License Agreement dated July 27, 1995, between
Showboat, Inc. and Showboat Rockingham Company, L.L.C.,
are incorporated herein by reference to Showboat, Inc.'s
Form 10-K (file no. 1-7123) for the year ended December
31, 1995, Part IV, Item 14(a)(3), Exhibit 10.35.
10.31 Promissory Note dated March 19, 1996, in the principal
amount of $15,000,000 by Atlantic City Showboat, Inc. in
favor of Showboat, Inc.
10.32 Loan and Guaranty Agreement dated July 14, 1995, among
NatWest Bank, N.A., Showboat, Inc. and Atlantic City
Showboat, Inc., Ocean Showboat, Inc. and Showboat
Operating Company; Revolving Note dated July 14, 1995,
in the principal amount of $25.0 million by Showboat,
Inc. in favor of NatWest Bank, N.A.; Deed of Trust,
Assignment of Rents and Security Agreement
dated July 14, 1995, by Showboat, Inc. in favor
of Nevada Title Company for the benefit of NatWest Bank,
N.A.; Leasehold in Pari Passu Mortgage,
Assignment of Rents and Security Agreement dated July
14, 1995, between NatWest Bank
- 112 -
<PAGE>
EXHIBIT
NO. DESCRIPTION
and Atlantic City Showboat, Inc.;
Assignment of Leases and Rents dated July 14, 1995,
between NatWest Bank and Atlantic City Showboat, Inc.;
Intercreditor Agreement for Pari Passu Indebtedness
Relating to Atlantic City Showboat dated July 14, 1995,
among Showboat, Inc., Atlantic City Showboat, Inc., IBJ
Schroder Bank & Trust Company and NatWest Bank, N.A.;
and Intercreditor Agreement for Pari Passu Indebtedness
Relating to Las Vegas Showboat dated July 14, 1995,
among Showboat, Inc., IBJ Schroder Bank & Trust
Company and NatWest Bank, N.A., are incorporated herein
by reference to Showboat, Inc.'s Form 10-K (file no.
1-7123) for the year ended December 31, 1995, Part IV,
Item 14(a)(3), Exhibit 10.38.
10.33 Promissory Note dated January 1, 1996, in the principal
amount of $34,011,720 by Showboat Fifteen, Inc. in favor
of Showboat, Inc.
10.34 Completion Guaranty dated March 28, 1996, by and between
Showboat, Inc. and American Bank National Association,
as trustee, is incorporated herein by reference to
Showboat, Inc.'s Form 10-Q (file no. 1-7123) for the
three month period ended March 31, 1996, Part II,
Item 6(a), Exhibit 10.01.
10.35 Standby Equity Commitment dated March 28, 1996, by and
among Showboat Marina Casino Partnership, Showboat
Marina Finance Corporation and Showboat, Inc., is
incorporated herein by reference to Showboat, Inc.'s
Form 10-Q (file no. 1-7123) for the three month period
ended March 3, 1996, Part II, Item 6(a), Exhibit 10.02.
10.36 Escrow and Disbursement Agreement dated March 28, 1996,
by and among Showboat Marina Casino Partnership,
Showboat Marina Finance Corporation and Showboat, Inc.
(as escrow agent and disbursement agent) and American
Bank National Association, as trustee, is incorporated
herein by reference to Showboat, Inc.'s Form 10-Q (file
no. 1-7123) for the six month period ended June 30,
1996, Part II, Item 6(a), Exhibit 10.01.
10.37 Showboat, Inc. 1996 Stock Appreciation Rights Plan,
effective date September 3, 1996, is incorporated herein
by reference to Showboat, Inc.'s Form 10-Q (file no. 1-
7123) for the nine month period ended September 30,
1996, Part II, Item 6(a), Exhibit 10.01.
10.38 Promissory Note dated January 1, 1997, in the principal
amount of $8,197,293 by Showboat Operating Company in
favor of Showboat, Inc.; Promissory Note dated January
1, 1997, in the principal amount of $12,344,192 by
Showboat Operating Company in favor of Showboat, Inc.;
and Promissory Note dated January 1, 1997, in the
principal amount of $9,641,821 by Showboat Operating
Company in favor of Showboat, Inc.
- 113 -
<PAGE>
10.39 Promissory Note dated January 1, 1997, in the principal
amount of $53,109,002 by Showboat Development Company in
favor of Showboat, Inc.; and Promissory Note dated
January 1, 1997, in the principal amount of $6,292,083
by Showboat Development Company in favor of Showboat,
Inc.
21.01 List of Subsidiaries.
23.01 Consent of KPMG Peat Marwick LLP.
27.01 Financial Data Schedule.
</TABLE>
(b) REPORTS ON FORM 8-K.
None.
- 114 -
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by this undersigned,
thereunto duly authorized.
REGISTRANT: SHOWBOAT, INC.
By: /s/ J. Kell Houssels, III
J. Kell Houssels, III,
President and Chief
Executive Officer
(principal executive
officer)
DATE: March 27, 1997
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated.
March 27, 1997 By: /s/ J. K. Houssels
J.K. Houssels, Chairman of
the Board
March 27, 1997 By: /s/ J. Kell Houssels, III
J. Kell Houssels, III,
President, Chief Executive
Officer and Director
March 27, 1997 By: /s/ R. Craig Bird
R. Craig Bird, Executive
Vice President- Finance
Administration and Chief
Financial Officer
(principal accounting
officer)
March 27, 1997 By: /s/ William C. Richardson
William C. Richardson,
Director
- 115 -
<PAGE>
March 27, 1997 By: /s/ John D. Gaughan
John D. Gaughan, Director
March 27, 1997 By: /s/ Jeanne S. Stewart
Jeanne S. Stewart, Director
March 27, 1997 By: /s/ Frank A. Modica
Frank A. Modica, Director
March 27, 1997 By: /s/ H. Gregory Nasky
H. Gregory Nasky, Executive
Vice President, Secretary
and Director
March 27, 1997 By: /s/ George A. Zettler
George A. Zettler, Director
March 27, 1997 By: /s/ Carolyn M. Sparks
Carolyn M. Sparks, Director
- 116 -
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
EXHIBIT PAGE
NO. DESCRIPTION NO.
<S> <C> <C>
3.01 Restated Articles of Incorporation of Showboat,
Inc. dated June 10, 1994, is incorporated herein
by reference to Showboat, Inc.'s Amendment No. 1
to Registration Statement on Form S-3 (file no.
33-54325) dated July 8, 1994, Item 16, Exhibit
4.02.
3.02 Restated Bylaws of Showboat, Inc. dated
October 24, 1995, is incorporated herein by
reference to Showboat, Inc.'s Form 10-Q (file
no. 1-7123) for the nine month period ended
September 30, 1995, Part II, Item 6(a),
Exhibit 3.01.
4.01 Specimen Common Stock Certificate for the Common
Stock of Showboat, Inc. is incorporated herein
by reference to Showboat, Inc.'s Amendment No. 1
to Registration Statement on Form S-3 (file no.
33-54325) dated July 8, 1994, Item 16, Exhibit
4.01.
4.02 Rights Agreement dated October 5, 1995, between
Showboat, Inc. and American Stock Transfer and
Trust Company; Form of Right Certificate; and
Certificate of Designation of Rights and
Preferences of Series A Junior Preferred Stock
of Showboat, Inc., are incorporated herein by
reference to Showboat, Inc.'s Form 8-K (file no.
1-7123) dated October 5, 1995, Item 7(c),
Exhibit 4.01.
4.03 Indenture dated May 18, 1993, for the 9 1/4%
First Mortgage Bonds due 2008 among Showboat,
Inc., Ocean Showboat, Inc., Atlantic City
Showboat, Inc., Showboat Operating Company, and
IBJ Schroder Bank & Trust Company; Guaranty by
Ocean Showboat, Inc., Atlantic City Showboat,
Inc. and Showboat Operating Company in favor
ofIBJ Schroder Bank & Trust Company; and Form of
Bond Certificate for the 9 1/4% First Mortgage
Bonds due 2008, are incorporated herein by
reference to Showboat, Inc.'s Form 8-K (file no.
1-7123) dated May 18, 1993, Item 7(c), Exhibit
28.01. First Supplemental Indenture dated July
18, 1994, for the 9 1/4% First Mortgage Bonds
due 2008 among Showboat, Inc., Ocean Showboat,
Inc., Atlantic City Showboat, Inc., Showboat
Operating Company and IBJ Schroder Bank & Trust
Company is incorporated herein by reference to
Showboat, Inc.'s Form 10-K (file no. 1-7123) for
the year ended December 31, 1994, Part IV, Item
14(a)(3), Exhibit 4.02.
4.04 Indenture dated August 10, 1994, for the 13%
Senior Subordinated Notes due 2009 among
Showboat, Inc., Ocean Showboat, Inc., Atlantic
City Showboat, Inc., Showboat Operating
Company, and Marine Midland Bank; Guaranty
by Ocean Showboat, Inc., Atlantic City
Showboat, Inc. and Showboat Operating
- 117 -
<PAGE>
EXHIBIT PAGE
NO. DESCRIPTION NO.
Company in favor of Marine Midland Bank; and
Form of Note Certificate for the 13% Senior
Subordinated Notes due 2009, are incorporated
herein by reference to Showboat, Inc.'s Form 8-K
(file no. 1-7123) dated August 10, 1994, Item
7(c), Exhibit 4.01.
4.05 Indenture dated as of March 28, 1996, among
Showboat Marina Casino Partnership, Showboat
Marina Finance Corporation, Donaldson, Lufkin &
Jenrette Securities Corporation, Nomura
Securities International, Inc., Bear, Stearns &
Co., Inc. and American Bank National
Association, as trustee, relating to the 13 1/2
Series A and Series B First Mortgage Notes due
2003, is incorporated herein by reference to
Showboat, Inc.'s Form 10-Q (file no 1-7123) for
the six month period ended June 30, 1996, Part
II, Item 6(a), Exhibit 4.01.
10.01 Parent Services Agreement dated November 21,
1985, between Showboat, Inc. and Atlantic City
Showboat, Inc., is incorporated herein by
reference to Showboat, Inc.'s Form 8-K (file no.
1-7123) dated November 25, 1985, Item 7(c),
Exhibit 10.01. Amendment No. 1 to Parent
Services Agreement dated February 1, 1987,
between Showboat, Inc. and Atlantic City
Showboat, Inc., is incorporated herein by
reference to Showboat, Inc.'s Form 10-K (file
no. 1-7123) for the year ended June 30, 1987,
Part IV, Item 14(a)(3), Exhibit 10.17.
Amendment No. 2 to Parent Services Agreement
dated December 31, 1990, between Showboat, Inc.
and Atlantic City Showboat, Inc., is
incorporated herein by reference to Showboat,
Inc.'s Form 8-K (file no. 1-7123) dated
December 31, 1990, Item 7(c), Exhibit 28.01.
Amendment No. 3 to Parent Services Agreement
dated May 8, 1991, between Showboat, Inc. and
Atlantic City Showboat, Inc., is incorporated
herein by reference to Showboat, Inc.'s Form 10-
K (file no. 1-7123) for the year ended
December 31, 1991, Part IV, Item 14(a)(3),
Exhibit 10.14. Amendment No. 4 to Parent
Services Agreement dated August 17, 1993,
between Showboat, Inc. and Atlantic City
Showboat, Inc., is incorporated herein by
reference to Showboat, Inc.'s Form 10-K (file
no. 1-7123) for the year ended December 31,
1993, Part IV, Item 14(a)(3), Exhibit 10.11.
10.02 Tax Allocation Agreement effective May 10, 1993,
among Showboat, Inc. and each of its
subsidiaries, is incorporated herein by
reference to Showboat, Inc.'s Form 10-K (file
no. 1-7123) for the year ended June 30, 1987,
Part IV, Item 14(a)(3), Exhibit 10.11. First
Amendment to Tax Allocation Agreement effective
May 10, 1993, among Showboat, Inc. and each of
its subsidiaries, is incorporated herein by
reference to Showboat, Inc.'s Form 10-K (file
no. 1-7123) for the year ended December 31,
1993, Part IV, Item 14(a)(3), Exhibit 10.07.
- 118 -
<PAGE>
EXHIBIT PAGE
NO. DESCRIPTION NO.
10.03 Management Services Agreement dated January 1,
1989, between Showboat, Inc. and Showboat
Operating Company, is incorporated herein by
reference to Showboat, Inc.'s Form 8-K (file no.
1-7123) dated January 1, 1989, Item 7(c),
Exhibit 28.03.
10.04 Showboat, Inc. 1989 Long Term Incentive Plan, as
amended and restated on February 25, 1993, is
incorporated herein by reference to Showboat,
Inc.'s Form 10-K (file no. 1-7123) for the year
ended December 31, 1992, Part IV, Item 14(a)(3),
Exhibit 10.23.
10.05 Showboat, Inc. 1989 Directors' Stock Option
Plan, as amended and restated February 25, 1993,
is incorporated herein by reference to Showboat,
Inc.'s Form 10-K (file no. 1-7123) for the year
ended December 31, 1992, Part IV, Item 14(a)(3),
Exhibit 10.27.
10.06 Showboat, Inc. 1994 Executive Long Term
Incentive Plan effective May 25, 1994, is
incorporated herein by reference to Showboat,
Inc.'s Form 10-K (file no. 1-7123) for the year
ended December 31, 1994, Part IV, Item 14(a)(3),
Exhibit 10.36.
10.07 Showboat, Inc. Supplemental Executive Retirement
Plan effective April 1, 1994, is incorporated
herein by reference to Showboat, Inc.'s Form 10-
K (file no. 1-7123) for the year ended
December 31, 1994, Part IV, Item 14(a)(3),
Exhibit 10.37.
10.08 Showboat, Inc. Restoration Plan effective
April 1, 1994, is incorporated herein by
reference to Showboat, Inc.'s Form 10-K (file
no. 1-7123) for the year ended December 31,
1994, Part IV, Item 14(a)(3), Exhibit 10.38.
10.09 Statement regarding Showboat, Inc.'s Incentive
Bonus Plans, is incorporated herein by reference
to Showboat, Inc.'s Form 10-K (file no. 1-7123)
for the year ended December 31, 1992, Part IV,
Item 14(a)(3), Exhibit 10.12.
10.10 Atlantic City Showboat, Inc. Executive Medical
Reimbursement Plan, effective August 15, 1991,
is incorporated herein by reference to Showboat,
Inc.'s Form 10-K (file no. 1-7123) for the year
ended December 31, 1991, Part IV, Item 14(a)(3),
Exhibit 10.23.
10.11 Atlantic City Showboat, Inc. Executive Health
Examinations Plan effective January 1, 1989, is
incorporated herein by reference to Showboat,
Inc.'s Form 10-K (file no. 1-7123) for the year
ended December 31, 1989, Part IV, Item 14(a)(3),
Exhibit 10.24.
- 119 -
<PAGE>
EXHIBIT PAGE
NO. DESCRIPTION NO.
10.12 Form of Severance Agreement between Showboat,
Inc. and certain executive officer and key
employees of Showboat, Inc. and its
subsidiaries, is incorporated herein by
reference to Showboat, Inc.'s Form 10-K (file
no. 1-7123) for the year ended December 31,
1994, Part IV, Item 14(a)(3), Exhibit 10.39.
10.13 Form of Indemnification Agreement between
Showboat, Inc. and each director and officer of
Showboat, Inc., is incorporated herein by
reference to Showboat, Inc.'s Form 10-K (file
no. 1-7123) for the year ended December 31,
1987, Part IV, Item 14(a)(3), Exhibit 10.13.
10.14 Lease dated January 1, 1989, between Showboat,
Inc. and Showboat Operating Company, is
incorporated herein by reference to Showboat,
Inc.'s Form 8-K (file no. 1-7123) dated
January 1, 1989, Item 7(c), Exhibit 28.01.
10.15 Lease dated January 14, 1994, between Showboat,
Inc. and Exber, Inc.; and Sublease dated
November 5, 1966, between Dodd Smith and John D.
Gaughan and Leslie C. Schwartz, is incorporated
herein by reference to Showboat, Inc.'s Form 10-
K (file no. 1-7123) for the year ended
December 31, 1993, Part IV, Item 14(a)(3),
Exhibit 10.39.
10.16 Lease of Retail Store No. 7 dated April 10,
1987, among Atlantic City Showboat, Inc., R.
Craig Bird and Debra E. Bird; and Guaranty of
Lease among Atlantic City Showboat, Inc., R.
Craig Bird and Debra E. Bird, are incorporated
herein by reference to Showboat, Inc.'s Form 10-
K (file no. 1-7123) for the year ended
December 31, 1988, Part IV, Item 14(a)(3),
Exhibit 10.24.
10.17 Promissory Note dated August 5, 1993, in the
principal amount of $20,400.69 among Showboat,
Inc., R. Craig Bird and Debra E. Bird, is
incorporated herein by reference to Showboat,
Inc.'s Form 10-K for the year ended December 31,
1993, Part IV, Item 14(a)(3), Exhibit 10.15.
10.18 Ground Lease dated October 26, 1983, between
Ocean Showboat, Inc. and Resorts International,
Inc., is incorporated herein by reference to
Showboat, Inc.'s Form 8-K (file no. 1-7123) as
amended by a Form 8 filed with the Securities
and Exchange Commission on November 28, 1983.
Assignment and Assumption of Leases dated
December 3, 1985, between Ocean Showboat, Inc.
and Atlantic City Showboat, Inc.; First
Amendment to Lease Agreement dated January
15, 1985, between Resorts International,
Inc. and Atlantic City Showboat, Inc.;
Second Amendment to Lease Agreement dated
July 5, 1985, between Resorts International,
Inc. and Atlantic City Showboat, Inc., are
incorporated herein by reference to the Form
10-K (file no. 1-7123) for the year
- 120 -
<PAGE>
EXHIBIT PAGE
NO. DESCRIPTION NO.
ended June 30, 1985, Part IV, Item 14(a)(3),
Exhibit 10.02. Restated Third Amendment to
Lease Agreement dated August 28, 1986, between
Resorts International, Inc. and Atlantic City
Showboat, Inc., is incorporated herein by
reference to the Form 10-K (file no. 1-7123) for
the year ended June 30, 1986, Part IV, Item
14(a)(3), Exhibit 10.08; Fourth Amendment to
Lease Agreement dated December 16, 1986, between
Resorts International, Inc. and Atlantic City
Showboat, Inc.; Fifth Amendment to Lease
Agreement dated March 2, 1987, between Resorts
International, Inc. and Atlantic City Showboat,
Inc.; Sixth Amendment to Lease Agreement dated
March 13, 1987, between Resorts International,
Inc. and Atlantic City Showboat, Inc.; Indemnity
Agreement dated January 15, 1985, among Resorts
International, Inc., Atlantic City Showboat,
Inc. and Ocean Showboat, Inc.; and Amended
Indemnity Agreement dated December 3, 1985,
among Resorts International, Inc., Atlantic City
Showboat, Inc. and Ocean Showboat, Inc., are
incorporated herein by reference to Showboat,
Inc.'s Form 10-K (file no. 1-7123) for the year
ended June 30, 1987, Part IV, Item 14(a)(3),
Exhibit 10.02; Seventh Amendment to Lease
Agreement dated October 18, 1988, between
Resorts International, Inc. and Atlantic City
Showboat, Inc., is incorporated herein by
reference to Showboat, Inc.'s Form 8-K (file no.
1-7123) dated November 16, 1988, Item 7(c),
Exhibit 28.01; Eighth Amendment to Lease
Agreement between Atlantic City Showboat, Inc.
and Resorts International, Inc. International,
Inc. dated May 18, 1993, is incorporated herein
by reference to Showboat, Inc.'s Form 8-K (file
no. 1-7123) dated May 18, 1993, Item 7(c),
Exhibit 28.06.
10.19 Closing Escrow Agreement dated September 21,
1988, among Housing Authority and Urban
Redevelopment Agency of the City of Atlantic
City, Resorts International, Inc., Atlantic City
Showboat, Inc., Trump Taj Mahal Associates
Limited Partnership, and Clapp & Eisenberg,
P.C.; Agreement as to Assumption of Obligations
with respect to Properties dated September 21,
1988, among Atlantic City Showboat, Inc., Trump
Taj Mahal Associates Limited Partnership and
Trump Taj Mahal Realty Corp.; First Amendment of
Agreement as to Assumption of Obligations with
respect to Properties dated September 21, 1988,
among Atlantic City Showboat, and Trump
Taj Mahal Realty Corp.; Settlement Agreement
dated October 18, 1988, among Atlantic City
Showboat, Inc., Trump Taj Mahal Associates
Limited Partnership, Trump Taj Mahal Realty
Corp., Resorts International, Inc. and the
Housing Authority and Urban Redevelopment Agency
of the City of Atlantic City; Tri-Party
Agreement dated October 18, 1988, among Resorts
International, Inc., Atlantic City Showboat,
Inc. and Trump Taj Mahal Associates
Limited Partnership; Declaration of Easement
and Right of Way Agreement dated October 18,
1988, between the Housing Authority and Urban
Redevelopment Agency of the City of Atlantic
- 121 -
<PAGE>
EXHIBIT PAGE
NO. DESCRIPTION NO.
City, and Atlantic City Showboat, Inc.; and
Certificate of Trump Taj Mahal Associates
Limited Partnership and Resorts International,
Inc. dated November 16, 1988, are incorporated
herein by reference to Showboat, Inc.'s Form 8-K
(file no. 1-7123) dated November 16, 1988, Item
7(c), Exhibit 28.01. Revised Second Amendment to
Agreement as to Assumption of Obligations with
respect to Properties dated May 24, 1989, among
Atlantic City Showboat, Inc., Trump Taj Mahal
Associates Limited Partnership and Trump Taj
Mahal Realty Corp., is incorporated herein by
reference to Showboat, Inc.'s Form 10-K (file
no. 1-7123) for the year ended December 31,
1989, Part IV, Item 14(a)(3), Exhibit 10.17.
10.20 Letter agreement dated September 23, 1992,
between Trump Taj Mahal Associates and Atlantic
City Showboat, Inc.; and letter agreement dated
October 26, 1992 to Trump Taj Mahal Associates
from Atlantic City Showboat, Inc., are
incorporated herein by reference to Showboat,
Inc.'s Form 10-K (file no. 1-7123) for the year
ended December 31, 1992, Part IV, Item 14(a)(3),
Exhibit 10.24.
10.21 Lease dated December 22, 1994, between Housing
Authority and Urban Redevelopment Agency of the
City of Atlantic City and Atlantic City
Showboat, Inc.; Tri-Party Agreement dated
May 26, 1994, among Housing Authority and Urban
Redevelopment Agency of the City of Atlantic
City, Forest City Ratner Companies and Atlantic
City Showboat, Inc.; Terms and Conditions Part
II of Contract for Sale of Land for Private
Redevelopment between Housing Authority and
Urban Redevelopment Agency of the City of
Atlantic City and Atlantic City Showboat, Inc.;
and Rider to Contract for Sale of Land for
Private Redevelopment between Housing Authority
and Urban Redevelopment Agency of the City of
Atlantic City and Atlantic City Showboat, Inc.,
are incorporated herein by reference to
Showboat, Inc.'s Form 10-K (file no. 1-7123) for
the year ended December 31, 1994, Part IV, Item
14(a)(3), Exhibit 10.46.
10.22 Agreement Amending and Restating the Tri-
Party Agreement Dated as of May 26, 1994,
among the Housing Authority and Urban
Redevelopment Agency of the City of Atlantic
City, Forest City Ratner Companies and
Atlantic City Showboat, Inc. regarding
Development of a Portion of the Uptown Urban
Renewal Tract dated December 14, 1995; Release
and Subordination Agreement dated December 14,
1995, between IBJ Schroder Bank & Trust
Company and Atlantic City Showboat, Inc.; First
Amendment to Leasehold in Pari Passu Mortgage,
Assignment of Rents and Security Agreement
and Collateral Assignment of Easement Rights-
Mortgage Spreader Agreement dated December
15, 1995, between Atlantic City Showboat, Inc.
and NatWest Bank, N.A.; Third Amendment to
Leasehold Mortgage, Assignment of Rents
- 122 -
<PAGE>
EXHIBIT PAGE
NO. DESCRIPTION NO.
and Security Agreement Dated as of May 19, 1993
- Mortgage Spreader Agreement dated December 14,
1995, between Atlantic City Showboat, Inc. and
IBJ Schroder Bank & Trust Company; Fourth
Amendment to Leasehold Mortgage, Assignment of
Rents and Security Agreement Dated as of May 18,
1993 - Release of Part of Mortgaged Property and
Subordination Agreement dated December 14, 1995,
between IBJ Schroder Bank & Trust Company and
Atlantic City Showboat, Inc., are incorporated
herein by reference to Showboat, Inc.'s Form 10-
K (file no. 1-7123) for the year ended December
31, 1995, Part IV, Item 14(a)(3), Exhibit 10.24.
10.23 Securities Purchase Contract dated March 29,
1988, between the Casino Reinvestment
Development Authority and Atlantic City
Showboat, Inc., is incorporated herein by
reference to Showboat, Inc.'s Form 10-K (file
no. 1-7123) for the year ended December 31,
1988, Part IV, Item 14(a)(3), Exhibit 10.23.
10.24 Deed of Trust, Assignment of Rents, and Security
Agreement dated May 18, 1993, by Showboat, Inc.
to Nevada Title Company in favor of IBJ Schroder
Bank & Trust Company; Showboat, Inc. Security
and Pledge Agreement dated May 18, 1993, between
Showboat, Inc. and the IBJ Schroder Bank & Trust
Company; Trademark Security Agreement dated
May 18, 1993, by Showboat, Inc. in favor of IBJ
Schroder Bank & Trust Company; Unsecured
Indemnity Agreement dated May 18, 1993, by
Showboat, Inc. in favor of IBJ Schroder Bank &
Trust Company; and Showboat Operating Company
Security Agreement dated May 18, 1993, between
Showboat Operating Company and IBJ Schroder Bank
& Trust Company, are incorporated by reference
to Showboat, Inc.'s Form 8-K (file no. 1-7123)
dated May 18, 1993, Item 5, Exhibit 28.02.
Leasehold Mortgage, Assignment of Rents, and
Security Agreement dated May 18, 1993, by
Atlantic City Showboat, Inc. in favor of IBJ
Schroder Bank & Trust Company; Assignment of
Leases and Rents dated May 18, 1993, between
Atlantic City Showboat, Inc. and IBJ Schroder
Bank & Trust Company; and Ocean Showboat, Inc.
