-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KqssKIlXeMz7I5717bm7XR7YBdvZOMRNSBGSJ5b6KyOyFf0FLMsjs6H829cUaym5 IioxzwM3P2DvWpz1+f5iWA== 0000089966-96-000012.txt : 19960517 0000089966-96-000012.hdr.sgml : 19960517 ACCESSION NUMBER: 0000089966-96-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SHOWBOAT INC CENTRAL INDEX KEY: 0000089966 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS AMUSEMENT & RECREATION [7990] IRS NUMBER: 880090766 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07123 FILM NUMBER: 96566405 BUSINESS ADDRESS: STREET 1: 2800 FREMONT ST CITY: LAS VEGAS STATE: NV ZIP: 89104 BUSINESS PHONE: 7023859123 FORMER COMPANY: FORMER CONFORMED NAME: NEW HOTEL SHOWBOAT INC DATE OF NAME CHANGE: 19690122 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) XX QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES ---EXCHANGE ACT OF 1934 For the quarterly period ended --------------------------------- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ---EXCHANGE ACT OF 1934 to For the transition period from ------------ ----------------- Commission file number 1-7123 ------------------------------------------- SHOWBOAT, INC. ----------------------------------------------------------------- (Exact name of registrant as specified in its charter) NEVADA 88-0090766 ------------------------------ --------------------------- (State or other jurisdiction of incorporation or organization) 2800 FREMONT STREET, LAS VEGAS NEVADA 89104-4035 ----------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (702) 385-9123 ----------------------------------------------------------------- (Registrant's telephone number, including area code) NOT APPLICABLE ----------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 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. Yes X No --- --- APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution under a plan confirmed by a court. --- --- APPLICABLE ONLY TO CORPORATE ISSUERS Indicate the number of shares outstanding of the issuer's classes of common stock, as of the latest practicable date. Common Stock - $1 Par Value, and Preferred Stock Purchase Rights 16,160,830 shares outstanding -------------------------------- ---------------------------------- SHOWBOAT, INC. AND SUBSIDIARIES INDEX PART I FINANCIAL INFORMATION Page No. Item 1. Financial Statements Condensed Consolidated Balance Sheets - March 31, 1996 and December 31, 1995 1-2 Condensed Consolidated Statements of Income - For the three months ended March 31, 1996 and 1995 3-4 Condensed Consolidated Statements of Cashflows - For the three months ended March 31, 1996 and 1995 5 Notes to the Condensed Consolidated Financial Statements 6-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-16 PART II OTHER INFORMATION ITEMS 1 - 6 17-18 SIGNATURES 19 Item 1Financial Statements SHOWBOAT, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS MARCH 31, 1996 AND DECEMBER 31, 1995 Assets 1996 1995 --------- (unaudited) (In thousands) Current assets: Cash and cash equivalents $74,360 $106,927 Receivables, net 8,066 8,448 Income tax receivable 4,148 2,076 Inventories 2,815 2,808 Prepaid expenses 5,247 4,728 Current deferred income taxes 8,469 9,744 ----------- ----------- Total current assets 103,105 134,731 ----------- ----------- Property and equipment 558,980 541,786 Less accumulated depreciation and amortization (192,153) (186,872) -------------------------- 366,827 354,914 -------------------------- Other assets: Restricted cash and investments 157,296 - Investments in unconsolidated affiliates 125,198 120,090 Deposits and other assets 31,386 28,911 Debt issuance costs, net of accumulated amortization of $2,130,000 and $1,860,000 at March 31, 1996 and December 31, 1995, respectively 10,479 10,749 -------------------------- 324,359 159,750 -------------------------- $794,291 $649,395 ========================== See accompanying notes to condensed consolidated financial statements. 1 SHOWBOAT, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS MARCH 31, 1996 AND DECEMBER 31, 1995 (continued) LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ 1996 1995 (unaudited) Current liabilities: (In thousands) Current maturities of long-term debt $23 $22 Accounts payable $11,533 15,143 Dividends payable 396 392 Accrued liabilities 42,268 38,158 -------------------------- Total current liabilities 54,220 53,715 -------------------------- Long-term debt, excluding current maturities 532,457 392,369 -------------------------- Other liabilities 5,253 5,028 -------------------------- Deferred income taxes 22,073 22,319 -------------------------- Minority Interest 2,092 2,023 -------------------------- 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 15,827,735 shares at March 31, 1996 and 15,794,578 at December 31, 1995 15,828 15,795 Additional paid-in capital 81,804 80,078 Retained earnings 79,237 80,434 -------------------------- 176,869 176,307 Cumulative foreign currency translation adjustment 3,743 285 Cost of common stock in treasury, -0- shares at March 31, 1996 and 74,333 shares at December 31, 1995 (587) Unearned compensation for restricted stock (2,416) (2,064) -------------------------- Total shareholders' equity 178,196 173,941 -------------------------- $794,291 $649,395 ========================== See accompanying notes to condensed consolidated financial statements. 2 SHOWBOAT, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited) FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 1996 1995 -------------------------- Revenues: Casino $89,990 $86,847 Food and beverage 12,991 12,306 Rooms 5,796 5,627 Sports and special events 1,048 1,055 Management fees 190 Other 1,013 1,223 -------------------------- 110,838 107,248 Less complimentaries 8,248 8,569 -------------------------- Net revenues 102,590 98,679 -------------------------- Operating costs and expenses: Casino 44,225 41,867 Food and beverage 8,086 7,766 Rooms 2,137 2,254 Sports and special events 821 951 General and administrative 28,375 27,893 Selling, advertising and promotion 2,489 2,346 Depreciation and amortization 8,018 8,156 -------------------------- 94,151 91,233 -------------------------- Income from operations from consolidated subsidiaries 8,439 7,446 Equity in income (loss) of unconsolidated affiliate (22) -------------------------- Income from operations 8,439 7,424 -------------------------- 3 SHOWBOAT, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited) FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (continued) 1996 1995 -------------------------- Income from operations $8,439 $7,424 -------------------------- Other (income) expense: Interest income (1,330) (1,199) Interest expense 10,909 10,631 Interest capitalized (3,372) (3,246) Gain on sale of affiliate (2,558) Write-down of investment in affiliate 3,902 - Foreign currency transaction gain (66) - -------------------------- 10,043 3,628 -------------------------- Income (loss) before income taxes and minority interest (1,604) 3,796 Minority interest (income) (7) - -------------------------- Income (loss) before income tax expense (benefit) (1,597) 3,796 -------------------------- Income tax expense (benefit) (796) 2,013 -------------------------- Net income (loss) ($801) $1,783 ========================== Weighted average shares outstanding 16,067,137 15,472,165 Net income (loss) per common and equivalent shar ($0.05) $0.12 ========================== See accompanying notes to condensed consolidated financial statements. 4 SHOWBOAT, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 1996 1995 ----------------------- Cash flows from operating activities: (In thousands) Net cash provided by operating activities $11,081 $11,941 -------------------------- Cash flows from investing activities: Acquisition of property and equipment (21,769) (6,701) Investments in unconsolidated affiliates (2,911) (28,246) (Advances to) repayments from unconsolidated affiliates 386 10,182 Investments in consolidated affiliates (157,296) - (Increase) decrease in deposits and other assets (1,673) - Deposit for Casino Reinvestment Development Authority obligation (981) (823) Other 165 (15) -------------------------- Net cash used in investing activities (184,079) (25,603) -------------------------- Cash flows from financing activities: Principal payments of long-term debt $ $ (-5) Proceeds from issuance of long-term debt 140,000 - Proceeds from employee stock option exercises 758 - Debt issuance costs - (25) Payment of dividends (392) (384) Issuance of common stock 5 Minority interest contributions 70 - -------------------------- Net cash provided (used) by financing activities 140,431 (409) -------------------------- Net increase (decrease) in cash and cash equivalents (32,567) (14,071) Cash and cash equivalents at beginning of period 106,927 90,429 Cash and cash equivalents at -------------------------- end of period $74,360 $76,358 ========================== Supplemental disclosures of cash flow information and non-cash investing and financing activities: Cash paid during the period for: Interest, net of amounts capitalized 4,494 4,241 Income taxes 1,839 1,995 Foreign currency translation adjustment 3,458 (3,907) See accompanying notes to condensed consolidated financial statements. 5 SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations The condensed consolidated financial statements include all domestic and foreign subsidiaries which are more than 50% owned and controlled. Investments in unconsolidated affiliates which are at least 20% owned are carried at cost plus equity in undistributed earnings or loss since acquisition. All material intercompany balances have been eliminated in consolidation. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These condensed financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's December 31, 1995 Annual Report on Form 10-K. The accompanying unaudited consolidated financial statements contain all adjustments which are only of a recurring nature, in the opinion of management, necessary for a fair statement of the results of the interim periods. The results of operations for the interim periods are not indicative of results of operations for an entire year. Certain prior period balances have been reclassified to conform to the current period's presentation. On March 28, 1996 the Company's 55% owned affiliates, Showboat Marina Casino Partnership(SMCP) and Showboat Marina Finance Corporation (SMFC), issued $140.0 million, 13 1/2% First Mortgage Notes due 2003, (the "First Mortgage Notes"). The net proceeds of the First Mortgage Notes plus cash contributions by the Company are classified as restricted cash and investments in the Company's Condensed Consolidated Balance Sheet as of March 31, 1996. These funds will be used to develop a riverboat casino complex in East Chicago, Indiana to be operated on Lake Michigan. 6 SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 2.LONG-TERM DEBT Long-term debt increased by approximately $140.0 million from December 31, 1995 to March 31, 1996. This increase is due to the issuance of $140.0 million, 13 1/2% First Mortgage Notes, by SMCP and SMFC. SMCP and SMFC are effectively owned 55% by the Company and therefore are consolidated for financial reporting purposes. The First Mortgage Notes are due 2003 and pay interest semiannually on March 15, and September 15, of each year commencing September 15, 1996. 3.WRITE-DOWN OF INVESTMENT IN AFFILIATE In March 1995, the Company, with an unrelated corporation (the majority member), formed Showboat Mardi Gras, L.L.C. (SMG), to own and operate, subject to licensing, a riverboat casino near Kansas City, Missouri. The Company owns 35% of the equity of SMG. SMG was not selected by the Missouri Gaming Commission for investigation for a license. Due to a decline in the market value of the assets of SMG, as determined based on an offer for the principal asset, a riverboat, made to, and conditionally accepted by, the majority member of SMG, the Company has recorded a pre-tax write-down of $3,902,000 which is included in the 1996 Condensed Consolidated Statement of Income as write-down of investment in affiliate. This write-down includes the Company's remaining investment in SMG, and the Company has no further obligation to SMG. 7 Item 2Management's Discussion and Analysis of Financial Condition and Results of Operations GENERAL Showboat, Inc., and subsidiaries, collectively the Company or SBO, is an international gaming company with over 40 years of gaming experience that owns and operates the Atlantic City Showboat Casino and Hotel in Atlantic City, New Jersey, (Atlantic City Showboat), the Las Vegas Showboat, Hotel, Casino and Bowling Center in Las Vegas, Nevada (Las Vegas Showboat), owns an interest in, and manages through subsidiaries, the Sydney Harbour Casino located in Sydney, Australia and owns a 55% interest in, and will manage the East Chicago Showboat through subsidiaries which is under construction and scheduled to open in July 1997. Until March 31, 1995, the Company owned an equity interest in and managed a riverboat casino on Lake Pontchartrain in New Orleans, Louisiana (Star Casino). Information contained in this quarterly report is supplemental to disclosures in the Company's year end financial reports. This management's discussion and analysis of financial condition and results of operations should be read in conjunction with the management's discussion and analysis of financial condition and results of operations included in the Company's December 31, 1995 Annual Report on Form 10-K. As used in this management's discussion and analysis of financial condition and results of operations, amounts in Australian dollars are denoted as "A$". As of March 29, 1996, the exchange rate was approximately $0.7825 for each A$1.00. MATERIAL CHANGES IN RESULTS OF OPERATIONS Quarter Ended March 31, 1996 Compared to Quarter Ended March 31, 1995 Revenues Net revenues for the Company increased $3.9 million or 4.0% in the first quarter 1996 compared to the same period in 1995. This increase was principally due to the $3.1 million or 3.6% increase in casino revenues in the quarter ended March 31, 1996 compared to the quarter ended March 31, 1995. Non casino revenues, which consist principally of food, beverage and room revenues were up $.6 million or 3.2% in the first quarter 1996 compared to the prior period. The $.2 million decline in management fees in the first quarter 1996 is attributed to the sale of the Star Casino in March, 1995 which paid management fees to the Company. Due to the Company's agreement to forgive the first A$19.1 million of management fees due it from Sydney Harbour Casino, the Company has not yet received management fees from the Sydney Harbour Casino. For the quarter ended March 31, 1996, approximately A$2.6 million of management fees were forgiven and approximately A$12.5 million in management fees still remain to be forgiven. 