-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, E9gkSToEiq7tkuBTbqCaDE4MVbGzzThZEofnFzU01wzNE8xRM9p8lpvBbZPSyHKM gYdJQzXioeIcpklezGQVSA== 0000950130-94-000928.txt : 19940701 0000950130-94-000928.hdr.sgml : 19940701 ACCESSION NUMBER: 0000950130-94-000928 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19940628 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SHOWBOAT INC CENTRAL INDEX KEY: 0000089966 STANDARD INDUSTRIAL CLASSIFICATION: 7990 IRS NUMBER: 880090766 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3 SEC ACT: 1933 Act SEC FILE NUMBER: 033-54325 FILM NUMBER: 94536101 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 S-3 1 REGISTRATION STATEMENT AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 28, 1994. REGISTRATION NO. 33- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------------- SHOWBOAT, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ---------------- NEVADA 88-0090766 (STATE OR OTHER JURISDICTION OF (I.R.S.EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 2800 FREMONT STREET LAS VEGAS, NEVADA 89104 (702) 385-9141 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
OCEAN SHOWBOAT, INC. ATLANTIC CITY SHOWBOAT, INC. SHOWBOAT OPERATING COMPANY (EXACT NAME OF REGISTRANT (EXACT NAME OF REGISTRANT (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) AS SPECIFIED IN ITS CHARTER) AS SPECIFIED IN ITS CHARTER) --------------------------- ---------------------------- ---------------------------- NEW JERSEY 22-2500790 NEW JERSEY 22-2500794 NEVADA 88-022752 (STATE OR OTHER (I.R.S. EMPLOYER (STATE OR OTHER (I.R.S. EMPLOYER (STATE OR OTHER (I.R.S. EMPLOYER JURISDICTION OF IDENTIFICATION NO.) JURISDICTION OF IDENTIFICATION NO.) JURISDICTION OF IDENTIFICATION NO.) INCORPORATION INCORPORATION INCORPORATION OR ORGANIZATION) OR ORGANIZATION) OR ORGANIZATION) 801 BOARDWALK 801 BOARDWALK 2800 FREMONT STREET ATLANTIC CITY, NEW JERSEY 08401 ATLANTIC CITY, NEW JERSEY 08401 LAS VEGAS, NEVADA 89104 (609) 343-4000 (609) 343-4000 (702) 385-9141 (ADDRESS, INCLUDING ZIP (ADDRESS, INCLUDING ZIP (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE CODE, AND TELEPHONE CODE, AND TELEPHONE NUMBER, INCLUDING AREA NUMBER, INCLUDING AREA NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S CODE, OF REGISTRANT'S CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE PRINCIPAL EXECUTIVE PRINCIPAL EXECUTIVE OFFICES) OFFICES) OFFICES) JOHN N. BREWER, ESQ. COPY TO: KUMMER KAEMPFER BONNER & RENSHAW RAYMOND Y. LIN, ESQ. 3800 HOWARD HUGHES PARKWAY LATHAM & WATKINS SEVENTH FLOOR 885 THIRD AVENUE LAS VEGAS, NEVADA 89109 NEW YORK, NEW YORK 10022-4802 (702) 792-7000 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [_] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [_] CALCULATION OF REGISTRATION FEE - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
PROPOSED PROPOSED MAXIMUM TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION REGISTERED REGISTERED PER UNIT(1) PRICE(1) FEE - -------------------------------------------------------------------------------- % Senior Subordinated Notes due 2009......... $150,000,000 100% $150,000,000 $51,725 - -------------------------------------------------------------------------------- Guarantees of Ocean Showboat, Inc., Atlantic City Showboat, Inc. and Showboat Operating Company................ $150,000,000 -- -- (2)
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (1) Estimated solely for the purpose of calculating the registration fee. (2) No registration fee is required. ---------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE + +UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF + +ANY SUCH STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, DATED JUNE 28, 1994 PROSPECTUS , 1994 $150,000,000 SHOWBOAT, INC. % SENIOR SUBORDINATED NOTES DUE 2009 The % Senior Subordinated Notes due 2009 (the "Notes") are being offered (the "Note Offering") by Showboat, Inc., a Nevada corporation (the "Company"). The Notes will bear interest from the date of issuance at the rate of % per annum, payable semi-annually in arrears on and of each year, commencing , 1995. The Company will not be required to make any mandatory redemption or sinking fund payments with respect to the Notes prior to maturity. The Notes are redeemable at the option of the Company, in whole or in part, at any time on or after , 2001 (except as may otherwise be required by a Gaming Authority (as defined herein)) at the redemption prices set forth herein, plus accrued and unpaid interest thereon to the date of redemption. In the event of a Change of Control (as defined herein), each holder of Notes will have the right to require the Company to repurchase all or any part of such holder's Notes at a purchase price equal to 101% of the principal amount thereof plus accrued and unpaid interest to the date of purchase. The Notes will be unsecured general obligations of the Company, subordinated in right of payment to all Senior Debt (as defined herein) of the Company. The Notes will be jointly and severally guaranteed on an unsecured, senior subordinated basis by certain of the Company's subsidiaries. At March 31, 1994, on a pro forma basis after giving effect to the Note Offering and the application of the proceeds therefrom, the Company and its subsidiaries would have had outstanding approximately $429.6 million in aggregate principal amount of indebtedness on a consolidated basis (excluding trade payables and other accrued liabilities), of which approximately $279.6 million would have been Senior Debt. Concurrently with the Note Offering, the Company is offering 3,000,000 shares (and a selling shareholder is offering 100,000 shares) of the Company's common stock (the "Common Stock Offering"). Consummation of the Note Offering is not contingent upon consummation of the Common Stock Offering, and there can be no assurance that the Common Stock Offering will be consummated. SEE "CERTAIN CONSIDERATIONS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE NOTES OFFERED HEREBY. NEITHER THE NEVADA GAMING COMMISSION, THE NEVADA STATE GAMING CONTROL BOARD, THE NEW JERSEY CASINO CONTROL COMMISSION NOR THE LOUISIANA RIVERBOAT GAMING COMMISSION, NOR ANY OTHER GAMING REGULATORY AGENCY WITH WHICH THE COMPANY IS LICENSED OR HAS APPLIED FOR A LICENSE, HAS PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS OR THE INVESTMENT MERIT OF THE SECURITIES OFFERED HEREBY. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. - --------------------------------------------------------------------------------
PRICE UNDERWRITING PROCEEDS TO THE DISCOUNTS AND TO THE PUBLIC(1) COMMISSIONS(2) COMPANY(3) - -------------------------------------------------------------------------------- Per Note.................................... % % % Total....................................... $ $ $ - --------------------------------------------------------------------------------
(1) Plus accrued interest, if any, from the date of issuance. (2) See "Underwriting" for indemnification arrangements with the Underwriter. (3) Before deducting expenses of the Note Offering payable by the Company, estimated at $ . The Notes are being offered by the Underwriter, subject to prior sale, when, as and if delivered to and accepted by the Underwriter and subject to certain prior conditions, including the right of the Underwriter to reject any orders in whole or in part. It is expected that delivery of the Notes will be made in New York, New York on or about , 1994. DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION [RESERVED FOR PHOTOS] 2 AVAILABLE INFORMATION The Company is subject to the informational reporting requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Such reports, proxy statements and other information may be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549; at the New York Regional Office of the Commission, 7 World Trade Center, 13th Floor, New York, New York 10048; and at the Chicago Regional Office of the Commission, Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661. Copies of such material can be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Company's Common Stock is listed on the New York Stock Exchange (the "NYSE"). Reports, proxy statements, and other information concerning the Company may be inspected at the offices of the NYSE at 20 Broad Street, New York, New York 10005. The Company has filed with the Commission a Registration Statement on Form S- 3 (the "Registration Statement") under the Securities Act of 1933, as amended (the "Securities Act"), with respect to the registration of the Notes. This Prospectus does not contain all of the information set forth in the Registration Statement and the exhibits thereto, certain portions which have been omitted as permitted by the regulations of the Commission. Statements contained in this Prospectus or in any document incorporated by reference as to the contents of any contract or other documents referred to herein or therein are not necessarily complete and, in each instance, reference is made to the copy of such documents filed as an exhibit to the Registration Statement or such other documents, which may be obtained from the Commission at its principal office in Washington, D.C., upon payment of the fees prescribed by the Commission. Each such statement is qualified in its entirety by such reference. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents, which have been filed by the Company with the Commission, are hereby incorporated herein by reference: (i) The Company's Annual Report on Form 10-K for the Year Ended December 31, 1993; (ii) The Company's Quarterly Report on Form 10-Q for the Quarter Ended March 31, 1994; and (iii) The Company's Current Report on Form 8-K dated May 19, 1994. In addition, each document filed by the Company pursuant to Sections 13(a), 13(c), 14 or 15(b) of the Exchange Act subsequent to the date of this Prospectus and prior to termination of the Note Offering shall be deemed to be incorporated by reference into this Prospectus and to be a part hereof from the date such document is filed. Any statement contained herein, or any document, all or a portion of which is incorporated or deemed to be incorporated by reference herein, shall be deemed to be modified or superseded for purposes of the Registration Statement and this Prospectus to the extent that a statement contained herein, or in any subsequently filed document that also is or is deemed to be incorporated by reference herein, modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute part of the Registration Statement or this Prospectus. All information appearing in this Prospectus is qualified in its entirety by the information and financial statements (including notes thereto) appearing in the documents incorporated herein by reference. This Prospectus incorporates documents by reference which are not presented herein or delivered herewith. These documents (other than exhibits thereto) are available without charge, upon written or oral request by any person to whom this Prospectus has been delivered, from H. Gregory Nasky, Secretary, Showboat, Inc., 2800 Fremont Street, Las Vegas, Nevada 89104 (telephone (702) 385-9141). IN CONNECTION WITH THE NOTE OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. 3 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and financial statements appearing elsewhere or incorporated by reference in this Prospectus. As used in this Prospectus, unless the context otherwise requires, the "Company" refers to Showboat, Inc. and its subsidiaries. As used in this Prospectus, amounts in Australian dollars ("A$") have been converted to United States dollars ("$") using an exchange rate of $0.730 for each A$1.00 (the exchange rate as of June 14, 1994). See "Certain Considerations" for factors a prospective investor should consider in evaluating the Company before purchasing the Notes. THE COMPANY Showboat, Inc., through its wholly owned subsidiaries, owns and operates the Showboat Casino Hotel in Atlantic City, New Jersey (the "Atlantic City Showboat") and the Showboat Hotel, Casino and Bowling Center in Las Vegas, Nevada (the "Las Vegas Showboat"). The Company also owns a 50% partnership interest in, and has a contract to manage, the Star Casino, a riverboat casino in New Orleans, Louisiana (the "Showboat Star Casino"). In addition to its existing facilities, the Company maintains an active development program to identify and develop gaming opportunities in existing and emerging gaming venues. The Company has announced expansion opportunities in Sydney, Australia, East Chicago, Indiana and Hogansburg, New York. The Company had EBITDA/1/ of $69.6 million, $68.5 million and $61.2 million during the years ended December 31, 1993, 1992 and 1991, respectively, and $15.1 million and $12.8 million for the three months ended March 31, 1994 and 1993, respectively. The Atlantic City Showboat, which commenced operations in March 1987, is a 516-room, 24-story casino hotel featuring a 95,000 square foot casino containing approximately 3,000 slot machines and 116 table games. The Company is currently in the final phase of a three-phase approximately $93 million expansion project at the Atlantic City Showboat. The first phase of the expansion was completed in June 1993 and added a 15,000 square foot horse race simulcasting facility and 5,000 square feet of casino space, resulting in the addition of approximately 340 slot machines and 28 table games. The second phase of the expansion was completed in May 1994 and added 15,000 square feet of casino space, resulting in the addition of approximately 560 slot machines and 18 table games. The casino expansion permitted the Company to add a total of approximately 900 slot machines and 46 table games. The final phase of the expansion will add a new 284-room hotel tower which is currently under construction and is scheduled to open in early 1995. The Las Vegas Showboat, which commenced operations in September 1954, is a 482-room, 18-story casino hotel featuring a 78,000 square foot casino containing approximately 1,900 slot machines, 33 table games and an approximately 1,300-seat bingo parlor. In October 1990, the Las Vegas Showboat completed an approximately $25 million expansion and upgrade of its casino, restaurants and bingo parlor and constructed a 620-space parking garage. The Company is beginning a $15 million renovation at the Las Vegas Showboat which will upgrade the facility to current building codes, replace the existing power plant facility and add 900 additional parking spaces to the existing parking garage. In addition, the Company is planning a $55 million expansion project which would add a 500-room hotel tower and an approximately 78,000 square foot entertainment complex (the "Showboat Entertainment Center"). The Showboat Entertainment Center is expected to include seven restaurants, a midway arcade, two movie theatres, a food court, retail shops and a dance hall, all surrounding a four-story atrium designed to replicate a New Orleans square featuring a center-court "dancing" water fountain, a laser light show and a simulated fireworks display. The expansion will add 20,000 square feet of casino space, which will permit the Company to add up to 1,100 slot machines and up to 15 table games. Construction on the renovation and expansion projects is expected to begin before the end of 1994 and is anticipated to take approximately 18 months to complete. - -------------------- /1/EBITDA is defined as income from operations of consolidated subsidiaries before depreciation and amortization plus cash distributions from all unconsolidated subsidiaries. EBITDA should not be construed as an alternative to net income and is presented solely as supplemental disclosure because the Company believes that it is a widely used measure of operating performance in the gaming industry. 