Security and Pledge Agreement dated May 18,
1993, between Ocean Showboat, Inc. and IBJ
Schroder Bank & Trust Company, are incorporated
by reference to Showboat, Inc.'s Form 8-K (file
no. 1-7123) dated May 18, 1993, Item 7(c),
Exhibit 28.03. Intercompany Note dated May
18, 1993, in the principal amount of $215.0
million; Assignment of Lease and Rents
dated May 18, 1993, between Atlantic
City Showboat, Inc. and Showboat, Inc.; and
Issuer Collateral Assignment dated May 18, 1993,
by Atlantic City Showboat, Inc. in favor of
IBJ Schroder Bank & Trust Company, are
incorporated by reference to Showboat, Inc.'s
Form 8-K (file no. 1-7123) dated May 18, 1993,
Item 7(c), Exhibit 28.04. Showboat Development
Company Security and Pledge Agreement dated
July 18, 1994, between Showboat Development
Company and IBJ Schroder Bank & Trust
- 123 -
<PAGE>
EXHIBIT PAGE
NO. DESCRIPTION NO.
Company; and Showboat Louisiana, Inc. Security
and Pledge Agreement dated July 18, 1994,
between Showboat Louisiana, Inc. and IBJ
Schroder Bank & Trust Company, are incorporated
herein by reference to Showboat, Inc.'s Form 10-
K (file no. 1-7123) for the year ended
December 31, 1994, Part IV, Item 14(a)(3),
Exhibit 4.02.
10.25 First Amendment to the Leasehold Mortgage,
Assignment of Rents and Security Agreement dated
July 9, 1993, between Atlantic City Showboat,
Inc. and Showboat, Inc., is incorporated by
reference to Showboat, Inc.'s Form 8-K (file no.
1-7123) dated July 7, 1993, Item 7(c), Exhibit
28.01. First Amendment to the Leasehold
Mortgage, Assignment of Rents and Security
Agreement dated July 9, 1993, between Atlantic
City Showboat, Inc. and IBJ Schroder Bank &
Trust Company, is incorporated by reference to
Showboat, Inc.'s Form 8-K (file no. 1-7123)
dated July 7, 1993, Item 7(c), Exhibit 28.02.
Assignment of Rights under Agreement dated
July 9, 1993, by Atlantic City Showboat, Inc. in
favor of IBJ Schroder Bank & Trust Company, is
incorporated by reference to Showboat, Inc.'s
Form 8-K (file no. 1-7123) dated July 7, 1993,
Item 7(c), Exhibit 28.03. Form of Deed for Sale
of Land for Private Redevelopment for Tract 1
and Tract 2 each dated July 7, 1993, is
incorporated by reference to Showboat, Inc.'s
Form 8-K (file no. 1-7123) dated July 7, 1993,
Item 7(c), Exhibit 28.04. Use and Occupancy
Agreement dated July 7, 1993, between Atlantic
City Housing Authority and Urban Redevelopment
Agency and Atlantic City Showboat, Inc., is
incorporated by reference to Showboat, Inc.'s
Form 8-K (file no. 1-7123) dated July 7, 1993,
Item 7(c), Exhibit 28.05.
10.26 Agreement for Sale of Partnership interests
dated March 31, 1995, among Lake Pontchartrain
Showboat, Inc., Showboat Louisiana, Inc.,
Showboat, Inc., Player Riverboat, LLC, Players
Riverboat Management, Inc. and Players
International, Inc., is incorporated herein by
reference to Showboat, Inc.'s Form 8-K (file no.
1-7123) dated March 31, 1995, Item 7(c), Exhibit
28.01.
10.27 Casino Operations Agreement (excluding exhibits)
dated April 22, 1994, among Leighton Properties
Pty Limited, New South Wales Casino Control
Authority, Showboat Australia Pty Limited,
Showboat Operating Company, Sydney Casino
Management Pty Limited, Sydney Harbour Casino
Holdings Limited, Sydney Harbour Casino Pty
Limited and Sydney Harbour Casino Properties Pty
Limited; First Amending Deed dated October 6,
1994; Second Amending Deed (undated); Third
Amending Deed dated December 13, 1994; Casino
Complex Management Agreement dated April 21,
1994, among Sydney Harbour Casino Properties Pty
Limited, Showboat Australia Pty Limited and
Sydney Casino Management Pty Limited;
and Development Agreement dated April
21, 1994, between Leighton Properties Pty
Limited and Sydney Harbour Casino
- 124 -
<PAGE>
EXHIBIT PAGE
NO. DESCRIPTION NO.
Properties Pty Limited, are incorporated herein
by reference to Showboat, Inc.'s Form 10-K (file
no. 1-7123) for the year ended December 31, 1995,
Part IV, Item 14(a)(3), Exhibit 10.32. Amending
Deed to Casino Complex Management Agreement
among Showboat Australia Pty Limited,
National Mutual Trustees Limited, Sydney Casino
Management Pty Limited, Sydney Harbour Casino
Properties Pty Limited and Sydney Harbour Casino
Pty Limited - undated.
10.28 Agreement dated September 13, 1993, among
Showboat, Inc., Showboat Indiana, Inc., Showboat
Operating Company, Showboat Development Company,
Showboat Indiana Investment Limited Partnership
and Waterfront Entertainment and Development,
Inc.; and Showboat Marina Partnership Agreement
dated January 31, 1994, between Waterfront
Entertainment and Development, Inc. and Showboat
Investment Limited Partnership, are incorporated
herein by reference to Showboat, Inc.'s Form 10-
K (file no. 1-7123) for the year ended
December 31, 1993, Part IV, Item 14(a)(3),
Exhibit 10.38. Amended and Restated Showboat
Marina Partnership Agreement dated March 1,
1996, between Waterfront Entertainment and
Development, Inc. and Showboat Indiana
Investment Limited Partnership; Agreement of
Partnership of Showboat Marina Investment
Partnership dated March 1, 1996, between
Showboat Indiana Investment Limited Partnership
and Waterfront Entertainment and Development,
Inc.; Agreement of Partnership of Showboat
Marina Casino Partnership dated March 1, 1996,
between Showboat Marina Partnership and Showboat
Marina Investment Partnership; Letter agreement
regarding economic development dated April 8,
1994, by Showboat Marina Partnership in favor of
the City of East Chicago; Letter agreement
regarding economic development dated April 18,
1995, by Showboat Marina Partnership in favor of
the City of East Chicago; and Redevelopment
Project Lease dated October 19, 1995, between
Showboat Marina Partnership and the City of East
Chicago are incorporated herein by reference to
Showboat, Inc.'s Form 10-K (file no. 1-7123) for
the year ended December 31, 1995, Part IV,
Item 14(a)(3), Exhibit 10.33. Second Amended
and Restated Showboat Marina Partnership
Agreement dated June 30, 1996 between Waterfront
Entertainment and Development, Inc. and Showboat
Indiana Investment Limited Partnership; and
Promissory Note dated January 1, 1997, in
principal amount of $41,887,158 by Showboat
Indiana Investment Limited Partnership in favor
of Showboat, Inc.
10.29 Agreement of Limited Partnership of Southboat
Limited Partnership effective May 1, 1995,
between Showboat Lemay, Inc. and Futuresouth,
Inc.; Management Agreement dated May 2, 1995,
between Southboat Partnership (a predecessor of
Southboat Limited Partnership) and
Showboat Operating Company; Trademark
License Agreement dated May 2, 1995, between
Southboat Partnership and Showboat, Inc.;
Lease and Development Agreement
- 125 -
<PAGE>
EXHIBIT PAGE
NO. DESCRIPTION NO.
dated October 13, 1995, between the
St. Louis County Port Authority and Southboat
Limited Partnership; Escrow Agreement dated
October 13, 1995, between the St. Louis County
Port Authority, Southboat Limited Partnership,
Showboat, Inc. and Boatmen's Trust Company;
Guarantee of Minimum Rent dated October 13,
1995, by Showboat, Inc.; Guarantee of Completion
dated October 13, 1995, by Showboat, Inc., are
incorporated herein by reference to Showboat,
Inc.'s Form 8-K (file no. 1-7123) dated
October 1, 1995, Item 7(c), Exhibits 10.01
through 10.06, inclusive. First Amendment to
Lease and Development Agreement by and between
St. Louis County Port Authority and Southboat
Limited Partnership dated May 1996;
Second Amendment to lease and Development
Agreement by and between St. Louis County Port
Authority and Southboat Limited Partnership
dated December 12, 1996.
10.30 Non-Negotiable Mortgage Promissory Note dated
December 28, 1994, in the principal amount of
$8,850,000, by Rockingham Venture, Inc. in favor
of Showboat, Inc.; Mortgage and Security
Agreement dated December 28, 1994, between
Rockingham Venture, Inc. and Showboat, Inc., is
incorporated herein by reference to Showboat,
Inc.'s Form 10-K (file no. 1-7123) for the year
ended December 31, 1994, Part IV, Item 14(a)(3),
Exhibit 10.42. Limited Liability Company
Agreement of Showboat Rockingham Company, L.L.C.
dated July 27, 1995, among Rockingham Venture,
Inc., Showboat New Hampshire, Inc. and Showboat
Rockingham Company, L.L.C.; Management
Agreement dated July 27, 1995, among Showboat
Rockingham Company L.L.C., Showboat Operating
Company and Rockingham Venture, Inc.;
Administrative Services Agreement dated
July 27, between Showboat Operating Company and
Showboat Rockingham Company, L.L.C.; and
Trademark License Agreement dated July 27, 1995,
between Showboat, Inc. and Showboat Rockingham
Company, L.L.C., are incorporated herein by
reference to Showboat, Inc.'s Form 10-K (file
no. 1-7123) for the year ended December 31,
1995, Part IV, Item 14(a)(3), Exhibit 10.35.
10.31 Promissory Note dated March 19, 1996, in the
principal amount of $15,000,000 by Atlantic City
Showboat, Inc. in favor of Showboat, Inc.
10.32 Loan and Guaranty Agreement dated July 14, 1995,
among NatWest Bank, N.A., Showboat, Inc. and
Atlantic City Showboat, Inc., Ocean Showboat,
Inc. and Showboat Operating Company; Revolving
Note dated July 14, 1995, in the principal
amount of $25.0 million by Showboat, Inc. in
favor of NatWest Bank, N.A.; Deed of Trust,
Assignment of Rents and Security Agreement dated
July 14,1995, by Showboat, Inc. in favor of
Nevada Title Company for the benefit of NatWest
Bank, N.A.; Leasehold in Pari Passu Mortgage,
Assignment of Rents and Security
Agreement dated July 14, 1995, between
NatWest Bank and Atlantic City Showboat, Inc.;
Assignment of Leases and Rents dated
- 126 -
<PAGE>
EXHIBIT PAGE
NO. DESCRIPTION NO.
July 14, 1995, between NatWest Bank and
Atlantic City Showboat, Inc.; Intercreditor
Agreement for Pari Passu Indebtedness Relating
to Atlantic City Showboat dated July 14, 1995,
among Showboat, Inc., Atlantic City Showboat,
Inc., IBJ Schroder Bank & Trust Company and
NatWest Bank, N.A.; and Intercreditor Agreement
for Pari Passu Indebtedness Relating to Las
Vegas Showboat dated July 14, 1995, among
Showboat, Inc., IBJ Schroder Bank & Trust
Company and NatWest Bank, N.A., are incorporated
herein by reference to Showboat, Inc.'s Form 10-
K (file no. 1-7123) for the year ended December
31, 1995, Part IV, Item 14(a)(3), Exhibit 10.38.
10.33 Promissory Note dated January 1, 1996, in the
principal amount of $34,011,720 by Showboat
Fifteen, Inc. in favor of Showboat, Inc.
10.34 Completion Guarantee dated March 28, 1996, by
and between Showboat, Inc. and American Bank
National Association, as trustee, is
incorporated herein by reference to Showboat,
Inc.'s Form 10-Q (file no 1-7123) for the three
month period ended March 31, 1996, Part II, Item
6(a), Exhibit 10.01.
10.35 Standby Equity Commitment dated March 28,
1996, by and among Showboat Marina Casino
Partnership, Showboat Marina Finance
Corporation and Showboat, Inc., is incorporated
herein by reference to Showboat, Inc.'s Form 10-
Q (file no 1-7123) for the three month period
ended March 31, 1996, Part II, Item 6(a),
Exhibit 10.02.
10.36 Escrow and Disbursement Agreement dated March
28, 1996, by and among Showboat Marina Casino
Partnership, Showboat Marina Finance Corporation
and Showboat, Inc. (as escrow agent and
disbursement agent) and American Bank National
Association, as trustee, is incorporated herein
by reference to Showboat, Inc.'s Form 10-Q (file
no 1-7123) for the six month period ended June
30, 1996, Part II, Item 6(a), Exhibit 10.01.
10.37 Showboat, Inc. 1996 Stock Appreciation Rights
Plan, effective date September 3, 1996, is
incorporated herein by reference to Showboat,
Inc.'s Form 10-Q (file no 1-7123) for the nine
month period ended September 30, 1996, Part II,
Item 6(a), Exhibit 10.01.
10.38 Promissory Note dated January 1, 1997, in the
principal amount of $8,197,293 by Showboat
Operating Company in favor of Showboat, Inc.;
Promissory Note dated January 1, 1997, in the
principal amount of $12,344,192 by Showboat
Operating Company in favor of Showboat, Inc.;
and Promissory Note dated January 1, 1997, in
the principal amount of $9,641,821 by Showboat
Operating Company in favor of Showboat, Inc.
- 127 -
<PAGE>
EXHIBIT PAGE
NO. DESCRIPTION NO.
10.39 Promissory Note dated January 1, 1997, in the
principal amount of $53,109,002 by Showboat
Development Company in favor of Showboat, Inc.;
and Promissory Note dated January 1, 1997, in
the principal amount of $6,292,083 by Showboat
Development Company in favor of Showboat, Inc.
21.01 List of Subsidiaries.
23.01 Consent of KPMG Peat Marwick LLP.
27.01 Financial Data Schedule.
</TABLE>
- 128 -
<PAGE>
EXHIBIT 10.27
<PAGE>
DATED 1997
BETWEEN
SHOWBOAT AUSTRALIA PTY LIMITED
(A.C.N. 061 299 625)
NATIONAL MUTUAL TRUSTEES LIMITED
(ACN 004 029 841)
(THE "PARTNERS")
AND
SYDNEY CASINO MANAGEMENT PTY LIMITED
(ACN 060 462 053)
(THE "MANAGER")
AND
SYDNEY HARBOUR CASINO PROPERTIES
PTY LIMITED
(ACN 050 045 120)
SYDNEY HARBOUR CASINO
PTY LIMITED
(ACN 060 510 410)
(THE "SHC GROUP")
AMENDING DEED
D U N H I L L
M A D D E N
B U T L E R
SOLICITORS
Sydney
16 Barrack Street, Sydney 2000
New South Wales, Australia
GPO Box 427, Sydney 2001
DX 254 SYDNEY
Telephone (02) 295 9999
International: 612 295 9999
Fax: (02) 295 9990
Email: [email protected]
Ref: ATT:831006
SYDNEY MELBOURNE BRISBANE
<PAGE>
TABLE OF CONTENTS
PAGE
1. INTERPRETATION AND DEFINITIONS 2
2. AMENDMENT TO MANAGEMENT ARRANGEMENTS 4
3. FURTHER ACKNOWLEDGEMENTS WITH REGARD TO
MANAGEMENT ARRANGEMENTS 4
4. AMENDMENTS TO THE CASINO COMPLEX MANAGEMENT
AGREEMENT 5
5. COFIRMATION 10
6. COSTS 10
7. MISCELLANEOUS 10
<PAGE>
DEED made the day of 1997
BETWEEN: SHOWBOAT AUSTRALIA PTY LIMITED (A.C.N. 061 299 625)
c/- Showboat Inc, 3720 Howard Hughes Parkway, Suite
200, Las Vegas, Nevada 89109 USA and NATIONAL
MUTUAL TRUSTEES LIMITED (ACN 004 029 841) of 11th
Floor, 44 Market Street, Sydney (collectively the
"Partners")
AND: SYDNEY CASINO MANAGEMENT PTY LIMITED (ACN 060 462
053) of Level 7, 154 Sussex Street, Sydney (the
"Manager")
AND: SYDNEY HARBOUR CASINO PROPERTIES PTY LIMITED (ACN
050 045 120) of Level 7, 154 Sussex Street, Sydney
and SYDNEY HARBOUR CASINO PTY LIMITED (ACN 060 510
410) of Level 7, 154 Sussex Street, Sydney
(collectively the "SHC Group")
WHEREAS:
A. By Agreement dated 21 April 1994, the Original
Partners, Manager and SHC Group entered into the Casino
Complex Management Agreement whereby the Manager agreed
to undertake management of Casino Complex (as therein
defined) on the terms and conditions set out therein.
B. By Agreement dated 22 April 1994, the Original Partners
set out the terms of the partnership arrangements
between themselves and determined that the Manager
would act as nominee for the partnership and in that
capacity undertake the management of the said Casino
Complex.
C. On 7 December 1994 by Deed of Trust National Mutual
Trustees Limited became the holder as trustee for
Leighton Properties Pty Limited of the interest of
Leighton Properties Pty Limited in the partnership
referred to in Recital B and thereby in such capacity
succeeded to the benefit of and became bound by the
terms applying to such interest.
D. On or around 22 April 1994, the Original Partners
agreed as to the matters recorded in this Deed with
regard to the management fees to be paid to the Manager
under the Casino Complex Management Agreement.
E. The parties have in addition agreed as to various
matters affecting the operation of the Casino Complex
and the respective responsibilities of the Manager and
the SHC Group in this regard.
<PAGE>
2
F. The parties wish by this Deed to record the
arrangements referred to in Recitals D and E and to
effect the necessary amendments to the Casino Complex
Management Agreement and the Partnership Agreement for
such purposes.
THIS DEED WITNESSES:
1. INTERPRETATION AND DEFINITIONS
1.1 DEFINITIONS
"CASINO COMPLEX MANAGEMENT AGREEMENT" means the agreement
dated 21 April 1994 between SHC Group, Showboat Australia
Pty Limited, Leighton Properties Pty Limited and the Manager
under which the Manager was appointed to undertake the
management of the Casino Complex (as therein defined) on the
terms set out therein.
"CASINO COMPLEX" shall have the meaning ascribed to that
term in the Casino Complex Management Agreement.
"ORIGINAL PARTNERS" shall mean Leighton Properties Pty
Limited and Showboat Australia Pty Limited.
"PARTNERSHIP" means the partnership evidenced by the
Partnership Agreement.
"PARTNERSHIP AGREEMENT" means the agreement dated 22 April
1994 between Showboat Australia Pty Limited and Leighton
Properties Pty Limited.
"RECOUPMENT PERIOD" means the period of time commencing on
the commencement of the Operating Term (as defined in the
Casino Complex Management Agreement) and ending when eighty
five percent (85%) of the amount of the fees which, but for
the provisions of this Deed would be payable to the Manager
under clause 12 of the Casino Complex Management Agreement
equal nineteen million, one hundred thousand dollars
($19,100,000).
1.2 INTERPRETATION
In this Deed, unless the context otherwise requires:
<PAGE>
3
(i) a reference to this Deed or to any other deed,
agreement, document or instrument includes this Deed
or that other deed, agreement, document or instrument
as amended, supplemented, novated, replaced or varied
from time to time;
(ii) a reference to a person includes a reference to an
individual firm, company, corporation, body
corporate, statutory body, body politic, trust,
partnership, joint venture, association whether
incorporated or unincorporated, or an authority as
the case may be;
(iii) a reference to a clause is a reference to a clause of
this Deed;
(iv) a reference to the singular includes a reference to
the plural and vice versa and words denoting a given
gender shall include all other genders;
(v) headings are for convenience only and do not affect
interpretation;
(vi) where any word or phrase is given a defined meaning
any other part of speech or other grammatical form in
respect of such word or part of speech has a
corresponding meaning;
(vii) a reference to any legislation, statute, ordinance,
cord or other law or to any section or provision
thereof includes all ordinances, by-laws,
regulations, rules, rulings and directions and other
statutory instruments issued thereunder and any
modifications, consolidations, re-enactments,
replacements and substitutions of any of them;
(viii) a reference to any monetary amount or payment to be
made hereunder is a reference to an Australian
dollar amount or payment in Australian dollars as the
case may require;
(ix) where a reference is made to any body or authority
which has ceased to exist, such reference shall be
deemed a reference to the body or authority as then
serves substantially the same objects as that body or
authority; and
(x) terms used in this Deed which are not defined in this
Deed shall have the same meaning as defined in the
Corporations Law.
<PAGE>
4
2. AMENDMENT TO MANAGEMENT ARRANGEMENTS
2.1 It is hereby recorded and acknowledged that during the
Recoupment Period the amount of the entitlement of Showboat
Australia Pty Limited to the profits of the Partnership in
accordance with the Partnership Agreement, (which profits
derive ultimately from the management fees paid to the
Manager under the Casino Complex Management Agreement) shall
be nil.
2.2 It is hereby further recorded and acknowledged that during
the Recoupment Period the amount of the entitlement of
National Mutual Trustees Limited to the profits of the
Partnership under the Partnership Agreement shall be
equivalent to the total profits derived through management
fees paid to the Manager under Clause 12 of the Casino
Complex Management Agreement.
2.3 The Partners, the Manager and SHC Group agree that the
amount of the management fees to be paid to the Manager
under Casino Complex Management Agreement, during the
Recoupment Period shall be equivalent to fifteen per cent
(15%) of the amount that would otherwise by payable under
the Casino Complex Management Agreement for the period in
question.
2.4 In calculating the amount of any fees to be paid or retained
by SHC Group in accordance with the provisions of this Deed,
there shall only be adjustments to the management fees
payable to the Manager under Clause 12 of Casino Complex
Management Agreement and there shall be no adjustment or
variation to any other fees or payments to be paid or made
by SHC Group including without limitation, any "supplemental
management fees" under Clause 7.2 of Casino Complex
Management Agreement or any other amounts by way of
reimbursement of expenses or costs incurred by the Manager.
3. FURTHER ACKNOWLEDGEMENTS WITH REGARD TO MANAGEMENT
ARRANGEMENTS
3.1 It is acknowledged and agreed that during the Recoupment
Period SHC Group does not and has never had any liability to
pay management fees equal to the said amount of nineteen
million one hundred thousand dollars ($19,100,000).
<PAGE>
5
4. AMENDMENTS TO THE CASINO COMPLEX MANAGEMENT AGREEMENT
The Casino Complex Management Agreement is amended as set
out below to reflect the agreements between the parties as
to the conduct of the business of the Casino.
(i) Recital I shall be amended and replaced in its
entirety with the following:
"I Owner wishes to obtain the benefits of Showboat's
and Leighton's expertise in the foregoing areas
by engaging the Casino Manager as manager of the
Casino Complex on the terms set out in this
Agreement subject to the obligations of the
parties under the Act and under the Transaction
Documents including, in particular the COA. The
Showboat Leighton Partnership through the Casino
Manager for a fee, and subject to the terms of
this Agreement agrees to accept such appointment
as manager."
(ii) The following five new Recitals are to be added:
J. The decision of Showboat, its subsidiaries and
affiliated companies to pursue the Sydney Harbour
Casino was premised on two essential factors:
(i) due to Showboat's experience as detailed
in Recital D, Showboat or a related
company would be retained as manager of
Sydney Harbour Casino and as manager would
be granted board authority and discretion
to implement such responsibilities, and
(ii) Showboat or a related company would
receive management fees for acting as
manager of Sydney Harbour Casino. The
expertise and standing of Showboat as the
major shareholder in the management
company was a key factor in attracting and
maintaining investor commitments to SHC
Holdings.
K. Casino Manager and Owner are committed to:
(i) a harmonious and mutually beneficial
relationship;
<PAGE>
6
(ii) making full effort to freely exchange
information;
(iii) achieving results that benefit both the
Casino Manager and Owner; and
(iv) seeking expeditious and non-confrontational
clarification or resolution of any
misunderstandings or conflicts.
L. Casino Manager through Showboat has extensive
knowledge and skill in the construction, opening
and management of gaming and entertainment
businesses. Therefore, because of such skill and
knowledge, it is appropriate and proper for
Casino Manager to have responsibility to manage
the Sydney Harbour Casino. The directors of
Owner have satisfied themselves as to the
experience and skill of Casino Manager and on
that basis have satisfied themselves that the
engagement of Casino Manager will result in the
Casino Complex being managed consistent with the
appropriate standards of industry and corporate
practice so as to protect and enhance the
investment of the shareholders in SHC Holdings.
M. The Invitation Document prepared by the New South
Wales Casino Control Authority, dated May 1993,
established the criteria that (i) "the Applicant
has or is able to obtain the services of persons
who have sufficient experience in the management
and operation of the Casino," and (ii) the
Applicant "has sufficient business ability to
establish and maintain a successful Casino."
N. Through the licensing of Showboat and its
subsidiaries, Showboat and such subsidiaries
have satisfied the New South Wales Casino Control
Authority that Showboat has the experience and
skill to construct, open, and manage the Casino
Complex.
(iii) The following paragraph is to be added immediately
before Clause 1.1:
"1.01 Owner and Casino Manager agree that the
foregoing Recitals are true and correct
and by this reference incorporate the
Recitals into this Agreement as if such
Recitals were fully set forth herein."
<PAGE>
7
(iv) The words "and approved by Owner" are to be added
after the words "Casino Manager" where appearing in
the definition of "Accounting Period" in Clause 1.1.
(v) The words "Subject to Clause 6.2A" are to be added
before the word "determination" where appearing in
Clause 6.2(a).
(vi) The following clause to be numbered 6.2A is to be
added immediately after Clause 6.2:
"6.2A Casino Manager and Owner shall meet
together for the purposes of agreeing the
formulation of the Industrial Relations
Policy of the Casino. Such policy shall
include coverage of such matters as the
policies with respect to hiring and
discharge of employees, relations with
trade unions and other organised labour
bodies and other such matters. Once
agreed such policies shall be documented
and shall be used as a guide for Casino
Manager in the discharge of its
obligations under Clause 6.2(a). In
addition such policy shall define the
division of responsibility with respect to
industrial relations between the Casino
Manager on the one hand and the
Remuneration Committee of the Board of
Directors of Owner on the other hand.
Any changes or modifications to any of
the policies so documented may only be
made with the agreement of Casino Manager
and Owner.
(vii) The first sentence of Clause 6.4 is to be deleted and
the following is to be substituted in its stead:
"Subject always to the provisions of any
Industrial Relations Policy formulated under
Clause 6.2A but notwithstanding any other
provision contained in this Clause 6, no Casino
Complex employee shall receive compensation
(including salary and benefits) greater than at
the rate of $750,000 per year (or such greater
amount if approved by the Manager and Owner)
exclusive of the value of food and lodging and
the use of Casino Complex facilities (increased
at the end of each of Fiscal Year by the CPI)
without prior consent of the Owner of the pay
rate".