8 Revenues Quarter ended March 31, (in thousands) 1996 1995 Variance Percent ----------------------------------------------- Consolidated: Casino revenues $ 89,9 $86,847 $ 3 3.6% Non casino revenues 20, 20,211 3.2% Management fees 190 -100.0% Less complimentaries 8 8,569 -3.7% ----------------------------------------------- Net revenues $ 102,59 $98,679 $ 3 4.0% ----------------------------------------------- Atlantic City: Table games revenue $ 18,2 $18,663 $ -2.0% Slot revenues 59, 54,516 8.8% Other gaming revenue 749 -31.0% ----------------------------------------------- Total casino 78, 73,928 5.7% ----------------------------------------------- Non casino revenues 14, 14,315 1.5% Less complimentaries 7 7,331 -3.3% Total net revenues ----------------------------------------------- Atlantic City $ 85,5 $80,912 $ 4 5.8% ----------------------------------------------- Las Vegas: Table games revenue $ 1, $1,407 $ 2.5% Slot revenues 9 10,779 ( -11.9% Other gaming revenue 733 23.6% ----------------------------------------------- Total casino 11, 12,919 ( -8.3% ----------------------------------------------- Non casino revenues 6 5,896 7.1% Less complimentaries 1 1,238 -6.3% Total net revenues ----------------------------------------------- Las Vegas $ 17,0 $17,577 ($574) -3.3% ----------------------------------------------- 9 Revenues The Atlantic City Showboat was the principal reason for the increase in the Company's revenues during the first quarter 1996. The Atlantic City Showboat net revenues were up $4.7 million or 5.8%, principally due to a $4.8 million or 8.8% increase in slot revenue in the quarter ended March 31, 1996 over the same period in 1995. The increase in slot revenue is attributable to the addition of approximately 300 slot units and an increase in slot marketing in the first quarter 1996 compared to 1995. The Atlantic City market slot revenue increased 2.7% by comparison and there was a 6.9% increase in slot units in the first quarter 1996 compared to 1995. The decline in other gaming revenue of $.2 million or 31.0% is principally due to the decline in keno revenue during the quarter ended March 31, 1996 compared to the same quarter in the prior year. This decline is attributed to a disruption and reduction of the operation when it was moved to the main casino floor during the first quarter of 1996. The Las Vegas Showboat net revenues declined $.6 million or 3.3% in the first quarter 1996 compared to the first quarter 1995. This decline was principally due to a decline in slot revenue of $1.3 million or 11.9%. This decline is attributable to the loss of slot customers caused by the construction at the Las Vegas Showboat that was completed in December 1995 and the increased competition for the local market. The Company is focusing its analytical and marketing efforts on the establishment of viable marketing programs to reestablish the customer base lost during the construction period and to attract new customers. The increase in other gaming revenue of $.2 million or 23.6% in the first quarter 1996 compared to 1995 is principally due to the increase in bingo revenue resulting from marketing programs to attract bingo patrons during the first quarter 1996. Income From Operations The Company's income from operations increased $1.0 million or 13.7% in the quarter ended March 31, 1996 compared to the same period in the prior year. The improvement was due principally to the operating improvement at the Atlantic City Showboat and lower operating costs for corporate and development that were partially offset by a decline in operating results for the Las Vegas Showboat. 10 Income From Operations Quarter ended March 31, (in thousands) 1996 1995 Variance Percent Income from operations: ----------------------------------------------- Consolidated $ 8, $7,424 $ 1 13.7% Atlantic City 13, 12,465 7.7% Las Vegas (54) 1461.1% Corporate and development (4 (4,742) -13.3% Other (245) -86.1% EBITDA:* Consolidated $ 16,4 $15,580 $ 5.6% Atlantic City 20, 19,497 3.0% Las Vegas 1,019 -57.4% Corporate and development (4 (4,692) -14.4% Other (244) -86.1% *EBITDA consists of income from operations plus depreciation and amortization. Management believes EBITDA is used by many analysts, lenders and investors in evaluating certain aspects of the financial performance of the Company. EBITDA should not be construed as an alternative to operating income (as determined in accordance with generally accepted accounting principles) as an indication of the Company's operating performance or to cash flow from operating activities (as determined in accordance with generally accepted accounting principles) as a measure of liquidity and other consolidated income or cash flow statement data as determined in accordance with generally accepted accounting principles. See "Condensed Consolidated Statements of Income" and "Condensed Consolidated Statements of Cash Flows" set forth elsewhere herein. The Atlantic City Showboat's income from operations, before management fees, increase of $1.0 million or 7.7% is attributed to the improvement in revenue production in the first quarter 1996 compared to 1995. Operating expenses increased $3.7 million or 5.4% to $72.2 million for the March 31, 1996 quarter up from $68.4 million for the same period in the prior year. The increase in operating expenses is primarily attributed to an increased marketing cost for slot patrons of $2.5 million in response to the more aggressive competition for slot patrons in the Atlantic City market during the first quarter of 1996. General and administrative expense, principally payroll, property operations and real estate taxes related to the expanded property, increased $1.3 million in the quarter ended March 31, 1996 compared to the same period in 1995. Depreciation expense at the Atlantic City Showboat declined $.4 million or 5.4% in the first quarter 1996 compared to the same period in 1995. 11 Income From Operations The decline in income from operations at the Las Vegas Showboat, before management fees and inter-company rent, was due principally from the decline in slot revenues during the first quarter 1996. Operating expenses remained constant during the first quarter 1996 compared to the same period in 1995. The decline in operating expenses for corporate and development activities in the first quarter 1996 compared to 1995 is primarily attributed to the capitalization of $.6 million of costs related to the Company's St. Louis project. The increase in other income from operations for the quarter ended March 31, 1996 compared to the same period in 1995 is attributed to the elimination of expenses for the Star Casino when it was sold in March of 1995. The Company realized no earnings during the quarter ended March 31, 1996, from its investment in the Sydney Harbour Casino as a result of the write-off of preopening costs. Approximately A$11.4 million of preopening costs are remaining to be written off as of March 31, 1996. Net income In the quarter ended March 31, 1996 the Company recognized a net loss of $.8 million or $.05 per share compared to net income of $1.8 million or $.12 per share for the quarter ended March 31, 1995. The March 31, 1996 net loss reflects an after tax loss of $1.9 million or $.12 per share for the write down of the Company's investment in Showboat Mardi Gras, L.L.C. (SMG). SMG was formed to develop a riverboat casino operation in Randolph, Missouri. In comparison, the first quarter of 1995 net income results included an after tax gain of $1.4 million or $.09 per share on the sale of the Star Casino. 12 MATERIAL CHANGES IN FINANCIAL CONDITION As of March 31, 1996 the Company held cash and cash equivalents of $74.4 million compared to $106.9 million at December 31, 1995. This decline is due principally to the funding of the East Chicago project. On March 28, 1996 the Company's 55% owned subsidiaries, Showboat Marina Casino Partnership (SMCP) and Showboat Marina Finance Corporation (SMFC), sold $140.0 million, 13 1/2% First Mortgage Notes due 2003 (the "First Mortgage Notes"). The net proceeds of $135.1 million and the debt are included on the Company's balance sheet as of March 31, 1996. The funds were raised to support the development of the $195.0 million East Chicago Showboat riverboat casino project in East Chicago, Indiana (the "East Chicago Showboat"). The Company has funded $36.9 million to the project and has committed an additional $3.1 million to this project. The proceeds from the sale of the First Mortgage Notes and equity contributions by the Company and its partners are reflected on the Company's balance sheet as non current assets, since such funds can only be used for the acquisition of property and equipment or other purposes to benefit the East Chicago Showboat. Interest expense will be capitalized to the extent permitted under generally accepted accounting principles and as a result the Company anticipates that a portion of this expense will impact results in reporting periods preceding the opening of the East Chicago Showboat project, currently anticipated for July, 1997. As a result, for the period ended December 31, 1996, the Company anticipates that net interest expense of approximately $2.0 million to $3.0 million will be recorded. The First Mortgage 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. Terms not otherwise defined herein have the meanings assigned to them in the First Mortgage Note Indenture. The First Mortgage Notes are secured by a first lien on substantially all of SMCP's assets. The First Mortgage Note Indenture places significant restrictions on SMCP for the incurrence of additional Indebtedness, the creation of additional Liens on the Collateral securing the First Mortgage Notes, transactions with Affiliates and making Restricted Payments unless certain conditions are met. Restricted Payments include paying a management fee to the Manager of the East Chicago Showboat, an entity which is 55% owned by the Company, unless among other things, SMCP's Fixed Charge Coverage Ratio for the most recently ended four full fiscal quarters, after giving effect to such Restricted Payment must be greater than 1.5 to 1.0. To make any other Restricted Payment SMCP must meet, among other things, a Fixed Charge Coverage Ratio for the most recently ended four full fiscal quarters, after giving effect to such Restricted Payment, must be greater than 2.0 to 1.0. 13 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 project's combined cash flow (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 project 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 project will be suspended during the pendency of any force majeure event or other event outside the control of the Company. During the three months ended March 31, 1996 the Company expended approximately $21.8 million on capital improvements at its Las Vegas and Atlantic City facilities and construction costs at the East Chicago Showboat which were funded from operations and the First Mortgage Notes. Approximately $10.7 million related to the East Chicago Showboat. On April 1, 1996, an affiliate of the Company, Sydney Harbour Casino Holdings Pty Limited, through its wholly owned subsidiary, Sydney Harbour Casino Properties Pty Limited, ("SHCP") renegotiated its agreement with Leighton Properties Pty Limited ("Leighton Properties") for the design and construction of the interim and permanent Sydney Harbour Casino. The renegotiated project cost is approximately A$867.2 million, a A$176.1 million increase over the April 1994 projected project cost of A$691.1 million, and includes the administration and management of the project, an accelerated completion date of December 1997, the firming up of on monetary allowances and resolution of certain claims by Leighton Properties to SHCP. The design element changes incorporated in the renegotiated contract for the permanent casino were made with a view toward improving its operational efficiency and product quality and to match the changing competitive environment. The increased project cost is being funded in part by the sale of 35,250,000 preferred ordinary shares of stock by SHCH on May 13, 1996, providing net proceeds of approximately A$64.0 million. Additional financing is being negotiated with local banks and the project expansion is subject to obtaining the additional financing and required approvals. 