4 The Showboat Star Casino, which commenced operations in November 1993, is a riverboat located on the south shore of Lake Pontchartrain in New Orleans, Louisiana, and features a 21,900 square foot casino which contains approximately 780 slot machines and 42 table games. In addition to its 50% equity interest, the Company manages the riverboat for a management fee of 5% of net gaming revenues. During the first five months of 1994, the Company earned management fees of $1.6 million and the Showboat Star Casino had net earnings of $13.9 million. The current policy of Showboat Star Partnership is to distribute at least 70% of net earnings to its partners on a monthly basis. The Company is actively pursuing expansion opportunities in emerging gaming markets throughout the United States and internationally, including land-based casinos, riverboats and Indian gaming. Announced projects which the Company is currently pursuing include the following: Sydney, New South Wales, Australia. On May 6, 1994, the New South Wales Casino Control Authority (the "NSWCCA") selected an affiliate of the Company as the preferred applicant to build, manage and operate the sole full-service casino in New South Wales, Australia (the "Sydney Harbour Casino"). The terms of the proposed transaction provide for a 99-year site lease and casino license, which will be the exclusive full-service casino license in the state of New South Wales for a 12-year period, commencing with the opening of a proposed temporary casino. Gaming operations are currently anticipated to begin in mid- to late-1995 in the temporary casino, which is expected to contain approximately 500 slot machines, 150 table games and, subject to certain approvals, keno. The permanent Sydney Harbour Casino, expected to open in late 1997, will contain approximately 1,500 slot machines, 200 table games, 352 hotel rooms, 139 luxury condominium units in an adjacent tower, 14 themed restaurants, 12 cocktail lounges, a 2,000-seat lyric theatre and a 700-seat cabaret style theatre. The cost of the Sydney Harbour Casino, including licensing fees, is anticipated to be approximately A$1.2 billion ($866.5 million). Firm commitments for the project have been received for all anticipated external financing requirements. The Company has agreed to invest A$135.0 million ($98.5 million) in Sydney Harbour Casino Holdings Limited ("SHCL"), the holding company for the Sydney Harbour Casino, for an approximately 27% ownership interest in SHCL. In addition, an 85% owned subsidiary of the Company has a 99-year management agreement to manage and operate the Sydney Harbour Casino. The management fee will be based on both revenues and earnings of the casino and the non-casino areas of the entertainment complex. See "The Company--Expansion Opportunities--Sydney, New South Wales, Australia." East Chicago, Indiana. The Company owns a 55% interest in the Showboat Marina Partnership (the "Indiana Partnership") which is the only applicant for the sole riverboat gaming license allocated by statute to East Chicago, Indiana. The riverboat will be located approximately 20 minutes from downtown Chicago, Illinois and approximately three miles from the Chicago city limits. The Company plans to invest approximately $30 million in the Indiana Partnership and assist the Indiana Partnership in obtaining financing (currently estimated to be $90 million) for the construction of the riverboat casino and related dock-side facilities (collectively, the "East Chicago Riverboat"). Under the current partnership agreement, the Company will receive a 12% preferred return on its investment. The Indiana Partnership's application to the Indiana Gaming Commission for the license to operate the East Chicago Riverboat proposes a riverboat with up to 60,000 square feet of casino space containing approximately 2,300 slot machines and 80 table games and substantial dock-side amenities. Issuance of the gaming license is subject to the resolution of certain legal challenges to the Indiana gaming statute. See "Certain Considerations--New Gaming Jurisdictions and Expansion Opportunities." St. Regis Mohawk Tribal Reservation, Hogansburg, New York. The Company has entered into a management agreement and related agreements to manage a casino (the "St. Regis Casino") on the St. Regis Mohawk Tribal Reservation in Hogansburg, New York, located approximately 75 miles south of Montreal, Canada. The agreements, which are subject to the approval of the National Indian Gaming Commission (the 5 "NIGC"), contemplate that a wholly owned subsidiary of the Company will lend approximately $30 million for a term of five years, at a rate of 15% per annum, to purchase and renovate an existing building which will house an approximately 30,000 square foot casino with approximately 130 table games, including blackjack, craps, roulette, best hand poker, big six and keno. The proposed management agreement provides for a fee of 20% of earnings before interest, taxes and depreciation (subject to a maximum of 30% of earnings before taxes) and has a term of five years. See "The Company--Expansion Opportunities--St. Regis Mohawk Tribal Reservation, Hogansburg, New York." The Company's marketing and operating strategy is to develop a high volume of traffic through its casinos. The Atlantic City Showboat targets the drive-in customer by providing competitive games and excellent service in an attractive and convenient facility. Customers are attracted to the Las Vegas Showboat by competitive slot machines, bingo, moderately priced food and accommodations, a friendly "locals" atmosphere and a 106-lane bowling center. The Showboat Star Casino, like the Las Vegas Showboat, targets "locals" with its excellent service, attractive and convenient facility and accessible location. At future venues, the Company will modify its marketing strategies to maximize casino revenues by focusing on a specific venue's unique location and demographics. The Company's development strategy is to identify new and existing gaming opportunities with strong demographics, in attractive and accessible locations, and which the Company believes will exceed the Company's return on investment objectives. In 1993, the Company created a Development and Management Services Division to investigate and secure new properties in the United States and around the world. The Company's Development and Management Services Division also provides management services to support new facilities upon opening, including human resources, marketing, design and construction, management information systems, regulatory compliance and operating and financial services. As of May 31, 1994, the Development and Management Services Division employed approximately 40 full-time employees and, since its inception, has actively pursued new projects in 16 states and four foreign countries. No assurance can be given that any of the announced projects, or any project under development, will be completed, licensed or result in any significant contribution to the Company's cash flow or earnings. Casino gaming operations are highly regulated and new casino development is subject to a number of risks. See "Certain Considerations--New Gaming Jurisdictions and Expansion Opportunities," "--Regulatory Matters" and "--Development of New Facilities." 6 THE OFFERING Securities Offered.......... $150 million aggregate principal amount of % Se- nior Subordinated Notes due 2009. Maturity Date............... , 2009. Interest Payment Dates...... and of each year, commencing on , 1995. Guarantees.................. The payment of principal of and interest on the Notes when due will be guaranteed on an unsecured senior subordinated basis (the "Subsidiary Guar- antees") by certain of the Company's subsidiaries (the "Guarantors"). Optional Redemption......... The Notes will be redeemable, in whole or in part, at the option of the Company at any time on or after , 2001 at the redemption prices set forth herein plus accrued and unpaid interest thereon to the redemption date. Mandatory Redemption........ The Company is not required to make mandatory re- demption or sinking fund payments with respect to the Notes. Ranking..................... The Notes will be unsecured general obligations of the Company, subordinated in right of payment to all existing and future Senior Debt of the Company. The Subsidiary Guarantees will be gen- eral unsecured obligations of the Guarantors, subordinated in right of payment to all Senior Debt of the Guarantors. At March 31, 1994, on a pro forma basis after giving effect to the Note Offering, the Company and its subsidiaries would have had outstanding approximately $429.6 million in aggregate principal amount of indebtedness on a consolidated basis (excluding trade payables and other accrued liabilities), of which approxi- mately $279.6 million would have been Senior Debt. Change of Control........... In the event of a Change of Control, each holder of Notes will have the right to require the Com- pany to repurchase all or any part of such hold- er's Notes at a purchase price equal to 101% of the principal amount thereof plus accrued and un- paid interest to the date of purchase. Certain Covenants........... The Indenture relating to the Notes (the "Inden- ture") will contain covenants restricting or lim- iting the ability of the Company and its Re- stricted Subsidiaries (as defined herein) to, among other things, (i) pay dividends or make other restricted payments, (ii) incur additional indebtedness and issue preferred stock, (iii) create liens, (iv) create dividend and other pay- ment restrictions affecting Restricted Subsidiar- ies, (v) enter into mergers, consolidations or make sales of all or substantially all assets, (vi) enter into transactions with affiliates and (vii) engage in other lines of business. 7 Escrow Agreement............ The Company is required to place $100.0 million of the net proceeds of the Note Offering into an escrow account, which may only be used to fund the Company's investment in SHCL. In the event that Australian Gaming Approval or Management Contract Approval (as defined in the Indenture) has not occurred on or prior to December 31, 1995, the Company will be obligated to make an offer to repurchase an amount of Notes and cer- tain other indebtedness of the Company equal to the amount in the escrow account. Concurrent Offering......... Concurrently with the Note Offering, the Company is offering 3,000,000 shares (and a selling shareholder is offering 100,000 shares) of the Company's common stock. Consummation of the Note Offering is not contingent upon consummation of the Common Stock Offering, and there can be no assurance that the Common Stock Offering will be consummated. Use of Proceeds............. The net proceeds from the Note Offering are ex- pected to be approximately $144.9 million. The Company currently intends to apply such net pro- ceeds, together with the net proceeds to the Com- pany from the Common Stock Offering and available cash, to (i) invest A$135.0 million ($98.5 mil- lion) for an approximately 27% equity interest in SHCL, (ii) renovate the Las Vegas Showboat in or- der to upgrade the facility to current building codes, replace the existing power plant facility and add 900 parking spaces to the existing park- ing garage at a cost of approximately $15 mil- lion, (iii) expand the Las Vegas Showboat to add a 500-room hotel tower and the Showboat Enter- tainment Center at a cost of approximately $55 million, (iv) invest approximately $30 million in the Indiana Partnership and (v) provide a loan of approximately $30 million to the St. Regis Mohawk Tribe for the purchase and renovation of a build- ing in which to operate the St. Regis Casino. See "Use of Proceeds." 8 SHOWBOAT, INC. AND SUBSIDIARIES SUMMARY OF CONSOLIDATED FINANCIAL DATA
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, -------------------------------------------------- ---------------- 1989 1990 1991 1992 1993 1993 1994 (IN THOUSANDS, EXCEPT RATIO DATA) STATEMENT OF OPERATIONS DATA: Net revenues........... $342,354 $334,247 $331,560 $355,236 $375,727 $85,496 $88,779 Income from operations of consolidated subsidiaries.......... 31,107 27,765 35,501 46,508 46,269 7,685 7,848 Equity in income (loss) from operations of unconsolidated affiliate............. -- -- -- -- (850) -- 3,240 Income from operations. 31,107 27,765 35,501 46,508 45,419 7,685 11,088 Interest expense, net(1)................ 24,870 25,236 25,399 23,894 21,481 4,499 5,399 Income before extraordinary items and cumulative effect adjustment............ 7,066(2) 1,081 6,014 15,857 13,464 1,921 3,440 Net income............. 7,066(2) 5,051 6,194 12,449 7,341 2,477 3,440 Ratio of earnings to fixed charges(3)...... 1.32(2) 1.06x 1.29x 1.68x 1.67x 1.42x 1.60x OTHER DATA: EBITDA(4).............. $50,696 $50,138 $61,193 $68,520 $69,572 $12,825 $15,109 Depreciation and amortization.......... 19,589 22,373 25,692 22,012 23,303 5,140 6,361 Capital expenditures... 20,497 44,020 13,203 23,092 63,600 17,769 20,488 EBITDA/Interest expense, net.......... 2.04x 1.99x 2.41x 2.87x 3.24x 2.85x 2.80x Net debt(5)/EBITDA..... 3.54x 3.87x 2.85x 1.60x 2.27x -- 2.40x PRO FORMA DATA(6): Interest expense, net.. $ 32,907 $ 8,011 $ 7,932 EBITDA/Interest expense, net.......... 2.11x 1.60x 1.90x Net debt/EBITDA........ 1.60x -- 1.75x
MARCH 31, 1994 -------------------------------- AS AS FURTHER ACTUAL ADJUSTED(7) ADJUSTED(8) (IN THOUSANDS) BALANCE SHEET DATA: Cash and cash equivalents.................... $107,458 $252,333 $303,996 Total assets................................. 482,475 632,475 684,138 Long-term debt (including current maturities)................................. 279,570 429,570 429,570 Shareholders' equity......................... 138,561 138,561 190,224