<PAGE>
8
(viii) Clause 6.11 is to be deleted in its entirety and the
following substituted in its stead:
"Not later than sixty (60) days prior to the
commencement of each Fiscal Year Casino Manager
shall submit to Owner a draft annual budget for
the operation of the Casino Complex in accordance
with the Uniform Systems accompanied by full
supporting data and assumptions and a business
plan. Such business plan shall contain such
information and items which are normally found in
a business plan in respect of businesses
comparable to the Casino and shall include
references to special projects extraordinary
expenditures or anticipated receipts and such
other items as would reasonably be considered
material. Owner and Casino Manager shall
consult in good faith with a view to agreeing
the relevant budget and business plan. Owner
expressly acknowledges Casino Manager's expertise
in the operation of businesses similar to the
Casino. Owner further expressly acknowledges the
obligation of the Casino Manager to perform its
obligations under this Agreement consistent with
the overall obligations of the parties under the
Transaction Documents. Should the parties fail
to agree on a budget and business plan within a
reasonable time prior to the commencement of the
relevant Fiscal Year, then either party may
determine that a dispute exists and upon such
party notifying the other as to its
determination, there shall be deemed to be a
dispute under this Agreement and the provisions
of Clause 34 of this Agreement shall apply. The
parties hereby record their intention that no
resort whatsoever will be had to any court
proceedings in respect of a dispute of the kind
referred to in this clause 6.11. Should the
budget and business plan for any particular
Fiscal Year not be agreed prior to the
commencement of that Fiscal Year because of a
dispute or for any other reason, then the Manager
shall implement any parts of the budget and
business plan which have been agreed between the
parties but otherwise, the Manager shall
implement as far as practicable the budget and
business plan which applied for the immediately
preceding Fiscal Year."
(ix) The following clause to be numbered 9.2 is to be
added immediately following Clause 9.1:
<PAGE>
9
"9.2 The budget and business plan in respect of
any Fiscal Year shall detail the
objectives and course of action of the
Casino in regard to the external affairs
of its business. The implementation of
this aspect of the business shall be the
responsibility of Casino Manager. Casino
Manager recognises and shall utilise the
capabilities of the Owner and its
related companies to assist in achieving
the external affairs objectives of the
Casino business. The Casino Manager shall
not however make any donation or
contribution on behalf of the Owner to
any political candidates causes or other
organisations of similar nature except
for donations or contributions not
exceeding one thousand dollars ($1,000)
made in accordance with any policy
directives or guidelines determined by
Owner. The Casino Manager shall not
however be prevented from making any
such contribution or donation in its own
right but in such circumstances it must
ensure that any such donation or
contribution is made in such manner as
the source is clearly differentiated
from the Casino business."
(x) The opening sentence of Clause 11.2 is to be deleted
in its entirety and the following inserted in its
stead:
"11.2 Following every accounting period Casino
Manager shall deliver to Owner a balance
sheet and profit and loss statement
showing the results of the operation of
the Casino Complex for the immediately
preceding accounting period and for the
Fiscal Year to date. Casino Manager shall
be obliged to deliver such financial
statements not later than one week
following the accounting period that
follows the accounting period for which
the information is reported but shall
endeavour to deliver such financial
statements prior to the end of the
accounting period which follows the one
for which the information is reported."
(xi) Clause 11.3(a) is to be deleted in its entirety and
the following inserted in its stead:
"(a) Owner shall be entitled to receive the
financial statements in relation to the
Casino Complex and have the opportunity to
<PAGE>
10
consider them for a reasonable period
(which shall not be less than fourteen
(14) days) prior to those financial
statements being required to be lodged
under the Listing Rules of the Australian
Stock Exchange Limited and any other
applicable statutory requirements."
5. CONFIRMATION
Other than as set out in this Deed, all other terms and
provisions of the Casino Complex Management Agreement and
the Partnership Agreement are hereby acknowledged and
confirmed.
6. COSTS
6.1 COSTS
Each party to this Deed must bear its own costs and expenses
in connection with the negotiation execution and completion
of this Deed.
7. MISCELLANEOUS
The provisions of clauses 22, 23, 32, and 33 of the Casino
Complex Management Agreement shall apply to and shall be
deemed to be incorporated in this Deed.
<PAGE>
11
THE COMMON SEAL of )
SHOWBOAT AUSTRALIA PTY )
LIMITED (A.C.N. 061 299 )
625) was hereunto )
affixed by authority of )
the directors in the )
presence of: )
/s/ Steven Alperstein /s/ J.K. Houssels, III
Signature of Secretary Signature of Director
/s/ Steven Alperstein
Full Name of Signatory Full Name of Signatory
SIGNED SEALED and DELIVERED )
by the said NATIONAL MUTUAL )
TRUSTEES LIMITED )
(ACN 004 029 841) by )
its duly appointed attorney )
in the presence of:
Signature of Witness
Signature of Attorney
Print full name of Witness
<PAGE>
12
THE COMMON SEAL of SYDNEY )
CASINO MANAGEMENT PTY )
LIMITED (ACN 060 462 053) )
was hereunto affixed by )
authority of the directors)
in the presence of: )
/s/ Steven Alperstein /s/ J.K. Houssels, III
Signature of Secretary Signature of Director
/s/ Steven Alperstein
Full Name of Signatory Full Name of Signatory
THE COMMON SEAL of SYDNEY )
HARBOUR CASINO PROPERTIES )
PTY LIMITED (ACN 050 045 120) )
was hereunto affixed by )
authority of the directors )
in the presence of: )
/s/ /s/
Signature of Secretary Signature of Director
/s/ Steven Alperstein
Full Name of Signatory
<PAGE>
13
THE COMMON SEAL of SYDNEY )
HARBOUR CASINO PTY LIMITED)
(ACN 060 510 410) was )
hereunto affixed by )
authority of the directors)
in the presence of: )
/s/ Steven Alperstein /s/
Signature of Secretary Signature of Director
/s/ Steven Alperstein
Full Name of Signatory Full Name of Signatory
<PAGE>
EXHIBIT 10.28
<PAGE>
SECOND
AMENDED & RESTATED
SHOWBOAT MARINA
PARTNERSHIP AGREEMENT
<PAGE>
SECOND
AMENDED & RESTATED
SHOWBOAT MARINA PARTNERSHIP AGREEMENT
TABLE OF CONTENTS
PAGE
1. DEFINITIONS 2
1.1. AFFILIATE 2
1.2. AGREEMENT 2
1.3. BUDGET 2
1.4. CAPITAL ACCOUNT 3
1.5. CAPITAL BUDGET 3
1.6. CAPITAL CONTRIBUTION 3
1.7. CARRYING VALUE 3
1.8. CASINO FACILITIES 3
1.9. CODE 4
1.10. COMMISSION 4
1.11. COMPARABLE COMPANIES 4
1.12. DEVELOPMENT EXPENSES 4
1.13. DISTRIBUTABLE CASH 4
1.14. EFFECTIVE DATE 4
1.15. GROUND 5
1.16. INDIANA UNIFORM PARTNERSHIP ACT 5
1.17. INTEREST 5
1.18. LOSSES 5
1.19. MANAGING PARTNER 5
1.20. MINIMUM GAIN 5
1.21. NONRECOURSE DEDUCTIONS 5
1.22. OPENING 5
1.23. OPERATING BUDGET 5
1.24. PARTNERS 5
1.25. PARTNERSHIP 6
1.26. PARTNERSHIP'S AUDITOR 6
1.27. PERCENTAGE INTEREST 6
1.28. PROJECT 6
1.30. REGULATIONS 6
1.31. VESSEL 6
2. CONTINUATION OF PARTNERSHIP 6
2.1. CONTINUATION OF PARTNERSHIP 6
2.2. APPLICABLE LAW 6
2.3. THE SCOPE OF PARTNER'S AUTHORITY 6
2.4. BUSINESS PURPOSES 7
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2.5. TERM OF PARTNERSHIP 7
2.6. PRINCIPAL PLACE OF BUSINESS 7
2.7. PROPERTY OF THE PARTNERSHIP 7
2.8. CERTIFICATE 7
2.9. LICENSING 7
3. FUNDING OF THE PARTNERSHIP 8
3.1. THE PERCENTAGE INTEREST OF EACH PARTNER IN THE
PARTNERSHIP 8
3.2. CAPITAL ACCOUNTS 8
3.3. RETURN OF CAPITAL CONTRIBUTIONS 9
3.4. NO PRIORITY 10
3.5. PREFERENTIAL RETURN 10
3.6. LOANS 10
3.7. (DELETED - NO LONGER USED) 10
3.8. CONTRIBUTIONS 10
3.9. FAILURE TO CONTRIBUTE 11
4. ALLOCATIONS AND DISTRIBUTIONS 12
4.1. DEFINITIONS 12
4.2. ALLOCATION OF INCOME, GAIN, LOSS, DEDUCTION
(INCLUDING DEPRECIATION), AND CREDIT 12
4.3. DISTRIBUTIONS AND INVESTMENT OF CASH 16
4.4. DEVELOPMENT FEE 18
5. MANAGEMENT OF THE PARTNERSHIP 18
5.1. MANAGING PARTNER 18
5.2. RESTRICTIONS 19
5.3. ACTIONS REQUIRING UNANIMOUS CONSENT OF THE
PARTNERS 20
5.4. DEALINGS WITH AFFILIATES 20
5.5. REMOVAL OF MANAGING PARTNER 21
5.6. GROUND 21
5.7. PARTNERSHIP DEBTS 21
5.8. DELEGATION OF AUTHORITY 21
5.9. OTHER VENTURES 21
5.10. EXCULPATION FROM LIABILITY; INDEMNIFICATION 21
5.11. MEETINGS OF PARTNERS 22
5.12. REPORTS 22
5.13. PARTNERSHIP DEVELOPMENT FINANCING 22
5.14. MANAGEMENT AGREEMENT 25
6. PUT OPTION 25
7. TRANSFER OF PARTNER'S INTEREST 26
7.1. RESTRICTIONS ON TRANSFER 26
7.2. RIGHT OF FIRST REFUSAL 26
7.3. CONTINUING LIABILITY 27
8. PARTNER DEFAULT 27
8.1. DEFINITION OF DEFAULT 27
8.2. DEFAULTS 27
8.3. BUYOUT REMEDY 28
8.4. INJUNCTIVE RELIEF 28
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9. DETERMINATION OF FAIR MARKET VALUE 28
9.1. FAIR MARKET VALUE 28
10. FORCE MAJEURE 29
10.1. FORCE MAJEURE DEFINED 29
10.2. ACTIONS TO RESOLVE FORCE MAJEURE EVENTS 30
11. TERMINATION AND LIQUIDATION OF PARTNERSHIP 30
11.1. TERMINATION 30
11.2. WINDING UP AND LIQUIDATION 31
11.3. BANKRUPTCY OR INSOLVENCY; INVOLUNTARY TRANSFER 32
12. DISCLOSURE OF OTHER BUSINESS INTEREST CONFLICTS;
BUSINESS OPPORTUNITY 33
12.1. OTHER BUSINESS INTERESTS 33
12.2. COMPETITION 33
12.3. BUSINESS OPPORTUNITY 34
13. TAX MATTERS; BOOKS AND RECORDS; ACCOUNTING 34
13.1. TAX MATTERS 34
13.2. INDEMNITY AGAINST BREACH 34
13.3. RECORDS 35
13.4. NOTICES 36
13.5. REPORTS TO PARTNERS 36
14. TRADEMARKS AND LICENSES 37
14.1. SHOWBOAT MARKS 37
14.2. USE OF MARKS BY PARTNERSHIP 37
15. GENERAL PROVISIONS 37
15.1. FOREIGN GAMING LICENSES 37
15.2. ENTIRE AGREEMENT 37
15.3. COUNTERPARTS 37
15.4. CAPTIONS 38
15.5. AMENDMENT 38
15.6. GRAMMATICAL CHANGES 38
15.7. SUCCESSORS AND ASSIGNS 38
15.8. CONSENT OF PARTNERS 38
15.9. NO WAIVER 38
15.10.DISPUTES 38
15.11.PARTIAL INVALIDITY 39
15.12.COOPERATION WITH GAMING AUTHORITIES 39
15.13.ADMINISTRATIVE/DEVELOPMENT/TRADEMARK/LICENSE
FEES 39
15.14.APPLICABLE LAW: JURISDICTION 39
15.15.FINANCING FEES 40
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SECOND
AMENDED & RESTATED
SHOWBOAT MARINA PARTNERSHIP AGREEMENT
This Amended & Restated Showboat Marina Partnership
Agreement, dated as of the ____ day of ________, 1996, is
executed by and between:
WATERFRONT ENTERTAINMENT AND DEVELOPMENT, INC.
("Waterfront"), an Indiana corporation with its
registered office at 8101 Polo Club Drive, Suite
D, Merrillville, Indiana 46410, appearing herein
by and through Michael Pannos, its President, duly
authorized hereunto:
and
SHOWBOAT INDIANA INVESTMENT LIMITED PARTNERSHIP
("Showboat"), a Nevada limited partnership with
its registered office at 2800 Fremont Street, Las
Vegas, Nevada 89104, appearing herein by and
through J. Kell Houssels, III, Chairman of the
Board of its general partner, Showboat Indiana,
Inc., duly authorized hereunto;
W I T N E S S E T H:
WHEREAS, Waterfront and Showboat formed the Partnership
pursuant to a Partnership Agreement dated January 31, 1994 (the
"Original Agreement")to construct, acquire, own, and operate an
excursion cruise vessel casino on Lake Michigan from a port in
East Chicago, Indiana, including all equipment and other
facilities required to own and operate the excursion cruise
vessel casino, including, but not limited to, docks, piers,
restaurants, entertainment facilities, vehicular parking area(s),
waiting areas, administrative offices for, but not limited to,
accounting, purchasing, and management information services
(including offices for management personnel) and other areas
utilized in support of the operations of the excursion cruise
vessel, and for the other purposes set forth in the Original
Agreement ; and
WHEREAS, since January 31, 1994, Waterfront and Showboat
have submitted applications with the Indiana Gaming Commission
("Commission") to operate a licensed excursion cruise vessel
casino on Lake Michigan from a port in East Chicago, Indiana; and
WHEREAS, as a part of the applications filed with the
Commission, Waterfront and Showboat have continuously evaluated
the total costs and expenses of constructing the excursion cruise
vessel casino and related facilities and believe that the total
costs and expenses have increased to an amount of up to $195
million, which is $105 million higher than originally specified
in the Partnership Agreement; and
<PAGE>
WHEREAS, following discussions with investment bankers and
other consultants, the parties have determined that development
financing for the Project may not be obtained by the Partnership
at interest rates of 15% per annum or less; and
WHEREAS, under the Original Agreement, either the increase
of costs or the inability to obtain development financing at
interest rates of 15% or less permits either Partner to terminate
the Partnership unless the Partners can mutually agree to
appropriate courses of action to resolve the condition; and
WHEREAS, the Partnership has been advised by its financial
advisors that it should form a subsidiary partnership to own and
operate the Project and to obtain the Development Financing
making the Partnership the holder of partnership interests
instead of the operator and owner of the Project; and
WHEREAS, Waterfront and Showboat amended the original
Partnership Agreement by the Amended and Restated Showboat Marina
Partnership Agreement dated as of the 1st day of March, 1996; and
WHEREAS, the Partners, following good faith discussions, are
executing this Second Amended & Restated Showboat Marina
Partnership Agreement to make additional changes to the Original
Agreement as the Partners deem necessary and advisable.
Now, Therefore, in consideration of the covenants herein
contained and intending to be mutually bound thereby, the parties
hereto agree as follows:
1. DEFINITIONS
1.1. AFFILIATE
The term "Affiliate" when used with respect to any Person
specified herein, shall mean any other Person who (i) controls,
is controlled by or is under common control with such specified
Person; (ii) is an officer or director of, partner in,
shareholder of, or trustee of, or serves in a similar capacity
with respect to, a Person specified in clause (i); or (iii) is a
twenty-five percent (25%) or more owned subsidiary, spouse,
father, mother, son, daughter, brother, sister, uncle, aunt,
nephew or niece or any Person described in clauses (i) or (ii).
The term "control" shall mean and include ownership of a 25% or
greater equity interest in such other Person.
1.2. AGREEMENT
This Amended & Restated Showboat Marina Partnership
Agreement, as originally executed and as amended, modified,
supplemented, or restated, from time to time, as the context may
require.
1.3. BUDGET
A Capital Budget or an Operating Budget. All Budgets shall
set forth the assumptions and qualifications underlying their
preparation.
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1.4. CAPITAL ACCOUNT
A separate account maintained for each Partner and
determined strictly in accordance with the rules set forth in
Section 704(b) of the Code, as amended, and Section
1.704-1(b)(2)(iv) of the Regulations. In accordance with those
sections, a Partner's capital account shall be equal to the
amount of money contributed by the Partner and the fair market
value of any property contributed by the Partner (net of any
liability secured by the property or to which the property is
subject), increased by allocations of Net Income to the Partner
and decreased by (a) the amount of money distributed to the
Partner, (b) the fair market value of any property distributed to
the Partner by the Partnership (net of any liability secured by
the property or to which the property is subject), (c) the
Partner's share of expenditures of the Partnership described in
Section 705(a)(2)(B) of the Code and (d) the net losses allocated
to the Partner. To the extent that anything contained herein
shall be inconsistent with Section 1.704-1(b)(2)(iv) of the
Regulations, the Regulations shall control.
1.5. CAPITAL BUDGET
A budget setting forth all estimated sources and uses of
funds for the initial development, including related road
improvements to the Project, renovation, repair or replacement of
the Project.
1.6. CAPITAL CONTRIBUTION
The amount of cash and the Carrying Value of any property
(net of any liabilities secured by such property that the
Partnership is considered to assume or take subject to under Code
Sec. 752) contributed by a party in exchange for an Interest in
the Partnership.
1.7. CARRYING VALUE
The adjusted basis of any assets of the Partnership, as
determined for federal income tax purposes, except:
(a) The initial Carrying Value of any asset contributed (or
deemed contributed) to the Partnership shall be such asset's
gross fair market value at the time of such contribution;
(b) The Carrying Values of all Partnership assets shall be
adjusted to equal their respective gross fair market values at
the times specified in Section 3.2(c) and (d) of this Agreement
if the Partnership has elected to adjust the Partners' Capital
Accounts as provided in such Section; and
(c) If the Carrying Values of the Partnership assets have
been determined pursuant to clause (a) or (b) of this section,
such Carrying Values shall be adjusted thereafter in the same
manner as the assets' adjusted bases for federal income tax
purposes, except that the depreciation deductions shall be
computed in accordance with this Agreement.
1.8. CASINO FACILITIES
All equipment and other property used in connection with the
ownership and operation of the Vessel and anything used in
connection with or in support of the Vessel including, but not
limited to, docks, piers, restaurants, entertainment facilities,
vehicular parking area(s), working
3
<PAGE>
areas, restrooms, administrative offices for, but not limited to,
accounting, purchasing, and management information services
(including offices for Showboat management personnel).
1.9. CODE
The Internal Revenue Code of 1986, as amended, including the
corresponding provisions of any succeeding law.
1.10. COMMISSION
The Indiana Gaming Commission.
1.11. COMPARABLE COMPANIES
The following seven (7) companies: Argosy Gaming Co.;
Presidents Riverboat Casinos, Inc.; Grand Casinos, Inc.; Aztar
Corp.; Caesar's World, Inc.; Bally Manufacturing Corp.; and
Showboat, Inc. A substitution may be made only by unanimous
agreement of the Partners. The Partners agree that Empress River
Casino Corporation ("Empress") shall be a Comparable Company only
if, at the time any calculations shall be made using data related
to Comparable Companies, the Empress shall have issued to the
public any security in an offering registered with the Securities
and Exchange Commission. In the event that Empress is included
as a Comparable Company, it shall replace Aztar Corp. or, if that
company is not then a Comparable Company, it shall replace one of
the companies deriving the principal portion of its net revenue
from riverboat operations as mutually agreed between the
Partners.
1.12. DEVELOPMENT EXPENSES
All expenses incurred in connection with the development of
the Project which were paid by either Partner and not reimbursed
by the Partnership. Each partner agrees to prepare a budget
reasonably detailing the Development Expenses to be incurred by
such Partner. Within thirty (30) days of the Effective Date each
Partner shall submit to the other Partner, for the other
Partner's approval (which approval cannot be unreasonably
withheld or delayed) its Development Expenses budget. The other
Partner shall have twenty (20) days to review the Development
Expenses budget. Any dispute regarding the budget shall be
resolved by arbitration. The Development Expenses budget may be
amended from time to time with both Partners' written consent
which neither Partner may unreasonably withhold or delay.
Expenses not included in the Development Expenses budget shall
not be reimbursed by the Partnership. Each Partner shall provide
to the Partnership a monthly detailed accounting, with supporting
documentation, of said Development Expenses paid by the Partner.
1.13. DISTRIBUTABLE CASH
All cash receipts of the Partnership, excluding Capital
Contributions and the proceeds of any sale or financing, less
cash expenditures, including but not limited to, working capital
reserves or other amounts as the Partners reasonably determine to
be necessary or appropriate for the proper operation of the
Partnership business, discharge of current indebtedness, and,
where appropriate, its winding up and liquidation.
1.14. EFFECTIVE DATE
The Effective Date of this Agreement shall be the date upon
which Waterfront and Showboat executed the Original Agreement.
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<PAGE>
1.15. GROUND
The site for the Casino Facilities located on land which the
Partnership will have acquired by a ground lease, option to
purchase, acquisition in fee or other agreement conveying control
of the site to the Partnership.
1.16. INDIANA UNIFORM PARTNERSHIP ACT
The law of the State of Indiana governing general
partnerships codified at IC 23-4-1-1 et seq., as amended.
1.17. INTEREST
The entire ownership interest of a Partner in the
Partnership at any particular time, including the right of such
Partner to any and all benefits to which a Partner may be
entitled pursuant to this Agreement, together with the obligation
of such Partner to comply with the terms of this Agreement.
1.18. LOSSES
The taxable losses (the excess of allowable deductions over
recognizable income items) of the Partnership for a period, or as
a result of a transaction, for federal income tax purposes as
determined in accordance with Code Sec. 703(a) computed with the
adjustments required under this Agreement.
1.19. MANAGING PARTNER
The Managing Partner of the Partnership will be Showboat,
subject to removal as provided herein.
1.20. MINIMUM GAIN
The amount determined strictly in accordance with the
principles of Section 1.704-2(b)(2) of the Regulations.
1.21. NONRECOURSE DEDUCTIONS
The Partnership's deductions characterized as "nonrecourse
deduction" under Section 1.704-2(b)(1) of the Treasury
Regulations.
1.22. OPENING
The date the Project opens to the public for business for
gaming activities by paying customers.
1.23. OPERATING BUDGET
A budget setting forth all of the estimated sources and uses
of funds for the operation of the Project for a specified period.
The Operating Budget shall be reviewed and evaluated quarterly.
1.24. PARTNERS
The Partners of the Partnership are Waterfront and Showboat.
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1.25. PARTNERSHIP
This Showboat Marina Partnership, an Indiana general
partnership, and its successor entities.
1.26. PARTNERSHIP'S AUDITOR
The initial independent auditor for the Partnership shall be
KPMG Peat Marwick.
1.27. PERCENTAGE INTEREST
With respect to each Partner, the Interest of such Partner
expressed as a percentage of the total of the Interests of all
Partners as set forth in Section 3.1 of the Agreement.
1.28. PERSON
Any individual, partnership, limited partnership,
corporation, limited liability company, unincorporated
association, or other entity.
1.29. PROJECT
The excursion cruise vessel casino development to be
acquired, developed in the City of East Chicago, in the State of
Indiana, and operated on Lake Michigan. Total costs and expenses
associated with the Project shall not exceed $195,000,000 or be
less than $170,000,000, subject to Section 10.
1.30. REGULATIONS
The regulations of the United States Treasury Department
pertaining to the Code, as amended, and any successor
provision(s).
1.31. VESSEL
1. The excursion cruise vessel casino to be owned and
operated by the Partnership on Lake Michigan, Indiana, in
conjunction with the Casino Facilities. The gaming area, to be
contained in the Vessel, shall be approximately 51,000 square
feet.
2. CONTINUATION OF PARTNERSHIP
2.1. CONTINUATION OF PARTNERSHIP
The Partners hereby agree to continue the Partnership
originally formed on the Effective Date as a general partnership
under the Indiana Uniform Partnership Act under the name and
style of Showboat Marina Partnership, and on the terms and
conditions set forth herein. This Agreement shall amend and
restate the Original Agreement in its entirety effective as of
the date hereof.
2.2. APPLICABLE LAW
The rights and obligations of the Partners and the
administration and termination of the Partnership shall be
governed by the Indiana Uniform Partnership Act and this
Agreement.
2.3. THE SCOPE OF PARTNER'S AUTHORITY
Except as otherwise expressly provided herein, no Partner
shall have any authority to act on behalf of, or in the name of,
the Partnership, or to enter into or assume any commitment or
obligation or responsibility on behalf of any other Partner or
the Partnership.
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<PAGE>
2.4. BUSINESS PURPOSES
The purposes of the Partnership are (a) to acquire, design,
construct, own and operate the Project, (b) to acquire, lease,
sell, or otherwise dispose of other properties used or useful in
connection with the foregoing, (c) to carry on any other
activities necessary or incidental to the foregoing, and (d) to
engage in any other business if such business is approved and
agreed upon unanimously by the Partners prior to entering into
such business.
2.5. TERM OF PARTNERSHIP
(a) INITIAL TERM. The Partnership is constituted for an
initial term ending December 31, 2023, and shall be continued
for successive 1-year terms thereafter until terminated as
provided in section "b" below, by operation of law or as
otherwise provided in this Agreement.
(b) TERMINATION BY PARTNER. If a Partner desires that the
Partnership terminate upon the expiration of the initial term of
the Partnership or any renewal term thereafter, such Partner
shall give written notice to the other Partner of its intention
to cause such termination at least 90 days prior to the end of
the initial term or any renewal term thereafter, and the
Partnership shall terminate at the end of the initial term or
such renewal term, as the case may be, and shall thereafter be
liquidated in accordance with the provisions of Section 11
hereof.
2.6. PRINCIPAL PLACE OF BUSINESS
The principal business establishment of the Partnership
shall be located in East Chicago, Indiana and shall be mutually
chosen by the Partners. The Managing Partner may, in its sole
discretion, change the location of the principal place of
business of the Partnership, and, if it does so, it shall
promptly notify Waterfront of such new location within five (5)
days of such change. Notwithstanding the foregoing, in the event
the Managing Partner desires to change the location of the
principal business establishment of the Partnership to a location
outside of East Chicago, the Managing Partner shall obtain the
consent to such change from Waterfront, whose consent may not be
unreasonably withheld or delayed.
2.7. PROPERTY OF THE PARTNERSHIP
All personal property and real property owned or leased by
the Partnership shall be deemed to be owned or leased by the
Partnership and none of the Partners shall have any right, title,
or interest therein; provided, however, that a Partner may be a
lessor or sublessor of property which is leased to the
Partnership. To the extent permitted by law, title to all
property owned by the Partnership shall be held by the
Partnership in its name.