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 assurance can be given that the construction costs for the Sydney Harbour Casino will not exceed the announced project cost estimate. The sale of the additional equity by SHCH reduced the Company's equity in the project to 24.6% from 26.3%. 14 The Company is actively pursuing potential gaming opportunities in jurisdictions where gaming is legalized, as well as jurisdictions where gaming is not yet, but is expected to be legalized. 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 jurisdiction 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 projects under development or any unannounced projects under development will be completed, licensed or result in any significant contribution to the Company's cash flow or earnings. Casino gaming operations are highly regulated and new casino developments are subject to a number of risks. 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. SLP has entered into, as of this date hereof, a commitment letter to receive up to $75.0 million of financing from an unrelated party for the construction of the project subject to certain conditions. The financing commitment is for a period of 30 days with three extension periods of 30 days each at the election of the Company and three additional 30 day extension periods at the election of the Company and agreement of the unrelated party. No assurance can be given that SLP will be selected for investigation for a gaming license prior to the expiration of the current commitment letter or the available extensions. No assurance can be given that SLP will be successful in obtaining the necessary funds to finance its gaming project or that SLP will successfully obtain a casino license. 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, 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 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. 15 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% First Mortgage Bonds and 13% Senior Subordinated Indebtedness; 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. 16 SHOWBOAT, INC. AND SUBSIDIARIES PART II, OTHER INFORMATION Item 1Legal Proceedings. "William H. Ahern v. Caesers World, Inc., et al.", Case No. 94-532-Civ-Orl-22, instituted on May 10, 1994 (the "Ahern Complaint") and "William Poulos v. Caesers World, Inc., et al.", Case No. 94-478-Civ-Orl-22, instituted on April 26, 1994 (the "Poulos Complaint")(collectively, the Ahern Complaint and Poulos Complaint are referred to as the Complaints"). Two individuals, each purportedly representing a class, filed Complaints in the United States District Court, Middle District of Florida, against various manufacturers, distributors and casino operators of video poker and electronic slot machines, including the Company. The Complaints allege 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 allege 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 $1.0 billion without any substantiation of that amount. The Complaints were consolidated and transferred to the United States District Court for the District of Nevada (the "Nevada District Court"). The Company filed a motion to dismiss the action based on jurisdiction, abstention and related doctrines. Various other defendants filed similar motion and motions to dismiss based on defects in the pleadings. The Nevada District Court entered an order granting the motions to dismiss based on defects in the pleadings, and denying as moot all other pending motions, including those of the Company. The Nevada District Court granted plaintiffs until May 31, 1996 within which to file an amended complaint that complies with the applicable pleading requirements. Failure to file an amended complaint will result in dismissal of the Complaints. Although the Company did not join in the motions based on defects in the pleadings, the Company believes, based on the scope of the order, that it is entitled to rely upon the conditional dismissal. Management does not know whether plaintiffs intend to file amended complaints, but believes that they will do so. Management continues to believe that the substance of the allegations in the Complaints are without merit and intends to defend vigorously the allegations. Item 2Changes in Securities. Not Applicable Item 3Defaults Upon Senior Securities. Not Applicable 17 SHOWBOAT, INC. AND SUBSIDIARIES PART II, OTHER INFORMATION (continued) Item 4Submission of Matters to a Vote of Security Holders None Item 5Other Information Not Applicable Item 6Exhibits on Reports on Form 8-K (a) Exhibits Exhibit No. Description ------ -------- -------- ----------- 10.01 Completion Guarantee dated March 28, 1996 by and between Showboat, Inc. and American Bank National Association as trustee. 10.02 Standby Equity Commitment dated March 28, 1996, by and among Showboat Marina Casino Partnership, Showboat Marina Finance Corporation and Showboat, Inc. (b) Reports on Form 8-K None 18 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Showboat, Inc. Registrant DateMay 15, 1996 s/ J. Kell Houssels, III --------------------- ----------------------------------- J. KELL HOUSSELS, III, President and Chief Executive Officer DateMay 15, 1996 s/ R. Craig Bird --------------------- ----------------------------------- R. CRAIG BIRD, Executive Vice President - Finance and Administration and Chief Financial Officer 19 EX-10.01 2 EXHIBIT 10.01 EXECUTION COPY COMPLETION GUARANTEE COMPLETION GUARANTEE dated as of March 28, 1996 (this "COMPLETION GUARANTEE") by SHOWBOAT, INC., a Nevada corporation (the "GUARANTOR"), in favor of AMERICAN BANK NATIONAL ASSOCIATION, a national banking association, as trustee (the "TRUSTEE") under the Indenture (as defined below), its successors and assigns. RECITALS A. WHEREAS, pursuant to that certain Indenture dated as of March 28, 1996 (the "INDENTURE") by and among Showboat Marina Casino Partnership, an Indiana general partnership ("SHOWBOAT PARTNERSHIP"), Showboat Marina Finance Corporation, a Nevada corporation ("FINANCE CORPORATION" and, together with Showboat Partnership, the "COMPANY") and the Trustee, as trustee, the Company has issued $140,000,000 aggregate principal amount of 13 1/2% First Mortgage Notes due 2003 (the "FIRST MORTGAGE NOTES"); B. WHEREAS, the Company has entered into the Indenture to finance, in part, the design, development, construction, equipping and opening of East Chicago Showboat; C. WHEREAS, the Guarantor indirectly owns a substantial equity interest in the Company and will obtain substantial economic and other benefits as a result of the successful completion of East Chicago Showboat; and D. WHEREAS, as a material inducement to the purchasers of the First Mortgage Notes, the Guarantor has agreed that it will guarantee, for the benefit of the holders of the First Mortgage Notes from time to time (the "Holders"), the obligations of the Company to complete the construction of East Chicago Showboat as provided herein; AGREEMENT NOW, THEREFORE, in consideration of the foregoing and other benefits accruing to the Guarantor, the receipt and sufficiency of which are hereby acknowledged, the Guarantor hereby makes the following representations and warranties for the benefit of the Holders and hereby covenants and agrees for the benefit of the Holders as follows: 1. OBLIGATIONS GUARANTEED. Subject to Paragraph 12 hereof, the Guarantor hereby irrevocably and unconditionally guarantees (a) the Company's obligation to complete the construction of East Chicago Showboat so that East Chicago Showboat is Operating in accordance with the terms of the Indenture and the Escrow and Disbursement Agreement and (b) the payment of all Amounts Required For Completion payable by the Company on or prior to the date on which East Chicago Showboat becomes Operating. The Guarantor hereby irrevocably and unconditionally guarantees the payment of any Disputed Amounts (as defined in the Escrow and Disbursement Agreement) that it has acknowledged under the Escrow and Disbursement Agreement and that the Company does not pay when due and payable, whether or not East Chicago Showboat becomes Operating. The Guarantor's obligations hereunder are referred to as the "OBLIGATIONS." Such Obligations shall include, without limitation, (a) the payment, satisfaction or discharge of all Liens, other than Permitted Liens, that are or may be imposed upon or asserted against East Chicago Showboat, any related real property or any portion thereof and (b) the defense and indemnification of the Trustee and the Holders against all such Liens, other than Permitted Liens, whether arising from the furnishing of labor, materials, supplies or equipment, from taxes, assessments, fees or other charges, from injuries or damage to persons or property, or otherwise. The Guarantor agrees to perform and comply with its Obligations hereunder, whether or not the Company is liable therefor individually or jointly or severally with others, and whether or not recovery against the Company is or may become barred by any applicable statute of limitations or is or may become unenforceable or discharged for any reason other than payment or performance thereof in full. Without limiting the generality of the foregoing, the Guarantor agrees that the Obligations shall include its obligation (i) to cause any and all costs of constructing and completing East Chicago Showboat so that East Chicago Showboat is Operating, including, without limitation, the costs of all labor, materials, supplies and equipment related thereto, to be paid and satisfied as the same shall become due and payable, (ii) to cause any and all costs and cost overruns of constructing and completing East Chicago Showboat so that East Chicago Showboat is Operating not paid by the Company to be funded, paid and satisfied, (iii) to cause the completion of East Chicago Showboat (together with all support facilities and improvements appurtenant and related thereto) in accordance with the terms of the Indenture and the Escrow and Disbursement Agreement and (iv) to cause all Project Costs (as defined in the Indenture) relating to East Chicago Showboat (together with all support facilities and improvements appurtenant and related thereto) and any related real property, including, without limitation, the payment of interest (but not principal), taxes, assessments, utilities, insurance and maintenance expenses, to be funded, paid and satisfied prior to delinquency to the extent necessary to cause East Chicago Showboat to become Operating. Notwithstanding anything to the contrary in this Completion Guarantee, (i) the Guarantor shall only be liable for the Obligations in the event that, and to the extent that, there are not sufficient Available Funds which the Company can then use for such purpose in accordance with the terms of the Escrow and Disbursement Agreement and (ii) the Guarantor's Obligations pursuant to this Completion Guarantee shall be limited to $30.0 million in the aggregate. The Guarantor shall use its best efforts to cause East Chicago Showboat to become Operating and to cause the funds in the Escrow Account to be used to make East Chicago Showboat become Operating; PROVIDED, HOWEVER, that in no event shall the use of best efforts require the Guarantor to expend more than $30.0 million in the aggregate under any and all provisions of this Completion Guarantee. The Guarantor acknowledges that it has received copies of and is familiar with the Indenture and each Collateral Document, all of which are incorporated herein by reference. Notwithstanding anything to the contrary in this Completion Guarantee, it is understood and agreed by the parties hereto that, except as expressly provided herein, that the Holders' and the Trustee's sole remedies under this Completion Guarantee shall be to require the Guarantor to fulfill its Obligations as described above, and in no event shall the Guarantor incur, directly or indirectly ("INCUR" meaning to create, incur, assume, guarantee or otherwise become liable for), any obligation, contingent or otherwise, for the payment of the principal amount of the First Mortgage Notes, except to the extent the First Mortgage Notes are paid as a result of a foreclosure and the Guarantor's funds were used to improve East Chicago Showboat. The Guarantor's Obligations hereunder with respect to East Chicago Showboat shall immediately terminate upon the date on which East Chicago Showboat first becomes Operating. 2. PROCEDURES FOR COMPLETION. 