- ------------------ (1) Interest expense, net of capitalized interest and interest income. (2) Includes a pre-tax gain of $4.9 million on a sale of a country club by the Company. (3) The ratio of earnings to fixed charges has been computed by dividing earnings available for fixed charges (income before income taxes, extraordinary items and cumulative effect adjustment plus fixed charges less capitalized interest) by fixed charges (interest expense plus capitalized interest plus that portion of rental expense deemed to represent interest). (4) EBITDA is defined as income from operations of consolidated subsidiaries before depreciation and amortization, plus cash distributions from unconsolidated subsidiaries. Cash distributions from unconsolidated subsidiaries were $0 from 1989 through 1993 and were $0.9 million in the quarter ended March 31, 1994. (5) Net debt is defined as long-term debt, inclusive of current maturities, less cash, at the end of the period. (6) The pro forma data give effect to (i) the Note Offering at an assumed interest rate of 11%, (ii) the Common Stock Offering at an assumed offering price of $18.25 per share, the last reported sale price of the Common Stock on the NYSE on June 23, 1994, and (iii) the sale by the Company on May 18, 1993 of $275 million aggregate principal amount of 9 1/4% First Mortgage Bonds due 2008 and the application of the net proceeds therefrom to repay certain indebtedness, in each case as if such transaction had occurred as of the first day of the period presented. The pro forma data assume that interest income is earned on cash balances at a rate of 3.0% in 1993 and 3.5% in 1994. If the Common Stock Offering is not consummated, the pro forma data would be as follows:
YEAR ENDED THREE MONTHS DECEMBER 31, ENDED MARCH 31, ------------ ---------------- 1993 1993 1994 (IN THOUSANDS, EXCEPT RATIO DATA) PRO FORMA DATA: Interest expense, net...................... $34,457 $ 8,399 $ 8,384 EBITDA/Interest expense, net............... 2.02x 1.53x 1.80x Net debt/EBITDA............................ 2.34x -- 2.47x
If the interest rate on the Notes is increased or decreased by 1/4%, interest expense, net will increase or decrease, respectively, by $375,000. (7) Adjusted to give effect to the Note Offering. (8) Adjusted to give effect to the Note Offering and the Common Stock Offering at an assumed offering price of $18.25 per share. 9 THE COMPANY Showboat, Inc., through its wholly owned subsidiaries, owns and operates the Atlantic City Showboat and the Las Vegas Showboat. The Company also owns a 50% partnership interest in, and has a contract to manage, the Showboat Star Casino. In addition to its existing facilities, the Company maintains an active development program to identify and develop gaming opportunities in existing and emerging gaming venues. The Company has announced expansion opportunities in Sydney, Australia, East Chicago, Indiana and Hogansburg, New York. The Company had EBITDA/1/ of $69.6 million, $68.5 million and $61.2 million during the years ended December 31, 1993, 1992 and 1991, respectively, and $15.1 million and $12.8 million for the three months ended March 31, 1994 and 1993, respectively. The Company's marketing and operating strategy is to develop a high volume of traffic through its casinos. The Atlantic City Showboat targets the drive- in customer by providing competitive games and excellent service in an attractive and convenient facility. Customers are attracted to the Las Vegas Showboat by competitive slot machines, bingo, moderately priced food and accommodations, a friendly "locals" atmosphere and a 106-lane bowling center. The Showboat Star Casino, like the Las Vegas Showboat, targets "locals" with its excellent service, attractive and convenient facility and accessible location. At future venues, the Company will modify its marketing strategies to maximize casino revenues by focusing on a specific venue's unique location and demographics. The Company's development strategy is to identify new and existing gaming opportunities with strong demographics, in attractive and accessible locations, and which the Company believes will exceed the Company's return on investment objectives. In 1993, the Company created a Development and Management Services Division to investigate and secure new properties in the United States and around the world. The Company's Development and Management Services Division also provides management services to support new facilities upon opening, including human resources, marketing, design and construction, management information systems, regulatory compliance and operating and financial services. As of May 31, 1994, the Development and Management Services Division employed approximately 40 full-time employees and, since its inception, has actively pursued projects in 16 states and four foreign countries. The Development and Management Services Division is currently working on a number of projects in addition to the announced projects. No assurance can be given that any of the announced projects, or any project under development, will be completed, licensed or result in any significant contribution to the Company's cash flow or earnings. Casino gaming operations are highly regulated and new casino development is subject to a number of risks. See "Certain Considerations--New Gaming Jurisdictions and Expansion Opportunities," "--Regulatory Matters" and "--Development of New Facilities." The Company is actively pursuing expansion opportunities in emerging gaming markets in the United States and internationally. The Company has announced expansion opportunities which include (i) an approximately 27% interest in SHCL, which was selected as the preferred applicant for the only full-service casino license in New South Wales, Australia, (ii) a 55% interest in the Indiana Partnership, which is the only applicant for the sole gaming license to operate a riverboat casino in East Chicago, Indiana, located approximately 20 minutes from downtown Chicago, Illinois and three miles from the Chicago city limits, and (iii) a management agreement with the St. Regis Mohawk Tribe to construct and operate the St. Regis Casino on the St. Regis Mohawk Tribal Reservation in Hogansburg, New York, located approximately 75 miles south of Montreal, Canada. The Company's principal executive offices are located at 2800 Fremont Street, Las Vegas, Nevada 89104. The telephone number is (702) 385-9141. - --------------------- /1/EBITDA is defined as income from operations of consolidated subsidiaries before depreciation and amortization plus cash distributions from all unconsolidated subsidiaries. EBITDA should not be construed as an alternative to net income and is presented solely as supplemental disclosure because the Company believes that it is a widely used measure of operating performance in the gaming industry. 10 THE ATLANTIC CITY SHOWBOAT The Atlantic City Showboat, a 516-room, 24-story hotel casino which commenced operations in March 1987, is located at the eastern end of the "Boardwalk." The casino features approximately 3,000 slot machines and 116 table games, including 62 "21" tables, 18 poker tables, 14 craps tables, 11 roulette tables, two baccarat tables, two mini-baccarat tables, two pai-gow poker tables, two big six wheels, one red dog table, one sic bo table, one double down stud poker table, keno and a simulcast horse racing facility. The Atlantic City Showboat contains two public levels. On the ground level the public areas include the casino, a show lounge, two cocktail lounges, six restaurants, an ice cream parlor and three shops. On the second level the public areas include a 573-seat buffet-style restaurant, a 383-seat coffee shop, a player's club lounge, a beauty salon, a health spa, a video game arcade, 27,000 square feet of meeting rooms, convention and exhibition space, and a 60-lane bowling center with a snack bar and cocktail lounge. The themed interior of the facility replicates the spirit and elegance of turn-of-the-century New Orleans. The Atlantic City Showboat's attached nine-story parking garage facility, with a New Orleans themed exterior, provides self-parking for approximately 2,000 cars and a 14-bus depot integrated with the casino. This design permits Atlantic City Showboat's customers to enter the casino hotel protected from the weather. In addition, on-site underground parking accommodates valet parking for approximately 500 cars. The Company recently secured land for 500 additional parking spaces located approximately two blocks from the Atlantic City Showboat to supplement customer parking during peak periods. Access to the Atlantic City Showboat has improved with the completion of the expansion of Delaware Avenue to four traffic lanes in May 1994. Delaware Avenue leads directly to the Atlantic City Showboat from the White Horse Pike (U.S. Route 30), one of three major highways to Atlantic City. The Company is in the final phase of a three-phase approximately $93 million expansion project which commenced in 1993 at the Atlantic City Showboat. As a result of the expansion, the Company will receive $7.6 million in credits from the Casino Reinvestment Development Authority, which will be applied to future required funding obligations. The first phase of the expansion was completed in June 1993 and added a 15,000 square foot horse race simulcasting facility and 5,000 square feet of casino space, resulting in the addition of approximately 340 slot machines and 28 table games. The second phase of the expansion was completed in May 1994 and added 15,000 square feet of casino space, resulting in the addition of approximately 560 slot machines and 18 table games. The casino expansion permitted the Company to add a total of approximately 900 slot machines and 46 table games. The final phase of the Atlantic City expansion will add a new 284-room hotel tower which is currently under construction and is scheduled to open in early 1995. The Atlantic City Showboat is connected to the Taj Mahal Casino Hotel, the largest casino in Atlantic City, and Merv Griffin's Resorts International Casino Hotel by pedestrian walkways. These three properties form an "uptown casino complex" in which patrons can pass from property to property, either on the ocean-front Boardwalk or through the pedestrian walkways. THE LAS VEGAS SHOWBOAT The Las Vegas Showboat, a 482-room, 18-story hotel casino which commenced operations in September 1954, is located on 26 acres approximately 2 1/2 miles from both the "Strip" and downtown Las Vegas. The Las Vegas Showboat casino features approximately 1,900 slot machines and 33 table games, including 20 "21" tables, six poker tables, two craps tables, two roulette tables, two Caribbean stud poker tables, one pai-gow poker table, a race and sports book, an approximately 1,300-seat bingo parlor and a keno area. The hotel casino complex also includes a 106-lane bowling center, a 408-seat buffet-style restaurant, a 194-seat coffee shop, two specialty restaurants and 8,300 square feet of meeting room space. The facility includes surface parking for 1,200 cars in addition to a 620-car six level parking garage. The Company also owns and operates a 33-room motel directly across from the Las Vegas Showboat. 11 The Company is beginning a $15 million renovation at the Las Vegas Showboat which will upgrade the roof of the oldest portion of the Las Vegas Showboat in order to comply with current building codes and replace the existing power plant facility. The renovation also will add 900 parking spaces to the existing parking garage which, following the renovation, will permit direct access to the casino through pedestrian walkways. In addition, the Company is planning a $55 million expansion project which would add a 500-room tower and the approximately 78,000 square foot Showboat Entertainment Center featuring seven restaurants (the three existing restaurants and buffet will be relocated to the Showboat Entertainment Center providing the Las Vegas Showboat with additional casino and meeting room space), a midway arcade, two movie theatres, a food court, retail shops and a dance hall, all surrounding a four-story atrium which will recreate the festive atmosphere of a New Orleans square during Mardi Gras. The ceiling of the atrium will be designed to simulate the sky as a day progresses from dawn to dusk. The highlight of the atrium will be a center-court "dancing" water fountain, a laser light show and a simulated fireworks display. The primary entrance to the Showboat Entertainment Center will be through the casino. The Company believes the expansion project will strengthen the Company's market niche with local Las Vegas residents and registered hotel guests as well as attract casual tourists, a market segment which is not currently emphasized by the Las Vegas Showboat. Following the renovation and expansion, the hotel will contain 833 rooms and have added casino capacity of 20,000 square feet, which will permit the Company to add up to 1,100 slot machines and up to 15 table games. Construction on the renovation and expansion is anticipated to commence before the end of 1994 and is expected to take approximately 18 months to complete. THE SHOWBOAT STAR CASINO The Company owns a 50% equity interest in Showboat Star Partnership, the owner of the Showboat Star Casino. The Showboat Star Casino riverboat, which commenced gaming operations in November 1993, is located on the south shore of Lake Pontchartrain in New Orleans, Louisiana, approximately seven miles from New Orleans' "French Quarter." The riverboat, which measures 265 feet long and 78 feet wide, was built to resemble a traditional paddle-wheel riverboat. The riverboat contains 21,900 square feet of casino space on three levels, with approximately 780 slot machines and 42 table games, including 32 "21" tables, six craps tables and four roulette tables. A cocktail lounge is located on each of the three public levels of the riverboat. Dock-side facilities include a 34,000 square foot terminal building, which contains a restaurant, a cocktail lounge and administrative offices, and provides parking for 1,150 cars. Passengers pass through the terminal area in order to board the riverboat and embark on one of six daily three-hour excursion cruises on Lake Pontchartrain. During inclement weather conditions, the riverboat operates mock cruises while docked at the terminal facility. The Showboat Star Casino currently operates between the hours of 10:00 a.m. and 4:00 a.m. every day of the week. For the five months ended May 31, 1994, the total number of passengers was 803,431 with an average win per passenger of $54.60. Since commencement of operations, the Showboat Star Casino has been principally restricted to mock cruises due to either inclement weather or underwater obstructions. The Company believes that operating mock cruises has had a positive effect in attracting customers. The Company, through its subsidiary, Lake Pontchartrain Showboat, Inc. ("LPSI"), manages and operates the gaming areas of the Showboat Star Casino for a management fee of 5% of gaming revenues, net of gaming taxes of 18.5% of gaming revenue and boarding fees of $5.00 per passenger. During the first five months of 1994, the Company earned a management fee of $1.6 million and the Showboat Star Casino had net earnings of $13.9 million. The current policy of Showboat Star Partnership is to distribute at least 70% of net earnings to its partners monthly. 