2.8. CERTIFICATE
Upon the execution of the Original Agreement, the Managing
Partner shall perform all acts necessary to assure the prompt
filing of such certificate of fictitious or assumed business name
as is required by Indiana law, and shall perform all other acts
required by Indiana law or any other law to perfect and maintain
the Partnership as a Partnership under the laws of the State of
Indiana.
2.9. LICENSING
Each Partner covenants to use its best efforts to diligently
obtain all state and local licenses, including gaming licenses,
necessary to conduct gaming operations in the Project. The
7
<PAGE>
Partners agree to provide each other with copies of all
applications, reports, letters and other documents filed or
provided to the state or local licensing authorities. In the
event that either Partner as a result of a communication or
action by the Commission or on the basis of consultations with
its gaming counsel and/or other professional advisors, reasonably
believes in good faith, with the concurrence of the other
Partner's board of directors, that the Commission is likely to:
(i) fail to license and/or approve the Partnership or its
Affiliates to own and operate any gaming related businesses;
(ii) grant required gaming licensing and/or approval only upon
terms and conditions which are unacceptable to Showboat and
Waterfront; (iii) significantly delay the licensing and/or
approval contemplated under this Agreement; or (iv) revoke any
existing license or casino operating contract of the Partnership
or its Affiliates, due to concerns of any aspect of the
suitability of a particular shareholder or owner of an interest
in a Partner or its Affiliate, then the Partner shall divest
itself of its interest in the Affiliate or cause such shareholder
or owner of an interest in the Partner or the Affiliate to divest
itself of such interest. If, however, the events described in
subparagraphs (i) through (iv) arise from concerns with respect
to the suitability of a particular Partner ("Selling Party") then
the Selling Party's entire interest in the Partnership may be
purchased by the other Partner at a purchase price equal to the
greater of the then fair market value of the Selling Party's
Partnership Interest or the unreturned Capital Contributions and
unreimbursed Development Expenses of the Selling Party. The fair
market value shall be determined in accordance with Section 9.1.
3. FUNDING OF THE PARTNERSHIP
3.1. THE PERCENTAGE INTEREST OF EACH PARTNER IN THE
PARTNERSHIP
The Percentage Interests of the Partners shall be:
Waterfront 45%
Showboat 55%
100%
3.2. CAPITAL ACCOUNTS
(a) A separate Capital Account shall be maintained by the
Partnership for each Partner in accordance with Sec. 704(b) of the
Code and Regulations Sec. 1.704-1(b)(2)(iv). Each Partner's capital
account shall be (i) credited for each contribution of capital
(at net fair market value) and allocations to the Partner of
Partnership Income and Gain, and (ii) debited for each allocation
of Partnership Loss and Deduction (including Depreciation), all
as set forth in Section 4 hereof, and by the amount of money and
other property (at net fair market value) distributed to the
Partner by the Partnership.
(b) If the Partnership at any time distributes any of its
assets in kind to any Partner, the Capital Account of each
Partner shall be adjusted to account for that Partner's allocable
share (as determined in this Agreement) of the profits or losses
that would have been realized by the Partnership had it sold the
assets that were distributed at their respective fair market
values immediately prior to their distribution.
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<PAGE>
(c) In the event the Partnership makes an election under
Code Sec. 754, the amounts of any adjustment to the basis (or
Carrying Value) of assets of the Partnership made pursuant to
Code Sec. 743 shall be reflected in the Capital Accounts of the
Partners, and the amounts of any adjustments to the basis (or
Carrying Value) of assets of the Partnership made pursuant to
Code Sec. 734 as a result of the distribution of property by
the Partnership to a Partner (to the extent that such adjustments
have not previously been reflected in the Partner's capital
accounts) shall be reflected in the Capital Accounts of the
Partner in the manner prescribed in regulations promulgated
under Code Sec. 704(b).
(d) If elected by the Partnership, upon the occurrence of
any of the following events, the Capital Account balance of each
Partner shall be adjusted to reflect the Partner's allocable
share (as determined under this Agreement) of the profits and
losses that would be realized by the Partnership if it sold
all of its property at its fair market value on the day of the
adjustment: (i) any increase in any new or existing Partner's
Interest resulting from the contribution of cash or property
by such Partner to the Partnership; (ii) any reduction in any
Partner's Interest resulting from a distribution of such
Partner in redemption of all or a portion of such Partner's
Interest in the Partnership; and (iii) whenever else allowed
under applicable Regulations.
(e) In the event of a permitted transfer of an Interest of
a Partner pursuant to the terms of this Agreement, the Capital
Account of the Transferor Partner shall become the Capital
Account of the transferee Partner to the extent it relates to the
transferred interest.
(f) The provisions of this section relating to the
maintenance of Capital Accounts are intended to comply with
Regulation Section 1.704-1(b) and shall be interpreted and
applied in a manner consistent with such Regulations. If it
is determined that it is a burden to modify the manner in
which Capital Accounts or any debits or credits thereto
(including, without limitation, debits or credits relating to
liability secured by property contributed to or distributed by
the Partnership or which are assumed by the Partnership or any
of the Partners) in order to comply with such Regulation, after
obtaining advice from the Partnership's Auditor the Partners may
make such modification provided that there is no material
effect upon the amounts otherwise distributable to any Partner
upon dissolution of the Partnership.
3.3. RETURN OF CAPITAL CONTRIBUTIONS
Except as may otherwise be provided herein, no Partner shall
be entitled to demand or receive the return of any Capital
Contribution made by such Partner. No Partner shall be entitled
to demand and receive property other than cash in return for such
Partner's Capital Contribution. Notwithstanding the foregoing:
(a) at such time as the Partnership and its Partners are
licensed by the Commission, one-half (1/2) of Waterfront's Capital
Contribution and unreimbursed Development Expenses, in each case
together with the preferred return thereon provided for in
Section 3.5, shall be returned to Waterfront by the Partnership;
and
(b) within six months after the Opening, the Partnership
shall return to Waterfront its remaining unpaid Capital
Contribution and unreimbursed Development Expenses, in each case
together with the preferred return thereon provided for in
Section 3.5.
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If the Partnership has insufficient funds to return such amounts,
Showboat shall make an immediate cash Capital Contribution or
loan to the Partnership in an amount sufficient for the
Partnership to discharge its obligations to Waterfront.
3.4. NO PRIORITY
Unless otherwise agreed or as provided in this Agreement, no
Partner shall have any priority over any other Partner with
respect to distributions or the return of Capital Contributions.
3.5. PREFERENTIAL RETURN
Each Partner shall be entitled to a preferential,
cumulative, but not compounded, annual return of twelve percent
(12%) on such Partner's outstanding Capital Contribution and
unreimbursed Development Expenses until the Capital Contribution,
unreimbursed Development Expenses and interest thereon are paid
in full.
3.6. LOANS
The Partners, or any of them, upon prior unanimous consent
of the Partners, may lend, or procure the lending of, money or
property to or for the Partnership upon such terms and conditions
as may be agreed upon at that time. Except as otherwise provided
herein, any loans made to the Partnership by the Partners shall
be entitled to a cumulative, but not compounded, annual return of
twelve percent (12%) on the outstanding loan balance until the
loan and such return thereon has been paid in full. Such loans
shall not be considered contributions to the capital of the
Partnership. Except as otherwise provided herein, the annual
return on such loans shall be paid out of Distributable Cash or
the proceeds of the sale or refinancing of part or all of the
assets of the Partnership (in connection with the termination of
the Partnership or otherwise) in the same priority as the
preferred return on the Partners' outstanding Capital
Contributions and unreimbursed Development Expenses is payable
pursuant to Sections 4.3.b(iv), 4.3.d(iv) or 11.2(f), as the case
may be. The principal amount of any such loans shall be paid out
of Distributable Cash or the proceeds of the sale or refinancing
of part or all of the assets of the Partnership (in connection
with the termination of the Partnership or otherwise) in the same
priority as the Partners' outstanding Capital Contributions and
unreimbursed Development Expenses is payable pursuant to Sections
4.3.b(v), 4.3.d(v) or 11.2(g), as the case may be.
3.7. (DELETED - NO LONGER USED)
3.8. CONTRIBUTIONS
(a) INITIAL CAPITAL CONTRIBUTION. Immediately after the
Effective Date, the Partners shall contemporaneously each make
the following initial Capital Contributions (each Partner's
contribution shall be conditioned on the other making its
contribution):
(i) Waterfront - $2,100,000
(ii) Showboat - $2,600,000
(b) ADDITIONAL CAPITAL CONTRIBUTIONS. The Partners shall
make additional Capital Contributions to the Partnership under
the following circumstances, which amounts shall be credited to
their respective Capital Accounts:
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(i) (Deleted - No Longer Used)
(ii) Showboat -- In lieu of an additional Capital
Contribution, Showboat shall loan the Partnership a total of
$37.4 million. The first $29.525 million of this loan shall
bear a preferential return at 12% per annum as provided in
Section 3.6 and the remaining $7.875 million shall bear
interest as provided in Section 3.9.(a)(iii). Interest on
said loan shall be paid in the same manner and priority as
provided for the preferred return on loans from Partners
pursuant to Section 3.6; or
(iii) At such other times as the Partners shall
unanimously determine that additional funds are needed to
carry on the business of the Partnership. In the absence of
such agreement, Showboat shall, subject to the limitations
in Section 10.2, make such additional Capital Contributions
or loans as are needed to carry on the business of the
Partnership.
(c) Additional Capital Contributions pursuant to the first
sentence of (iii) above shall be made by the Partners in the
following percentages:
Waterfront 45%
Showboat 55%
--------
100%
========
3.9. FAILURE TO CONTRIBUTE
(a) If either Waterfront or Showboat should fail to make
any Capital Contribution or a required loan on or before the date
such contribution or loan is due (the "Defaulting Partner"), such
failure shall constitute a default under this Agreement and the
other Partner (the "Non-Defaulting Partner") may, at any time
thereafter while the contribution remains unpaid, serve written
notice ("Notice of Demand") upon the Defaulting Partner requiring
it to make the Capital Contribution or loan, together with all
costs and expenses that may have been incurred by the Partnership
by reason of the nonpayment. The Notice of Demand shall specify
a date (which shall be not less than ten (10) days after the date
of the notice) on which, and the place at which, the contribution
or loan and such costs and expenses are to be paid. In the event
of the nonpayment of the additional Capital Contribution or loan
on such date and at such place, the Non-Defaulting Partner shall
have the right:
(i) To buy the Defaulting Partner's Interest for an
amount equal to the fair market value of the Defaulting
Partner's Interest, computed as set forth in Section 9.1
(and for purposes of such computation, the valuation date
shall be the end of the month next preceding the month in
which such contribution or loan should have been made, as
set forth in the notice contemplated by this Section), such
amount to be payable in cash at a closing to be held in East
Chicago, Indiana on a date set by the Non-Defaulting Partner
not later than ninety (90) days after the Non-Defaulting
Partner gives written notice of such election to the
Defaulting Partner, which notice must be given thirty (30)
days after the expiration of the period specified in the
Notice of Demand, provided, however, that
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the closing may be extended for a reasonable period of time
in the event the procedures set forth in Section 9 have not
been completed within said 90-day period;
(ii) To sue the Defaulting Partner or any guarantor
to cause such Capital Contribution or loan to be made or to
sue for damages for the failure to do so; or
(iii) To advance to the Partnership an amount equal to
the Defaulting Partner's required additional Capital
Contribution or loan, and the amount so advanced, together
with any corresponding Capital Contribution made by the Non-
Defaulting Partner for its own account shall be considered
loans to the Partnership and shall be repaid by the
Partnership to such Non-Defaulting Partner with interest
thereon at an annual rate four (4) percentage points above
the rate shown in the Wall Street Journal (or its successor
publication) from time to time as the prime rate for money
center banks but with a floor of twelve percent (12%) per
annum, which rate shall be determined on the first day of
each month and shall be applied to the loan balance for the
month. However, in no event shall the interest rate exceed
the maximum lawful rate. Such interest shall be payable
quarterly.
(b) A Non-Defaulting Partner entitled to the remedies set
out in subsections (ii) and (iii) above may pursue both
simultaneously.
4. ALLOCATIONS AND DISTRIBUTIONS
4.1. DEFINITIONS
As used herein, the terms "Income," "Gain," "Loss,"
"Deduction," and "Credit" shall have the same meanings as are
generally used and understood in the context of subchapter K of
the Code, and the term "Depreciation" shall have the same meaning
as is generally used and understood in the context of Sections
167 and 168 of the Code.
4.2. ALLOCATION OF INCOME, GAIN, LOSS, DEDUCTION
(INCLUDING DEPRECIATION), AND CREDIT
(a) GENERAL. Each item of Partnership Income, Gain,
Loss, Deduction (including Depreciation), and Credit, as
determined for federal income tax purposes, shall be allocated
between the Partners and shall be credited to (in the case of
Income, Gain, and Credit) or charged against (in the case of Loss
or Deduction (including Depreciation)), their respective capital
accounts in proportion to their Percentage Interests in the
Partnership.
(b) COMPLIANCE WITH SECTION 704(C) OF THE CODE. In
accordance with Section 704(c) of the Code and applicable
Regulations, items of Income, Gain, Loss and Deduction
(including Depreciation) with respect to any property
contributed to the Partnership shall, solely for tax purposes,
be allocated among the Partners so as to take account of any
variation between the adjusted basis of such property to the
Partnership for federal income tax purposes and the fair
market value ascribed to that property under this Agreement.
In addition, in the event the value of any Partnership
asset is required to be adjusted pursuant to the provisions of
Section 704(b) and the Regulations thereunder, subsequent
allocations of items of Income, Gain, Loss and Deduction
(including Depreciation) for tax purposes with respect
to such assets shall take account of any
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variation between the adjusted basis of such asset for federal
income tax purposes and its adjusted value, in the same manner as
under Section 704(c) of the Code and the applicable Regulations.
(c) SPECIAL ALLOCATIONS. Notwithstanding the provisions
of Section 4.2(a) above, the following allocations of Profits and
Losses shall be made:
(i) MINIMUM GAIN CHARGEBACK. Except as otherwise
provided in Section 1.704-2(f) of the Regulations, in the
event that there is a net decrease in the Partnership
Minimum Gain during any taxable year, each Partner shall be
allocated items of income and gain for such year, and, if
necessary, subsequent years, in an amount equal to such
Partner's share of the net decrease in such Partnership
Minimum Gain during such year in accordance with Section
1.704-2(g) of the Regulations. Any such allocation for a
given year shall consist first of gains from the disposition
of property subject to Partner non-recourse debt and then,
if necessary, a pro rata portion of the Partnership's other
items of income and gain for such year. If there is
insufficient income and gain in a year to make the
allocations specified in this section for all Partners for
such year, the income and gain shall be allocated among the
Partners in proportion to the respective amounts they would
have been allocated had there been an unlimited amount of
income and gain for such year. This section is intended to
comply with the Minimum Gain Chargeback requirement of
Section 1.704-2(f) of the Regulations and shall be
interpreted consistent with that section.
(ii) PARTNERSHIP MINIMUM GAIN CHARGEBACK. Except
as otherwise provided in Section 1.704-2(i)(4) of the
Regulations, in the event there is a net decrease in the
Minimum Gain attributable to a Partner non-recourse debt
during any taxable year, each Partner with a share of such
Minimum Gain shall be allocated income and gain for the year
(and, if necessary, subsequent years) in accordance with
Section 1.704-2(i) of the Regulations. Any such allocation
for a given year shall consist first of gains from the
disposition of property subject to Partner non-recourse
debt, and then, if necessary, a pro rata portion of the
Partnership's other items of income and gain. If there is
insufficient income and gain in a year to make the
allocations specified in this section for all such Partners
for such year, the income and gain shall be allocated among
such Partners in proportion to their respective amounts they
would have been allocated had there been an unlimited amount
of income and gain for such year. This section is intended
to comply with the Chargeback requirement of Section
1.704-2(i)(4) of the Regulations and shall be interpreted
consistent with that section.
(iii) QUALIFIED INCOME OFFSET. Any Partner who
unexpectedly receives an adjustment, allocation, or
distribution described in subparagraphs (4), (5) or (6) of
Section 1.704-1(b)(2)(ii)(d) of the Regulations, which
adjustment, allocation or distribution creates or increases
a deficit balance in that Partner's Capital Account, shall
be allocated items of "book" income and gain in an amount
and manner sufficient to eliminate or to reduce the deficit
balance in that Partner's Capital Account so created or
increased as quickly as possible in accordance with Section
1.704-1(b)(2)(ii)(d) of the Regulations and its requirements
for a "qualified income offset."
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For purposes of this section, Capital
Accounts shall be adjusted as provided for in Sections
1.704-1(b)(2)(ii)(d), 1.704-2(g)(1) and 1.704-2(i)(5) of the
Regulations. The Partners intend that the provisions set
forth in this section will constitute a "qualified income
offset" as described in the Regulations. Regulations shall
control in the case of any conflict between those
Regulations and this subjection.
(iv) ALLOCATION OF NET INCOME. The net income of
the Partnership shall be allocated as follows: (i) to each
Partner with a negative Capital Account, pro rata in an
amount equal to (or in proportion to if less than) the
amount of the negative Capital Account of each such party;
and thereafter (ii) to the Partners in accordance with their
Percentage Interests.
(v) ALLOCATION OF NET LOSSES AND NON-RECOURSE
DEDUCTIONS.
(a) Net losses shall be allocated as
follows:
(A) To the Partners with positive
Capital Accounts, in accordance with the ratio of
their positive Capital Account balances, until no
Partner has a positive Capital Account; and
thereafter,
(B) To the Partners, in accordance
with the ratio of their Percentage Interests.
(b) After the allocations of net losses,
non-recourse deductions shall be allocated in
accordance with the Partner's Percentage Interests.
(c) After the allocations of net losses and
non-recourse deductions, Partner non-course deductions
shall be allocated between the Partners as required in
Section 1.704-2(i)(1) of the Regulations, in
accordance with the manner in which the Partner or
Partners bear the economic risk of loss for the
Partner non-recourse debt corresponding to the
Partner non-recourse deductions, and if more than
one Partner bears such economic risk of loss for a
Partner non-recourse debt, the corresponding Partner
non-course deductions must be allocated among such
Partners in accordance with the ratios in which the
Partners share the economic risk of loss for the party
non-recourse debt.
(vi) TAX ALLOCATIONS. To the extent permitted by
Section 1.704-1(b)(4)(i) of the Regulations, all items of
income, gain, loss and deductions for federal and state
income tax purposes shall be allocated in accordance with
corresponding "book" items in accordance with the principles
of Section 704(c) of the Code and Section 1.704-1(b)(4)(i)
of the Regulations. Where any provision depends on the
Capital Account of any Partner, that Capital Account shall
be determined after the operation of all preceding
provisions for the year.
(vii) VARYING INTEREST. Where any Partner's
interest, or proportion thereof, is acquired or transferred
during a taxable year, the Partnership may choose to
implement the provisions of Section 706(d) of the
Code in allocating among the varying interests. The
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<PAGE>
methods, hereinabove set forth, by which net income, net
losses and distributions are allocated and distributed are
hereby expressly consented to by the Partners as an express
condition of becoming a Partner.
(d) DETERMINATION OF PROFITS AND LOSSES. For purposes of
this Agreement, profits and losses shall be determined in
accordance with the accounting method utilized by the Partnership
for federal income tax purposes, with the following adjustments:
(i) Items of gain, loss and deduction shall be
computed based upon the Carrying Value of each of the
Partnerships' assets rather than upon each such asset's
adjusted basis for federal income tax purposes.
(ii) Any tax exempt income received by the
Partnership shall be included as an item of gross income.
(iii) The difference between the adjusted basis of
any assets for federal income tax purposes and the Carrying
Value of any assets of the Partnership contributed or deemed
contributed to the Partnership shall not be taken into
account.
(iv) Any expenditures of the Partnership described
in Section 705(a)(2)(B) (including any expenditures treated
as being described in Section 705(a)(2)(B) pursuant to the
regulation promulgated under Section 704(b) of the Code)
shall be treated as a deductible expense.
(e) RECAPTURE. In making the allocation of Gain or
Profit among the Partners, the ordinary income portion, if any,
of such Gain or Profit caused by the recapture of cost recovery
or any other deductions shall be allocated among those Partners
who were previously allocated the cost recovery or any other
deductions in proportion to the amount of such deductions
previously allocated to them. It is intended that the Partners,
as between themselves, shall bear the burden of recapture caused
by cost recovery or other deductions which were previously
allocated to them, in proportion to the amount of such deductions
which had been allocated to them, notwithstanding that a
Partner's share of Profits, Losses or Liabilities may increase or
decrease from time to time. Nothing in this Section 4.3(e),
however, shall cause the Partners to be allocated more or less
Gain or Profit than would otherwise be allocated to them pursuant
to this Section 4.
(f) ALLOCATION SAVINGS PROVISION. The allocation method
set forth in this Section 4 is intended to allocate Profits and
Losses to the Partners for federal income tax purposes in
accordance with their economic interests in the Partnership while
complying with the requirements of Section 704(b) of the Code and
the Regulations promulgated thereunder. If in the opinion of the
Managing Partner, the allocation of Profits or Losses pursuant to
the preceding provisions of this Section 4 shall not (1) satisfy
the requirements of Section 704(b) of the Code or the
Regulations thereunder, (2) comply with any other provisions of
the Code or Regulations, or (3) properly take into account any
expenditure made by the Partnership or transfer of an interest
in the Partnership, then withstanding anything to the contrary
contained in the preceding provisions of this Section 4, Profits
and Losses shall be allocated in such a manner so as to reflect
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properly (1), (2) or (3) as the case may be. The Managing
Partner shall have the right to amend this Agreement with the
consent of Waterfront (whose consent shall not be unreasonably
withheld or delayed) to reflect any such change in the method of
allocating Profits and Losses.
4.3 DISTRIBUTIONS AND INVESTMENT OF CASH
(a) (Deleted - No longer used)
(b) Distributable Cash from operations shall be distributed
not less frequently than quarterly. All such distributions shall
be made to the Partners as follows:
(i) first, payment of the Development Fee if not
previously paid pursuant to this Section 4.3 or pursuant to
Section 4.4, below;
(ii) second, return of Waterfront's Capital
Contribution plus unreimbursed Development Expenses, in each
case together with the preferred return thereon provided for
in Section 3.5, if not previously paid pursuant to this
Section 4.3 or pursuant to Section 3.3 above;
(iii) third, to the Partners in an amount equal to the
good faith estimate of the income tax liability of each
Partner (or each Partners' owner or owners) with respect to
the income realized by each partner, including, without
limitation, any income realized pursuant to Section
4.2(c)(iii) hereof, calculated by multiplying such estimated
income by the highest combined federal and state income tax
rates of each such Partner (or its owners), taking into
account whether such Partner (or its owners) will be subject
to corporate or individual taxes.
(iv) fourth, any accrued and unpaid preferred return
on each Partner's outstanding Capital Contribution and
expenses pursuant to Section 3.5 above;
(iv) fifth, to the extent not previously repaid by
this partnership or by Showboat Marina Casino Partnership,
one-fifth (1/5th) (calculated on an annualized basis
together with all prior distributions to such Partner in
that calendar year) of each Partner's outstanding Capital
Contributions, loans (including the Standby Equity
Commitment Loan (as defined in Section 5.13(e))but excluding
the Guarantee Fee (as defined in Section 5.13(e)) and
unreimbursed Development Expenses shall be repaid to the
Partners annually beginning one year after the Opening;
subject, however, to the limitation that (a) no more than
80% of the Distributable Cash available for disbursement
pursuant to the provisions of this subsection shall be
distributed pursuant hereto, provided, however, the Partners
may mutually agree to repay more than one-fifth (1/5) of
each Partner's outstanding Capital Contributions, loans and
unreimbursed Development Expenses; (b) the balance of the
80% of such Distributable Cash available for
distribution shall be distributed pursuant to
subsection 4.3.b(vi) below and (c) the balance of such
Distributable Cash shall be available for distribution
pursuant to subsection 4.3.b(vii) below; and
(vi) sixth, to the extent not previously repaid, to
the payment of the Guarantee Fee as provided under Section
5.13 (e), including interest thereon, subject, however, to
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the limitation that (a) no more than 80% of the
Distributable Cash available for disbursement pursuant to
the provisions of this subsection shall be distributed
pursuant hereto, and (b) the balance of such Distributable
Cash shall be available for distribution pursuant to
subsection 4.3.b(vii) below; and
(vii) the balance, if any, to the Partners in
proportion to their respective Percentage Interests.
(c) All distributions of cash, except for payment of the
Development Fee, reimbursement of Development Expenses, payment
of any preferred return on Partners' Capital Contributions or
Development Expenses and repayment to Partners of loans and
interest thereon, shall be charged to the Partners' respective
Capital Accounts.
(d) All proceeds of the sale or refinancing of part or all
of the assets of the Partnership, net of transaction costs,
repayment of debt and reasonable reserves, shall be distributed
in the following manner to the Partners:
(i) first, payment of the Development Fee if not
previously paid pursuant to this Section 4.3 or pursuant to
Section 4.4, below;
(ii) second, return of Waterfront's Capital
Contribution plus unreimbursed Development Expenses, in each
case together with the preferred return thereon provided for
in Section 3.5, if not previously paid pursuant to this
Section 4.3 or pursuant to Section 3.3 above;
(iii) third, to the Partners in an amount equal to the
good faith estimate of the income tax liability of each
Partner (or each Partners' owner or owners) with respect to
the income realized by each partner, including, without
limitation, any income realized pursuant to Section
4.2(c)(iii) hereof, calculated by multiplying such estimated
income by the highest combined federal and state income tax
rates of each such Partner (or its owners), taking into
account whether such Partner (or its owners) will be subject
to corporate or individual taxes.
(iv) fourth, any accrued and unpaid preferred return
on each Partner's outstanding Capital Contribution and
expenses pursuant to Section 3.5 above;
(v) fifth, to the extent not previously repaid by
this partnership or by Showboat Marina Casino Partnership,
one-fifth (1/5) (calculated on an annualized basis together
with all other distributions to such Partner in that
calendar year) of each Partner's outstanding Capital
Contributions, loans (including the Standby Equity
Commitment Loan (as defined in Section 5.13(e)) but
excluding the Guarantee Fee (as defined in Section 5.13(e)))
and unreimbursed Development Expenses shall be repaid to the
Partners annually (beginning one year after the Opening);
subject, however, to the limitation that (a) no more than
eighty percent (80%) of the proceeds available for
distribution pursuant to the provisions of this subsection
shall be distributed pursuant hereto, provided, however,
the Partners may mutually agree to repay more than
one-fifth (1/5) of each Partner's outstanding
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Capital Contributions, loans and unreimbursed Development
Expenses; (b) the balance of the 80% of such Distributable
Cash available for distribution shall be distributed
pursuant to subsection 4.3.d(vi) below and (c) the balance
of such Distributable Cash shall be available for
distribution pursuant to subsection 4.3.d(vii) below; and
(vi) sixth, to the extent not previously repaid, to
the payment of the Guarantee Fee as provided under Section
5.13 (e), including interest thereon, subject, however, to
the limitation that (a) no more than 80% of the
Distributable Cash available for disbursement pursuant to
the provisions of this subsection shall be distributed
pursuant hereto, and (b) the balance of such Distributable
Cash shall be available for distribution pursuant to
subsection 4.3.b(vii) below; and
(vii) the balance, if any, to the Partners in
proportion to their respective Percentage Interests.