2.1. If for any reason whatsoever the Company shall (a) fail or neglect to complete East Chicago Showboat, including the furnishing and fixturing thereof, in the manner specified in the Indenture and the Escrow and Disbursement Agreement, free and clear of all Liens, other than Permitted Liens, and fully paid for, (b) fail in any other manner to prosecute with diligence and continuity the construction and completion of East Chicago Showboat, (c) commit or permit to exist a Default or Event 2 of Default under the Indenture or any of the Collateral Documents, (d) be unable to satisfy any condition precedent to obtaining a disbursement of Proceeds under the Escrow and Disbursement Agreement, or (e) become subject to a termination of its right to receive undisbursed Proceeds prior to the full disbursement thereof from the Escrow Account, including by reason that the Trustee has demanded that it receive the funds in the Escrow Account pursuant to Section 3.4 of the Escrow and Disbursement Agreement, then, in any such event or at any time thereafter, the Trustee may give written notice to the Guarantor of the occurrence of such event and, if the Trustee exercises its rights hereunder, the Trustee shall give written notice to the Guarantor prior to or contemporaneously with such exercise; PROVIDED, that the failure to give such notice shall not relieve the Guarantor of its obligations under this Agreement, except to the extent the Guarantor demonstrates actual damage as a result of such failure. 2.2 Within thirty (30) days after the date on which the Trustee gives any such notice to the Guarantor, the Guarantor, at its sole cost, shall perform the Obligations. 2.3 If the Guarantor fails to perform the Obligations, then, in addition to all other rights and remedies that may be available to the Trustee under this Completion Guarantee, the Indenture and the Collateral Documents, at law or in equity, including, without limitation, the right and remedy of specific performance, the Trustee or its agent may proceed as follows: (a) The Trustee, at its option, shall have the right, but shall have no obligation, to undertake to complete the construction of East Chicago Showboat (either itself or through any agent, contractor or subcontractor of its selection), exercisable whether or not the Trustee elects to proceed judicially or nonjudicially to foreclose on all or any portion of the First Mortgage Note Collateral. (b) The Trustee, at its option, shall have the right, subject to any restrictions imposed by the Indiana Riverboat Gambling Act (the "Indiana Act"), to the extent applicable, but shall have no obligation, to proceed judicially or nonjudicially to foreclose on all or any portion of the First Mortgage Note Collateral, exercisable whether or not the Trustee elects to undertake to complete the construction of East Chicago Showboat. (c) Whether or not the Trustee elects to undertake to complete the construction of East Chicago Showboat and whether or not the Trustee elects to proceed judicially or nonjudicially to foreclose on all or any portion of the First Mortgage Note Collateral, the Trustee shall have the right to recover damages from the Guarantor in an amount equal to the sum of (i) the reasonable costs incurred by the Trustee to complete the construction of East Chicago Showboat, plus (ii) all unreimbursed costs and expenses, including reasonable attorneys' fees, incurred by the Trustee in protecting, preserving, enforcing or defending its interests in this Completion Guarantee. (d) In any action or proceeding by the Trustee to recover damages from the Guarantor, the Trustee may exercise any and all remedies available under federal law or the laws of the State of Nevada or the State of Indiana applicable to an action on matured contractual indebtedness. No delay or failure by the Trustee to exercise any remedy against the Guarantor will be construed as a waiver of that right or remedy. 2.4 The remedy of specific performance, the recovery of damages and all other rights and remedies under this Completion Guarantee, the Indenture and the Collateral Documents, at law or in equity, are intended to be non-exclusive. The parties recognize that the choice of remedies by the Trustee will necessarily and properly be a matter of business judgment, which the passage of time and events may or may not prove to have been the best choice to maximize recovery by the Trustee at the 3 lowest cost to the Company or the Guarantor. Nevertheless, the choice of alternatives by the Trustee shall not be subject to question or challenge by the Guarantor or any other person, nor shall any such choice be asserted as a defense, set-off or basis for any claim of failure to mitigate damages in any action or proceeding arising from this Completion Guarantee. 3. ALTERATION OF OBLIGATIONS. In such manner, upon such terms and at such times as the Trustee deems appropriate, and without notice to the Guarantor, the Trustee or the Holders of 25% of the aggregate principal amount of the First Mortgage Notes then outstanding may alter, compromise, accelerate, extend or change the time or manner for the payment or performance of any obligations hereby guaranteed, alter or amend the Escrow and Disbursement Agreement or the Construction Budget (as defined therein), release the Company, by acceptance of a deed in lieu of foreclosure or otherwise, as to all or any portion of the obligations hereby guaranteed, release, substitute or add any one or more guarantors or endorsers, accept additional or substitute security therefor, or release or subordinate any security therefor. The Guarantor acknowledges and agrees that the Escrow and Disbursement Agreement and the Construction Budget may be amended from time to time by the Company in accordance with the terms and conditions set forth in the Escrow and Disbursement Agreement and the Guarantor agrees to perform its Obligations hereunder in accordance with the terms of the Escrow and Disbursement Agreement and the Construction Budget, as so amended or altered. No exercise or non-exercise of any right hereby given to the Trustee, no dealing by the Trustee with the Guarantor or any other guarantor, endorser of the First Mortgage Notes or any other person, and no change, impairment or release of all or any portion of the obligations of the Company under the Indenture or any of the Collateral Documents or suspension of any right or remedy of the Trustee against any person, including, without limitation, the Company or any other such guarantor, endorser or other person, shall in any way affect any of the obligations of the Guarantor hereunder or any security furnished by the Guarantor, or give the Guarantor any recourse against the Trustee. If the Trustee has exculpated or hereafter exculpates the Company from personal liability in whole or in part, or has agreed or hereafter agrees to look solely to the First Mortgage Note Collateral or any other property for the satisfaction of the Company's obligations under the Indenture and the Collateral Documents, said exculpation and agreement shall not affect the Obligations of the Guarantor hereunder. The Guarantor further acknowledges that any such exculpation or agreement that has been given or that is hereafter given to the Company has been given or is given in reliance upon the covenants of the Guarantor contained herein. 4. WAIVER. The Guarantor hereby waives and relinquishes all rights and remedies accorded by applicable law to sureties or guarantors and agrees not to assert or take advantage of any such rights or remedies, including, without limitation, (a) any right to require the Trustee to proceed against the Company or any other person or to proceed against or exhaust any security held by the Trustee at any time or to pursue any other remedy in the power of the Trustee before proceeding against the Guarantor, (b) the defense of the statute of limitations in any action hereunder or in any action for the collection or performance of any obligations hereby guaranteed, (c) any defense that may arise by reason of the incapacity, lack of authority, death or disability of any other person or the failure of the Trustee to file or enforce a claim against the estate (in administration, bankruptcy or any other proceeding) of any other person, (d) demand, presentment, protest and notice of any kind, including, without limitation, notice of the existence, creation or incurrence of any new or additional indebtedness or obligation or of any action or non-action on the part of the Company, the Trustee, any endorser or creditor of the Company or the Guarantor or on the part of any other person under this or any other instrument in connection with any obligation or evidence of indebtedness held by the Trustee, as collateral or in connection with any obligations hereby guaranteed, (e) any defense based upon an election of remedies by the Trustee, including, without limitation, an election to proceed by nonjudicial rather than judicial foreclosure, which destroys or otherwise impairs the subrogation rights of the Guarantor, the right of the Guarantor to proceed against the Company for reimbursement, or both, (f) any defense based upon any statute or rule 4 of law that provides that the obligation of a surety must be neither larger in amount nor in other respects more burdensome than that of the principal, (g) any duty on the part of the Trustee to disclose to the Guarantor any facts the Trustee may now or hereafter know about the Company, regardless of whether the Trustee has reason to believe that any such facts materially increase the risk beyond that which the Guarantor intends to assume, or has reason to believe that such facts are unknown to the Guarantor, or has a reasonable opportunity to communicate such facts to the Guarantor, because the Guarantor acknowledges that it is fully responsible for being and keeping informed of the financial condition of the Company and of all circumstances bearing on the risk of non-payment of any obligations hereby guaranteed, (h) any defense arising because of the election of the Trustee, in any proceeding instituted under the Federal Bankruptcy Code, of the application of Section 1111(b)(2) of the Federal Bankruptcy Code, and (i) any defense based upon any borrowing or grant of a security interest under Section 364 of the Federal Bankruptcy Code. 5. SUBORDINATION. Except as expressly permitted under the Indenture, no indebtedness of the Company to the Guarantor or any subsidiary of the Guarantor (other than the Company) shall be paid or withdrawn in whole or in part, nor shall the Guarantor accept any payment of or on account of any such indebtedness or as a withdrawal of capital while this Completion Guarantee is in effect. Any such payment by the Company in violation of this Completion Guarantee shall be received by the Guarantor in trust for the Trustee, and the Guarantor shall cause the same to be paid to the Trustee immediately upon demand by the Trustee on account of the Company's obligations hereby guaranteed. Any amounts paid, advanced or contributed by the Guarantor pursuant to this Completion Guarantee shall (i) (a) be evidenced by a note or notes, (b) be subordinated in right of payment pursuant to the terms and conditions set forth in the Completion Guarantor Subordination Agreement, set forth as EXHIBIT A hereto and entered into between the Company and the Guarantor on the date hereof, (c) have a maturity date no earlier than March 16, 2003; PROVIDED, HOWEVER, that principal and interest may be prepaid, at the option of the Company, without premium, under such note(s) so long as such prepayment is permitted pursuant to Section 4.07 of the Indenture and no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof under the Indenture, and (d) provide that no payment under such note(s) shall be due and payable any time a Default or Event of Default has occurred and is continuing under the Indenture or (ii) be made in the form of a capital contribution to the Company; PROVIDED THAT Disqualified Stock is not issued in exchange therefor. 6. BANKRUPTCY. 6.1 So long as any Obligations are owed to the Trustee, the Guarantor shall not, without the prior written consent of the Trustee, commence, or join with any other person in commencing, any bankruptcy, reorganization or insolvency proceeding against the Company. Subject to Section 12 hereof, the obligations of the Guarantor under this Completion Guarantee shall not be altered, limited or affected by any proceeding, voluntary or involuntary, involving the bankruptcy, reorganization, insolvency, receivership, liquidation or other winding-up of the Company, or by any defense which the Company may have by reason of any order, decree or decision of any court or administrative body resulting from any such proceeding. 6.2 The Guarantor shall file, in any bankruptcy or other proceeding in which the filing of claims is required or permitted by law, all claims which the Guarantor may have against the Company relating to any indebtedness of the Company to the Guarantor, and hereby assigns to the Trustee all rights of the Guarantor thereunder. If the Guarantor does not file any such claim, the Trustee, as attorney-in-fact for the Guarantor, is hereby authorized to do so in the name of the Guarantor or, in the Trustee's discretion, to assign the claim to a nominee and to cause proofs of claim to be filed in the name of the Trustee's nominee. The foregoing power of attorney is coupled with an interest and cannot 5 be revoked. The Trustee or its nominee shall have the sole right to accept or reject any plan proposed in any such proceeding and to take any other action that a party filing a claim is entitled to take. In all such cases, whether in administration, bankruptcy or otherwise, the person authorized to pay such a claim shall pay the same to the Trustee, and, to the full extent necessary for that purpose, the Guarantor hereby assigns to the Trustee all of the Guarantor's rights to all such payments or distributions to which the Guarantor would otherwise be entitled; PROVIDED, HOWEVER, that the Guarantor's Obligations hereunder shall not be satisfied except to the extent that the Trustee receives cash by reason of any such payment or distribution. If the Trustee receives anything hereunder other than cash, the same shall be held as collateral for amounts due under this Completion Guarantee. 