12 EXPANSION OPPORTUNITIES The Company is actively pursuing expansion opportunities in emerging gaming markets throughout the United States and internationally, including land-based casinos, riverboats and Indian gaming. Announced expansion opportunities include: SYDNEY, NEW SOUTH WALES, AUSTRALIA The Company and Leighton Properties Pty Limited, a subsidiary of Australia's largest publicly traded construction firm ("Leighton Properties"), are the founding stockholders of SHCL, which has been selected as the preferred applicant by the NSWCCA to develop, construct and operate the sole full-service casino with slot machines and table games in New South Wales, Australia. The terms of the proposed transaction provide for a 99-year site lease and casino license, which will be the exclusive full-service casino license in the state of New South Wales for a 12-year period, commencing with the opening of a temporary casino. As the preferred applicant, SHCL is required to obtain various development approvals for the construction of the Sydney Harbour Casino (the "Development Period"). The Development Period is anticipated to be completed by November 1994. Following, and subject to, satisfactory completion of the Development Period, the NSWCCA is expected to issue the casino license to SHCL. The Sydney Harbour Casino will begin operations in a temporary casino, which will be located at Pyrmont Bay on Wharves 12 and 13 in an existing building which will be renovated to permit the operation of a casino. The temporary casino is anticipated to open in August 1995 and is expected to contain approximately 500 slot machines, 150 table games (30 table games of which are expected to be located in a private gaming room) and, subject to certain approvals, keno. Additional amenities are expected to include cocktail lounges, specialty restaurants, retail shops and on-site parking for 428 cars. The permanent Sydney Harbour Casino is expected to be open in late 1997. Based on the maximum allowable number of table games, the permanent Sydney Harbour Casino will rank as one of the largest casinos in the world. The Sydney Harbour Casino will be located less than one mile from the Sydney central business district on an eight-acre waterfront site on Pyrmont Bay next to Darling Harbour. The Sydney Harbour Casino will feature approximately 136,000 square feet of casino space, including an approximately 20,000 square foot private gaming area to be located on a separate level which will target a premium clientele. The Sydney Harbour Casino will have approximately 1,500 slot machines and 200 table games, including 20 slot machines and 30 table games in the private gaming area. The Sydney Harbour Casino will be decorated to capture Australia's natural beauty and diverse geography and will contain cascading water fountains. Passage through the casino will allow patrons to experience Australia's indigenous landscape from wall surfaces of brilliant oranges and reds representing the cliffs and ranges of Australia's central desert, to an Australian rain forest under a glass canopy and a Great Barrier Reef room with a large aquarium of tropical fish. The Sydney Harbour Casino will also contain 14 themed restaurants, 12 cocktail lounges, a deluxe 2,000-seat lyric theatre, a 700-seat cabaret style theatre, extensive public space and a five-acre roof garden. The Sydney Harbour Casino complex will include a 352-room hotel tower and an adjacent condominium tower containing 139 privately owned luxury units with full hotel services. The complex will also include extensive retail facilities, a station for Sydney's proposed light rail system, a bus terminal, docking facilities for commuter ferries and parking for approximately 2,500 cars. Approximately 5.5 million people live within a 120-mile radius of Sydney. Additionally, 1.7 million international tourists and 4.4 million Australian tourists visited Sydney in 1992. Slot machines are currently permitted in approximately 1,500 non-profit private clubs in New South Wales, most of which contain less than 25 slot machines. According to the Tasmanian Gaming Commission, in 1992-1993 gambling expenditures per adult citizen in New South Wales were approximately A$595 ($434), the largest gambling expenditures per adult citizen in all of the Australian states. The following chart compares gambling expenditures per adult citizen of the various Australian states in 1992-1993. 13 AUSTRALIA GAMBLING EXPENDITURES 1992-1993
PERCENTAGE PERCENT OF OF TOTAL ADULT TOTAL EXPENDITURES EXPENDITURES EXPENDITURES POPULATION POPULATION PER CAPITA ------------ ------------ ----------- ---------- ------------ (MILLIONS) (THOUSANDS) New South Wales......... A$2,667.3 44.9 4,484 34.2 A$594.9 Victoria................ 1,112.7 18.7 3,345 25.5 332.7 Queensland.............. 984.4 16.6 2,270 17.3 433.7 South Australia......... 345.3 5.8 1,107 8.5 311.9 Western Australia....... 513.7 8.7 1,221 9.3 420.7 Tasmania................ 119.1 2.0 345 2.6 345.3 ACT..................... 139.5 2.3 218 1.7 542.1 Northern Territory...... 58.4 1.0 114 0.9 511.9 --------- ----- ------ ----- Total................. A$5,940.4 100.0 13,104 100.0 ========= ===== ====== =====
Source: Australian Gambling Statistics 1973 to 1993, The Tasmanian Gaming Commission. Leighton Properties has agreed to construct the Sydney Harbour Casino (including the temporary casino) for A$691.0 million ($504.4 million). Under the terms of the construction contract, the temporary casino must be completed nine months, and the permanent casino must be completed 38 months, after the issuance of the casino license. In the event that the permanent Sydney Harbour Casino is not completed within such time period, the construction contract provides for liquidated damages of A$150,000 ($109,500) per day. Additionally, SHCL is indemnified against any loss arising from the contractor's failure to perform its obligations under the construction contract. The cost of the Sydney Harbour Casino, including licensing fees, is anticipated to be approximately A$1.2 billion ($866.5 million). The Company and Leighton Properties have agreed to invest A$135.0 million ($98.5 million) and A$25.0 million ($18.3 million), respectively, in SHCL for equity stakes of approximately 27% and 5%, respectively. In addition, each of the Company and Leighton Properties has options to purchase an additional 7% of the fully diluted equity of SHCL. The options may be exercised no earlier than July 1, 1998 and expire June 30, 2000 and have an exercise price of A$1.15 per share. Upon the issuance of the casino license, SHCL will have 505,000,000 shares outstanding, consisting of 160,000,000 ordinary shares owned by Showboat Australia Pty Limited ("Showboat Australia"), an indirect wholly owned subsidiary of the Company, and Leighton Properties, and 345,000,000 preferred ordinary shares owned by certain institutional investors. SHCL is expected to become a publicly listed company on the Australian Stock Exchange within six months of receiving the casino license. Additional funds for the construction of the Sydney Harbour Casino will be obtained through bank financing of A$500.0 million ($365.0 million), a working capital facility of A$50.0 million ($36.5 million), an offering of securities to institutional investors of A$345.0 million ($251.9 million) for an approximately 68% ownership in SHCL, and cash flow from the operation of the temporary casino of approximately A$132.0 million ($96.4 million). SHCL has received firm commitments for all of its anticipated external financing requirements, which total approximately A$895.0 million ($653.4 million). In addition, SHCL has granted options to certain parties that were involved in the preliminary bidding for the New South Wales casino license to purchase approximately 4% of the equity of SHCL, 3% of which is exercisable at any time prior to the issuance of the casino license at an exercise price of A$1.00 per share and 1% of which is exercisable between June 1, 1998 and June 30, 2000 at an exercise price of A$1.15 per share. SHCL has entered into an agreement (the "Facility Agreement") with the Commonwealth Bank of Australia ("CBA") to obtain a loan in the amount of A$500.0 million ($365.0 million) to finance a portion of the development and construction of the Sydney Harbour Casino. SHCL will also obtain from CBA a working capital facility in the amount of A$50.0 million ($36.5 million) for working capital purposes. The 14 A$500.0 million construction facility will convert to a seven-year term loan upon completion of the Sydney Harbour Casino. The term loan will be amortized by mandatory repayments specified in the Facility Agreement. The Facility Agreement also requires that the Company remain the beneficial owner of not less than 10% of the issued ordinary shares of SHCL for a period of not less than five years after completion of the permanent Sydney Harbour Casino and remain the beneficial owner of not less than 5% of the issued ordinary shares of SHCL for an additional two years thereafter. The Facility Agreement further restricts SHCL's ability to declare or pay any dividend (other than a permitted preferred ordinary dividend) or make distributions to stockholders, except under certain conditions as specified in the Facility Agreement. The Facility Agreement contains additional customary financial covenants. In connection with the Facility Agreement, CBA will receive options to acquire 5% of the number of preferred ordinary shares issued to institutional investors at an exercise price of A$1.10 per share. The options may be exercised no earlier than July 1, 1998 and expire five years from the date of the agreement granting such options. Institutional investors have committed to purchase approximately 68%, or 345,000,000 preferred ordinary shares, of SHCL for A$345.0 million ($251.9 million). The preferred ordinary shares are entitled to a cumulative dividend of A$.05 per share per annum for the three fiscal years ended June 30, 1997, 1998 and 1999. Prior to the issuance of the casino license, the underwriter for the institutional investor offering of the preferred ordinary shares is required to fund the underwritten amount to SHCL in immediately available funds. The institutional investor offering has been fully committed by 24 institutional investors. Sydney Harbour Casino Management Pty Limited (the "Manager"), a company which is 85% owned by Showboat Australia and 15% owned by Leighton Properties, will manage the temporary casino and the permanent Sydney Harbour Casino pursuant to a 99-year management agreement (the "Management Agreement"). The terms of the Management Agreement require the Manager to advise Sydney Harbour Casino Pty Limited or Sydney Harbour Casino Properties Pty Limited, wholly owned subsidiaries of SHCL, as to the casino design and configuration and the placement of all gaming equipment. The Manager also has agreed to train all employees of the Sydney Harbour Casino and to manage a high quality international class casino in accordance with the operating standards required by the NSWCCA. The NSWCCA requires a service audit to be conducted yearly by a third party so that areas of non-compliance can be identified and remedied by the Manager. In addition, gaming revenue will be taxed at a rate of (i) 22.5% of slot machine revenue and (ii) 20% of the first $200 million of table game revenue, increasing 1% for each additional $5 million of table game revenue, up to a maximum rate of 45%, and will also be subject to a community benefit levy of 2% of gross gaming revenue. The Manager will be paid a management fee equal to the sum of (i) 1 1/2% of casino revenue, (ii) 6% of casino gross operating profit, (iii) 3 1/2% of total non-casino revenue, and (iv) 10% of total gross non-casino operating profit, for each fiscal year for services rendered by the Manager pursuant to the Management Agreement. In connection with the final bid for the Sydney Harbour Casino license, the Company has also agreed to forego management fees in an amount with a present value of A$19.0 million ($13.9 million). In addition, each of the Company and Leighton Holdings Limited, the parent of Leighton Properties, has agreed to guarantee the obligations of Showboat Australia and Leighton Properties pursuant to their agreements with the NSWCCA, including the Company's obligation to invest an aggregate of A$135.0 million ($98.5 million) in SHCL, and to indemnify the NSWCCA for any loss as a result of the failure by either of Showboat Australia or Leighton Properties to perform their obligations under such agreements. The Company and Leighton Holdings Limited will be released from their guarantees and indemnities upon satisfaction of their obligations to invest in SHCL. The Company has secured its guarantee and indemnity with an A$8.4 million ($6.1 million) line of credit. EAST CHICAGO, INDIANA On April 12, 1994, the Indiana Partnership, owned 55% by Showboat Indiana Investment Limited Partnership, a wholly owned limited partnership ("SII"), and 45% by Waterfront Entertainment and Development, Inc., an unrelated Indiana corporation, filed its gaming application with the Indiana Riverboat Gaming Commission to operate the East Chicago Riverboat on Lake Michigan in East Chicago, Indiana. The East Chicago Riverboat is located approximately 20 minutes from downtown Chicago and approximately 15 three miles from the Chicago city limits. Approximately 9.2 million adults reside within 120 miles of East Chicago, Indiana. The Indiana Partnership is the sole applicant for the only riverboat gaming license allocated by statute to East Chicago. The Company expects to invest approximately $30 million in the Indiana Partnership and will help the partnership obtain in excess of $75 million (currently estimated to be $90 million) in debt financing. Under the current partnership agreement, the Company will receive a 12% preferred return on its investment prior to additional partnership distributions. The Indiana Partnership is considering constructing a new vessel or renovating an existing vessel for its proposed gaming operations. The Indiana Partnership's application to the Indiana Riverboat Gaming Commission for the license to operate