(e) All liquidating distributions shall be made in
accordance with the provisions of Section 11.2 hereof.
(f) All cash distributions, except for repayment to
Partners of loans and interest thereon, shall be made to the
Partners simultaneously.
4.4. DEVELOPMENT FEE
At such time as the Partnership (a) gains control of the
Ground pursuant to Sections 1.14 and 5.6 and (b) has been
licensed to operate a gaming facility by the Commission, each
Partner shall become entitled to a development fee of no less
than $1,000,000. One-half of the development fee shall be paid
to each Partner at the time that the conditions specified in the
preceding sentence have been met. The balance of the development
fee shall be payable in six (6) equal monthly installments
commencing one (1) month after the payment specified in the
preceding sentence, with the balance, if any, payable upon the
Opening. If the Partnership has insufficient funds to make such
payments, Showboat shall make an immediate Cash Capital
Contribution or loan to the Partnership to allow such payments.
5. MANAGEMENT OF THE PARTNERSHIP
5.1. MANAGING PARTNER
The management of the Partnership shall be vested in the
Managing Partner. The Managing Partner shall represent and act
for and on behalf of the Partnership in any matter or thing
whatsoever, being hereby expressly authorized and empowered in
its sole and unlimited discretion to conduct, manage and transact
the business, affairs, and concerns of the Partnership in
accordance with a Budget preapproved by the Partners, except for
those matters described in Sections 5.2 and 5.3 that require the
consent of Waterfront. The Budget shall contain provisions for
economic incentives as specified by the certificate of
suitablility issued to the Partnership by the Indiana Gaming
Commission or the riverboat owner's license, if one is issued.
The Managing Partner shall submit a proposed initial Capital
Budget and a pro-forma five (5) year projection ("Projection")
of operations to Waterfront within thirty (30) days
after the Effective Date and a proposed Operating and Capital
Budget to Waterfront at least thirty days prior to the
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commencement of each calendar year. Waterfront agrees to review
the proposed Budget and to present objections or comments to
Showboat within thirty (30) days of receipt of the Budget.
Showboat agrees to review any such communications from Waterfront
within ten (10) business days of the receipt of such comments.
Waterfront and Showboat shall then promptly meet in person or by
telephone at a time and location mutually convenient and
acceptable to Mr. Michael Pannos on behalf of Waterfront and Mr.
J. Kell Houssels on behalf of Showboat to approve or
appropriately revise and approve the Budget. Waterfront and
Showboat may freely substitute their representatives for this
purpose upon reasonable notice. A dispute over a Budget not
resolved within sixty (60) days of original receipt of such
Budget shall be resolved by arbitration. The Managing Partner
shall continue to operate under a prior approved Operating Budget
if one exists, and has authority to make all payments for taxes,
utilities, insurance and other amounts to third parties outside
of its control necessary for the uninterrupted operation of the
Project.
Managing Partner shall designate the placement of all gaming
equipment and ancillary furnishings and the configuration of
ancillary areas within the vessel. Once operating, the Managing
Partner shall have exclusive control and responsibility for the
operation of the Casino Facilities.
5.2. RESTRICTIONS
The Managing Partner may not do any of the following without
the concurrence of Waterfront which concurrence cannot be
unreasonably withheld or delayed:
(a) Except as otherwise expressly provided for herein,
construct, improve, buy, own, sell, convey, exchange, assign,
rent, or lease any property (real, personal or mixed), or any
interest therein totaling, during any one calendar year, more
than $500,000 unless in an approved Capital Budget;
(b) Borrow money, issue evidence of indebtedness, secure
any such indebtedness by mortgage, deed of trust, pledge, or
other lien, or execute agreements, notes, mortgages, deeds of
trust, assignments, security agreements, financing statements or
other documents relating thereto which involve a credit facility
to carry out the same totaling, during any one calendar year,
more than $500,000 unless consented to by the other Partner;
(c) Make or revoke any election permitted the Partnership
by any taxing authority (including, without limitation, those
within the contemplation of Code Subtitle A, Chapter 1,
Subchapter K), and to act as the tax matters partner for purposes
of Code Subtitle F, Chapter 63, Subchapter C;
(d) Abandon any of the assets of the Partnership in
excess of $50,000;
(e) Perform any act in violation of the terms and
conditions of this Agreement, the Indiana Uniform Partnership
Act, or any other applicable law or regulation;
(f) Make, execute, or deliver any general assignment for
the benefit of creditors or any bond, confession of judgment,
guaranty, indemnity bond or surety bond;
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(g) Initiate or settle any litigation by or against the
Partnership for more than $100,000 or settle any proceeding
before any governmental or regulatory body for more than
$100,000;
(h) Vote any shares of stock owned by the Partnership.
(i) Disburse funds that exceed an approved Operating
Budget by more than five percent (5%) without prior concurrence
of Waterfront. Any such variance in excess of five percent (5%)
shall be promptly reported to Waterfront with reasonable
explanations.
(j) Sell, lease or otherwise dispose of the Vessel.
5.3. ACTIONS REQUIRING UNANIMOUS CONSENT OF THE PARTNERS
(a) So long as Waterfront retains a Partnership Interest
in excess of twenty percent (20%), the following actions or
decisions shall require the unanimous consent of the Partners
which consent shall not be unreasonably withheld or delayed;
(i) sale of all or substantially all of the assets
of the Partnership;
(ii) approval of the initial development plan,
initial Capital Budget and pro-forma Operating Budget for
the Project;
(iii) approval of the annual Operating Budget and
annual Capital Budget, and any amendments thereto;
(iv) amendments to the Partnership Agreement;
(v) material changes in the nature of the business
of the Partnership;
(vi) application for additional gaming licenses by
the Partnership;
(vii) a change in the economic incentives as described
in Section 5.1 of this Agreement; or
(viii) a change in the Partnership auditor.
(b) Notwithstanding subsection 5.3(a)(iv) above, the
Partners agree that any amendment to the Partnership Agreement
which would materially impair the rights of Waterfront contained
herein shall require the consent of Waterfront.
5.4. DEALINGS WITH AFFILIATES
All fees paid or goods or services purchased from a Partner
or its Affiliate shall be at "arms length" on terms no less
favorable to the Partnership than are commercially available to
the Partnership from other customarily available sources. All
such transactions shall require the consent of the unaffiliated
or unrelated Partner, which consent shall not be unreasonably
withheld or delayed. Notwithstanding the foregoing, consent to a
specific transaction shall not be required if the transaction is
expressly included within and identified in an approved Operating
Budget or Capital Budget.
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5.5. REMOVAL OF MANAGING PARTNER
A Managing Partner may be removed by the other Partner in
the event that the Managing Partner shall ultimately be proven,
by an unappealable order or judgment of a court of competent
jurisdiction, to have engaged in criminal acts or acts of fraud
or willful misconduct with respect to the business of the
Partnership. If a Partner is removed as the Managing Partner
pursuant to this section, such removal shall have no effect on
such Partner's Partnership Interest.
5.6. GROUND
Waterfront shall be responsible for locating the Ground,
subject to the approval of Showboat, for the Project and
negotiating a site control agreement, such as a ground lease with
the City of East Chicago, or other appropriate party with respect
to the Ground, allowing the Partnership to develop, construct and
operate the Project. Showboat shall assist Waterfront in
locating the Ground and negotiating the site control agreement.
Wherever possible, Waterfront shall consult with Showboat with
respect to all aspects of negotiating the site control agreement
and any other actions taken by Waterfront in connection with the
development and operation of the Project. The site control
agreement shall be subject to the prior written consent of
Showboat, which consent shall not be unreasonably withheld.
Waterfront shall use its best efforts to obtain the longest
possible term for the site control agreement.
5.7. PARTNERSHIP DEBTS
The Partnership shall be primarily liable to creditors of
the Partnership for all Partnership debts. Each Partner shall be
proportionately liable to such creditors on the basis of such
Partner's Percentage Interest. Each Partner agrees to indemnify
the other Partner to the extent such other Partner may pay to a
creditor of the Partnership any amounts in excess of such
Partner's proportionate share of a Partnership debt.
Notwithstanding anything in this Section to the contrary, the
Partners are responsible for their respective obligations under
Section 11.
5.8. DELEGATION OF AUTHORITY
The Partners may delegate all or any of their powers,
rights, and obligations hereunder, and the person so delegated
may appoint, employ, contract, or otherwise deal with any person,
including any other Partner(s), for the transaction of the
business of the Partnership, which person, under the supervision
of the Partners, may perform any acts or services for the
Partnership as the Partners may approve in writing.
5.9. OTHER VENTURES
Nothing contained herein shall be construed to prevent any
of the Partners from engaging in any other business venture.
Except as expressly provided herein, neither the Partnership nor
any other Partner shall have any rights in and to any such
ventures or the profits, losses, or cash flow derived therefrom.
5.10. EXCULPATION FROM LIABILITY; INDEMNIFICATION
(a) No Partner shall be liable to the Partnership or to any
other Partner because any taxing authority contests, disallows,
or adjusts any item of income, gain, loss, deduction, credit, or
tax preference in the Partnership income tax returns.
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(b) The Managing Partner shall not be liable to the
Partnership or any of the other Partners for, and the Managing
Partner shall be indemnified and held harmless by the Partnership
from and against, any and all claims, demands, liabilities,
costs, expenses (including attorney's fees and court costs), and
damages of any nature whatsoever arising out of or incidental to
the Managing Partner's management of the Partnership's affairs,
except where such claim is based upon the criminal acts, fraud or
willful misconduct of the Managing Partner, or by the breach by
the Managing Partner of any provision of this Agreement. The
indemnification rights herein contained shall be cumulative of,
and in addition to, any and all other rights, remedies, and
recourse of the Managing Partner, whether available pursuant to
this Agreement or at law.
(c) The Partners shall not be liable to the Partnership or
to any of the other Partners for, and the Partners shall be
indemnified and held harmless by the Partnership from and
against, any and all claims, demands, liabilities, costs,
expenses (including attorney's fees and court costs), and damages
of any nature whatsoever arising out of or incidental to the
Partners' management of the Partnership's affairs, except where
such claim is based upon the criminal acts, fraud or willful
misconduct of the Partners, or by the breach by the Partners of
any provision of this Agreement. The indemnification rights
herein contained shall be cumulative of, and in addition to, any
and all other rights, remedies, and recourse of the Partners,
whether available pursuant to this Agreement or at law.
5.11. MEETINGS OF PARTNERS
The Partners shall meet in person or by telephone at least
once each month to discuss the operations of the Partnership.
The Managing Partner shall distribute daily reports of operations
to the Partners.
5.12. REPORTS
Deleted - not used.
5.13. PARTNERSHIP DEVELOPMENT FINANCING
(a) Showboat shall obtain on behalf of the Partnership and
with the assistance of Waterfront, third-party debt financing in
an amount reasonably required for the development of the Project
and operating cash flow deficits for a period of up to one year
after Opening in accord with the initial Capital Budget and the
Projection (collectively "Development Financing"). The
Development Financing shall be nonrecourse to Waterfront and may
be secured by the Partnership's assets or cash flows only. Any
financing obtained by Showboat shall not require the Partnership
to issue warrants, participation of equity or cash flow or other
equity "kickers" except as may be specifically agreed to by all
Partners. Subject to Force Majeure, if Showboat is unable to
obtain the Development Financing, or if it elects not to pursue
the Development Financing, it shall make an additional Capital
Contribution or loan to fund such necessary amounts. Showboat
shall, on or before one hundred twenty (120) days after the
issuance of a certificate of suitability to the Partnership or
such later date as the Securities and Exchange Commission has
permitted for the effectiveness of the Registration Statement for
the proposed debt financing if such financing is raised in a
public offering required to be registered under the Securities
Act of 1933 (the "Funding Date") and further subject to market
conditions, (i) obtain the Development Financing, (ii) make such
capital contribution in lieu thereof, or (iii) obtain an
unconditional letter of credit, a guaranty of timely and
sufficient financing from a reputable financial institution with
sufficient assets, a
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bridge loan in the amount of the Development Financing or other
similar instrument demonstrating the clear availability of the
funds equal to the Development Financing from a reputable
financial institution with sufficient assets, all in a time frame
consistent with that set forth in the Capital Budget. Showboat
shall use its best efforts to timely and in good faith complete
all financing arrangements by such Funding Date. The failure of
Showboat to timely provide the Development Financing or, in the
alternative, to make a sufficient Capital Contribution or loan,
shall constitute a breach of this Agreement and a failure of
Showboat to make the Capital Contribution or loan shall entitle
Waterfront to the remedies resulting therefrom in Section 3.9 of
this Agreement.
(b) The Partnership will form another Indiana general
partnership called Showboat Marina Casino Partnership ("Casino")
and a finance corporation (the "Financing Corporation" and
together with Casino, the "Issuers") to serve as joint issuers of
a portion of the Development Financing. The Issuers shall be
formed by Showboat pursuant to organizational documents in form
and substance acceptable to both Partners. The only other
partner of Casino shall be an Indiana general partnership formed
for that purpose called Showboat Marina Investment Partnership
("Investment"). Investment shall be formed by the Partners and
the equity interests in Investment shall be owned by the Partners
in the same percentages as the Percentage Interests of the
Partners in this Partnership. The Partnership shall hold a
ninety-nine percent (99%) interest in Casino and Investment shall
hold a one percent (1%) interest in Casino. The Partnership
shall be the managing partner of Casino.
(c) The Partnership shall enter into a management
agreements (the "Management Agreement") with Casino providing,
among other things, for the payment of a management fee to the
Partnership of at least two percent (2%) of net revenue (as
defined in the Management Agreement)of the Project and five
percent (5%) of earnings before interest expense, taxes,
depreciation and amortization of the Project. The Management
Agreement shall further provide that all costs, expenses,
funding, operating deficits, operating capital and other
liabilities incurred due to the operation of the Project shall be
the sole and exclusive obligation of Project.
(d) Showboat, Inc., the parent of Showboat, has agreed that,
if the proceeds of the Development Financing and the Capital
Contributions or loans are insufficient to meet the costs of
developing, constructing and opening the Project, Showboat, Inc.
will provide additional funds up to a maximum of $30.0 million to
complete the Project, subject to the debt covenants in Showboat
Inc.'s indentures for its 9 1/4% First Mortgage Bonds, its 13%
Senior Subordinated Notes, and in connection with the Development
Financing (the "Completion Guaranty"). Showboat shall cause
Showboat, Inc. to (i) provide the Completion Guaranty in form and
substance acceptable to Showboat, Inc. and the initial purchasers
of the Development Financing, (ii) to perform all of its
obligations under the Completion Guaranty, and (iii) agree not to
enter into additional covenants which would materially further
limit its ability to comply with the Completion Guaranty.
Moreover, the Partners recognize and acknowledge that, (i)
in the current interest rate climate for debt transactions for
gaming operations, equity or cash flow participation is commonly
sought by prospective bond purchasers; and (ii) the Partners are
currently discussing a possible debt transaction that may include
a cash flow participation in the net income from operations of
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the Partnership in favor of bondholders. The Partners agree that
neither shall unreasonably withhold consent to cash flow
participation as long as such participation is similar to
participation rights required by debt transactions completed
within six months of the Development Financing. Any such cash
flow participation shall be in the nature of that currently being
discussed by the Partners with Donaldson, Lufkin & Jenrette
Securities Corporation as underwriters of the Development
Financing.
(e) The Partners anticipate that, in connection with the
Development Financing, Showboat, Inc. will agree to provide to
the Issuers a written standby equity commitment (the "Standby
Equity Commitment"), which will provide that if the cash flow (as
defined therein) of the Issuers is less than $35.0 million for
any of the first three full fiscal four-quarter periods after
Opening, Showboat, Inc. will contribute to the Issuers cash in an
amount equal to the difference between $35.0 million and the
amount of such cash flow, subject to limits of $15.0 million in
any one such period and $30.0 million in the aggregate. Any
payments made by Showboat, Inc. to the Issuers pursuant to the
Standby Equity Commitment shall be treated as a loan to the
Partnership for purposes of this Agreement. Showboat shall be
entitled to receive a fee from Waterfront (the "Guaranty Fee") in
the amount of $5.2 million for agreeing to provide the Standby
Equity Commitment. The Guaranty Fee shall become due and payable
upon the occurrance of both of the following events: (1) the
issuance of the Standby Equity Commitment and (2) sufficient
Distributable Cash to meet all of the obligations of Section 4.3
(b)(i) through Section 4.3 (b)(v), Section 4.3 (d)(i) through
Section 4.3 (d)(v) and/or Section 11.2 (a) through Section 11.2
(g); as may be applicable. Until it becomes due and payable, the
Guarantee Fee shall be treated as a loan from Showboat to the
Partnership under Section 3.6. Upon issuance of the Standby
Equity Commitment, the Partnership shall book a receivable from
Waterfront in an amount equal to $5.2 million (the "Waterfront
Receivable"). The Partnership shall pay the Guaranty Fee only
from Distributable Cash or, should the Put Option described in
Article 6 be exercised at a time at which the Waterfront
Receivable has not been paid in full, such remaining portion of
the Waterfront Receivable shall be due and payable from the Put
Option proceeds. At such time as the Partnership pays the
Guaranty Fee from Distributable Cash pursuant to Sections
4.3(b)(v), 4.3(d)(v) or 11.2(g), the Waterfront Receivable will
be reduced dollar for dollar, with an offsetting reduction in
Waterfront's Capital Account. In accordance with Section
4.2(c)(iii) hereof, Waterfront shall be allocated items of gross
income by the Partnership to the extent such reduction in their
Capital Account causes or increases a deficit balance in such
Capital Account. In addition to any amounts otherwise
distributable to Waterfront pursuant to Sections 4.3(b)(iii),
4.3(d)(iii) or 11.2(e) to the extent it is determined that the
payment of the Guaranty Fee to Showboat results in income to
Waterfront other than as income allocated to Waterfront by the
Partnership, such income shall be taken into account in
determining the distribution to be made to Waterfront pursuant to
such sections.
(f) The Partners expect that Showboat, Inc. will be
required to provide support to assist the Partnership in
obtaining a bond as directed by the Commission for certain
economic development obligations to the City of East Chicago.
Showboat, Inc. has agreed to provide the support for such a bond,
if required to do so by the Commission, and Showboat shall cause
Showboat, Inc. to provide this support, if so required. Neither
Showboat nor Showboat, Inc. shall be entitled to any fee or other
compensation from the Partnership or the Issuers for agreeing to
provide or providing such support.
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5.14. MANAGEMENT AGREEMENT
Subject to the provision of Section 6, in the event that the
Project is sold by the Partnership, a provision in the sale
contract shall require that the purchaser enter into a management
agreement with Showboat, Inc. for the balance of the term of the
site control agreement for the Ground substantially in the form
of the Management Agreement.
6. PUT OPTION
Upon the third anniversary of the commencement of the
Opening and ending sixty (60) days thereafter, Waterfront may
elect to require Showboat to purchase all or a portion of
Waterfront's Partnership interest (the "Disposition Portion")
either by (i) a series of three (3) payments as described below
or (ii) by distributing the entire Partnership Distributable
Cash, cash from sales or refinancings and liquidating
distributions to Waterfront for a period of four (4) years on
account of Showboat's acquisition of Waterfront's Disposition
Portion. Showboat shall have a period of sixty (60) days to
elect option (i) or (ii).
If Showboat elects option (i) above, Showboat shall
immediately purchase, at a minimum, one-third (1/3) of
Waterfront's Disposition Portion. The remaining portion of
Waterfront's Disposition Portion shall be purchased by Showboat
in no more than two (2) additional installments, on the fifth
anniversary and the seventh anniversary of the Opening. At the
fifth anniversary Showboat shall purchase, at a minimum, one-half
(1/2) of Waterfront's remaining Disposition Portion not purchased
on the third anniversary. Any remaining Disposition Portion
shall subsequently be purchased by Showboat on the seventh
anniversary of the Opening.
The purchase price of Waterfront's Disposition Portion under
either option shall be calculated by multiplying the percentage
Disposition Portion being purchased by Showboat by the equity
market value of the Project ("Fair Value"). The Fair Value shall
be determined by multiplying the Project's earnings before
interest, taxes, depreciation and amortization ("EBITDA") for the
most recent four (4) calendar quarters for which quarterly
financial statements have been prepared immediately preceding the
respective anniversary dates under option (i) and immediately
preceding the date of election under option (ii) by the average
of the ratios of the sum of the market value of equity plus long-
term debt divided by EBITDA of the seven (7) Comparable Companies
for the same period, provided, however, the EBITDA multiplier
shall not be less than five (5) nor more than ten (10). Attached
hereto and incorporated herein by reference as Exhibit B is a
calculation format of the Fair Value of Waterfront's Disposition
Portion.
The Partnership may not incur additional indebtedness to
fund the purchase price of Waterfront's Disposition Portion
unless (i) Waterfront's entire Partnership interest is purchased
or (ii) Showboat obtains Waterfront's written consent, which may
be granted or withheld in Waterfront's discretion. The purchase
price may be paid in cash or with registered shares of common
stock of Showboat, Inc., Showboat's parent corporation.
In the event Showboat elects option (ii) above, sums
distributed to Waterfront in excess of amounts otherwise
distributable to it shall be deemed a payment on account of the
purchase price of Waterfront's Disposition Portion. Upon the
seventh anniversary of the Opening all of
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Disposition Portion must be purchased. Waterfront's Percentage
Interest in the Disposition Portion shall pass to Showboat upon
full payment therefore.
The Partners agree that, notwithstanding the foregoing
provisions of this Section, if Showboat, in its sole discretion,
determines within ten (10) days after Waterfront's election that
it is unwilling for any reason to pay the Fair Value for
Waterfront's Disposition Portion as determined by the formula set
forth in this Section, then the Partnership shall retain
reputable investment bankers who shall market the Partnership or
its assets for sale to the highest reputable bidder, but free and
clear of the Management Agreement described in Section 5.14.
Waterfront and Showboat shall be permitted to submit bids for the
purchase of the Partnership or its assets in such event.
7. TRANSFER OF PARTNER'S INTEREST
7.1. RESTRICTIONS ON TRANSFER
Except as may otherwise be expressly provided herein, no
Partner shall sell, assign, pledge, encumber, hypothecate, or
otherwise transfer or dispose of all or any part of its Interest
or share of its Interest, as amended, without the written consent
of the other Partner. No transfer of an Interest shall be made
except in accordance with 68 IAC 5-2 and other applicable
regulations of the Commission. Any sale or other transfer or
attempted transfer in violation of this Agreement shall be null
and void and of no force and effect. Further, no partner shall
be admitted to the Partnership without the unanimous consent of
the Partners. Each Partner acknowledges the reasonableness of
the restrictions on transfers imposed by this Agreement in view
of the relationship of the Partners. Any transfer, with consent,
must be of all of such Partner's Interest, unless Waterfront and
Showboat otherwise agree. This prohibition shall include the
direct disposition of an Interest, as well as any voluntary
transfer (by sale, contract for sale, assignment, pledge,
hypothecation or otherwise) of a controlling interest in the
stock of a Partner, or the merger or other consolidation of a
Partner with or into another Person, but in such event, the
consent of Waterfront and Showboat shall not be unreasonably
withheld or delayed.
Notwithstanding the foregoing, Waterfront's shareholders may
transfer portions of their equity interests, or Waterfront may
issue new shares to new shareholders so long as Michael Pannos
and Thomas Cappas remain officers, directors and collectively,
including immediate family holdings, at least 25% shareholders of
Waterfront. At all times stated herein Waterfront shall have not
more than 35 shareholders each of whom shall be individuals and a
majority of whom shall be residents of the State of Indiana.
7.2. RIGHT OF FIRST REFUSAL
In the event that a Partner ("Transferring Partner") intends
to make a voluntary transfer of part or all of its Interest to a
third party, it shall first offer such Interest to the other
Partner ("Remaining Partner"), who shall have a right of first
refusal with respect to the acquisition of such Interest. In the
event that the Transferring Partner receives a bona fide offer to
purchase acceptable to such Partner, then the Remaining Partner
shall have a right of first refusal to purchase such Interest at
the same price and under the same terms and conditions as are
contained in such written offer, provided that if the transfer of
such Interest is made pursuant to Section 15.1 of this Agreement,
the purchase price shall be that which is set forth in Section
15.1 of this
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Agreement. Upon receipt of any such acceptable offer, the
Transferring Partner shall certify a complete, true and correct
copy of such offer to the Remaining Partner. The Remaining
Partner shall have a period of thirty (30) days from the date of
receipt of such written offer to elect whether or not it intends
to accept or reject such offer. If the Remaining Partner desires
to purchase the interest from the Transferring Partner upon the
same terms and conditions as are set forth in such acceptable
offer (or at a price specified in Section 15.1 of this Agreement,
if applicable), then the Remaining Partner shall notify the
Transferring Partner within ten (10) days of the receipt of such
written offer and shall accompany such notice with an earnest
money deposit equivalent to any earnest money deposit that was
made with the original offer. If the Remaining Partner fails to
notify the Transferring Partner within such ten (10) day period,
such failure to so notify shall be deemed a rejection of such
offer. Rejection of such offer shall not terminate this right of
first refusal as to any other or subsequent sales of the
Interest. In the event of the exercise of the right of first
refusal, the Remaining Partner shall consummate the sale and
purchase of the Interest in accordance with, and within the time
limitations set forth in, the terms and conditions of such offer
to purchase as originally submitted (except with respect to price
if the transfer is made pursuant to Section 15.1 of this
Agreement). In the event that such offer should include as a
part of the consideration to be paid any particular or unique
property, or the exchange of any other property, the Remaining
Partner shall not be required to deliver to the Transferring
Partner such property, but may satisfy such obligations by the
payment to the Transferring Partner of cash in an amount
equivalent in value to such other property. The Transferring
Partner may not combine the sale of an interest with the sale of
any other asset. A transfer shall include a sale or a contract
for sale of all or part of an Interest as well as the sale,
contract for sale or assignment of a controlling interest in the
Stock of a Partner or a merger or other consolidation of a
Partner with or into another Person.