7. INTEREST, COSTS AND ATTORNEYS' FEES. 7.1 If the Company or the Guarantor fail to pay all or any portion of the obligations hereby guaranteed upon demand by the Trustee, the amount of such obligations and all other sums payable by the Guarantor to the Trustee hereunder shall bear interest from the date of demand at the highest rate applicable to the principal balance of the First Mortgage Notes, or, if the First Mortgage Notes have been fully repaid, at the highest rate that would be applicable if the First Mortgage Notes had not been fully repaid. 7.2. If the Trustee refers this Completion Guarantee to an attorney to enforce, construe or defend any provision thereof, or as a consequence of any Default or Event of Default under the Indenture or any default hereunder, with or without the filing of any legal action or proceeding, the Guarantor shall pay to the Trustee upon demand the amount of all reasonable attorneys' fees, costs and other expenses incurred by the Trustee in connection therewith, together with interest thereon from the date of demand at the highest rate applicable to the principal balance of the First Mortgage Notes, or, if the First Mortgage Notes have been fully repaid, at the highest rate that would be applicable if the First Mortgage Notes had not been fully repaid. Such attorneys' fees, costs and expenses shall include, without limitation, those incurred in connection with any bankruptcy, reorganization, insolvency, receivership, liquidation, arrangement or other similar proceeding involving the Guarantor that in any way affect the exercise by the Trustee of its rights and remedies hereunder. 8. CUMULATIVE RIGHTS. All rights, powers and remedies of the Trustee hereunder and under any other agreement now or at any time hereafter in force between the Trustee and the Guarantor, including, without limitation, any other guarantee executed by the Guarantor relating to any indebtedness of the Company, shall be cumulative and not alternative, and such rights, powers and remedies shall be in addition to all rights, powers and remedies given to the Trustee and the Holders by law. This Completion Guarantee is in addition to and independent of the guarantee of any other guarantor of any obligations or other indebtedness of the Company. 9. INDEPENDENT OBLIGATIONS. The Obligations of the Guarantor hereunder are independent of the obligations of the Company and, in the event of any default hereunder, a separate action or actions may be brought and prosecuted against the Guarantor, whether or not the Company is joined therein or a separate action or actions are brought against the Company. The Trustee's rights hereunder shall not be exhausted by its exercise of any of its rights or remedies or by any such action or by any number of successive actions unless and until all obligations hereby guaranteed have been paid and fully performed. 10. APPLICATION OF PAYMENTS OR RECOVERIES. Subject to the applicable provisions of this Completion Guarantee, with or without notice to the Guarantor, the Trustee, in its sole discretion, at any time and from time to time, and in such manner and upon such terms as the Trustee deems fit, may (a) apply any or all payments or recoveries from the Company or from any other guarantor or endorser 6 under any other instrument or realized from any security, in such manner and order of priority as the Trustee may determine, to any of the obligations of the Company, whether or not such indebtedness is guaranteed hereby or is otherwise secured or is due and payable at the time of such application, and (b) refund to the Company any payment received by the Trustee upon any obligations hereby guaranteed, and payment of the amount refunded shall be fully guaranteed hereby. 11. FINANCIAL STATEMENTS. The Guarantor hereby represents and warrants that the information pertaining to the Guarantor set forth in its most recent filings with the Securities and Exchange Commission is true and correct in all material respects, and fairly presents the financial condition and results of operations of the Guarantor as of the respective dates indicated therein and for the periods covered thereby, and that no material adverse change has occurred in the business, condition (financial or other), results of operations, properties or prospects of the Guarantor and its subsidiaries, individually or in the aggregate, since the date of the latest information provided therein. 12. SUSPENSION OF OR EXCUSE FROM PERFORMANCE. Notwithstanding anything to the contrary in this Completion Guarantee, if, at any time, there shall occur a Force Majeure Event with respect to East Chicago Showboat, then the Guarantor's Obligations under this Completion Guarantee shall be suspended (the "SUSPENSION") until such time as the Force Majeure Event is removed. During the period following any date of Suspension and until the end of such Suspension, the Guarantor shall use its best efforts to remove the Force Majeure Event. 13. DEFINITIONS. As used in this Completion Guarantee, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined). All other capitalized terms used herein but not defined shall have the meanings given them in the Indenture. "AMOUNTS REQUIRED FOR COMPLETION" shall mean (i) all regularly scheduled payments of principal, as well as all interest and other amounts (other than principal payments prior to the regularly scheduled date of repayment), due and payable pursuant to any Indebtedness (other than the First Mortgage Notes) prior to the occurrence of the date on which East Chicago Showboat becomes Operating, (ii) all regularly scheduled payments of interest due and payable under the First Mortgage Notes prior to the occurrence of the date on which East Chicago Showboat becomes Operating; PROVIDED, that in no event shall the Guarantor be responsible to pay any amounts of principal due on the First Mortgage Notes), (iii) all costs of construction of East Chicago Showboat (including, without limitation, the costs relating to the Casino, gaming and other equipment, pre-opening expenses, capitalized interest, breakwater, garage, furniture, fixtures and equipment, contingency, pavilion, design and development fees, economic development incentives, site improvements and infrastructure, financing fees and expenses, and bankroll and working capital, all as identified as a Use of Funds needed in connection with East Chicago Showboat so that East Chicago Showboat is Operating in the Escrow and Disbursement Agreement and the Construction Budget, in each case, as it may be amended from time to time, prior to or concurrently with the date on which East Chicago Showboat becomes Operating, (iv) all amounts owing under any agreement entered into in connection with the construction or development of East Chicago Showboat so that East Chicago Showboat is Operating, as well as all amounts owing to the City of East Chicago, the State of Indiana, or any other governmental authority, agency, board, subdivision or special purpose corporation thereof prior to or concurrently with the date on which East Chicago Showboat becomes Operating, (v) all operating costs of the Company prior to the time East Chicago Showboat becomes Operating, and (vi) any other amounts or funds required in order to cause East Chicago Showboat to become Operating, including, without limitation, for the furnishing of labor, materials, supplies or equipment, from taxes, assessments, fees or other charges, from injuries or damages to persons or property, or otherwise. 7 "AVAILABLE FUNDS" shall have the meaning assigned to it in the Escrow and Disbursement Agreement. "FORCE MAJEURE EVENT" shall mean strikes, lockouts or other labor trouble; fire or other casualty; governmental preemption in connection with a national emergency; breakdown, accident or other acts of God; acts of war, insurrection, civil strife and commotion; failure to supply despite the reasonable diligence of the Company and the Guarantor; any statute, rule, order or regulation of any legislature or governmental agency or any department or subdivision thereof; any litigation not caused by the Company, the Guarantor or any of the Guarantor's affiliates; or any other event outside the control of the Company or the Guarantor; in each such case that shall make it physically impossible or unlawful to cause East Chicago Showboat to become Operating; PROVIDED, HOWEVER, that it shall not be deemed to be a Force Majeure Event to the extent it is not physically impossible or unlawful to cause East Chicago Showboat to become Operating by amending or altering the meaning of Minimum Facilities as defined in the Indenture and the Escrow and Disbursement Agreement or otherwise altering or amending a physical specification of East Chicago Showboat (in which case the Guarantor shall have the obligation pursuant to this Completion Guarantee to complete the construction of East Chicago Showboat to such modified or amended extent), and; PROVIDED, FURTHER, that nothing in this definition shall prevent or cease to cause a Default or Event of Default under the Indenture for failure to construct East Chicago Showboat in accordance with the Minimum Facilities or the Plans. "PROCEEDS" shall have the meaning assigned to it in the Escrow and Disbursement Agreement. 14. REPRESENTATIONS, WARRANTIES AND ADDITIONAL COVENANTS. The Guarantor represents, warrants and covenants to the Trustee that: 14.1 The execution and delivery of this Completion Guarantee, the performance of this Completion Guarantee, compliance by the Guarantor with the provisions hereof and the consummation of the transactions contemplated hereby, will not (i) conflict with or result in a breach or violation of any of the respective charters or bylaws of the Guarantor or any of its subsidiaries or any respective material franchise or license of the Guarantor or any of its subsidiaries or any of the terms or provisions thereof, (ii) constitute a default or cause an acceleration of any obligation under, or result in the imposition or creation of (or the obligation to create or impose) any lien with respect to, any bond, note, debenture or other evidence of indebtedness or any indenture, mortgage, deed of trust or other agreement or instrument to which the Guarantor or any of its subsidiaries is a party or by which it or any of them is bound, or to which any properties of the Guarantor or any of its subsidiaries is or may be subject, (iii) contravene any order of any court or governmental agency (including, without limitation, any gaming authority in any state of the United States or foreign country or body having jurisdiction over the Guarantor or any of its subsidiaries or any of their properties, or (iv) violate or conflict with any statute, rule or regulation or administrative or court decree applicable to the Guarantor or any of its subsidiaries or any of their respective properties, in the case of clauses (i), (ii), (iii) and (iv) which conflict, breach, violation, default or contravention, singly or in the aggregate with each other conflict, breach, violation, default or contravention, would have a material adverse effect on the business, condition (financial or other), results of operations, properties or prospects of the Guarantor and its subsidiaries, individually or in the aggregate, or would materially and adversely affect the consummation of this Completion Guarantee or the transactions contemplated hereby. 14.2 The Guarantor has all necessary corporate power and authority to execute and deliver this Completion Guarantee and to perform its obligations hereunder. 8 14.3 This Completion Guarantee has been duly authorized, executed and delivered by the Guarantor and constitutes the legal, valid and binding agreement of the Guarantor, enforceable against the Guarantor in accordance with its terms, except as the enforceability hereof may be limited by (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereinafter in effect relating to or affecting the rights and remedies of creditors generally and (ii) the effect of general principles of equity, whether enforcement is considered in a proceeding in equity or at law, and the discretion of the court before which any proceeding therefor may be brought. 