the East Chicago Riverboat proposes a riverboat with up to 60,000 square feet of casino space containing approximately 2,300 slot machines and 80 table games. The East Chicago Riverboat dock-side facility is also expected to include up to three restaurants, a 5,000 square foot sports lounge and a parking garage for 2,000 cars. The Company is continuing to evaluate the East Chicago market and construction costs for the project and may modify the riverboat configuration in the future. The Indiana Riverboat Gambling Act permits the operation of up to 11 riverboats, of which five riverboats, including the Indiana Partnership's vessel, will operate on Lake Michigan. The Company anticipates that, subject to the successful resolution of the lawsuit challenging the constitutionality of Indiana's Riverboat Gaming Act, the first licensed riverboat on Lake Michigan will be located in Gary, Indiana, and that the East Chicago Riverboat will open in 1996. See "Certain Considerations--New Gaming Jurisdictions and Expansion Opportunities." No gaming facility is in operation in Indiana at this time. Illinois has authorized four gaming licenses, each limited to 1,200 gaming positions, to operate riverboat casinos in the Chicago metropolitan area. Riverboat operators holding three of such licenses currently operate six riverboats and an operator holding the fourth license is expected to commence gaming operations in late 1994. Additionally, the Illinois legislature is considering expanding gaming in the Chicago metropolitan area with the proposed operation of five riverboats in downtown Chicago. ST. REGIS MOHAWK TRIBAL RESERVATION, HOGANSBURG, NEW YORK The Company, through Showboat Mohawk Investment Limited Partnership, a wholly owned limited partnership ("SMI"), and the St. Regis Mohawk Tribe have entered into agreements to develop, construct, manage and operate a Class III gaming establishment on the St. Regis Mohawk Tribal Reservation in Hogansburg, New York. On October 15, 1993, the Governor of the State of New York signed a compact (the "New York Compact") with the St. Regis Mohawk Tribe, permitting Class III gaming on the St. Regis Mohawk Tribe's reservation. Class III games under the New York Compact include blackjack, craps, roulette, best hand poker, big six, keno, and other authorized games but does not include slot machines. The agreements were submitted to NIGC and must be approved prior to being effective. The agreements contemplate that SMI will initially operate Class III games in an approximately 30,000 square foot casino containing approximately 130 table games. The Company expects to lend approximately $30 million for a term of five years, at a rate of 15% per annum, to the St. Regis Mohawk Tribe for the purchase of an existing building which will be expanded to house the casino, for certain improvements to the building and for working capital purposes. SMI will receive a management fee of 20% of earnings before interest, taxes and depreciation throughout the management term of five years, subject to a maximum of 30% of earnings before taxes. The St. Regis Mohawk Tribe is governed by a body of three chiefs, with one chief elected annually for a three-year term. In an election in June 1994, members of the St. Regis Mohawk Tribe elected a chief who has indicated an intent to re-examine the New York Compact and the agreements pending before the NIGC between the St. Regis Mohawk Tribe and prospective gaming operators, including the Company. No assurance can be given that the St. Regis Mohawk Tribe will not seek to modify the New York Compact or its agreements with the Company, which may adversely affect the proposal for the St. Regis Casino. The St. Regis Mohawk reservation is located on the New York State/Canadian border approximately 75 miles south of Montreal. Approximately 4.6 million adults live within 120 miles of Hogansburg, New York. For a five-year period, the tribal management agreement restricts gaming on the reservation to one 16 other casino containing in excess of 5,000 square feet, three casinos containing no more than 5,000 square feet of gaming space and the Mohawk Bingo Palace, which is limited to Class II games, such as bingo, pull-tabs, tip jars, lotto and certain non-banking card games. The St. Regis Mohawk Tribe has entered into a management/construction agreement with a second operator to construct a casino that is expected to be approximately 40,000 square feet. Any additional casinos must be located east of the St. Regis Casino making the St. Regis Casino the first Class III casino visitors will encounter upon entering the St. Regis Mohawk Reservation from the International Bridge to Canada and other major highways leading to the reservation. The casino will also compete with a 35,000 square foot casino in Montreal containing 1,250 slot machines and 65 table games and a casino operated on the Oneida reservation in Verona, New York, approximately 130 miles south of Hogansburg, New York, containing 136 table games. The Montreal casino has announced plans to expand its casino to 50,000 square feet containing 1,700 slot machines and 100 table games and Ottawa, Canada has announced its intention to open a casino containing 35,000 square feet of gaming space in 1996-1997. 17 CERTAIN CONSIDERATIONS Each prospective investor should carefully consider the following factors, among others, in evaluating the Company before purchasing the Notes offered hereby. Leverage and Debt Service. As of March 31, 1994, the Company had long-term obligations of approximately $279.6 million, inclusive of current maturities, and total stockholders' equity of approximately $138.6 million. After giving effect to the Note Offering and the Common Stock Offering, the Company will have long-term obligations of approximately $429.6 million, inclusive of current maturities, and total shareholders' equity of approximately $190.2 million. After giving effect to the Note Offering, the Company will have significant interest expense. The Company's ratio of earnings to fixed charges was 1.67 to 1 and 1.60 to 1 for the year ended December 31, 1993 and the three months ended March 31, 1994, respectively. On a pro forma basis after giving effect to the Note Offering, the Company's ratio of earnings to fixed charges would have been 1.13 to 1 and 1.09 to 1 for the year ended December 31, 1993 and the three months ended March 31, 1994, respectively. The Company's ability to satisfy its obligations is dependent upon its future performance, which will be subject to prevailing economic conditions and to financial, business and other factors, including factors beyond the control of the Company, affecting the business operations of the Company. If the Company is unable to generate sufficient cash flow from operations in the future, it may be required to refinance all or a portion of its existing debt or to obtain additional financing. There can be no assurance that any such refinancing would be possible or that any additional financing could be obtained on terms that are favorable or acceptable to the Company. Subordination. The Notes will be subordinated in right of payment to all Senior Debt of the Company. In addition, the Subsidiary Guarantees will be subordinated to all Senior Debt of the Guarantors. In the event of the bankruptcy, liquidation or reorganization of the Company or any of the Guarantors, the assets of the Company or such Guarantor will be available to pay obligations on the Notes only after all Senior Debt of the Company or such Guarantor has been paid in full, and there may not be sufficient assets remaining to pay amounts due on any or all of the Notes then outstanding. In addition, the Notes are structurally subordinated to indebtedness of the Company's subsidiaries that are not Guarantors. Additional indebtedness, including Senior Debt, may be incurred by the Company and its subsidiaries from time to time, subject to the terms of the Indenture and the Company's then outstanding indebtedness. Sydney Harbour Casino--Need to Obtain Permits and Financing; Risk of Construction Delays. The Company has not yet received (i) a casino license to operate the Sydney Harbour Casino or (ii) the approval and permits necessary for the development and construction of temporary and permanent sites for the Sydney Harbour Casino ("Development Approval"). The Company is currently in the process of satisfying certain pre-conditions for the issuance of the casino license from the NSWCCA and Development Approval from the Minister for Planning and Housing. While the Company anticipates that it will secure the casino license and Development Approval, there is no assurance that it will be able to obtain such casino license, Development Approval, or other licenses, permits and authorizations. Subsequent to receiving all requisite licenses, permits and authorizations for the Sydney Harbour Casino, the project will be subject to the risks of delay and higher expenses to which construction projects of this type are exposed due to factors such as shortages of materials or skilled labor, unforeseen engineering, environmental and/or geological problems, work stoppages and weather interference. Accordingly, there can be no assurance that the Sydney Harbour Casino will be completed or completed in a timely manner and within budget. The total cost for the Sydney Harbour Casino, including licensing fees, is anticipated to be approximately A$1.2 billion ($866.5 million). The Company has agreed to invest A$135.0 million ($98.5 million) for the development and construction of the Sydney Harbour Casino. Additional funds for the construction of the Sydney Harbour Casino will be obtained in project financing of A$500.0 million ($365.0 million), a working capital facility of A$50.0 million ($36.5 million), a A$25.0 million ($18.3 million) equity investment by Leighton Properties, an offering of securities to institutional investors in Australia of A$345.0 million ($251.9 18 million) for an approximately 68% ownership in SHCL, and cash flow from the operation of the temporary casino of approximately A$132.0 million ($96.4 million). While SHCL has received firm commitments on its anticipated external financing requirements, in the event that additional funds should become necessary to complete the Sydney Harbour Casino, there can be no assurance that additional funds will be available on acceptable terms, if at all, or that such funds will be sufficient to fund the construction. Any such failure to secure additional financing sufficient to fund the development and construction of the Sydney Harbour Casino, if necessary, would have a material adverse impact upon the Company's expansion plans and on the financial condition of the Company. The NSWCCA retains the right to determine that SHCL is no longer capable of fulfilling the terms of its agreement with the NSWCCA, primarily because of an inability to obtain Development Approval. In such circumstances, a non- preferred applicant would be given the opportunity to obtain development approval for its project. If successful in such an endeavor, such non-preferred applicant could be granted the casino license. Competition. The Atlantic City Showboat competes with 11 other casino hotels in Atlantic City containing, in the aggregate, approximately 788,000 square feet of casino space and 8,420 rooms. In addition, the Atlantic City Showboat competes with Foxwood's High Stakes Bingo and Casino on the Mashantucket Pequot Indian Reservation in Ledyard, Connecticut. Competition among casino hotels in Atlantic City is intense. Casino hotels in Atlantic City generally compete on the basis of promotional allowances, entertainment, advertising, service provided to patrons, caliber of personnel, attractiveness of the hotel and casino areas and related amenities. The Las Vegas Showboat competes generally with approximately 119 casinos in Clark County, Nevada, which includes the cities of Las Vegas, Henderson, Laughlin and Mesquite. Competition among casinos in Clark County is intense. The Company has experienced increased competition from new and existing Las Vegas hotel casinos which have also sought to attract slot machine players and Las Vegas-area residents, including construction of a new hotel casino and renovation of another hotel casino which are located on Boulder Highway near the Las Vegas Showboat. The Company anticipates continuing increased competition for these customers. The Showboat Star Casino currently experiences direct competition in its primary market area. As of March 31, 1994, the state of Louisiana had authorized the licensing of 15 riverboat casinos, six of which will operate in the New Orleans area. The Showboat Star Casino and one other riverboat located on Lake Charles in southwestern Louisiana were the only riverboat casinos operating in Louisiana as of December 31, 1993. A third riverboat opened in New Orleans on February 10, 1994. Additionally, a license has been awarded to operate a single land-based casino in New Orleans, which is expected to be one of the larger land-based casinos in the United States. The land-based casino is anticipated to commence operations in a temporary facility in late 1994. The Showboat Star Casino also competes with eight casinos approximately 50 miles away to the east on the Mississippi Gulf Coast. Mississippi permits dock-side gaming and casinos in Mississippi, unlike the Showboat Star Casino, do not have a state-imposed admissions tax. To compete with the Mississippi casinos, the Showboat Star Casino pays the admissions tax as a complimentary item to its patrons. The Company expects that greater competition will occur as the emerging casino industry matures in Louisiana and elsewhere in the Southern United States. The Company believes that the growing legalization of casino gaming in states other than New Jersey and Nevada, including Colorado, Connecticut, Illinois, Iowa, Indiana, Louisiana, Mississippi, Missouri, and South Dakota, and on various Indian reservations has not to date had a material adverse impact on its operations. The legalization of casino and other gaming venues in states close to Nevada, particularly California, or in or near New Jersey, particularly Delaware, Maryland, New York or Pennsylvania, may have a material adverse effect on the Company's business. Gaming legislation has been introduced, but not passed, in Pennsylvania. 