7.3. CONTINUING LIABILITY
Unless otherwise agreed, in the event a Partner sells,
exchanges, assigns or otherwise transfers its Interest (including
any transfer in accordance with Section 8 of this Agreement),
such Partner shall remain liable for all obligations and
liabilities incurred by such Partner as a Partner prior to the
effective date of such transfer (including any tax liability of
such Partner), but shall be free of any obligations or
liabilities incurred on account of the activities of the
Partnership after such date.
8. PARTNER DEFAULT
8.1. DEFINITION OF DEFAULT
The occurrence of any one or more of the following events
which is not cured within the time permitted shall constitute a
default under this Agreement (hereinafter referred to as a
"Default" or an "Event of Default," as the case may be) as to the
Partner failing in the performance or effecting the breach act.
8.2. DEFAULTS
(a) A Partner fails in a material way to properly staff and
timely perform its duties and obligations hereunder.
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(b) A Partner fails to perform or materially comply with
any of the covenants, agreements, terms or conditions contained
in the Agreement applicable to it, provided that the remedy of a
nondefaulting Partner for a Partner's failure to make a Capital
Contribution or a required loan is treated exclusively in Section
3.9 of this Agreement.
8.3. BUYOUT REMEDY
Ten (10) days after notice of the occurrence of a default
where such default is not cured, an Event of Default shall be
deemed to exist. Upon the occurrence of an Event of Default, the
Partner not in default ("Offering Partner") shall have ten (10)
days to provide a notice ("Offering Notice") to the other Partner
(the "Non-Offering Partner"), propose a price per one percent
(1%) Partnership Interest (the "Offering Price") at which the
Offering Partner is ready, willing and able either to (i) sell to
the Non-Offering Partner all of the Offering Partner's Interest,
or (ii) purchase from the Non-Offering Partner all of its
Interest. The Offering Notice shall be presented in the
alternative as described in the previous sentence. The Non-
Offering Partner shall have a period of thirty (30) days after
delivery of the Offering Notice in which to elect, by timely
written notice to the Offering Partner, either to (i) purchase
the Interest of the Offering Partner at the Offering Price, or
(ii) sell all of its Interest to the Offering Partner at the
Offering Price. During such 30-day period and an additional 30-
day period, the Non-Offering Partner may not make any offer of
its own pursuant to this section.
If the Non-Offering Partner fails to elect either
alternative within such 30-day period, then the Offering Partner
may, within 15 days thereafter, elect one of the alternatives.
If the Offering Partner fails to select an alternative within
that 15-day period, the Offer shall lapse.
If one of the alternatives is elected by Waterfront or
Showboat in accordance with the terms of this section, payment
for the affected Interest shall be made in cash at a closing to
be held in East Chicago, Indiana on a date set by the party
electing one of the alternatives not later than ninety (90) days
after such election.
8.4. INJUNCTIVE RELIEF
If a Partner violates any provision of Sections 5.4, 5.5, 7
or 12 of this Agreement, the other Partner shall also be entitled
to remedies in equity.
9. DETERMINATION OF FAIR MARKET VALUE
9.1. FAIR MARKET VALUE
If Waterfront and Showboat cannot agree within fifteen (15)
days following the commencement of circumstances calling for a
determination of the fair market value of a Partnership Interest
("Valuation Interest"), they shall thereupon attempt in good
faith, to agree upon a single appraiser to appraise the Valuation
Interest. If they cannot agree upon a single appraiser within
fifteen (15) days, either of them (the "Electing Partner") may
give the other (the "Other Partner") a written notice calling for
appointment of an appraisal panel (the "Appraisal Panel"), and
such notice shall designate a disinterested person who is
familiar with the gaming operations and recognized by those in
the business of operating gaming facilities as one who could
fairly and accurately evaluate a gaming operation (the "First
Appraiser") to serve on the Appraisal Panel.
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Upon receipt of such notice, the Other Partner shall have
seven (7) days in which to designate a disinterested person who
is familiar with gaming operations and recognized by those in the
business of operating gaming facilities as one who could fairly
and accurately evaluate a gaming operation (the "Second
Appraiser") to serve on the Appraisal Panel by serving notice of
such designation on the Electing Partner. If the Second
Appraiser is not so appointed and designated within or by the
time so specified, then the First Appraiser shall be the sole
appraiser to determine the fair market value of the Valuation
Interest. Upon the designation, if any, of the Second Appraiser,
the First Appraiser and the Second Appraiser shall themselves
appoint a third disinterested person who is familiar with gaming
operations and recognized by those in the business of operating
gaming facilities as one who could fairly and accurately evaluate
a gaming operation (the "Third Appraiser") within seven (7) days.
If the First Appraiser and the Second Appraiser are unable to
agree upon such appointment within seven (7) days, then the
Electing Partner shall request such appointment by the president
and executive committee of the Indiana Chapter of the American
Institute of Real Estate Appraisers. In the event of failure,
refusal or inability of any appraiser to act, a new appraiser
shall be appointed in the stead thereof, which appointment shall
be made in the same manner as provided in this Section 9 for the
appointment of such appraiser so failing, refusing or being
unable to act.
The one or three appraisers appointed as the Appraisal Panel
shall each determine the fair market value of the Valuation
Interest, taking into account appropriate indicators of the fair
market value thereof in a cash sale between a willing buyer and
seller not under undue duress and shall report their findings to
the Partners in writing. In the case of a three appraiser
Appraisal Panel, if one or more appraisers fail to deliver their
reports within sixty (60) days after the appointment of the Third
Appraiser, a new appraiser shall be appointed in the stead
thereof, which appointment shall be made in the same manner as
provided in this Section 9 for the appointment of such appraiser
failing to deliver his report. The fair market value of the
Valuation Interest shall be equal to the mean of the two closest
appraised values reported by the Appraisal Panel; provided that
if such values are equally distributed, the fair market value of
the Valuation Interest shall be equal to the mean of the three
appraised values reported by the Appraisal Panel. Such
determination shall be conclusive and shall be binding upon the
Partners.
Except as otherwise provided herein, a Partner shall pay the
fees and expenses of the appraiser it appointed, and the fees and
expenses of the third appraiser, and all other expenses, if any,
shall be borne equally by both parties.
To be qualified to be selected or designated as an appraiser
for purposes of this Section 9, an appraiser must demonstrate (a)
current good standing as a licensed appraiser, and (b) past
appraising experience of at least five years, which experience
shall include the appraisal of casino gaming operations.
10. FORCE MAJEURE
10.1. FORCE MAJEURE DEFINED
The following events are beyond the control of either
Partner (a "Force Majeure Event"):
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(a) The unavailability of financing in the marketplace
except at rates in excess of twenty percent (20%), inclusive of
any cash flow participation, per annum; provided that an
obligation to repurchase or prepay at a premium any Development
Financing using a specified percentage of cash flow shall not be
deemed "cash flow participation" for purposes of this subsection.
(b) The passage of material new legislation which reduces
the projected internal rate of return to Showboat for the Project
by more than thirty percent (30%) compared to the Projection.
(c) An increase in the cost of the Project beyond $200
million, with the understanding that the current Capital Budget
is $195 million, including contingencies.
(d) The receipt of material new conditions imposed by the
City of East Chicago or the Indiana Gaming Commission or any
other governmental entity which reduces the projected internal
rate of return to Showboat by more than thirty percent (30%)
compared to the Projection.
(e) A delay in the opening of the Project for more than one
hundred eighty (180) days after the opening date is established
by the Partners or a closure of the Project after Opening for
more than one hundred eighty (180) days.
(f) Any other event which materially alters the assumptions
and underlying facts upon which this Agreement is based and which
is reasonably expected by both Partners to reduce the projected
internal rate of return to Showboat by more than thirty percent
(30%) compared to the Projection.
10.2. ACTIONS TO RESOLVE FORCE MAJEURE EVENTS
In the event of a Force Majeure Event the Partners agree to
first meet in good faith effort to mutually agree on appropriate
courses of action to be taken in connection with a Force Majeure
Event, including the economic effect thereof. In the event that
the Partners fail to agree on a course of action then either
Partner may terminate this Agreement on thirty (30) days written
notice to the other Partner. Provided, however, if the Force
Majeure Event can be cured by the contribution of additional
capital, Showboat shall contribute such capital only in the event
that the contribution shall not be more than thirty-five percent
(35%) of the initial Capital Budget. If amounts beyond that
limitation are required to cure the Force Majeure Event and
Showboat does not provide such additional capital, then
Waterfront shall be entitled to contribute additional capital.
If neither Partner contributes the additional capital, then
Showboat may locate additional capital from qualifying third
parties. If Showboat is unable to do so, Waterfront may then
attempt to locate additional capital from qualifying third
parties.
11. TERMINATION AND LIQUIDATION OF PARTNERSHIP
11.1. TERMINATION
In addition to the provisions for termination of the
Partnership set forth elsewhere in this Agreement, the
Partnership will also terminate upon the sale, assignment or
other disposition of all or substantially all of the tangible
assets of the Partnership unless Waterfront and Showboat
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agree in writing to the contrary. No termination of the
Partnership shall relieve or release any Partner from its
obligation to reimburse the other Partners as a result of such
termination if such termination has been caused by a breach of
any duty or obligation owed by such Partner.
11.2. WINDING UP AND LIQUIDATION
Upon the termination of the Partnership, the Managing
Partner shall act as liquidator of the Partnership in disposing
of and distributing the Partnership's assets. Unless otherwise
agreed upon, the property of the Partnership shall be sold as
soon as practicable following termination of the Partnership, and
any Partner or former Partner may purchase property of the
Partnership on terms mutually agreed upon.
After the disposition of Partnership property and the
appropriate allocation of all items of Income, Gain, Loss,
Deductions (including Depreciation), and Credit in accordance
with the provisions of Section 4 hereof, the proceeds therefrom,
to the extent sufficient therefor, shall be applied and
distributed in the following order:
(a) First, to the payment and discharge of all the
Partnership's debts and liabilities to creditors other than
Partners;
(b) Second, to the payment and discharge of all the
Partnership's debts and liabilities to Partners (other than for
the Development Fee, any unreimbursed Development Expenses, and
accrued and unpaid preferred return pursuant to Section 3.5 and
any loans made by a Partner pursuant to Section 3.6);
(c) Third, to the payment of the Development Fee if not
previously paid pursuant to this Agreement;
(d) Fourth, to the return of Waterfront's Capital
Contribution plus unreimbursed Development Expenses, in each case
together with the preferred return thereon provided for in
Section 3.5, if not previously paid pursuant to this Agreement;
(e) Fifth, to the Partners in an amount equal to the good
faith estimate of the income tax liability of each Partner (or
each Partners' owner or owners) with respect to the income
realized by each Partner, including, without limitation, any
income realized pursuant to Section 4.2(c)(iii) hereof,
calculated by multiplying such estimated income by the highest
combined federal and state income tax rates of each such Partner
(or its owners), taking into account whether such Partner (or its
owners) will be subject to corporate or individual taxes.
(f) Sixth, to the payment of any accrued and unpaid
preferred return on each Partner's outstanding Capital
Contribution, loans and unreimbursed Development Expenses
pursuant to Section 3.5 above;
(g) Seventh, to the extent not previously repaid by this
partnership or by Showboat Marina Casino Partnership, to the
repayment of each Partner's entire unpaid Capital Contribution,
loans (including the Standby Equity Commitment Loan (as defined
in Section 5.13(e))but excluding the Guarantee Fee (as defined in
Section 5.13(e))) and unreimbursed Development Expenses;
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(h) Eighth, to the extent not previously repaid, to the
payment of the Guarantee Fee as provided under Section 5.13 (e),
including interest thereon.
(i) Ninth, the balance, if any, to the Partners in
proportion to their respective positive Capital Account balances.
Upon complete liquidation, dissolution and winding up, the
Partners shall cease to be Partners of the Partnership.
11.3. BANKRUPTCY OR INSOLVENCY; INVOLUNTARY TRANSFER
(a) Subject to the rights and powers of a trustee and court
in bankruptcy under the Bankruptcy Code of 1978 or any similar,
succeeding law, if:
(i) any Partner files a petition in bankruptcy or a
petition to take advantage of any insolvency law, makes an
assignment for the benefit of creditors, consents to or
acquiesces in the appointment of a receiver, liquidator, or
trustee of the whole or any substantial portion of such
Partner's properties or assets, or files a petition or
answer seeking reorganization, arrangement, composition,
readjustment, liquidation, dissolution, or similar relief
under the federal bankruptcy laws or any other applicable
laws; or
(ii) a court of competent jurisdiction shall enter an
order, judgment, or decree appointing a receiver,
liquidator, or trustee of any Partner of the whole or any
substantial portion of the property or assets of such
Partner or approving a petition filed against such Partner
seeking reorganization, arrangement, composition,
readjustment, liquidation, dissolution, or similar relief
under the federal bankruptcy laws or any other applicable
laws, and such order, judgment or decree is not vacated, set
aside or stayed within two (2) months from the date of entry
thereof;
then the other Partner shall have the right, but
not the obligation, to purchase the entire Interest of such
bankrupt or insolvent Partner. In the absence of such an
election, the business of the Partnership shall be continued
in the name of the Partnership, in which case there shall be
compliance with all of the terms and conditions of this
Agreement.
(b) If a Partner suffers an Involuntary Transfer of part or
all of its Interest, the transferee shall not be a partner
hereunder and shall take such Interest or part thereof subject to
an option in favor of the remaining Partner to acquire such
Interest or part thereof. Until the closing of a sale upon such
election by the remaining Partner, the transferee shall be
entitled to any cash distributions, but shall not be entitled to
any vote, consent or similar rights, if any. An "Involuntary
Transfer" shall mean a transfer due to dissolution of a Partner
or a transfer without the choice of a Partner, including but not
limited to a transfer to a judgment creditor, lienholder or the
holder of a security interest or encumbrance, or a transfer
ordered by a court.
(c) If the other Partner elects to purchase the Interest of
such bankrupt or insolvent Partner or the Interest from a
transferee after an involuntary transfer, such remaining Partner
shall inform the bankrupt or insolvent Partner or transferee of
such election within thirty (30) days after receipt of notice of
institution of bankruptcy proceedings, assignment for the benefit
of creditors,
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or appointment of receiver, liquidator or trustee or
transfer. In such event, the entire Interest shall be purchased
at a price equal to eighty percent (80%) of the fair market value
of such Interest as determined in accordance with Section 9 of
this Agreement, payable in cash at a closing set by the
purchasing Partner within ninety (90) days after the
determination of such value.
12. DISCLOSURE OF OTHER BUSINESS INTEREST CONFLICTS; BUSINESS
OPPORTUNITY
12.1. OTHER BUSINESS INTERESTS
(a) No Partner shall be required to devote its entire time
or attention to the business of the Partnership.
(b) All of the Partners understand that the Partners and
the stockholders of corporate Partners may be interested,
directly or indirectly, individually, or through one or more
Affiliates, in various other businesses outside of Cook County,
Illinois and the State of Indiana, and non-gaming businesses in
East Chicago or elsewhere, not included in this Partnership
("Unrelated Businesses"). The Partners hereby agree that the
creation of the Partnership and the assumption by each of the
Partners of its duties hereunder shall be without prejudice to
its right (or the right of its Affiliates) to have Unrelated
Businesses and to receive and enjoy profits or compensation
therefrom.
12.2. COMPETITION
Waterfront agrees that Showboat and its Affiliates
("Showboat Parties") are pursuing gaming opportunities throughout
the United States and other jurisdictions and may be pursuing
gaming opportunities in Cook County, Illinois. Waterfront
acknowledges that the Showboat Parties may pursue such
opportunities, including opportunities in Cook County, Illinois.
Neither the Showboat Parties nor Waterfront shall engage in other
gaming activities in Indiana. If Showboat or Waterfront or any
of their Affiliates commence gaming operations in Cook County,
Illinois, the other Partner may purchase fifteen percent (15%) of
the first Partner's or its Affiliates' interest in such gaming
venture at the first Partner's or its Affiliates' purchase price
at any time within one (1) year of the opening of such
operation(s). In the event that the Showboat Parties or
Waterfront or their Affiliates enter into a gaming opportunity in
Cook County, Illinois such Partner shall covenant that key
customers of the Project shall not be solicited by such Partner
to become customers of the gaming venture in Cook County nor may
such Partner assign management talent from the Project to the
Cook County gaming venture without the consent of the other
Partner, which consent shall not be unreasonably withheld or
delayed.
The Partners acknowledge that Showboat and/or its Affiliates
operate other casinos and may in the future operate additional
casinos in different areas of the world, including, without
limitation, casinos in the state of Illinois and that marketing
efforts may cross over in the same market and with respect to the
same potential customer base. Showboat, in the course of its
Affiliates managing the Vessel, may refer customers of the Vessel
and other parties to other facilities operated by Affiliates of
Showboat to utilize gaming, entertainment and other amenities,
without payment of any fees to the Partnership or the Partners.
The Partnership and the Partners acknowledge and agree that
Showboat or its Affiliates may distribute promotional materials
for Showboat or its Affiliates and facilities, including casinos,
at the Riverboat. However, if such
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facility to which a customer of the Project would be referred or
which is promoted is within a county identified below, the
consent of Waterfront shall be required, which consent may be
withheld in Waterfront's sole discretion.
MICHIGAN COUNTIES ILLINOIS COUNTIES
Berrien Cook
Van Buren DuPage
Allegan Grundy
Cass Lake
St. Joseph Will
Branch Kentall
Kankakee
12.3. BUSINESS OPPORTUNITY
In the event that a Partner or any of its Affiliates has the
opportunity to acquire an interest in any Unrelated Business (a
"Business Opportunity"), whether individually or as a member of a
partnership or joint venture or other entity or as a shareholder
of a corporation, such Partner or its Affiliate shall not be
required to offer such Business Opportunity to the Partnership or
to the other Partners except as expressly required hereunder, and
the failure of such Partner or its Affiliate to do so shall not
constitute a breach of such Partner's fiduciary duty to the
Partnership or to the other Partners.
13. TAX MATTERS; BOOKS AND RECORDS; ACCOUNTING
13.1. TAX MATTERS
If unanimously approved by the Partners, the Partnership
shall file an election under Section 754 of the Code in
accordance with applicable regulations, to cause the basis of the
Partnership's property to be adjusted for federal income tax
purposes as provided by Sections 734 and 743 of the Code.
No election shall be made by the Partnership or by any of
the Partners to be excluded from the application of the
provisions of Subchapter K of the Code or any similar provisions
of the state tax laws.
The Managing Partner is designated as the "Tax Matters
Partner."
13.2. INDEMNITY AGAINST BREACH
Each Partner agrees that it will indemnify and hold the
Partnership and the other Partners harmless from and against any
and all losses, costs, liabilities and expenses, including, but
not limited to, attorneys' fees of every kind and description,
absolute and contingent, which result from any breach of this
Agreement by such indemnifying Partner.
Except as may otherwise be decided pursuant to Section 13.1,
in the event any claim or liability (which if proved would
constitute, or create a liability subject to indemnification
under this Section 13.2) is made or asserted against the
Partnership or a Partner (collectively the
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"Accused party") it shall notify the Partner which the Accused
party believes should indemnify the Accused party pursuant to the
provisions of this Section 13.2 (the "Notified Partner") in
writing that such claim or demand has been made. Upon receipt of
such notice, the Notified Partner (a) shall be entitled to
participate at its own expense in the defense of such suit
brought to enforce any claim, or (b) in the event the Notified
Partner and the Accused party agree that the Notified Partner
would be wholly liable for, and is financially able to satisfy,
such claim, the Notified Partner may elect to assume the defense
thereof, in which event it shall not be liable for attorneys'
fees and court costs thereafter incurred by the Accused party in
defense of such action, or (c) the Notified Partner and the
Accused party may agree to conduct a defense jointly and to share
expenses in any manner in which they agree.
Payment of sums finally determined to be due hereunder shall
be made upon demand to the Partner or Partnership to whom a right
of indemnity has accrued under this Section 13.2. The Partner
entitled to payment shall also be entitled to receive reasonable
attorneys' fees for collection of such payment if not paid within
thirty (30) days after demand is made, if such Partner or the
Partnership prevails in any claims against another Partner for
any such payment hereunder.
13.3 RECORDS
Accurate, current, and complete books, shall be maintained
on a calendar year and accrual basis in accordance with generally
accepted accounting principles consistently applied and for tax
purposes the Partnership's tax year will be the tax year of the
Managing Partner in accordance with the federal tax laws. The
Partnership shall keep any and all other records necessary,
convenient, or incidental to recording the business and affairs
of the Partnership. The Managing Partner shall provide monthly,
quarterly and annual unaudited income statements, balance sheets
and changes in cash position to Waterfront not later than twenty-
eight (28) days after each calendar month, forty-five (45) days
after each calendar quarter and sixty (60) days after each
calendar year. Waterfront shall keep monthly statements
confidential at its board level.
The Managing Partner shall select the Partnership's Auditor
and shall determine all matters regarding methods of depreciation
and accounting and shall make all tax elections and decisions
relating to taxes.
The Partnership's Auditor shall audit the books and records
of the Partnership annually and render an opinion on the
financial statements of the Partnership as of the end of each
calendar year. Copies of the financial statements certified by
the Partnership's Auditor shall be provided to the Partners
within ninety (90) days following the end of each calendar year.
Waterfront may designate an additional reputable accounting firm
("Special Auditor") to conduct an audit of the operations of the
Partnership at Waterfront's expense; provided, however, that if
the additional audit by the Special Auditor shall reveal a
discrepancy in gross revenues, net income or cash to be
distributed to the Partners of more than three percent (3%),
Showboat shall bear the costs of such audit.
The Partners and their representatives shall have the right
to inspect the books and records of the Partnership at any time
during normal business hours.
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13.4. NOTICES
Any notice which may be or is required to be given hereunder
shall be deemed given 3 days after such notice has been
deposited, by registered or certified mail, in the United States
mail, addressed to the Partnership or the Partners at the
addresses set forth after their respective names below, or at
such different addresses as to the Partnership or any Partner as
it shall have theretofore advised the other parties in writing:
Partnership: Showboat Indiana, Inc.
2800 Fremont Street
Las Vegas, Nevada 89104
with a copy to: Waterfront Entertainment and
Development, Inc.
8101 Polo Club Drive, Suite D
Merrillville, Indiana 46410
Waterfront: Waterfront Entertainment &
Development, Inc.
8101 Polo Club Drive, Suite D
Merrillville, Indiana 46410
with a copy to: Phillip L. Bayt, Esq.
Ice Miller Donadio & Ryan
One American Square
Indianapolis, Indiana 46282
Showboat: Showboat Indiana, Inc.
2800 Fremont Street
Las Vegas, Nevada 89104
with a copy to: John N. Brewer, Esq.
Kummer Kaempfer Bonner & Renshaw
Seventh Floor
3800 Howard Hughes Parkway
Las Vegas, Nevada 89109
13.5. REPORTS TO PARTNERS
The Partners agree that the Managing Partner will provide
all of the information necessary for the preparation of a U.S.
Partnership Return of Income (Form 1065) for the Partnership
accounts within two (2) months after the close of each calendar
year. The Managing Partner agrees to provide each of the
Partners with all information necessary for their timely
preparation of the required U.S. Income tax returns.
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14. TRADEMARKS AND LICENSES
14.1. SHOWBOAT MARKS
Showboat, Inc., the parent corporation of Showboat, is the
owner of the marks and trade names listed on Exhibit C
(collectively "Showboat Marks"). Showboat, Inc. has reserved to
itself certain rights, most particularly those rights concerned
with the exploitation of the Showboat Marks. Showboat, Inc.
believes that the Showboat Marks have and will increasingly
become a popular and valuable asset in various fields of use not
only throughout the United States but also in foreign countries.
14.2. USE OF MARKS BY PARTNERSHIP
Showboat shall cause Showboat, Inc. to grant to the
Partnership the non-exclusive license to use the Showboat Marks
in connection with the Project at no cost to the Partnership only
for such period of time that Showboat is the Managing Partner
(the "Use Period"), provided that such use is in accord with
reasonable criteria established by Showboat, Inc. Upon
termination of the Use Period all uses of the Showboat Marks
shall cease and the Partnership shall remove from the vessel and
the Casino Facilities any furnishings, personal property,
fixtures and other items which contain any of the Showboat Marks.
15. GENERAL PROVISIONS
15.1. FOREIGN GAMING LICENSES
If Showboat determines, at its sole discretion, that any of
its gaming licenses in other jurisdictions may be adversely
affected or in jeopardy because of its status as a Partner,
Showboat shall have the option at any such time to sell its
Interest, subject to the right of first refusal granted to
Waterfront. If this occurs prior to or within the first six (6)
months after Opening and Waterfront elects its right of first
refusal, Showboat shall receive as sole compensation for
Waterfront's purchase of its Interest, the Capital Contribution
Showboat has made to the Partnership plus interest thereon at the
Federal funds rate for the period during which its Capital
Contribution was made to the Partnership. If this occurs after
the first six (6) months after Opening and Waterfront elects its
right of first refusal, Showboat shall receive as sole
compensation for Waterfront's purchase of its interest the fair
market value of such interest determined in accordance with
Section 9, payable within ninety (90) days after the
determination of the fair market value. In case of a sale by
Showboat of its Interest under this Section, the Management
Agreement shall terminate upon the consummation of such sale.
15.2. ENTIRE AGREEMENT
This Agreement constitutes the entire understanding of the
Partners with respect to the subject matter hereof, and there are
no understandings, representations, or warranties of any kind
between the Partners except as expressly set forth herein and as
set forth in that certain agreement of even date among Showboat,
Waterfront and Showboat, Inc.
15.3. COUNTERPARTS
This Agreement may be executed in multiple counterparts,
each of which shall be deemed an original and all of which shall
constitute one and the same instrument.
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15.4. CAPTIONS
The captions in this Agreement are solely for the
convenience of the parties and do not constitute a part of this
Agreement.
15.5. AMENDMENT
All additions, changes, corrections or amendments to the
terms, responsibilities, obligations, and conditions contained
herein must and will be in writing signed by all the Partners
before they become effective.
15.6. GRAMMATICAL CHANGES
Whenever from the context it appears appropriate, each term
stated in either the singular or the plural shall include the
singular and the plural, and pronouns stated in either the
masculine, the feminine or the neuter gender shall include the
masculine, feminine and neuter gender as the circumstances
require.
15.7. SUCCESSORS AND ASSIGNS
Subject to the restrictions on transfer expressly set forth
in this Agreement, this Agreement shall inure to the benefit of
and be binding upon, the successors and assigns of the parties
hereto.
15.8. CONSENT OF PARTNERS
Whenever consent of the Partners is required for any action,
such consent shall be by a written instrument signed by the
Partners, sent to the Partners in the manner provided for notices
or by facsimile transmission and deposited in the regular mail
prior to the action requiring the consent being made.
15.9. NO WAIVER
(a) The failure of any Partner or the Partnership to
insist, in any one or more instances, upon observance and
performance of any provision of this Agreement shall not be
construed as a waiver of such provision or the relinquishment of
any other right granted herein or of the right to require future
observance and performance of any such provision or right.