14.4 The Guarantor agrees that it will not, and that it will cause its subsidiaries not to, enter into any bond, note, debenture or other evidence of indebtedness or any indenture, mortgage, deed of trust or other agreement or instrument that would conflict with the performance by the Guarantor of its obligations under this Completion Guarantee or compliance by the Guarantor with the provisions hereof or pursuant to which this Completion Guarantee would constitute a default or cause an acceleration of any obligation under, or result in the imposition or creation of (or the obligation to create or impose) any lien. 15. NOTICES. Whenever the Guarantor or the Trustee shall desire to give or serve any notice, demand, request or other communication with respect to this Completion Guarantee, each such notice shall be in writing and shall be effective only if the same is delivered by personal service, by telegram, or mailed by certified mail, postage prepaid, return receipt requested, addressed as follows: (a) if to the Guarantor, at: Showboat, Inc. 2800 Fremont Street Las Vegas, Nevada 89104 Attention: Chief Financial Officer Telephone: (702) 385-9123 Facsimile: (702) 385-9678 with copies to Kummer Kaempfer Bonner & Renshaw 3800 Howard Hughes Parkway Las Vegas, NV 89109 Attention: John N. Brewer, Esq. Telephone: (702) 792-7000 Facsimile: (702) 796-7181 and Ice Miller Donadio & Ryan One American Square, 31st Floor Indianapolis, Indiana 46204 Attention: Stephen J. Hackman, Esq. Telephone: (317) 236-2100 Facsimile: (317) 236-2219 or 9 (b) if to the Trustee, as provided in the Indenture; or at such other address as shall have been furnished in writing by any person described above to the party required to give notice hereunder. Any such notice delivered personally shall be deemed to have been received upon delivery. Any such notice sent by telegram shall be presumed to have been received by the addressee one business day after its acceptance for sending by an authorized carrier thereof. Any such notice sent by mail shall be presumed to have been received by the addressee three business days after posting in the United States mail. The Guarantor or the Trustee may change its address by giving the other party written notice of the new address as provided herein. 16. SUCCESSORS AND ASSIGNS. This Completion Guarantee shall inure to the benefit of the Trustee, its successors and assigns, including the assignees of any obligations hereby guaranteed, and shall bind the heirs, executors, administrators, personal representatives, successors and assigns of the Guarantor. This Completion Guarantee may be assigned by the Trustee with respect to all or any portion of the obligations hereby guaranteed, and when so assigned the Guarantor shall be liable to the assignees under this Completion Guarantee without in any manner affecting the liability of the Guarantor hereunder with respect to any Obligations retained by the Trustee. 17. MISCELLANEOUS PROVISIONS. 17.1 THIS COMPLETION GUARANTEE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEVADA AS APPLIED TO CONTRACTS MADE AND PERFORMED ENTIRELY WITHIN THE STATE OF NEVADA, EXCEPT AS OTHERWISE REQUIRED BY MANDATORY PROVISIONS OF NEVADA LAW, INCLUDING THE NEVADA GAMING CONTROL ACT AND THE REGULATIONS PROMULGATED THEREUNDER. THE GUARANTOR HEREBY CONSENTS TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEVADA AND CONSENTS TO SERVICE OF PROCESS BY ANY MEANS AUTHORIZED BY NEVADA LAW IN ANY ACTION BROUGHT UNDER OR ARISING FROM THIS COMPLETION GUARANTEE. 17.2 Except as provided in any other written agreement now or at any time hereafter in force between the Guarantor and the Trustee, this Completion Guarantee shall constitute the entire agreement of the Guarantor with the Trustee with respect to the subject matter hereof, and no representation, understanding, promise or condition concerning the subject matter hereof shall be binding upon the Trustee unless expressed herein. 17.3 Should any term, covenant, condition or provision of this Completion Guarantee be determined to be illegal or unenforceable, it is the intent of the parties that all other terms, covenants, conditions and provisions hereof shall nevertheless remain in full force and effect. 17.4 Time is of the essence to this Completion Guarantee and each of its provisions. 17.5 When the context and construction so require, all words used in the singular herein shall be deemed to include the plural, the masculine shall include the feminine and neuter, and vice versa. 17.6 The word "person" as used herein shall include any individual, company, firm, association, partnership, joint venture, corporation, trust or other legal entity of any kind whatsoever. 10 17.7 No provision of this Completion Guarantee or right granted to the Trustee hereunder may be waived in whole or in part, nor can the Guarantor be released from the Guarantor's obligations hereunder, except by a writing duly executed by an authorized officer of the Trustee. No provision of this Completion Guarantee or any of the Obligations hereunder may be amended without the prior written consent of the Guarantor and the Trustee and the consent of any additional beneficiaries hereof shall not be required. 17.8 The Trustee need not inquire into the power of the Company or the authority of its partners, officers, shareholders or agents acting or purporting to act on its behalf. 17.9 This Completion Guarantee is intended only for the benefit of the Trustee, for the benefit of the Holders, and is not intended to benefit any other third party, including any other creditor of the Company. 17.10 The headings of this Completion Guarantee are inserted for convenience only and shall have no effect upon the construction or interpretation thereof. [SIGNATURE PAGE FOLLOWS] 11 IN WITNESS WHEREOF, the undersigned have executed this Completion Guarantee as of the date first above written. GUARANTOR: SHOWBOAT, INC., a Nevada corporation By:/s/ R. Craig Bird Name: R. Craig Bird Title: Executive Vice President Finance and Administration Accepted and Agreed: American Bank National Association, a national banking association, as Trustee By: /s/ Name: Title: By: /s/ Thomas M. Korsman Name: Thomas M. Korsman Title: Vice President EXHIBIT A COMPLETION GUARANTOR SUBORDINATION AGREEMENT EXECUTION COPY COMPLETION GUARANTOR SUBORDINATION AGREEMENT COMPLETION GUARANTOR SUBORDINATION AGREEMENT (this "AGREEMENT") dated as of March 28, 1996 by and between SHOWBOAT, INC., a Nevada corporation (the "GUARANTOR"), and American Bank National Association, a national banking association, as trustee (the "TRUSTEE") under the Indenture (as defined below). W I T N E S S E T H : WHEREAS, contemporaneously herewith Showboat Marina Casino Partnership, an Indiana general partnership ("SHOWBOAT PARTNERSHIP"), and Showboat Marina Finance Corporation, a Nevada corporation ("FINANCE CORPORATION" and, together with Showboat Partnership, the "COMPANY"), are issuing $140,000,000 aggregate principal amount of 13 1/2% First Mortgage Notes due 2003 (the "FIRST MORTGAGE NOTES") pursuant to an Indenture dated as of March 28, 1996 by and among the Company and the Trustee (the "INDENTURE" and, together with the First Mortgage Notes, the Collateral Documents and all other documents and agreements relating thereto, the "FIRST MORTGAGE NOTE DOCUMENTS"); WHEREAS, the Guarantor (i) has entered into a Completion Guarantee, dated as of March 28, 1996, in favor of the Trustee (the "COMPLETION GUARANTEE") and (ii) may in the future enter into one or more completion or other guarantees in support of the obligations of the Company with respect to the First Mortgage Notes (with all completion and other guarantees described in this paragraph being herein collectively called the "GUARANTEES"); WHEREAS, any amounts advanced or paid pursuant to the Guarantees (such amounts being referred to herein as "GUARANTEE PAYMENTS") may be loans owing to the Guarantor (the "COMPLETION LOANS") by the Company; WHEREAS, all Completion Loans, together with all principal, interest, fees, indemnities and other amounts owing with respect thereto, shall be herein called the "SUBORDINATED OBLIGATIONS"); WHEREAS, pursuant to the Security Agreement, the Company has granted to the Trustee for the benefit of the holders of the First Mortgage Notes a first priority perfected lien on, and security interest in, the Collateral; WHEREAS, the Trustee, for the benefit of the holders of the First Mortgage Notes, is the holder of that certain Leasehold Mortgage, Assignment of Rents and Security Agreement executed by the Company on March 28, 1996 in respect of INTER ALIA, the Company's leasehold estate in certain real property comprising a part of East Chicago Showboat; and WHEREAS, as a condition to the issuance of the First Mortgage Notes, the parties hereto (including the Guarantor) are required to execute and deliver this Agreement; NOW, THEREFORE, in consideration of the premises and the mutual agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. SUBORDINATION. 1.01 DEFINITIONS. For purposes of this Agreement, the term "HOLDERS" shall mean the Holders from time to time of the First Mortgage Notes and the term "FIRST MORTGAGE NOTE OBLIGATIONS" shall mean (a) the principal of, and premium, if any, and interest and Liquidated Damages, if any, on the First Mortgage Notes and (b) all other Obligations and Indebtedness of the Company to the Holders under the First Mortgage Notes and the Indenture. Except as otherwise defined herein, capitalized terms used but not defined herein shall have the meanings given them in the Indenture. 1.02 SUBORDINATION OF LIABILITIES. The Guarantor, for itself and its successors and assigns, hereby covenants and agrees that the payment of the Subordinated Obligations is hereby expressly subordinated, to the extent and in the manner hereinafter set forth, to the prior payment in full in cash of all First Mortgage Note Obligations. The provisions of this Section 1 shall constitute a continuing offer to all Persons who, in reliance upon such provisions, become or continue to remain Holders and such provisions are made for the benefit of the Holders and such Holders are hereby made obligees hereunder the same as if their names were written herein as such, and they and each of them may proceed to enforce such provisions. 1.03 COMPANY NOT TO MAKE PAYMENTS WITH RESPECT TO SUBORDINATED OBLIGATIONS IN CERTAIN CIRCUMSTANCES. (a) Until all First Mortgage Note Obligations shall have been paid in full in cash, no payment or distribution of any kind or character (whether in cash, property, securities or otherwise) shall be made in respect of any Subordinated Obligations other than any payments permitted under Section 4.07 of the Indenture. (b) In the event that notwithstanding the provisions of the preceding subsection (a) of this Section 1.03, (i) the Company or any of its Subsidiaries shall make any payment to the Guarantor on account of the Subordinated Obligations, which payment is not permitted by said subsection (a), or (ii) the Guarantor receives any payment or distribution from any enforcement or other action against the Collateral, such payment shall be held by the Guarantor in trust for the benefit of the Holders, and shall be paid forthwith over and delivered to the Trustee, for application to the payment of all First Mortgage Note Obligations remaining unpaid to the extent necessary to pay the First Mortgage Note Obligations in full in cash in accordance with the terms of the First Mortgage Note Documents after giving effect to any concurrent payment or distribution to or for the benefit of the Holders. 1.04 SUBORDINATION TO PRIOR PAYMENT OF ALL SENIOR INDEBTEDNESS ON DISSOLUTION, LIQUIDATION OR REORGANIZATION OF COMPANY. Upon any distribution of assets of the Company 2 upon any dissolution, winding-up, liquidation or reorganization of the Company (whether in bankruptcy, insolvency or receivership proceedings or upon an assignment for the benefit of creditors or otherwise): (a) the Holders shall first be entitled to receive payment in full in cash of all First Mortgage Note Obligations (including, without limitation, post-petition interest at the rate provided in the First Mortgage Note Documents whether or not such post-petition interest is an allowed claim against the debtor in any bankruptcy or similar proceeding) before the Guarantor is entitled to receive any payment of any kind or character with respect to any Subordinated Obligations, other than any payments permitted under Section 4.07 of the Indenture; (b) any payment or distributions of assets of the Company of any kind or character, whether in cash, property, securities or otherwise to which the Guarantor would be entitled except for the provisions of this Section 1.04, shall be paid by the liquidating trustee or agent or other person making such payment or distribution, whether a trustee in bankruptcy, a receiver or liquidating trustee or other trustee or agent, directly to the Holders or to the Trustee to the extent necessary to make payment in full in cash of all First Mortgage Note Obligations remaining unpaid, after giving effect to any concurrent payment or distribution to the Holders; and (c) in the event that, notwithstanding the foregoing provisions of this Section 1.04, any payment or distribution of assets of the Company of any kind or character, whether in cash, property, securities or otherwise, shall be received by the Guarantor on account of Subordinated Obligations before all First Mortgage Note Obligations are paid in full in cash, which payment or distribution is not permitted by the preceding subsections (a) and (b) of this Section 1.04, such payment or distribution shall be received and held in trust for and shall be paid over to the Holders or to the Trustee for application to the payment of such First Mortgage Note Obligations until all First Mortgage Note Obligations shall have been paid in full in cash, after giving effect to any concurrent payment or distribution to the Holders. 