19 The Company expects that many riverboat casinos, land-based casinos, and Indian gaming will be licensed eventually throughout the United States. Moreover, each announced opportunity will compete with other nearby gaming operations. See "The Company--Expansion Opportunities." Some of these gaming operations may be owned by companies that are larger and have significantly greater financial and other resources than the Company. Given these factors, it is possible that substantial competition will arise which could adversely affect the Company's existing and proposed operations. The Company's ability to maintain its competitive position may require the expenditure of significant funds on an ongoing basis at all of its casino properties. New Gaming Jurisdictions and Expansion Opportunities. The Company is actively pursuing potential gaming opportunities in certain jurisdictions where gaming has recently been legalized, as well as jurisdictions where gaming is not yet, but is expected soon to be legalized. There can be no assurance that legislation to legalize gaming will be enacted in any additional jurisdictions, that any properties in which the Company may have invested will be compatible with any gaming legislation so enacted, that legalized gaming will continue to be authorized in any jurisdiction or that the Company will be able to obtain the required licenses in any jurisdiction. In addition, the constitutionality of Indiana's Riverboat Gambling Act is currently being challenged by a lawsuit seeking to declare the portion of the Riverboat Gambling Act that treated the manner in which gaming was approved in Lake County, Indiana (the county in which East Chicago is located) differently than certain other Indiana counties unconstitutional. On May 19, 1994, the Porter County Superior Court issued a ruling that such provisions of the Riverboat Gambling Act are unconstitutional and ordered the Indiana Gaming Commission to cease all activity, except background investigations, in the process of licensing riverboats until such time as the legislature cures the constitutional defects in the legislation or until further order of the Porter County Superior Court or the Indiana Supreme Court. No assurance can be given that the order of the Porter County Superior Court will be vacated by such court, overturned by the Indiana Supreme Court, or cured by the Indiana legislature. Furthermore, competition for the development of new gaming opportunities has intensified as established and newly organized gaming companies compete for a limited number of sites and licenses. There can be no assurance that attractive opportunities to develop new gaming operations will be available to the Company. The Company may invest in real property related to potential gaming opportunities. Such investments are subject to the risks generally incident to the ownership of real property, including changes in economic conditions, environmental risks, governmental regulations and other circumstances over which the Company may have little or no control. There can be no assurance that the Company will be able to recover its investment in any such property. Risks of Potential Disruptions from Construction. Construction on the proposed $15 million renovation and $55 million expansion of the Las Vegas Showboat is expected to begin by the end of 1994 and will take approximately 18 months to complete. The construction of the renovation and expansion project may disrupt casino operations and will require, from time to time, that portions of the casino area be temporarily closed. In addition, construction of the proposed expansion will require the closing of 150 existing hotel rooms in the rear of the facility. Although, the Company does not believe the resulting decrease in hotel revenues will be significant, the resulting loss of casino revenues from its hotel market segment could be significant. Any significant disruption in casino operations, coupled with the expected decrease in hotel and casino revenues, could have a material adverse effect on the Company's business and results of operations. Relationship With Tribes and Effect of Indian Sovereignty. Good relations with the St. Regis Mohawk Tribe are critical to the success of the St. Regis Casino. The Company believes that its ability to enter into agreements with the St. Regis Mohawk Tribe has been attributable, in large part, to the reputation it has achieved with tribe officials. Indian tribes are sovereign nations with their own governmental systems. Tribal officials are subject to replacement by appointment or election. The Company's relationship with the St. Regis Mohawk Tribe may improve or deteriorate under new administrations. A deterioration of the Company's reputation and relationships with officials of the St. Regis Mohawk Tribe could have a material adverse effect upon the development and operation of the St. Regis Casino. 20 The St. Regis Mohawk Tribe is governed by a body of three chiefs, with one chief elected annually for a three-year term. In an election in June 1994, members of the St. Regis Mohawk Tribe elected a chief who has indicated an intent to re-examine the New York Compact and the agreements pending before the NIGC between the St. Regis Mohawk Tribe and prospective gaming operators, including the Company. No assurance can be given that the St. Regis Mohawk Tribe will not seek to modify the New York Compact or its agreements with the Company, which may adversely affect the proposal for the St. Regis Casino. In addition to all the usual risks associated with the development of the St. Regis Casino, the Company faces certain risks peculiar to dealing with Indian tribes, including the uncertain applicability of federal and state laws as they relate to Indian tribes and the sovereignty of Indian tribes. With respect to the anticipated loan of up to $30 million by SMI to the St. Regis Mohawk Tribe, SMI must look exclusively to the future cash flow from casino operations as a source of repayment, rather than the general credit of the St. Regis Mohawk Tribe. Taxation. The Company believes that the prospect of significant additional revenue is one of the primary reasons that jurisdictions have legalized gaming. As a result, gaming companies are typically subject to significant taxes and fees in addition to normal federal and state income taxes, and such taxes and fees are subject to increase at any time. The Company pays substantial taxes and fees with respect to its operations and will likely incur similar burdens in any other jurisdiction in which it may conduct gaming operations in the future. In addition, there have been suggestions from time to time to tax all gaming establishments at the Federal level. Any increase in the Company's tax rates would adversely affect the Company. See "Regulation." Loss of a Riverboat From Service. A riverboat, such as the Showboat Star Casino and the proposed East Chicago Riverboat, could be lost from service for a variety of reasons, including casualty, mechanical failure or extended or extraordinary maintenance or inspection. U.S. Coast Guard regulations require a hull inspection for all riverboats at five-year intervals. The Showboat Star Casino will be due for this inspection in late 1999. To comply with this inspection requirement, which could take a substantial amount of time, the Showboat Star Casino and any other riverboat that the Company operates in the future must be taken to a U.S. Coast Guard approved dry docking facility. Hotel/Gaming Business. The Company is subject to the risks inherent in the hotel and gaming operations business. Gaming activity can vary significantly as a result of a number of factors, including the competitive environment, hotel occupancy rate, and general economic conditions, and is subject to substantial governmental regulation. See "Regulation." Additionally, hotel and gaming operations are subject to the imposition of special taxes or assessments by regulatory bodies. Any new tax or assessment may have an adverse impact on the Company's operations. Regulatory Matters. The ownership and operation of the Las Vegas Showboat, the Atlantic City Showboat and the Showboat Star Casino are subject to extensive regulation by state and local gaming authorities in Nevada, New Jersey, Louisiana and in other states and foreign countries the Company may conduct business in the future (collectively, the "Gaming Authorities"). The Company may be required to disclose to the Gaming Authorities, upon request, the identities of the holders of the Notes. The Gaming Authorities may, in their discretion, (i) require holders of debt securities of the Company to file applications in states in which the Company does business; (ii) investigate such holders; and (iii) require such holders to be found suitable or qualified to own such securities. Pursuant to the regulations of the Gaming Authorities, such gaming corporations may be sanctioned, including the loss of its approvals, if, without prior approval of the Gaming Authorities, it (i) pays to the unsuitable or unqualified person any dividend, interest or other distribution; (ii) recognizes any voting right by such unsuitable or unqualified person in connection with the securities; (iii) pays the unsuitable or unqualified person remuneration in any form; or (iv) makes any payments to the unsuitable or unqualified person by way of principal, redemption, conversion, exchange, liquidation, or similar transaction. See "Regulation." 21 Market for the Notes. The Notes will constitute a new issue of securities with no established trading market and the Company does not intend to list the Notes on any national securities exchange. The Underwriter has advised the Company that it currently intends to make a market in the Notes, but they are not obligated to do so and may discontinue such market-making activity at any time. No assurance can be given that an active public or other market will develop for the Notes or as the liquidity of the trading market for the Notes. Development of New Facilities. The development of any significant new venture which requires the Company to make a substantial capital investment may require additional debt or equity financing. There can be no assurance that the cash flow generated by the operations of the Company or any other new venture will be sufficient to service any additional debt which may be incurred in connection therewith. In addition there can be no assurance that additional financing can be obtained which is acceptable to the Company. See "Management's Discussion and Analysis of Financial Condition and Results of Operations-- Liquidity and Capital Resources." The opening of any new facility or expansion of an existing facility will be contingent upon the completion of construction, hiring and training of experienced management and sufficient personnel and receipt of all regulatory licenses, permits, allocations and authorizations. The scope of the approvals required to construct and open a new facility or expand an existing facility may be extensive, and the failure to obtain such approvals could prevent or delay the completion of construction or opening of all or part of such facilities or otherwise affect the design and features of the project. Major construction projects, such as a new casino development, entail significant risks, including management's ability to control and manage such projects effectively, shortages of materials or skilled labor, engineering, environmental or regulatory problems, work stoppages, weather interference and unanticipated cost increases. Accordingly, there can be no assurance that any project will be completed on time or within budget or that unanticipated delays or cost increases will not have a material adverse effect on any project. The Company is pursuing a number of gaming opportunities. In many cases, the Company is competing against other gaming companies, some of which may have greater financial resources. There can be no assurance that these opportunities will be realized by the Company. The Company reserves the right to cease pursuing any of the gaming opportunities at any time. 22 USE OF PROCEEDS The net proceeds from the Note Offering, after deducting underwriting discounts and commissions and estimated offering expenses, are expected to be approximately $144.9 million. The Company currently intends to apply such net proceeds, together with the net proceeds to the Company from the Common Stock Offering, estimated to be approximately $51.7 million, and approximately $32.0 million of available cash, to (i) invest A$135 million ($98.5 million) for an approximately 27% equity interest in SHCL, which has been selected as the preferred applicant to build, manage and operate the sole full-service casino in Sydney, Australia, (ii) renovate the Las Vegas Showboat in order to upgrade the facility to current building codes, replace the existing power plant facility and add 900 parking spaces to the existing parking garage at a cost of approximately $15 million, (iii) expand the Las Vegas Showboat to add a 500- room hotel tower and the Showboat Entertainment Center and hotel tower at a cost of approximately $55 million, (iv) invest approximately $30 million in the Indiana Partnership, the sole applicant to obtain the only riverboat gaming license in East Chicago, Indiana, and (v) provide a loan of approximately $30 million to the St. Regis Mohawk Tribe for the purchase and renovation of a building in which to operate the St. Regis Casino. The Company is required to place $100.0 million of the net proceeds of the Note Offering into an escrow account, which may only be used to fund the Company's investment in SHCL. In the event that Australian Gaming Approval or Management Contract Approval (as defined in the Indenture) has not occurred on or prior to December 31, 1995, the Company will be obligated to make an offer to repurchase an amount of Notes and certain other indebtedness of the Company equal to the amount in the escrow account. See "Description of Notes-- Repurchase at the Option of Holders--Escrow Account." In the event that the Common Stock Offering is not consummated, the Company will use the net proceeds of the Note Offering and available cash to invest in SHCL and to renovate and expand the Las Vegas Showboat. The Company will pursue other means to finance the other projects or will delay their development in the event the Common Stock Offering is not consummated. In addition, in the event that the Company determines not to pursue any of the expansion opportunities listed above, the Company will apply any remaining net proceeds to invest in other expansion opportunities or for other general corporate purposes. 23 CAPITALIZATION The following table sets forth the consolidated capitalization of the Company as of March 31, 1994, and as adjusted as of such date to give effect to the Note Offering and as further adjusted as of such date to give effect to both the Note Offering and the Common Stock Offering. This table should be read in conjunction with the attached consolidated financial statements and the related notes thereto included elsewhere in this Prospectus and "Management's Discussion and Analysis of Financial Condition and Results of Operations."