(b) The waiver by any Partner or the Partnership of any
breach of any provision herein contained shall not be deemed to
be a waiver of such provision on account of any other breach of
the same or any other provision of this Agreement.
(c) No provision of this Agreement shall be deemed to have
been waived, unless such waiver be in writing and signed by the
person sought to be charged with a waiver of such provision.
15.10. DISPUTES
In the event any dispute should arise between the parties
hereto where the parties cannot agree on a matter requiring
unanimity, to enforce any provision hereof, for damages by reason
of any alleged breach hereunder, for a declaration of such
party's rights or obligations hereunder, or for any other remedy,
such dispute shall be settled by arbitration by a single
arbitrator pursuant to the rules of the American Arbitration
Association. Such arbitration shall be conducted in East
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Chicago, Indiana in accordance with the rules then in effect by
the American Arbitration Association, provided that the parties
shall be entitled to afford themselves of the discovery allowed
under the then current rules of Federal Civil Procedures for the
Northern District of Indiana. The decision of the arbitrator
shall be final and may be entered as a judgment by a court of
competent jurisdiction for any matter in controversy below
$1,000,000. The decision of the arbitrator where the matter in
controversy is in excess of that amount shall be appealable to a
circuit or superior court in Lake County, Indiana for a mistake
of law or fact. The prevailing party (as determined by the
arbitrator) shall be entitled to recover such amounts, if any, as
the arbitrator may adjudge to be reasonable attorneys' fees for
the prevailing party; and such amount shall be included in any
judgment rendered in such action or proceeding.
15.11. PARTIAL INVALIDITY
If any term, covenant, or condition of this Agreement or the
application thereof to any person or circumstance shall, to any
extent, be invalid or unenforceable, the remainder of this
Agreement or the application of such term, covenant, or condition
to persons or circumstances, other than those as to which it is
held invalid or unenforceable, shall not be affected thereby, and
each term, covenant, or condition of this Agreement shall be
valid and enforced to the fullest extent permitted by law.
15.12. COOPERATION WITH GAMING AUTHORITIES
The Partners shall use their best efforts to cause its
officers, directors, employees and stockholders to provide the
Nevada Gaming Authorities, the New Jersey Casino Control
Commission or such other gaming authority having jurisdiction
over Showboat or its affiliates with such documents and
information necessary for Showboat to (i) obtain the approval of
the Nevada Gaming Authorities or the New Jersey Casino Control
Commission to conduct gaming operations in the state of Indiana,
and (ii) maintain Showboat's and Showboat's Affiliates gaming
licenses.
15.13. ADMINISTRATIVE/DEVELOPMENT/TRADEMARK/LICENSE FEES
Showboat is a subsidiary of Showboat, Inc. Showboat, Inc.
through another subsidiary ("Related Subsidiary") provides
development, management, administrative, trademark and licensing
services (the "Services") to its operating subsidiaries for a
fee. The Partners agree that Showboat may enter into agreements
for such Services for the benefit of the Project. Provided,
however, the fees earned by the Related Subsidiary for Services
rendered to the Partnership shall be paid only from Partnership
distributions to Showboat unless otherwise consented to in
writing by Waterfront.
15.14. APPLICABLE LAW: JURISDICTION
(a) The laws of the State of Indiana shall govern the
validity, performance, and enforcement of the terms and
conditions of this Agreement and any other obligation secured
hereby.
(b) The Partners agree that any proceedings with respect to
the performance or enforcement of this Agreement shall be brought
in the state of Indiana.
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15.15. FINANCING FEES
The Partners agree that, except with respect to the
Development Financing, neither Partner nor any of their
affiliates, shareholders, parents, or other related entities will
seek fees from the Partnership or any other related person or
entity for arranging financing, extending guaranties or otherwise
lending comfort, security or credit support for Partnership
financing or for bringing other assets to the Partnership other
than as specified herein. This Section 15.15 shall not prohibit
the Partnership from paying fees to third parties unrelated to
the Partners.
IN WITNESS WHEREOF, the parties have executed this Agreement
in multiple originals as of the date first hereinabove written.
WATERFRONT ENTERTAINMENT AND
DEVELOPMENT, INC.
By: /s/ Michael Pannos
MICHAEL PANNOS, PRESIDENT
SHOWBOAT INDIANA INVESTMENT LIMITED
PARTNERSHIP, a Nevada Limited
Partnership
By: Showboat Indiana, Inc., its
General Partner
By: /s/ J. Kell Houssels, III
J. KELL HOUSSELS, III,
CHAIRMAN OF THE BOARD
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PROMISSORY NOTE
$41,887,157.78 January 1, 1997
FOR VALUE RECEIVED, Showboat Indiana Investment Limited
Partnership, a limited partnership organized and existing under
the laws of the State of Nevada ("Maker"), promises to pay to
Showboat, Inc., a corporation organized and existing under the
laws of the State of Nevada, or order ("Holder"), at 3720 Howard
Hughes Parkway, Ste. 200, Las Vegas, NV 89109, or at such other
place as Holder may designate in writing, up to the principal
balance of Forty-One Million Eight Hundred Eighty-Seven Thousand,
One Hundred Fifty-Seven & 78/One Hundredths Dollars
($41,887,157.78), plus interest as hereinafter provided.
Interest shall be calculated on a daily basis (based on a 365-day
year), at 14% ("Base Rate"). Principal and interest shall be
payable upon the earlier to occur of (i) demand or (ii) December
31, 1997 (the "Maturity Date").
All payments on this Promissory Note shall be applied
first to discharge all accrued but unpaid interest on the unpaid
principal balance hereof, and the remainder to be applied to the
principal balance. The Holder's acceptance of any payment less
than the amount then due shall not, in any manner, effect or
prejudice the rights of the Holder to receive the unpaid balance
then due and payable.
The failure to pay the unpaid principal sum on the
Maturity Date or the failure to pay any other sum when the same
shall become due and payable shall constitute an event of default
("EVENT OF DEFAULT") hereunder, and upon the occurrence of an
Event of Default, all sums evidenced hereby, including the entire
principal balance, all accrued and unpaid interest and all other
amounts due hereunder shall, at the election of Holder, and
without demand or notice to Maker, become immediately due and
payable and the Holder may exercise its rights under this Note,
and other rights under applicable law.
Upon the occurrence of an Event of Default by Maker,
the unpaid principal balance, and all accrued and unpaid interest
due hereunder and all other costs shall together be treated as
the principal balance of this Promissory Note and shall bear
interest at the rate of three (3) percentage points per annum
greater than the Base Rate (the "DEFAULT RATE"), from the date of
the Event of Default until the entire principal sum and such
interest and costs have been paid in full.
<PAGE>
Maker shall have the right to prepay at any time all or
any portion of this Promissory Note without penalty.
It is not the intent of Holder to collect interest or
other loan charges in excess of the maximum amount permitted by
Nevada law. If interest or other loan charges collected or to be
collected by the Holder exceed any applicable permitted limits
then (i) any such interest or other loan charges shall be reduced
by the amount necessary to reduce the interest or other loan
charges to the permitted limits, and (ii) any sums already
collected from the Maker which exceeded permitted limits will be
refunded to the Maker. The Holder may choose to make such refund
by reducing the principal balance of the indebtedness hereunder
or by making a direct payment to the Maker.
Maker agrees to waive demand, diligence, presentment
for payment and protest, notice of acceleration, extension,
dishonor, maturity, protest, and default hereunder. The Holder
may accept late or partial payments even though they are marked
"payment in full," without losing, prejudicing or waiving any
rights hereunder.
Maker agrees to pay all costs of collection, and all
costs of suit and preparation for such suit (whether at trial or
appellate level), in the event the unpaid principal sum of this
Promissory Note, or any payment of principal or interest is not
paid when due.
No amendment, modification, change, waiver or discharge
shall be effective unless evidenced by an instrument in writing
and signed by the party against whom enforcement of any waiver,
amendment, change, modification or discharge is sought. If any
provision hereof is invalid, or unenforceable, the other
provisions hereof shall remain in full force and effect and shall
be construed to effectuate the provisions hereof. The provisions
of this Promissory Note shall be binding and inure to the benefit
of the successors and assigns of the parties hereto.
A waiver by Holder or failure to enforce any covenant
or condition of this Promissory Note, or to declare any default
hereunder, shall not operate as a waiver of any subsequent
default or affect the right of Holder to exercise any right or
remedy not expressly waived in writing.
This Promissory Note shall be construed in accordance
with and governed by Nevada law.
All payments of principal and interest are hereby
required to be made in the form of lawful money of the United
States of America.
<PAGE>
Time is of the essence with respect to this Promissory
Note and each and every covenant, condition, term and provision
hereof.
Whenever the context requires or permits, the singular
shall include the plural, the plural shall include the singular
and the masculine, feminine and neuter shall be freely
interchangeable.
IN WITNESS WHEREOF, Maker has executed this Promissory
Note at Las Vegas, Nevada as of the day first above written.
Maker:
SHOWBOAT INDIANA INVESTMENT
LIMITED PARTNERSHIP, a Nevada
limited partnership
ITS GENERAL PARTNER:
SHOWBOAT INDIANA, INC.
By: /s/ H. Gregory Nasky
Its: Secretary
<PAGE>
EXHIBIT 10.29
<PAGE>
FIRST AMENDMENT TO LEASE AND DEVELOPMENT AGREEMENT
THIS FIRST AMENDMENT TO LEASE AND DEVELOPMENT AGREEMENT (this
"Amendment") is made and entered as of the ___ day of
______________, 1996 and is by and between the St. Louis County
Port Authority, a public body corporate and politic of the State
of Missouri ("Landlord"), and Southboat Limited Partnership, a
Missouri Limited Partnership ("Tenant").
RECITALS
WHEREAS, in October 1995, Landlord and Tenant executed that
certain Lease and Development Agreement (the "Lease") in
connection with certain real property (the "Property") more
particularly described in Attachments A, B and C to the Lease.
WHEREAS, Section 2(b) of the Lease provides that Tenant shall
have a certain period during which Tenant may satisfy or waive
certain conditions subsequent to the continuing effectiveness of
the Lease, including, without limitation, conditions relating to
Landlord's title to the Premises (as that term is defined in the
Lease).
WHEREAS, Section 2(d) of the Lease provides that Tenant may
object to any matter contained in the commitment for the
leasehold policy of title insurance (the "Commitment") issued to
Tenant on the effective date of the Lease and that, in certain
circumstances, Tenant may cancel the Lease without further
obligation or liability as a result of the matters to which it
has objected pursuant to Section 2(d) of the Lease.
WHEREAS, upon review of the Commitment, Tenant objected to
certain exceptions to title of the Premises including (i) a 25
foot wide right-of-way and easement (the "Strip") granted to the
Mississippi River Transmission Corporation along the western
boundary of the Premises; (ii) the location of a sewer line
running west to east across the Premises, (the "Sewer Line") and
(iii) the right-of-way in favor of St. Louis County for the
extension of Arlee Avenue (collectively, the "Exceptions").
WHEREAS, to address Tenant's objection to the Strip, the
Board of Commissioners of the Landlord approved on March 19, 1996
a substitution (the "Substitution") of 25 feet of land to the
north of the Premises (the "Land") for the Strip, on condition
that any increase in cost resulting from the Substitution be
borne by Tenant.
WHEREAS, to address Tenant's objection to the Sewer Easement,
Landlord has agreed to grant a replacement easement to the
Metropolitan St. Louis Sewer District ("MSD") subject to the
Tenant paying all costs of inspections and removal, relocation or
replacement of the Sewer Line.
WHEREAS, to address Tenant's objection to the right-of-way
for Arlee Avenue, Landlord has agreed to use its best efforts to
cause St. Louis County to vacate the right-of-way upon dedication
to St. Louis County of the extension of Hoffmeister Avenue.
<PAGE>
WHEREAS, Landlord has also agreed to provide for the
dedication of alternative wetland areas for wetland areas located
on the Premises.
NOW, THEREFORE, for and in consideration of the foregoing,
and of the mutual premises and undertakings contained in this
Amendment, and intending to be legally bound hereby, Landlord and
Tenant hereby agree that the Recitals set forth above are true
and accurate and further agree as follows:
1. MODIFICATION OF DESCRIPTION OF PREMISES. Landlord and
Tenant hereby agree that Attachment B to the Lease (legal
description of the Premises) is hereby amended and modified to
effectuate the Substitution. The legal description of the
Premises, as amended herein, is set forth on Exhibit "A" attached
hereto and incorporated herein by this reference. Tenant hereby
agrees that any increase in cost resulting from the Substitution
shall be borne by Tenant.
2. RELOCATION OF THE SEWER LINE. Landlord hereby agrees
to the relocation of the Sewer Line in accordance with plans
approved by MSD and to grant to MSD an easement as reasonably
necessary to accommodate such relocation and Tenant has agreed to
provide for all costs related to the inspection and removal,
relocation or replacement of the Sewer Line.
3. PROVISION FOR ADDITIONAL WETLAND AREAS. Landlord
hereby agrees to designate wetland areas to replace the wetland
areas located on the Premises and Tenant hereby agrees to pay for
any costs associated with the replacement of the wetland areas
located on the Premises.
4. ENVIRONMENTAL REMEDIATION. Tenant agrees to bear all
costs related to clean-up and remediation of any hazardous wastes
on the Premises.
5. ACCEPTANCE OF PREMISES. Tenant hereby agrees that it
accepts the Premises.
6. RESERVATION OF RIGHTS. Landlord and Tenant hereby
agree that except as otherwise specifically provided in this
Amendment, nothing in this Amendment waives or otherwise
relinquishes (or shall be construed to waive or otherwise
relinquish) any of the rights of Landlord or Tenant under the
Lease.
7. MISCELLANEOUS PROVISIONS.
a. MERGER AND MODIFICATION. This Amendment contains
and/or incorporates the entire agreement of Landlord and Tenant
with respect to the specific subject matter hereof and neither
Landlord nor Tenant shall be bound by anything not expressed in
this writing. No alteration or other modification of this
Amendment shall be effective unless such alteration or other
modification shall be in writing and signed by Landlord and
Tenant.
b. HEADINGS. The subject headings of the Sections
and Subsections of this Amendment are included only for purposes
of convenience, and shall not effect the construction or
interpretation of any of the provisions herein.
2
<PAGE>
c. ATTORNEYS' FEES. In the event that any action is
filed in relation to this Amendment, the unsuccessful party to
such action shall pay to the successful party, in addition to any
other sum or performance that either party may be called upon to
pay or render, a reasonable sum for the successful party's
attorneys' fees and costs incurred as a result of such action.
d. SEVERABILITY. If any provision or section of this
Amendment is declared invalid by a court of competent
jurisdiction, the remaining provisions hereof shall not be
affected thereby.
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the day and year first above written.
"LANDLORD" "TENANT"
ST. LOUIS COUNTY PORT SOUTHBOAT LIMITED PARTNERSHIP
AUTHORITY By: Showboat Lemay, Inc., its
general partner
By:_______________________ By:______________________
Its:______________________ Its:_____________________
EXHIBIT A
(Legal description of the Property and the Premises, as those
terms are defined in the Lease)
3
<PAGE>
SECOND AMENDMENT TO LEASE AND DEVELOPMENT AGREEMENT
THIS SECOND AMENDMENT to the Lease and Development Agreement
dated October 1995, as amended on May 21, 1996 (together the
"Lease"), is made and entered into as of the 12th day of
December, 1996, by and between the ST. LOUIS COUNTY PORT
AUTHORITY, a public body corporate and politic of the State of
Missouri ("Landlord"), and SOUTHBOAT LIMITED PARTNERSHIP, a
Missouri limited partnership ("Tenant").
WHEREAS, the parties to this Amendment have entered into a
Lease and Development Agreement dated October 1995 in connection
with certain real property more particularly described in
Attachments A, B and C to the Lease; and
WHEREAS, Section 3(c) provides, in part, that the Landlord
or Tenant shall have the right to terminate the Lease in the
event that, if for any reason other than Unavoidable Delay or a
delay caused by the Landlord or St. Louis County, and
notwithstanding Tenant's diligent pursuit of Gaming Licensure,
the Investigation Date has not occurred on or before the
expiration of the fourteen month period commencing on the
Effective Date (the "Investigation Deadline") or the Tenant
reasonably determines, based upon communications with or
information received from the Gaming Commission staff, that the
Commission will not commence the investigation before the
Investigation Deadline; and
WHEREAS, based upon information received from the Gaming
Commission staff, the Commission will not commence its
investigation of Tenant before the Investigation Deadline; and
WHEREAS, the Landlord and Tenant believe that it will be in
their respective best interests to extend the fourteen month
period referred to in Section 3(c) for an additional twelve month
period; and
WHEREAS, both Landlord and Tenant desire to enter into a
written modification of Section 3(c) of the Lease;
NOW, THEREFORE, for and in consideration of the foregoing
and the mutual considerations contained in this Amendment, the
parties agree as follows:
1. The Lease dated October 1995 between Landlord and Tenant
shall be modified by this Second Amendment effective the 12th day
of December, 1996, as follows:
<PAGE>
Section (c)(i) is hereby amended to read as
follows:
(i) notwithstanding Tenant's diligent pursuit of
Gaming Licensure, if the Investigation Date has
not occurred on or before the expiration of the 26
month period commencing on the Effective Date (the
"Investigation Deadline") or Tenant reasonably
determines, based on communications with or
information received from the Commission staff,
that the Commission will not commence the
Investigation before the Investigation Deadline.
2. Except as modified by this Second Amendment to the
Lease, the Lease and the First Amendment to the Lease shall
remain in full force and effect and the parties shall remain
bound by all of their terms and conditions.
IN WITNESS WHEREOF, the parties have executed this Amendment
as of the date and year first above written.
ST. LOUIS COUNTY PORT AUTHORITY
("Landlord")
By: /s/
Its: Chairman
SOUTHBOAT LIMITED PARTNERSHIP
("Tenant")
By: Showboat Lemay, Inc., its
general partner
By: /s/ H. Gregory Nasky
Its: Secretary
<PAGE>
EXHIBIT 10.31
<PAGE>
$15,000,000.00 US Atlantic City, New Jersey
As of March 19, 1996
PROMISSORY NOTE
On March 18, 1997, for value received, Atlantic City
Showboat, Inc. ("ACSI") promises to pay to the order of Showboat,
Inc. ("SBO") at 2800 Fremont Street, Las Vegas, Nevada or such
other place as SBO shall designate in writing to ACSI, the sum of
Fifteen Million and no/one-hundredths Dollars ($15,000,000.00)
(or such lesser principal sum which is the aggregate unpaid
principal amount of all loans made by SBO and ACSI as indicated
on the Schedule of Advances attached as page 3 of this promissory
note). ACSI also promises to pay interest to SBO on the unpaid
principal amount outstanding from time-to-time prior to maturity
at an annual rate equal to the average prime rate for money
center banks as published on the first business day of each
calendar month in the WALL STREET JOURNAL called "daily composite
rates" ("prime rate"), plus one percent (1%) the ("Contract
Rate"). The Contract Rate shall be adjusted on the first day of
each calendar month to reflect the prime rate, but shall not be
adjusted at any other time during the calendar month. In no
event shall the interest rate be in excess of the maximum rate of
interest permitted under applicable law. Interest at the
Contract Rate or Default Rate (as hereinafter defined) shall be
paid by ACSI on the first day of each month commencing on the
first day of the month occurring after the date of said
promissory note. If any payment becomes due on any day which is
not a business day, such payment shall be made on the next
succeeding business day. The term "business day" means Monday
through Friday excepting national (federal) legal holidays.
Interest hereunder shall be calculated for the actual
number of days elapsed on the basis of a 360-day year.
All payments of principal and/or interest shall be paid
in lawful money of the United States of America.
ACSI hereby expressly authorizes SBO to record on the
schedule to this promissory note the amount and date of all/any
such loan(s) made hereunder and the date and amount of each
payment of principal thereon. All such notations shall be
presumed to be correct and the aggregate unpaid amount of all/any
loan(s) set forth on the schedule shall be presumed to be the
aggregate unpaid principal amount due under this promissory note.
Any loan may be prepared in whole or in part at any
time and from time to time without premium or penalty together
with interest accrued on the amount prepaid to the date of any
such prepayment. Upon ACSI's (i) failure to pay when due any
accrued interest or principal or (ii) failure to duly keep,
perform and observe each and every term, condition, covenant,
agreement or provision of this promissory note, or
(iii) assignment for the benefit of creditors, declaration of
bankruptcy (either voluntary or involuntary) or initiation of
proceedings in any court seeking or acquiescing to any
reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief with its creditors, in
any manner, in or for the payment of its debts when due under any
state or federal law including, without limitation, the seeking,
consenting to, or acquiescing to or being subject to the
appointment of any trustee, receiver, assignee, custodian, master
or liquidator of itself or any of its property or any of the
rent, revenue, issue, earnings, profits or income thereof, SBO
may, at its option, and without notice to ACSI, declare
immediately due and payable the entire unpaid aggregate balance
of principal, together with all accrued interest thereon, so that
the same shall become immediately due and payable. The foregoing
shall be events of default and any singular one shall be a
default. In the event of a default or
an event of default, interest shall accrue from
time thereof until such default or event of
<PAGE>
default is cured, at a default rate of interest ("Default Rate")
which shall be calculated as that rate of interest equal to the
prime rate plus two percent (2%) from the date of default or
event of default. Payment thereof may be enforced and recovered
in whole or in part at any time by one or more of the remedies
provided in this note or available to SBO either at law or in
equity.
Each and every right and remedy granted to SBO or
allowed to it by law shall be cumulative and not exclusive for
one or the other. No delay, failure or omission by SBO upon any
default of ACSI to exercise any right or remedy granted to it or
allowed to it by law shall constitute a waiver by SBO of the
right to exercise any such right or remedy upon such default or
upon any subsequent default.
ACSI hereby waives and releases all errors, defects and
imperfections in any proceedings instituted by SBO under the
terms of this note.
ACSI hereby waives presentment for payment, demand,
notice of demand, notice of nonpayment or dishonor, protest and
notice of protest of this promissory note, and all other notices
in connection with the delivery, acceptance, performance, default
or enforcement of this promissory note.
Any demand or notice if made or given shall be
sufficiently made upon or given to ACSI if made in writing and
mailed to ACSI by certified mail, return receipt requested, to
the last address of ACSI known to SBO.
This promissory note shall be governed by and construed
in accordance with the laws of the State of Nevada. If any
provision of this note shall be prohibited by or invalid under
such laws, such provisions shall be ineffective to the extent of
such prohibition or invalidity only, without invalidating the
remainder of such provision or the remaining provisions of this
promissory note.
IN WITNESS WHEREOF, ACSI has caused this promissory
note to be executed by its duly authorized officers and its
corporate seal affixed hereto as of the day and year written on
the first page of this note.
ATLANTIC CITY SHOWBOAT , INC.
By: /s/ Herb Wolfe
Herb Wolfe
President and Chief Executive
Officer
Attest:
/s/ Luther Anderson
Luther Anderson
Assistant Secretary
2
<PAGE>
SCHEDULE OF ADVANCES
DATE AMOUNT OF AMOUNT OF AGGREGATE
ADVANCE PAYMENT AMOUNT DUE
3
<PAGE>
EXHIBIT 10.33
<PAGE>
PROMISSORY NOTE
$34,011,720.56 January 1, 1997
FOR VALUE RECEIVED, Showboat Fifteen, Inc., a
corporation organized and existing under the laws of the State of
Nevada ("Maker"), promises to pay to Showboat, Inc., a
corporation organized and existing under the laws of the State of
Nevada, or order ("Holder"), at 3720 Howard Hughes Parkway, Ste.
200, Las Vegas, NV 89109, or at such other place as Holder may
designate in writing, up to the principal balance of Thirty-Four
Million Eleven Thousand Seven Hundred Twenty & 56/One Hundredths
Dollars ($34,011,720.56), plus interest as hereinafter provided.
Interest shall be calculated on a daily basis (based on a 365-day
year), at 10.25% ("Base Rate"). Principal and interest shall be
payable upon the earlier to occur of (i) demand or (ii) December
31, 1997 (the "Maturity Date").
All payments on this Promissory Note shall be applied
first to discharge all accrued but unpaid interest on the unpaid
principal balance hereof, and the remainder to be applied to the
principal balance. The Holder's acceptance of any payment less
than the amount then due shall not, in any manner, effect or
prejudice the rights of the Holder to receive the unpaid balance
then due and payable.
The failure to pay the unpaid principal sum on the
Maturity Date or the failure to pay any other sum when the same
shall become due and payable shall constitute an event of default
("EVENT OF DEFAULT") hereunder, and upon the occurrence of an
Event of Default, all sums evidenced hereby, including the entire
principal balance, all accrued and unpaid interest and all other
amounts due hereunder shall, at the election of Holder, and
without demand or notice to Maker, become immediately due and
payable and the Holder may exercise its rights under this Note,
and other rights under applicable law.
Upon the occurrence of an Event of Default by Maker,
the unpaid principal balance, and all accrued and unpaid interest
due hereunder and all other costs shall together be treated as
the principal balance of this Promissory Note and shall bear
interest at the rate of three (3) percentage points per annum
greater than the Base Rate (the "DEFAULT RATE"), from the date of
the Event of Default until the entire principal sum and such
interest and costs have been paid in full.
<PAGE>
Maker shall have the right to prepay at any time all or
any portion of this Promissory Note without penalty.
It is not the intent of Holder to collect interest or
other loan charges in excess of the maximum amount permitted by
Nevada law. If interest or other loan charges collected or to be
collected by the Holder exceed any applicable permitted limits
then (i) any such interest or other loan charges shall be reduced
by the amount necessary to reduce the interest or other loan
charges to the permitted limits, and (ii) any sums already
collected from the Maker which exceeded permitted limits will be
refunded to the Maker. The Holder may choose to make such refund
by reducing the principal balance of the indebtedness hereunder
or by making a direct payment to the Maker.
Maker agrees to waive demand, diligence, presentment
for payment and protest, notice of acceleration, extension,
dishonor, maturity, protest, and default hereunder. The Holder
may accept late or partial payments even though they are marked
"payment in full," without losing, prejudicing or waiving any
rights hereunder.
Maker agrees to pay all costs of collection, and all
costs of suit and preparation for such suit (whether at trial or
appellate level), in the event the unpaid principal sum of this
Promissory Note, or any payment of principal or interest is not
paid when due.
No amendment, modification, change, waiver or discharge
shall be effective unless evidenced by an instrument in writing
and signed by the party against whom enforcement of any waiver,
amendment, change, modification or discharge is sought. If any
provision hereof is invalid, or unenforceable, the other
provisions hereof shall remain in full force and effect and shall
be construed to effectuate the provisions hereof. The provisions
of this Promissory Note shall be binding and inure to the benefit
of the successors and assigns of the parties hereto.