1.05 EFFECT OF SUBORDINATION ON OBLIGATIONS PURSUANT TO CONSULTING AGREEMENTS. The Guarantor hereby agrees for the benefit of the Company and the Holders to the extent any payment of Subordinated Obligations is not permitted to be made pursuant to the provisions of this Section 1, then, and notwithstanding anything to the contrary contained in any other agreement, the respective Subordinated Obligations shall not be payable by the Company or any of its Subsidiaries until they are permitted to be paid in accordance with the terms of this Section 1. To the extent that any such Subordinated Obligations are not payable by the Company or any of its Subsidiaries pursuant to this Section 1, the Guarantor shall forbear from exercising any right to accelerate the Company's obligations under any instrument or agreement evidencing any such obligation of the Company as a result thereof so long as the Indenture or this Agreement shall continue to prohibit the Company from making such payments. Without limiting the foregoing, no action shall be taken by the Guarantor to enforce the payment of any 3 Subordinated Obligations until all First Mortgage Note Obligations shall have been paid in full in cash. 1.06 SUBROGATION. After all First Mortgage Note Obligations have been paid in full in cash, the Guarantor shall have and be entitled to all rights of subrogation otherwise provided by law in respect of any payment it may make or be obligated to make under this Agreement with respect to the claims of the Holders against the Company or any other guarantor of the First Mortgage Note Obligations. 1.07 SUBORDINATION RIGHTS NOT IMPAIRED BY ACTS OR OMISSIONS OF COMPANY OR HOLDERS OF SENIOR INDEBTEDNESS. No right of any Holder or the Trustee to enforce subordination as herein provided shall at any time or in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act by any such Holder, or by any noncompliance by the Company with the terms and provisions of the Completion Guarantee or any other agreement regardless of any knowledge thereof which any such Holder may have or otherwise be charged with. The Holders or the Trustee may, without in any way affecting the obligations of the Guarantor with respect hereto, at any time or from time to time and in their absolute discretion, change the manner, place or terms of payment of, change or extend the time of payment of, or renew or alter, any First Mortgage Note Obligations or amend, modify or supplement any of the First Mortgage Note Documents or exercise or refrain from exercising any of their other rights under the First Mortgage Note Documents, including, without limitation, the waiver of default thereunder and the release of any collateral securing the First Mortgage Note Obligations, all without notice to or assent from the Guarantor. 2. OTHER RESTRICTED PAYMENTS; SUBORDINATED RIGHTS. 2.01 RECEIPT OF RESTRICTED PAYMENTS. In addition to the provisions of Section 1 hereof, until all First Mortgage Note Obligations have been repaid in full in cash, the Guarantor shall not, and shall not permit any of its Subsidiaries to, receive any Restricted Payment in violation of the provisions of the Indenture (including, without limitation, Section 4.07 thereof). 2.02 RECEIPT OF PAYMENTS TO BE HELD IN TRUST. In the event that, notwithstanding the provisions of the preceding subsection 2.01, the Guarantor or any of its Subsidiaries shall receive any payment not permitted to be received by them pursuant to said subsection 2.01, such payment shall be held by the Guarantor or such respective Subsidiary in trust for the benefit of the Holders, and shall be paid forthwith and delivered (with the Guarantor hereby agreeing to pay such amount over) to the Trustee for application to the payment of all First Mortgage Note Obligations remaining unpaid to the extent necessary to pay all First Mortgage Note Obligations in full in cash after giving effect to any concurrent payment or distribution to the Holders. 3. AMENDMENT. No modification, amendment, waiver or release of any provision of this Agreement or of any right, obligation, claim or cause of action arising 4 hereunder shall be valid or binding for any purpose whatsoever unless in writing and duly executed by the Trustee and the Guarantor. 4. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEVADA AS APPLIED TO CONTRACTS MADE AND PERFORMED ENTIRELY WITHIN THE STATE OF NEVADA, EXCEPT AS OTHERWISE REQUIRED BY MANDATORY PROVISIONS OF NEVADA LAW, INCLUDING THE NEVADA GAMING CONTROL ACT AND THE REGULATIONS PROMULGATED THEREUNDER. THE GUARANTOR HEREBY CONSENTS TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEVADA AND CONSENTS TO SERVICE OF PROCESS BY ANY MEANS AUTHORIZED BY NEVADA LAW IN ANY ACTION BROUGHT UNDER OR ARISING FROM THIS COMPLETION GUARANTEE. 5. THIRD PARTY BENEFICIARIES. This Agreement is entered into for the benefit of the Holders and may not be amended, modified or supplemented in any respect, or terminated, without the consent of the Trustee or that percentage of the Holders required pursuant to the terms of the Indenture. The provisions of this Agreement are continuing provisions and all First Mortgage Note Obligations to which they apply shall conclusively be presumed to have been created in reliance thereon. Except to the extent provided in Section 1.05 hereof, this Agreement is not entered into for the benefit of the Company, and the Company shall not be a third party beneficiary of this Agreement. 6. TERMINATION. This Agreement shall terminate on the date on which all First Mortgage Note Obligations have been repaid in full in cash. 7. REPRESENTATIONS, WARRANTIES AND ADDITIONAL COVENANTS. The Guarantor represents, warrants and covenants to the Trustee that: 7.01 The execution and delivery of this Agreement, the performance of this Agreement, compliance by the Guarantor with the provisions hereof and the consummation of the transactions contemplated hereby, will not (i) conflict with or result in a breach or violation of any of the respective charters or bylaws of the Guarantor or any of its subsidiaries or any respective material franchise or license of the Guarantor or any of its subsidiaries or any of the terms or provisions thereof, (ii) constitute a default or cause an acceleration of any obligation under, or result in the imposition or creation of (or the obligation to create or impose) any lien with respect to, any bond, note, debenture or other evidence of indebtedness or any indenture, mortgage, deed of trust or other agreement or instrument to which the Guarantor or any of its subsidiaries is a party or by which it or any of them is bound, or to which any properties of the Guarantor or any of its subsidiaries is or may be subject, (iii) contravene any order of any court or govern mental agency (including, without limitation, any gaming authority in any state of the United States or foreign country) or body having jurisdiction over the Guarantor or any of its subsidiaries or any of their properties, or (iv) violate or conflict with any statute, rule or regulation or administrative or court decree applicable to the Guarantor or any of its subsidiaries 5 or any of their respective properties, in the case of clauses (i), (ii), (iii) and (iv) which conflict, breach, violation, default or contravention, singly or in the aggregate with each other conflict, breach, violation, default or contravention, would have a material adverse effect on the business, condition (financial or other), results of operations, properties or prospects of the Guarantor and its subsidiaries, individually or in the aggregate, or would materially and adversely affect the consummation of this Agreement or the transactions contemplated hereby. 7.02 The Guarantor has all necessary corporate power and authority to execute and deliver this Agreement and to perform its obligations under this Agreement. 7.03 This Agreement has been duly authorized, validly executed and delivered by the Guarantor and constitutes the legally valid and binding agreement of the Guarantor, enforceable against the Guarantor in accordance with its terms, except as the enforceability hereof may be limited by (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereinafter in effect relating to or affecting the rights and remedies of creditors generally and (ii) the effect of general principles of equity, whether enforcement is considered in a proceeding in equity or at law, and the discretion of the court before which any proceeding therefor may be brought. 7.04 The Guarantor agrees that it will not, and that it will cause its subsidiaries not to, enter into any bond, note, debenture or other evidence of indebtedness or any indenture, mortgage, deed of trust or other agreement or instrument which would conflict with the performance by the Guarantor of its obligations pursuant to this Agreement or compliance by the Guarantor with the provisions hereof or pursuant to which this Agreement would constitute a default or cause an acceleration of any obligation under, or result in the imposition or creation of (or the obligation to create or impose) any lien. 7.05 The Guarantor agrees (i) to place on any note or other instrument evidencing Subordinated Obligations a legend stating that such obligations are subject to the terms and conditions of this Agreement and (ii) not to sell, assign, transfer, pledge or otherwise dispose of any such note or other instrument to any other party. 8. NOTICES, ETC. All notices, requests, approvals, consents and other communications required or permitted to be made hereunder shall, except as otherwise provided, be in writing and may be delivered personally or sent by telegram, telecopy, facsimile, telex, first class mail or overnight courier, postage prepaid, to the parties hereto addressed as follows: (a) if to Showboat, at: Showboat, Inc. 2800 Fremont Street Las Vegas, Nevada 89104 Attention: Chief Financial Officer Telephone: (702) 385-9123 Facsimile: (702) 385-9678 6 with copies to: Kummer, Kaempfer, Bonner & Renshaw 3800 Howard Hughes Parkway Las Vegas, NV 89109 Attention: John N. Brewer Telephone: (702) 792-7000 Facsimile: (702) 796-7181 and Ice, Miller, Donadio & Ryan One American Square 31st Floor Indianapolis, Indiana 46204 Attention: James Burrows Telephone: (317) 236-2100 Facsimile: (317) 235-2219 (b) if to the Trustee, as provided in the Indenture; (c) if to the Company, at: Showboat Marina Casino Partnership Showboat Marina Finance Corporation 2001 East Columbus Drive East Chicago, Indiana 46312 Attention: Vice President - Finance and Administration Telephone: (219) 392-1111 Facsimile: (219) 736-2334 Such notices, requests and other communications sent as provided above shall be effective when received by the addressee thereof, unless sent by registered or certified mail, postage prepaid, in which case they shall be effective exactly three (3) business days after being deposited in the United States mail. The parties hereto may change their addresses by giving notice thereof to the other parties hereto in conformity with this section. [SIGNATURE PAGE FOLLOWS] 7 IN WITNESS WHEREOF, the Trustee and the Guarantor have caused this Agreement to be duly executed and delivered as of the date first written above. GUARANTOR: SHOWBOAT, INC., a Nevada corporation By: /s/ R. Craig Bird Name: R. Craig Bird Title: Executive Vice President - Finance and Administration Acknowledged and agreed by: American Bank National Association, a national banking association, as Trustee By: /s/ Name: Title: Vice President By: /s/ Thomas M. Korsman Name: Thomas M. Korsman Title: Vice President EX-10.02 3 EXHIBIT 10.02 EXECUTION COPY STANDBY EQUITY COMMITMENT This Standby Equity Commitment dated as of March 28, 1996 (this "STANDBY EQUITY COMMITMENT") is made and entered into by and between Showboat Marina Casino Partnership, an Indiana general partnership ("SHOWBOAT PARTNERSHIP"), Showboat Marina Finance Corporation, a Nevada corporation ("FINANCE CORPORATION" and, together with Showboat Partnership, the "COMPANY"), and Showboat, Inc. ("SHOWBOAT"), a Nevada corporation. R E C I T A L S WHEREAS, pursuant to that certain Indenture, dated as of March 28, 1996 (the "INDENTURE"), by and among the Company and American Bank National Association, a national banking association, as trustee (the "TRUSTEE"), the Company has issued $140,000,000 aggregate principal amount of 13 1/2% First Mortgage Notes due 2003 (the "FIRST MORTGAGE NOTES"); WHEREAS, the Company has entered into the Indenture to finance, in part, the design, development, construction, equipping and opening of a riverboat casino and supporting ancillary facilities on Lake Michigan in East Chicago, Indiana ("EAST CHICAGO SHOWBOAT"); WHEREAS, Showboat indirectly owns a substantial equity interest in the Company and will obtain substantial economic and other benefits as a result of the successful completion of East Chicago Showboat, including substantial compensation for this Standby Equity Commitment; WHEREAS, Showboat has concurrently entered into that certain Completion Guarantee dated as of March 28, 1996 in favor of the Trustee (the "COMPLETION GUARANTEE"); and WHEREAS, as a material inducement to the purchasers of the First Mortgage Notes, Showboat has agreed that it will commit, for the benefit of the Company and the holders of the First Mortgage Notes from time to time, to make or cause to be made additional capital contributions to the Company as provided herein. A G R E E M E N T NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows. Capitalized terms used but not otherwise defined herein shall have the meanings given to them in the Indenture. 