MARCH 31, 1994 --------------------------------- AS AS FURTHER ACTUAL ADJUSTED(1) ADJUSTED(2) (IN THOUSANDS) Cash......................................... $107,458 $252,333 $303,996 ======== ======== ======== Current maturities of long-term debt......... 2,549 2,549 2,549 ======== ======== ======== Long-term debt (excluding current maturities) 9 1/4% First Mortgage Bonds due 2008....... $275,000 $275,000 $275,000 Capitalized lease obligations.............. 2,021 2,021 2,021 % Senior Subordinated Notes.............. -- 150,000 150,000 -------- -------- -------- Total long-term debt..................... 277,021 427,021 427,021 Shareholders' equity(3) Common Stock, par value $1.00; 50,000,000 shares authorized; 15,794,578 shares issued as adjusted; 18,794,578 shares issued as further adjusted................ 15,795 15,795 18,795 Additional paid-in capital................. 71,437 71,437 120,100 Retained earnings.......................... 57,693 57,693 57,693 Cost of Common Stock in treasury; 809,383 shares.................................... (6,328) (6,328) (6,328) Unearned compensation for restricted stock. (36) (36) (36) -------- -------- -------- Total shareholders' equity............... 138,561 138,561 190,224 -------- -------- -------- Total capitalization................... $415,582 $565,582 $617,245 ======== ======== ========
- --------------------- (1) Adjusted to give effect to the Note Offering. (2) Adjusted to give effect to the Note Offering and the Common Stock Offering at an assumed offering price of $18.25 per share, the last reported sale price of the Common Stock on the NYSE on June 23, 1994. The Company has also granted to the underwriters of the Common Stock Offering a 30-day option to purchase up to an additional 450,000 shares of Common Stock to cover over-allotments, if any, in connection with the Common Stock Offering. In the event that such option is exercised in full, cash, total shareholders' equity and total capitalization would each increase by $7.8 million, and Common Stock and additional paid-in capital would increase by $450,000 and $7.4 million, respectively. (3) Excludes (a) 671,120 shares of Common Stock issuable upon exercise of vested options which have not yet been exercised and (b) 150,000 shares of Common Stock issuable upon exercise of outstanding warrants. 24 SELECTED CONSOLIDATED FINANCIAL DATA The selected consolidated financial data presented below under the captions "Statement of Operations Data" and "Balance Sheet Data" for, and as of the end of, each of the years in the five-year period ended December 31, 1993 are derived from the consolidated financial statements of Showboat, Inc. and subsidiaries, which consolidated financial statements have been audited by KPMG Peat Marwick, independent certified public accountants. The selected data presented for the three months ended March 31, 1993 and 1994 are derived from unaudited financial statements of the Company which, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the information set forth therein. The consolidated financial statements referred to above are included elsewhere in this Prospectus.
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, ------------------------------------------------ ----------------- 1989 1990 1991 1992 1993 1993 1994 (IN THOUSANDS, EXCEPT PER SHARE AND RATIO DATA) STATEMENT OF INCOME DA- TA: Net revenues........... $342,354 $334,247 $331,560 $355,236 $375,727 $85,496 $ 88,779 Total expenses......... 311,247 306,482 296,059 308,728 329,458 77,811 80,931 -------- -------- -------- -------- -------- ------- -------- Income from operations of consolidated subsidiaries.......... 31,107 27,765 35,501 46,508 46,269 7,685 7,848 Equity in income (loss) from unconsolidated affiliate............. -- -- -- -- (850) -- 3,240 -------- -------- -------- -------- -------- ------- -------- Income from operations. 31,107 27,765 35,501 46,508 45,419 7,685 11,088 Interest expense, net(1)................ 24,870 25,236 25,399 23,894 21,481 4,499 5,399 Gain on sale of property.............. (4,897) -- -- -- -- -- -- Income tax expense..... 4,068 1,448 4,088 6,757 10,474 1,265 2,249 -------- -------- -------- -------- -------- ------- -------- Income before extraordinary items and cumulative effect adjustment............ 7,066 1,081 6,014 15,857 13,464 1,921 3,440 Extraordinary items and cumulative effect adjustment............ -- 3,970 180 (3,408) 6,123 556 -- -------- -------- -------- -------- -------- ------- -------- Net income............. 7,066 5,051 6,194 12,449 7,341 2,477 3,440 Net income per share... 0.62 0.45 0.55 1.08 0.49 0.16 0.23 Cash dividends declared per share............. 0.235 0.10 0.10 0.10 0.10 0.025 0.025 Ratio of earnings to fixed charges(2)...... 1.32x 1.06x 1.29x 1.68x 1.67x 1.42x 1.60x OTHER DATA: EBITDA(3).............. $ 50,696 $ 50,138 $ 61,193 $ 68,520 $ 69,572 $12,825 $ 15,109 Depreciation and amortization.......... 19,589 22,373 25,692 22,012 23,303 5,140 6,361 Capital expenditures... 20,497 44,020 13,203 23,092 63,600 17,769 20,488 EBITDA/Interest expense, net.......... 2.04x 1.99x 2.41x 2.87x 3.24x 2.85x 2.80x Net debt(4)/EBITDA..... 3.54x 3.87x 2.85x 1.60x 2.27x -- 2.40x PRO FORMA DATA(5): Interest expense, net.. $ 32,907 $ 8,011 $ 7,932 EBITDA/Interest expense, net.......... 2.11x 1.60x 1.90x Net debt/EBITDA........ 1.60x -- 1.75x DECEMBER 31, MARCH 31, ------------------------------------------------ ----------------- 1989 1990 1991 1992 1993 1993 1994 BALANCE SHEET DATA: Cash and cash equivalents........... $ 46,277 $ 37,550 $ 38,690 $ 99,601 $122,787 $34,767 $107,458 Total assets........... 322,808 331,950 320,032 384,900 470,700 333,576 482,475 Long-term debt (including current maturities)........... 225,812 231,591 213,004 209,116 280,617 158,036 279,570 Shareholders' equity... 55,663 58,848 64,133 126,018 135,158 128,375 138,561
- ------------------- (1) Interest expense, net of capitalized interest and interest income. (2) The ratio of earnings to fixed charges has been computed by dividing earnings available for fixed charges (income before income taxes, extraordinary items and cumulative effect adjustment plus fixed charges less capitalized interest) by fixed charges (interest expense plus capitalized interest plus the portion of rental expenses deemed to represent interest). (3) EBITDA is defined as income from operations of consolidated subsidiaries before depreciation and amortization plus cash distributions from unconsolidated subsidiaries. Cash distributions from unconsolidated subsidiaries were $0 from 1989 through 1993 and were $0.9 million in the quarter ended March 31, 1994. (4) Net debt is defined as long-term debt, inclusive of current maturities, less cash, at the end of the period. (5) The pro forma data give effect to (i) the Note Offering at an assumed interest rate of 11%, (ii) the Common Stock Offering at an assumed offering price of $18.25 per share, the last reported sale price of the Common Stock on the NYSE on June 23, 1994, and (iii) the sale by the Company on May 18, 1993 of $275 million aggregate principal amount of 9 1/4% First Mortgage Bonds due 2008 and the application of the net proceeds therefrom to repay certain indebtedness, in each case as if such transaction had occurred as of the first day of the period presented. The pro forma data assume that interest income is earned on cash balances at a rate of 3.0% in 1993 and 3.5% in 1994. If the Common Stock Offering is not consummated, the pro forma data would be as follows:
YEAR ENDED THREE MONTHS DECEMBER 31, ENDED MARCH 31, ------------ ---------------- 1993 1993 1994 (IN THOUSANDS, EXCEPT RATIO PRO FORMA DATA: DATA) Interest expense, net....................... $34,457 $ 8,399 $ 8,384 EBITDA/Interest expense, net................ 2.02x 1.53x 1.80x Net Debt/EBITDA............................. 2.34x -- 2.47x
If the interest rate on the Notes is increased or decreased by 1/4%, interest expense, net will increase or decrease, respectively, by $375,000. 25 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The consolidated financial statements of the Company include the accounts of the Company and its wholly owned subsidiaries, Showboat Development Company ("SDC"), Showboat Operating Company ("SBOC") and Ocean Showboat, Inc. ("OSI"). They also include SDC's wholly owned subsidiaries LPSI, Showboat Mohawk, Inc. ("SBM"), Showboat Indiana, Inc. ("SBI") and Showboat Louisiana, Inc. ("SBL") and OSI's wholly owned subsidiaries, Atlantic City Showboat, Inc. ("ACSI") and Ocean Showboat Finance Corporation ("OSFC"). The Company and its subsidiaries operate the Atlantic City Showboat, the Las Vegas Showboat and the Showboat Star Casino. RESULTS OF OPERATIONS Three Months Ended March 31, 1994 Compared to Three Months Ended March 31, 1993 REVENUES Net revenues for the Company increased to $88.8 million in the quarter ended March 31, 1994 compared to $85.5 million in the same period in 1993, an increase of $3.3 million or 3.8%. Casino revenues increased $1.6 million or 2.2% to $76.9 million in the quarter ended March 31, 1994 from $75.3 million in 1993. Nongaming revenues, which consist principally of food, beverage, room and bowling revenues and management fees, were $18.9 million in the first quarter of 1994, compared to $17.3 million in 1993, an increase of 9.1%. The Atlantic City Showboat generated $66.3 million of net revenues in the quarter ended March 31, 1994 compared to $64.8 million in the same period in the prior year, an increase of $1.5 million or 2.3%. Casino revenues were $60.5 million in the three months ended March 31, 1994 compared to $59.7 million for the same period in the prior year, an increase of $.8 million or 1.4%. The increase in casino revenues was due primarily to poker revenue of $.7 million and simulcasting revenue of $.5 million recognized for the three months ended March 31, 1994. The poker and simulcasting facilities were not open in the same period in the prior year. This increase was offset by a $.6 million or 1.3% decrease in slot revenues to $44.1 million for the three months ended March 31, 1994 compared to $44.7 million for the same period in the prior year. During the first quarter of 1993, slot revenues included the effect of a $.8 million reversal for a progressive slot accrual. The decrease in slot revenue was also affected by the harsh winter weather experienced during the first quarter of 1994. The inclement weather was a factor in the results for the total Atlantic City market as gross slot revenues declined 3.7% in that market. At the Las Vegas Showboat, net revenues increased to $21.6 million in the quarter ended March 31, 1994 from $20.7 million in the same period in 1993, an increase of $.9 million or 4.2%. The greatest improvement in revenues was realized in the casino where revenues increased to $16.4 million in the first quarter of 1994 from $15.6 million in the first quarter of 1993, an increase of $.8 million or 5.1%. This is consistent with the increased customer volume as a result of certain marketing activities. Slot revenues accounted for 81.7% of casino revenues in the first three months of 1994 and 83.3% for the same period in 1993. Improvements in nongaming revenues were due to increased hotel occupancy resulting from increased effectiveness of certain marketing activities. LPSI generated $.9 million in management fee revenues in the first quarter of 1994. LPSI receives management fees of 5.0% of Showboat Star Casino's net gaming revenues after gaming taxes of 18.5% and boarding fees totalling $5.00 per passenger boarding the vessel. The Showboat Star Casino, which began operations in November 1993, generated net revenues of $27.5 million in the first quarter of 1994 consisting primarily of casino revenues of $27.1 million. During the first quarter of 1994 the total number of passengers boarding the vessel was 485,726 with an average gaming win per passenger of $56.00. 