A waiver by Holder or failure to enforce any covenant
or condition of this Promissory Note, or to declare any default
hereunder, shall not operate as a waiver of any subsequent
default or affect the right of Holder to exercise any right or
remedy not expressly waived in writing.
This Promissory Note shall be construed in accordance
with and governed by Nevada law.
All payments of principal and interest are hereby
required to be made in the form of lawful money of the United
States of America.
<PAGE>
Time is of the essence with respect to this Promissory
Note and each and every covenant, condition, term and provision
hereof.
Whenever the context requires or permits, the singular
shall include the plural, the plural shall include the singular
and the masculine, feminine and neuter shall be freely
interchangeable.
IN WITNESS WHEREOF, Maker has executed this Promissory
Note at Las Vegas, Nevada as of the day first above written.
Maker:
SHOWBOAT FIFTEEN, INC., a
Nevada corporation
By: /s/ H. Gregory Nasky
Its: Secretary
<PAGE>
EXHIBIT 10.38
<PAGE>
PROMISSORY NOTE
$8,197,293.06 January 1, 1997
FOR VALUE RECEIVED, Showboat Operating Company, a
corporation organized and existing under the laws of the State of
Nevada ("Maker"), promises to pay to Showboat, Inc., a
corporation organized and existing under the laws of the State of
Nevada, or order ("Holder"), at 3720 Howard Hughes Parkway, Ste.
200, Las Vegas, NV 89109, or at such other place as Holder may
designate in writing, up to the principal balance of Eight
Million One Hundred Ninety-Seven Thousand, Two Hundred Ninety-
Three & 06/One Hundredths Dollars ($8,197,293.06), plus interest
as hereinafter provided. Interest shall be calculated on a daily
basis (based on a 365-day year), at 14% ("Base Rate"). Principal
and interest shall be payable upon the earlier to occur of (i)
demand or (ii) December 31, 1997 (the "Maturity Date").
All payments on this Promissory Note shall be applied
first to discharge all accrued but unpaid interest on the unpaid
principal balance hereof, and the remainder to be applied to the
principal balance. The Holder's acceptance of any payment less
than the amount then due shall not, in any manner, effect or
prejudice the rights of the Holder to receive the unpaid balance
then due and payable.
The failure to pay the unpaid principal sum on the
Maturity Date or the failure to pay any other sum when the same
shall become due and payable shall constitute an event of default
("EVENT OF DEFAULT") hereunder, and upon the occurrence of an
Event of Default, all sums evidenced hereby, including the entire
principal balance, all accrued and unpaid interest and all other
amounts due hereunder shall, at the election of Holder, and
without demand or notice to Maker, become immediately due and
payable and the Holder may exercise its rights under this Note,
and other rights under applicable law.
Upon the occurrence of an Event of Default by Maker,
the unpaid principal balance, and all accrued and unpaid interest
due hereunder and all other costs shall together be treated as
the principal balance of this Promissory Note and shall bear
interest at the rate of three (3) percentage points per annum
greater than the Base Rate (the "DEFAULT RATE"), from the date of
the Event of Default until the entire principal sum and such
interest and costs have been paid in full.
<PAGE>
Maker shall have the right to prepay at any time all or
any portion of this Promissory Note without penalty.
It is not the intent of Holder to collect interest or
other loan charges in excess of the maximum amount permitted by
Nevada law. If interest or other loan charges collected or to be
collected by the Holder exceed any applicable permitted limits
then (i) any such interest or other loan charges shall be reduced
by the amount necessary to reduce the interest or other loan
charges to the permitted limits, and (ii) any sums already
collected from the Maker which exceeded permitted limits will be
refunded to the Maker. The Holder may choose to make such refund
by reducing the principal balance of the indebtedness hereunder
or by making a direct payment to the Maker.
Maker agrees to waive demand, diligence, presentment
for payment and protest, notice of acceleration, extension,
dishonor, maturity, protest, and default hereunder. The Holder
may accept late or partial payments even though they are marked
"payment in full," without losing, prejudicing or waiving any
rights hereunder.
Maker agrees to pay all costs of collection, and all
costs of suit and preparation for such suit (whether at trial or
appellate level), in the event the unpaid principal sum of this
Promissory Note, or any payment of principal or interest is not
paid when due.
No amendment, modification, change, waiver or discharge
shall be effective unless evidenced by an instrument in writing
and signed by the party against whom enforcement of any waiver,
amendment, change, modification or discharge is sought. If any
provision hereof is invalid, or unenforceable, the other
provisions hereof shall remain in full force and effect and shall
be construed to effectuate the provisions hereof. The provisions
of this Promissory Note shall be binding and inure to the benefit
of the successors and assigns of the parties hereto.
A waiver by Holder or failure to enforce any covenant
or condition of this Promissory Note, or to declare any default
hereunder, shall not operate as a waiver of any subsequent
default or affect the right of Holder to exercise any right or
remedy not expressly waived in writing.
This Promissory Note shall be construed in accordance
with and governed by Nevada law.
All payments of principal and interest are hereby
required to be made in the form of lawful money of the United
States of America.
<PAGE>
Time is of the essence with respect to this Promissory
Note and each and every covenant, condition, term and provision
hereof.
Whenever the context requires or permits, the singular
shall include the plural, the plural shall include the singular
and the masculine, feminine and neuter shall be freely
interchangeable.
IN WITNESS WHEREOF, Maker has executed this Promissory
Note at Las Vegas, Nevada as of the day first above written.
Maker:
SHOWBOAT OPERATING COMPANY
A NEVADA CORPORATION
By: /s/ H. Gregory Nasky
Its: Secretary
<PAGE>
PROMISSORY NOTE
$12,344,992.01 January 1, 1997
FOR VALUE RECEIVED, Showboat Operating Company, a
corporation organized and existing under the laws of the State of
Nevada ("Maker"), promises to pay to Showboat, Inc., a
corporation organized and existing under the laws of the State of
Nevada, or order ("Holder"), at 3720 Howard Hughes Parkway, Ste.
200, Las Vegas, NV 89109, or at such other place as Holder may
designate in writing, up to the principal balance of Twelve
Million Three Hundred Forty - Four Thousand, Nine Hundred Ninety
- - Two & 01/One Hundredths Dollars ($12,344,992.01), plus interest
as hereinafter provided. Interest shall be calculated on a daily
basis (based on a 365-day year), at 14% ("Base Rate"). Principal
and interest shall be payable upon the earlier to occur of (i)
demand or (ii) December 31, 1997 (the "Maturity Date").
All payments on this Promissory Note shall be applied
first to discharge all accrued but unpaid interest on the unpaid
principal balance hereof, and the remainder to be applied to the
principal balance. The Holder's acceptance of any payment less
than the amount then due shall not, in any manner, effect or
prejudice the rights of the Holder to receive the unpaid balance
then due and payable.
The failure to pay the unpaid principal sum on the
Maturity Date or the failure to pay any other sum when the same
shall become due and payable shall constitute an event of default
("EVENT OF DEFAULT") hereunder, and upon the occurrence of an
Event of Default, all sums evidenced hereby, including the entire
principal balance, all accrued and unpaid interest and all other
amounts due hereunder shall, at the election of Holder, and
without demand or notice to Maker, become immediately due and
payable and the Holder may exercise its rights under this Note,
and other rights under applicable law.
Upon the occurrence of an Event of Default by Maker,
the unpaid principal balance, and all accrued and unpaid interest
due hereunder and all other costs shall together be treated as
the principal balance of this Promissory Note and shall bear
interest at the rate of three (3) percentage points per annum
greater than the Base Rate (the "DEFAULT RATE"), from the date of
the Event of Default until the entire principal sum and such
interest and costs have been paid in full.
<PAGE>
Maker shall have the right to prepay at any time all or
any portion of this Promissory Note without penalty.
It is not the intent of Holder to collect interest or
other loan charges in excess of the maximum amount permitted by
Nevada law. If interest or other loan charges collected or to be
collected by the Holder exceed any applicable permitted limits
then (i) any such interest or other loan charges shall be reduced
by the amount necessary to reduce the interest or other loan
charges to the permitted limits, and (ii) any sums already
collected from the Maker which exceeded permitted limits will be
refunded to the Maker. The Holder may choose to make such refund
by reducing the principal balance of the indebtedness hereunder
or by making a direct payment to the Maker.
Maker agrees to waive demand, diligence, presentment
for payment and protest, notice of acceleration, extension,
dishonor, maturity, protest, and default hereunder. The Holder
may accept late or partial payments even though they are marked
"payment in full," without losing, prejudicing or waiving any
rights hereunder.
Maker agrees to pay all costs of collection, and all
costs of suit and preparation for such suit (whether at trial or
appellate level), in the event the unpaid principal sum of this
Promissory Note, or any payment of principal or interest is not
paid when due.
No amendment, modification, change, waiver or discharge
shall be effective unless evidenced by an instrument in writing
and signed by the party against whom enforcement of any waiver,
amendment, change, modification or discharge is sought. If any
provision hereof is invalid, or unenforceable, the other
provisions hereof shall remain in full force and effect and shall
be construed to effectuate the provisions hereof. The provisions
of this Promissory Note shall be binding and inure to the benefit
of the successors and assigns of the parties hereto.
A waiver by Holder or failure to enforce any covenant
or condition of this Promissory Note, or to declare any default
hereunder, shall not operate as a waiver of any subsequent
default or affect the right of Holder to exercise any right or
remedy not expressly waived in writing.
This Promissory Note shall be construed in accordance
with and governed by Nevada law.
All payments of principal and interest are hereby
required to be made in the form of lawful money of the United
States of America.
<PAGE>
Time is of the essence with respect to this Promissory
Note and each and every covenant, condition, term and provision
hereof.
Whenever the context requires or permits, the singular
shall include the plural, the plural shall include the singular
and the masculine, feminine and neuter shall be freely
interchangeable.
IN WITNESS WHEREOF, Maker has executed this Promissory
Note at Las Vegas, Nevada as of the day first above written.
Maker:
SHOWBOAT OPERATING COMPANY
A NEVADA CORPORATION
By: /s/ H. Gregory Nasky
Its: Secretary
<PAGE>
PROMISSORY NOTE
$9,641,821.00 January 1, 1997
FOR VALUE RECEIVED, Showboat Operating Company, a
corporation organized and existing under the laws of the State of
Nevada ("Maker"), promises to pay to Showboat, Inc., a
corporation organized and existing under the laws of the State of
Nevada, or order ("Holder"), at 3720 Howard Hughes Parkway, Ste.
200, Las Vegas, NV 89109, or at such other place as Holder may
designate in writing, up to the principal balance of Nine Million
Six Hundred Forty - One Thousand, Eight Hundred Twenty - One &
00/One Hundredths Dollars ($9,641,821.00), plus interest as
hereinafter provided. Interest shall be calculated on a daily
basis (based on a 365-day year), at 14% ("Base Rate"). Principal
and interest shall be payable upon the earlier to occur of (i)
demand or (ii) December 31, 1997 (the "Maturity Date").
All payments on this Promissory Note shall be applied
first to discharge all accrued but unpaid interest on the unpaid
principal balance hereof, and the remainder to be applied to the
principal balance. The Holder's acceptance of any payment less
than the amount then due shall not, in any manner, effect or
prejudice the rights of the Holder to receive the unpaid balance
then due and payable.
The failure to pay the unpaid principal sum on the
Maturity Date or the failure to pay any other sum when the same
shall become due and payable shall constitute an event of default
("EVENT OF DEFAULT") hereunder, and upon the occurrence of an
Event of Default, all sums evidenced hereby, including the entire
principal balance, all accrued and unpaid interest and all other
amounts due hereunder shall, at the election of Holder, and
without demand or notice to Maker, become immediately due and
payable and the Holder may exercise its rights under this Note,
and other rights under applicable law.
Upon the occurrence of an Event of Default by Maker,
the unpaid principal balance, and all accrued and unpaid interest
due hereunder and all other costs shall together be treated as
the principal balance of this Promissory Note and shall bear
interest at the rate of three (3) percentage points per annum
greater than the Base Rate (the "DEFAULT RATE"), from the date of
the Event of Default until the entire principal sum and such
interest and costs have been paid in full.
<PAGE>
Maker shall have the right to prepay at any time all or
any portion of this Promissory Note without penalty.
It is not the intent of Holder to collect interest or
other loan charges in excess of the maximum amount permitted by
Nevada law. If interest or other loan charges collected or to be
collected by the Holder exceed any applicable permitted limits
then (i) any such interest or other loan charges shall be reduced
by the amount necessary to reduce the interest or other loan
charges to the permitted limits, and (ii) any sums already
collected from the Maker which exceeded permitted limits will be
refunded to the Maker. The Holder may choose to make such refund
by reducing the principal balance of the indebtedness hereunder
or by making a direct payment to the Maker.
Maker agrees to waive demand, diligence, presentment
for payment and protest, notice of acceleration, extension,
dishonor, maturity, protest, and default hereunder. The Holder
may accept late or partial payments even though they are marked
"payment in full," without losing, prejudicing or waiving any
rights hereunder.
Maker agrees to pay all costs of collection, and all
costs of suit and preparation for such suit (whether at trial or
appellate level), in the event the unpaid principal sum of this
Promissory Note, or any payment of principal or interest is not
paid when due.
No amendment, modification, change, waiver or discharge
shall be effective unless evidenced by an instrument in writing
and signed by the party against whom enforcement of any waiver,
amendment, change, modification or discharge is sought. If any
provision hereof is invalid, or unenforceable, the other
provisions hereof shall remain in full force and effect and shall
be construed to effectuate the provisions hereof. The provisions
of this Promissory Note shall be binding and inure to the benefit
of the successors and assigns of the parties hereto.
A waiver by Holder or failure to enforce any covenant
or condition of this Promissory Note, or to declare any default
hereunder, shall not operate as a waiver of any subsequent
default or affect the right of Holder to exercise any right or
remedy not expressly waived in writing.
This Promissory Note shall be construed in accordance
with and governed by Nevada law.
All payments of principal and interest are hereby
required to be made in the form of lawful money of the United
States of America.
<PAGE>
Time is of the essence with respect to this Promissory
Note and each and every covenant, condition, term and provision
hereof.
Whenever the context requires or permits, the singular
shall include the plural, the plural shall include the singular
and the masculine, feminine and neuter shall be freely
interchangeable.
IN WITNESS WHEREOF, Maker has executed this Promissory
Note at Las Vegas, Nevada as of the day first above written.
Maker:
SHOWBOAT OPERATING COMPANY
A NEVADA CORPORATION
By: /s/ H. Gregory Nasky
Its: Secretary
<PAGE>
EXHIBIT 10.39
<PAGE>
PROMISSORY NOTE
$53,109,002.87 January 1, 1997
FOR VALUE RECEIVED, Showboat Operating Company, a
corporation organized and existing under the laws of the State of
Nevada ("Maker"), promises to pay to Showboat, Inc., a
corporation organized and existing under the laws of the State of
Nevada, or order ("Holder"), at 3720 Howard Hughes Parkway, Ste.
200, Las Vegas, NV 89109, or at such other place as Holder may
designate in writing, up to the principal balance of Fifty-Three
Million One Hundred Nine Thousand Two & 87/One Hundredths Dollars
($53,109,002.87), plus interest as hereinafter provided.
Interest shall be calculated on a daily basis (based on a 365-day
year), at 14% ("Base Rate"). Principal and interest shall be
payable upon the earlier to occur of (i) demand or (ii) December
31, 1997 (the "Maturity Date").
All payments on this Promissory Note shall be applied
first to discharge all accrued but unpaid interest on the unpaid
principal balance hereof, and the remainder to be applied to the
principal balance. The Holder's acceptance of any payment less
than the amount then due shall not, in any manner, effect or
prejudice the rights of the Holder to receive the unpaid balance
then due and payable.
The failure to pay the unpaid principal sum on the
Maturity Date or the failure to pay any other sum when the same
shall become due and payable shall constitute an event of default
("EVENT OF DEFAULT") hereunder, and upon the occurrence of an
Event of Default, all sums evidenced hereby, including the entire
principal balance, all accrued and unpaid interest and all other
amounts due hereunder shall, at the election of Holder, and
without demand or notice to Maker, become immediately due and
payable and the Holder may exercise its rights under this Note,
and other rights under applicable law.
Upon the occurrence of an Event of Default by Maker,
the unpaid principal balance, and all accrued and unpaid interest
due hereunder and all other costs shall together be treated as
the principal balance of this Promissory Note and shall bear
interest at the rate of three (3) percentage points per annum
greater than the Base Rate (the "DEFAULT RATE"), from the date of
the Event of Default until the entire principal sum and such
interest and costs have been paid in full.
<PAGE>
Maker shall have the right to prepay at any time all or
any portion of this Promissory Note without penalty.
It is not the intent of Holder to collect interest or
other loan charges in excess of the maximum amount permitted by
Nevada law. If interest or other loan charges collected or to be
collected by the Holder exceed any applicable permitted limits
then (i) any such interest or other loan charges shall be reduced
by the amount necessary to reduce the interest or other loan
charges to the permitted limits, and (ii) any sums already
collected from the Maker which exceeded permitted limits will be
refunded to the Maker. The Holder may choose to make such refund
by reducing the principal balance of the indebtedness hereunder
or by making a direct payment to the Maker.
Maker agrees to waive demand, diligence, presentment
for payment and protest, notice of acceleration, extension,
dishonor, maturity, protest, and default hereunder. The Holder
may accept late or partial payments even though they are marked
"payment in full," without losing, prejudicing or waiving any
rights hereunder.
Maker agrees to pay all costs of collection, and all
costs of suit and preparation for such suit (whether at trial or
appellate level), in the event the unpaid principal sum of this
Promissory Note, or any payment of principal or interest is not
paid when due.
No amendment, modification, change, waiver or discharge
shall be effective unless evidenced by an instrument in writing
and signed by the party against whom enforcement of any waiver,
amendment, change, modification or discharge is sought. If any
provision hereof is invalid, or unenforceable, the other
provisions hereof shall remain in full force and effect and shall
be construed to effectuate the provisions hereof. The provisions
of this Promissory Note shall be binding and inure to the benefit
of the successors and assigns of the parties hereto.
A waiver by Holder or failure to enforce any covenant
or condition of this Promissory Note, or to declare any default
hereunder, shall not operate as a waiver of any subsequent
default or affect the right of Holder to exercise any right or
remedy not expressly waived in writing.
This Promissory Note shall be construed in accordance
with and governed by Nevada law.
All payments of principal and interest are hereby
required to be made in the form of lawful money of the United
States of America.
<PAGE>
Time is of the essence with respect to this Promissory
Note and each and every covenant, condition, term and provision
hereof.
Whenever the context requires or permits, the singular
shall include the plural, the plural shall include the singular
and the masculine, feminine and neuter shall be freely
interchangeable.
IN WITNESS WHEREOF, Maker has executed this Promissory
Note at Las Vegas, Nevada as of the day first above written.
Maker:
SHOWBOAT OPERATING COMPANY
A NEVADA CORPORATION
By: /s/ H. Gregory Nasky
Its: Secretary
<PAGE>
PROMISSORY NOTE
$6,292,083.06 January 1, 1997
FOR VALUE RECEIVED, Showboat Development Company, a
corporation organized and existing under the laws of the State of
Nevada ("Maker"), promises to pay to Showboat, Inc., a
corporation organized and existing under the laws of the State of
Nevada, or order ("Holder"), at 3720 Howard Hughes Parkway, Ste.
200, Las Vegas, NV 89109, or at such other place as Holder may
designate in writing, up to the principal balance of Six Million
Two Hundred Ninety - Two Thousand, Eighty - Three Hundred &
06/One Hundredths Dollars ($6,292,083.06), plus interest as
hereinafter provided. Interest shall be calculated on a daily
basis (based on a 365-day year), at 14% ("Base Rate"). Principal
and interest shall be payable upon the earlier to occur of (i)
demand or (ii) December 31, 1997 (the "Maturity Date").
All payments on this Promissory Note shall be applied
first to discharge all accrued but unpaid interest on the unpaid
principal balance hereof, and the remainder to be applied to the
principal balance. The Holder's acceptance of any payment less
than the amount then due shall not, in any manner, effect or
prejudice the rights of the Holder to receive the unpaid balance
then due and payable.
The failure to pay the unpaid principal sum on the
Maturity Date or the failure to pay any other sum when the same
shall become due and payable shall constitute an event of default
("EVENT OF DEFAULT") hereunder, and upon the occurrence of an
Event of Default, all sums evidenced hereby, including the entire
principal balance, all accrued and unpaid interest and all other
amounts due hereunder shall, at the election of Holder, and
without demand or notice to Maker, become immediately due and
payable and the Holder may exercise its rights under this Note,
and other rights under applicable law.
Upon the occurrence of an Event of Default by Maker,
the unpaid principal balance, and all accrued and unpaid interest
due hereunder and all other costs shall together be treated as
the principal balance of this Promissory Note and shall bear
interest at the rate of three (3) percentage points per annum
greater than the Base Rate (the "DEFAULT RATE"), from the date of
the Event of Default until the entire principal sum and such
interest and costs have been paid in full.
<PAGE>
Maker shall have the right to prepay at any time all or
any portion of this Promissory Note without penalty.
It is not the intent of Holder to collect interest or
other loan charges in excess of the maximum amount permitted by
Nevada law. If interest or other loan charges collected or to be
collected by the Holder exceed any applicable permitted limits
then (i) any such interest or other loan charges shall be reduced
by the amount necessary to reduce the interest or other loan
charges to the permitted limits, and (ii) any sums already
collected from the Maker which exceeded permitted limits will be
refunded to the Maker. The Holder may choose to make such refund
by reducing the principal balance of the indebtedness hereunder
or by making a direct payment to the Maker.
Maker agrees to waive demand, diligence, presentment
for payment and protest, notice of acceleration, extension,
dishonor, maturity, protest, and default hereunder. The Holder
may accept late or partial payments even though they are marked
"payment in full," without losing, prejudicing or waiving any
rights hereunder.
Maker agrees to pay all costs of collection, and all
costs of suit and preparation for such suit (whether at trial or
appellate level), in the event the unpaid principal sum of this
Promissory Note, or any payment of principal or interest is not
paid when due.
No amendment, modification, change, waiver or discharge
shall be effective unless evidenced by an instrument in writing
and signed by the party against whom enforcement of any waiver,
amendment, change, modification or discharge is sought. If any
provision hereof is invalid, or unenforceable, the other
provisions hereof shall remain in full force and effect and shall
be construed to effectuate the provisions hereof. The provisions
of this Promissory Note shall be binding and inure to the benefit
of the successors and assigns of the parties hereto.
A waiver by Holder or failure to enforce any covenant
or condition of this Promissory Note, or to declare any default
hereunder, shall not operate as a waiver of any subsequent
default or affect the right of Holder to exercise any right or
remedy not expressly waived in writing.
This Promissory Note shall be construed in accordance
with and governed by Nevada law.
All payments of principal and interest are hereby
required to be made in the form of lawful money of the United
States of America.
<PAGE>
Time is of the essence with respect to this Promissory
Note and each and every covenant, condition, term and provision
hereof.
Whenever the context requires or permits, the singular
shall include the plural, the plural shall include the singular
and the masculine, feminine and neuter shall be freely
interchangeable.
IN WITNESS WHEREOF, Maker has executed this Promissory
Note at Las Vegas, Nevada as of the day first above written.
Maker:
SHOWBOAT DEVELOPMENT COMPANY
A NEVADA CORPORATION
By: /s/ H. Gregory Nasky
Its: Secretary
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 21.01
LIST OF SUBSIDIARIES
STATE OF
INCORPORATION/
NAME ORGANIZATION NAMES USED IN DOING BUSINESS
<S> <C> <C>
Alantic City Showboat, Inc. New Jersey Showboat; Showboat Hotel and
Casino; Atlantic City Showboat
Ocean Showboat, Inc. New Jersey Ocean Showboat
Ocean Showboat Finance New Jersey Ocean Showboat Finance
Corporation Corporation
Showboat Operating Company Nevada Showboat; Showboat Hotel,
Casino & Bowling Center; Las
Vegas Showboat
Showboat Development Company Nevada Showboat Development Company
Showboat Australia Pty Australia Not applicable
Limited
Sydney Harbour Casino Australia Not applicable
Holdings Limited
Sydney Casino Management Pty Australia Not applicable
Limited
Sydney Harbour Casino Australia Sydney Harbour Casino
Properties Pty Limited
Showboat Indiana, Inc. Nevada Not applicable
Showboat Indiana Investment, Nevada Not applicable
L.P.
Showboat Marina Partnership Indiana Showboat Marina; East
Chicago Showboat
Showboat Marina Casino Indiana Showboat Marina; East
Partnership Chicago Showboat
Showboat Marina Finance Indiana Not applicable
Corporation
Showboat Marina Investment Indiana Not applicable
Partnership
Showboat New Hampshire, Inc. Nevada Not applicable
Showboat Rockingham Company, New Hampshire Not applicable
L.L.C.
Showboat Lemay, Inc. Nevada Not applicable
Southboat Limited Partnership Missouri Not applicable
Showboat LMI, Inc. Nevada Not applicable
Showboat Louisiana, Inc. Nevada Not applicable
</TABLE>
<PAGE>
CONSENT OF INDEPENDENT AUDITORS'
The Board of Directors
Showboat, Inc.:
We consent to incorporation by reference in the registration
statements (Nos. 33-36048, 33-56044, 33-47945 and 33-58315) on
Form S-8 of Showboat, Inc. of our report dated February 21, 1997,
relating to the consolidated balance sheets of Showboat, Inc. and
subsidiaries as of December 31, 1996 and 1995, 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, 1996, which report appears in the December 31, 1996
annual report on Form 10-K of Showboat, Inc.
/s/ KPMG Peat Marwick
KPMG Peat Marwick
Las Vegas, Nevada
March 27, 1997
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 26,748
<SECURITIES> 62,387
<RECEIVABLES> 14,819
<ALLOWANCES> 2,417
<INVENTORY> 2,785
<CURRENT-ASSETS> 118,990
<PP&E> 651,486
<DEPRECIATION> 211,298
<TOTAL-ASSETS> 814,669
<CURRENT-LIABILITIES> 60,051
<BONDS> 530,743
0
0
<COMMON> 16,181
<OTHER-SE> 171,191
<TOTAL-LIABILITY-AND-EQUITY> 814,669
<SALES> 427,829
<TOTAL-REVENUES> 433,705
<CGS> 0
<TOTAL-COSTS> 235,859
<OTHER-EXPENSES> 159,811
<LOSS-PROVISION> 2,417
<INTEREST-EXPENSE> 30,938
<INCOME-PRETAX> 9,481
<INCOME-TAX> 3,478
<INCOME-CONTINUING> 6,003
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,003
<EPS-PRIMARY> 0.37
<EPS-DILUTED> 0.37
</TABLE>