1. SHOWBOAT'S COMMITMENT. If during any of the first three full consecutive fiscal four-quarter periods (commencing on January 1, April 1, July 1 or October 1, as the case may be) after East Chicago Showboat begins Operating (each, an "EQUITY COMMITMENT YEAR") the Company's Combined Cash Flow for such Equity Commitment Year is less than $35.0 million, Showboat will cause additional capital contributions to be made to the Company in an amount equal to not less than the difference between $35.0 million and the amount of the Company's Combined Cash Flow for such Equity Commitment Year (the "EQUITY COMMITMENT"); provided, however, that Showboat shall in no event be required to cause to be contributed (a) more than $15.0 million in respect of any one such Equity Commitment Year and (b) more than $30.0 million in the aggregate in respect of all three Equity Commitment Years. The Equity Commitment for any one Equity Commitment Year shall be made to the Company no later than 60 days after the end of such Equity Commitment Year. Showboat may satisfy the Equity Commitment in respect of any such Equity Commitment Year through any means it deems appropriate. 2. DETERMINATION OF COMBINED CASH FLOW. On or before the last day of the month immediately following the end of each Equity Commitment Year covered by this Agreement, the Company shall estimate, through its regular internal accounting procedures, its Combined Cash Flow for such fiscal year. In the event that such estimate equals or exceeds $35.0 million, Showboat, pending receipt of the Combined Cash Flow Certificate (as defined below), shall not then be required to make arrangements to cause additional capital contributions to be made to fund the Equity Commitment. In the event that such estimate is less than $35.0 million, the Company shall notify Showboat of the amount of such estimate and, upon receipt of such notice, Showboat shall, at its sole cost and expense, promptly arrange to cause the Equity Commitment to be satisfied on a timely basis. On or before the 50th day following the end of each Equity Commitment Year covered by this Agreement, the Company shall prepare and deliver to Showboat a certificate (the "COMBINED CASH FLOW CERTIFICATE") stating (a) the amount of the Company's Combined Cash Flow for such Equity Commitment Year as reflected in or determined from the Company's audited financial statements or, if such financial statements are not yet available, the Company's most recent unaudited quarterly financial statements, and (b) the amount of any Equity Commitment required to be made in respect of such Equity Commitment Year. In the event that the Combined Cash Flow Certificate reflects Combined Cash Flow of at least $35.0 million, there shall be no Equity Commitment in respect of such Equity Commitment Year. In the event that the Combined Cash Flow Certificate reflects Combined Cash Flow of less than $35.0 million, Showboat shall, at its sole cost and expense, cause additional capital contributions to be made to fund the Equity Commitment in the amount indicated in the Combined Cash Flow Certificate no later than 60 days after the end of such Equity Commitment Year. 3. COOPERATION. In connection with this Standby Equity Commitment, Showboat agrees, at its sole cost and expense, to fully cooperate with the Company and to timely provide such documents, agreements and information as may be required in connection therewith. 4. ACKNOWLEDGEMENT. Showboat acknowledges that it has received copies of and is familiar with the Indenture and each Collateral Document, all of which are incorporated herein by reference. Notwithstanding anything to the contrary in this Standby Equity Commitment, it is understood and agreed by the parties hereto that, except as expressly provided herein, the Company's sole remedies under this Standby Equity Commitment shall be to require Showboat to fulfill its obligations as described above, and in no event shall Showboat incur, directly or indirectly, any obligation, contingent or otherwise, for the payment of the principal amount of the First Mortgage Notes. 5. ATTORNEYS' FEES. If any party refers this Standby Equity Commitment to an attorney to enforce or defend any provision hereof, with or without the filing of any legal action or proceeding, then the prevailing party shall pay to the other party upon demand the amount of all reasonable attorneys' fees, costs and other expenses incurred by such other party in connection therewith, together with interest thereon from the date of demand at the highest rate applicable to the principal balance of the First Mortgage Notes, or, if the First Mortgage Notes have been fully repaid, at the highest rate that would be applicable if the First Mortgage Notes had not been fully repaid. 2 6. NOTICES. Whenever Showboat or the Company shall desire to give or serve any notice, demand, request or other communication with respect to this Standby Equity Commitment, each such notice shall be in writing and shall be effective only if the same is delivered by personal service, by telegram, facsimile or mailed by certified mail, postage prepaid, return receipt requested, addressed as follows: (a) if to Showboat, at: Showboat, Inc. 2800 Fremont Street Las Vegas, Nevada 89104 Attention: Chief Financial Officer Telephone: (702) 385-9123 Facsimile: (702) 385-9678 with copies to: Kummer Kaempfer Bonner & Renshaw 3800 Howard Hughes Parkway Las Vegas, NV 89109 Attention: John N. Brewer, Esq. Telephone: (702) 792-7000 Facsimile: (702) 796-7181 and Ice Miller Donadio & Ryan One American Square, 31st Floor Indianapolis, Indiana 46204 Attention: Stephen J. Hackman, Esq. Telephone: (317) 236-2100 Facsimile: (317) 236-2219 or (b) if to the Company, at: Showboat Marina Casino Partnership Showboat Marina Finance Corporation 2001 East Columbus Drive East Chicago, Indiana 46312 Attention: Vice President - Finance and Administration Telephone: (219) 392-1111 Facsimile: (219) 736-2334 and, in either case (c) to the Trustee, as provided in the Indenture; 3 or at such other address as shall have been furnished in writing by any person described above to the party required to give notice hereunder. Any such notice delivered personally shall be deemed to have been received upon delivery. Any such notice sent by telegram shall be presumed to have been received by the addressee one business day after its acceptance for sending by an authorized carrier thereof. Any such notice sent by mail shall be presumed to have been received by the addressee three business days after posting in the United States mail. Any such notice delivered by facsimile shall be deemed to have been received upon confirmation thereof. Either party may change its address by giving the other written notice of the new address herein provided. 7. REPRESENTATIONS, WARRANTIES AND ADDITIONAL COVENANTS OF SHOWBOAT. Showboat represents, warrants and covenants to the Company that: 7.1 The execution, delivery and performance of this Standby Equity Commitment, the compliance by Showboat with the provisions hereof and the consummation of the transactions contemplated hereby, will not (i) conflict with or result in a breach or violation of any of the respective charters or bylaws of Showboat or any of its subsidiaries or any respective material franchise or license of Showboat or any of the terms or provisions thereof, (ii) constitute a default or cause an acceleration of any obligation under, or result in the imposition or creation of (or the obligation to create or impose) any lien with respect to, any bond, note, debenture or other evidence of indebtedness or any indenture, mortgage, deed of trust or other agreement or instrument to which Showboat or any of its subsidiaries is a party or by which it or any of them is bound, or to which any properties of Showboat or any of its subsidiaries is or may be subject, (iii) contravene any order of any court or governmental agency (including, without limitation, any gaming authority in any state of the United States or foreign country) or having jurisdiction over Showboat or any of its subsidiaries or any of their properties, or (iv) violate or conflict with any statute, rule or regulation or administrative or court decree applicable to Showboat or any of its subsidiaries or any of their respective properties, in the case of clauses (i), (ii), (iii) and (iv) which conflict, breach, violation, default or contravention, singly or in the aggregate with each other conflict, breach, violation, default or contravention, would have a material adverse effect on the business, condition (financial or other), results of operations, properties or prospects of Showboat and its subsidiaries, individually or in the aggregate, or would materially and adversely affect the consummation of this Standby Equity Commitment or the transactions contemplated hereby. 7.2 Showboat has all necessary corporate power and authority to execute and deliver this Standby Equity Commitment, and to perform its obligations hereunder. 7.3 This Standby Equity Commitment has been duly authorized, validly executed and delivered by Showboat and constitutes the valid and binding agreement of Showboat, enforceable against Showboat in accordance with its terms, except as the enforceability hereof may be limited by (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereinafter in effect relating to or affecting the rights and remedies of creditors generally and (ii) the effect of general principles of equity, whether enforcement is considered in a proceeding in equity or at law, and the discretion of the court before which any proceeding therefor may be brought. 7.4 Showboat agrees that it will not, and that it will cause its subsidiaries not to, enter into any bond, note, debenture or other evidence of indebtedness or any indenture, mortgage, deed of trust or other agreement or instrument that would conflict with the performance by Showboat of its obligations under this Standby Equity Commitment or compliance by Showboat with the provisions hereof or pursuant to which this Standby Equity Commitment would constitute a default or cause an acceleration 4 of any obligation under, or result in the imposition or creation of (or the obligation to create or impose) any lien. 8. SUCCESSORS AND ASSIGNS. This Standby Equity Commitment shall inure to the benefit of the parties hereto, the Trustee, as a third party beneficiary on behalf of the holders of the First Mortgage Notes, and their successors and assigns, and shall bind the heirs, executors, administrators, personal representatives, successors and assigns of such persons. 9. MISCELLANEOUS PROVISIONS. 9.1 THIS STANDBY EQUITY COMMITMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEVADA AS APPLIED TO CONTRACTS MADE AND PERFORMED ENTIRELY WITHIN THE STATE OF NEVADA, SUBJECT TO MANDATORY PROVISIONS OF NEVADA LAW, INCLUDING THE NEVADA GAMING CONTROL ACT AND THE REGULATIONS PROMULGATED THEREUNDER. SHOWBOAT HEREBY CONSENTS TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEVADA, AND CONSENTS TO SERVICE OF PROCESS BY ANY MEANS AUTHORIZED BY NEVADA LAW IN ANY ACTION BROUGHT UNDER OR ARISING FROM THIS STANDBY EQUITY COMMITMENT. 9.2 Except as provided in any other written agreement now or at any time hereafter in force between Showboat and the Company, this Standby Equity Commitment shall constitute the entire agreement of Showboat and the Company with respect to the subject matter hereof, and no representation, understanding, promise or condition concerning the subject matter hereof shall be binding upon Showboat or the Company unless expressed herein. 9.3 Should any term, covenant, condition or provision of this Standby Equity Commitment be determined to be illegal or unenforceable, it is the intent of the parties that all other terms, covenants, conditions and provisions hereof shall nevertheless remain in full force and effect. 9.4 Time is of the essence for this Standby Equity Commitment and each of its provisions. 9.5 When the context and construction so require, all words used in the singular herein shall be deemed to include the plural, the masculine shall include the feminine and neuter, and vice versa. 9.6 No provision of this Standby Equity Commitment or right granted hereunder may be waived in whole or in part, nor may any party be released from such party's obligations hereunder, except by a writing duly executed by an authorized officer of the other party and the Trustee. No provision of this Standby Equity Commitment or any of the obligations hereunder may be amended without the prior written consent of Showboat, the Company and the Trustee. 9.7 The headings of this Standby Equity Commitment are inserted for convenience only and shall have no effect upon the construction or interpretation thereof. [SIGNATURE PAGE FOLLOWS] 5 IN WITNESS WHEREOF, the undersigned has executed this Standby Equity Commitment as of the date first above written. SHOWBOAT, INC., a Nevada corporation By: /s/ R. Craig Bird Name: R. Craig Bird Title: Executive Vice President - Finance and Administration SHOWBOAT MARINA CASINO PARTNERSHIP, an Indiana general partnership By: SHOWBOAT MARINA PARTNERSHIP, an Indiana general partnership, its general partner By: SHOWBOAT INDIANA INVESTMENT LIMITED PARTNERSHIP, a Nevada limited partnership, its general partner By: SHOWBOAT INDIANA, INC., a Nevada corporation, its general partner By: /s/ J. Keith Wallace Name: J. Keith Wallace Title: President and Chief Executive Officer SHOWBOAT MARINA FINANCE CORPORATION, a Nevada corporation By: /s/ Mark J. Miller Name: Mark J. Miller Title: Treasurer EX-27 4
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