26 INCOME FROM OPERATIONS The Company's income from operations increased to $11.1 million in the quarter ended March 31, 1994 from $7.7 million in the same period in 1993, an increase of $3.4 million or 44.3% primarily as a result of improved operating results at the Atlantic City Showboat and the opening of the Showboat Star Casino in November 1993. The Company incurred approximately $2.3 million in expenses relating to the pursuit of expansion opportunities in jurisdictions outside of Nevada and New Jersey in the first three months of 1994 compared to $.5 million in the first quarter of 1993. Atlantic City Showboat's income from operations, before management fees, increased to $7.0 million in the first quarter of 1994 compared to $5.6 million for the same period in 1993, an increase of $1.4 million or 25.3%, primarily as a result of the increase in net revenues. Total operating expenses at the Atlantic City Showboat remained unchanged from the prior year at $59.2 million. Increased depreciation expense resulting from recent facility expansion was offset by a $1.1 million or a 15.2% decrease in promotional coin incentives offered in conjunction with slot marketing programs and by a $1.2 million or 10.5% decrease in general and administrative costs. Income from operations at the Las Vegas Showboat, which includes parent company expenses, declined to $2.4 million in the first quarter of 1994 from $2.6 million in the quarter ended March 31, 1993, a decrease of $.2 million or 9.5%. This decrease is primarily due to increased parent company expenses, increased food costs and increases in payroll and benefits due to the increased customer volume. Until March 1, 1994 SBL owned 30% of Showboat Star Partnership. On March 1, 1994 SBL acquired an additional 20% equity interest in Showboat Star Partnership giving SBL a total equity interest of 50%. SBL's equity in the earnings of Showboat Star Partnership for the quarter ending March 31, 1994 was $3.2 million. Showboat Star Partnership had net income of $9.1 million on net revenues of $27.5 million. Showboat Star Partnership paid a management fee of $.9 million to LPSI and distributed $.9 million to SBL as partner distributions during the first quarter of 1994. LPSI, which manages Showboat Star Partnership, had income from operations for the quarter ended March 31, 1994 of $.8 million. Operating expenses for LPSI for the first quarter of 1994 were $.1 million. OTHER (INCOME) EXPENSE Net interest expense increased to $5.4 million in the first quarter of 1994 up from $4.5 million in the same period in 1993, an increase of $.9 million or 20.0%. This increase is primarily the result of an increase in interest expense of $1.5 million as a result of an increase in long-term debt. The increase in interest expense was offset by a $.4 million increase in interest income as a result of increased invested cash and a $.3 million increase in capitalized interest costs associated with the Company's Atlantic City Showboat expansion. INCOME TAXES During the first quarter of 1994, the Company incurred income tax expense of $2.2 million, or an effective tax rate of approximately 40%, compared to $1.3 million, or an effective tax rate of approximately 40% in the same period in 1993. Differences between the Company's effective tax rate and statutory federal tax rates are due to permanent differences between financial and tax reporting which consisted principally of the estimated tax reporting impact of the financial reporting provision for loss on Casino Reinvestment Development Authority obligations and disallowance of certain employee needs. NET INCOME The Company recognized net income of $3.4 million for the quarter ended March 31, 1994 or $.23 per share, compared to a net income before the cumulative effect of the change in method of accounting for 27 income taxes of $1.9 million or $.13 per share in the quarter ended March 31, 1993. Net income for the quarter ended March 31, 1993 was $2.5 million or $.16 per share. Year Ended December 31, 1993 (1993) Compared to Year Ended December 31, 1992 (1992) REVENUES Net revenues for the Company increased to $375.7 million in 1993 from $355.2 million in 1992, an increase of $20.5 million or 5.8%. Casino revenues increased $16.3 million or 5.2% to $329.5 million in 1993 from $313.2 million in 1992. Nongaming revenues, which consist principally of food, beverage, room and bowling revenues and management fees, were $78.3 million in 1993 compared to $71.2 million in 1992, an increase of $7.1 million or 10.0%. The Atlantic City Showboat generated $294.2 million of net revenues in 1993 compared to $277.3 million in 1992, an increase of $16.9 million or 6.1%. Casino revenues were $268.8 million in 1993 compared to $254.7 million in 1992, an increase of $14.1 million or 5.5%. The increase in casino revenues was due to an increase in slot machine revenues of $14.7 million or 8.0% to $196.8 million in 1993 from $182.1 million in 1992. This compares to 4.8% growth in slot machine revenues in the Atlantic City market in 1993 compared to 1992. The improved slot revenue growth experienced by the Atlantic City Showboat is attributed to an increase in slot units throughout the year to approximately 2,410 slot units at the end of 1993, up from approximately 2,070 slot units at the end of 1992, an increase of 340 slot units or a weighted average rate of 9.9%. The increase in slot machine revenues was partially offset by the $4.0 million or 5.5% decrease in table games revenues which resulted primarily from the 3.2% decline in table games revenues in the Atlantic City market during 1993 compared to 1992. Casino revenues were positively impacted by the addition of simulcasting and poker as part of the opening of Jake's Betting Parlor in the second quarter of 1993. These games contributed $2.2 million and $1.1 million, respectively, during the year ended December 31, 1993. Nongaming revenues increased $5.6 million or 12.0% in 1993 to $52.7 million from $47.1 million in 1992. This increase was attributed to promotional programs offering casino customers rooms, food and beverage at a reduced price as well as increases in complimentary services. At the Las Vegas Showboat, net revenues increased to $81.1 million in 1993 from $77.9 million in 1992, an increase of $3.2 million or 4.1%. Casino revenues increased $2.2 million or 3.8% in 1993 to $60.7 million from $58.5 million in 1992. Slot machine revenues showed the greatest improvement in casino revenues with an increase of $1.6 million or 3.4%. Slot machine revenues accounted for 84.2% of casino revenues in 1993 and 84.5% of casino revenues in 1992. Increases in gaming revenues were primarily the result of higher patron volume due to promotions and increased advertising. Nongaming revenues increased $1.0 million or 4.3% in 1993 to $25.1 million from $24.1 million in 1992. These increases were principally in rooms and food and beverage resulting from targeted marketing programs for rooms and promotional programs offering food at a reduced price. LPSI generated $.4 million in management fee revenues in 1993. LPSI receives management fees of 5.0% of the Showboat Star Casino's net gaming revenues after gaming taxes of 18.5% and boarding fees totalling $5.00 per passenger boarding the vessel. The Showboat Star Casino opened November 8, 1993 and generated net revenues of $12.0 million in 1993 consisting primarily of casino revenues of $10.9 million. INCOME FROM OPERATIONS The Company's income from operations decreased to $45.4 million in 1993 from $46.5 million in 1992, a decrease of $1.1 million or 2.3%. The Company incurred approximately $3.8 million in expenses relating to the pursuit of expansion opportunities in jurisdictions outside of Nevada and New Jersey in 1993 compared to $.9 million in 1992. Income from operations at the Atlantic City Showboat, before management fees, was $44.0 million in 1993 compared to $39.6 million in 1992, an increase of $4.4 million or 11.1%. The increase in income from 28 operations was primarily due to increased revenues which were offset by a $12.5 million or 5.3% increase in operating expenses, before management fees, to $250.3 million in 1993 compared to $237.7 million in 1992. The increase in operating expenses was primarily due to the increased capacity and volume of business. General and administrative expenses increased due to increases in utilities and maintenance costs resulting from the expanded facility. General and administrative expenses were also impacted by an $.8 million or 13.2% increase in real estate taxes and an $.8 million parking assessment absorbed by Atlantic City Showboat. In addition, depreciation expense increased $1.3 million or 7.4% in 1993 as a result of the expansion at the Atlantic City Showboat. Income from operations at the Las Vegas Showboat declined $1.3 million or 16.6% in 1993 to $6.5 million from $7.8 million in 1992. The decrease was primarily due to a $4.5 million or 6.4% increase in operating expenses to $74.6 million in 1993 from $70.1 million in 1992. Increased operating expenses resulted primarily from increases in payroll and payroll related expenses, increased advertising and repairs and maintenance expenses. LPSI incurred a loss from operations of $.4 million which was primarily the result of administrative expenses incurred before the November 8, 1993 opening of the Showboat Star Casino. The loss from operations of SBL of $.9 million represents SBL's 30% share of the net loss of SBL's unconsolidated affiliate, Showboat Star Partnership. Showboat Star Partnership had a net loss of $2.8 million resulting primarily from preopening costs of Showboat Star Casino of $4.2 million in 1993, of which SBL's share was $1.3 million. Before the write-off of preopening costs, Showboat Star Partnership's income was $1.4 million of which SBL's share was $.4 million. OTHER (INCOME) EXPENSE Other (income) expense consisted of $24.7 million interest expense, net of $1.1 million of capitalized interest, and $3.2 million of interest income in 1993 compared to interest expense of $25.3 million and interest income of $1.4 million in 1992. Two offsetting factors impacted 1993 interest expense. In January 1993, the Company repurchased all of its 13% Debentures and prepaid its construction and term loan that had an outstanding balance of $17.2 million. In June 1993, the Company repurchased all of its 11 3/8% Mortgage-Backed Bonds Due 2002 (the "11 3/8% Bonds"). This resulted in a $14.4 million decrease in interest expense. This decrease was offset by the issuance in May 1993 of $275.0 million of 9 1/4% First Mortgage Bonds due 2008 (the "First Mortgage Bonds") resulting in a $15.8 million increase in interest expense. In connection with its expansion project at the Atlantic City Showboat, the Company capitalized $1.1 million of interest costs. INCOME TAXES In 1993, the Company incurred, before the income tax benefit on an extraordinary loss, income taxes of $10.5 million, or an effective rate of 43.8%, compared to $6.8 million, or an effective rate of 29.9% in 1992. Differences between the Company's effective tax rate and statutory federal tax rates are due to permanent differences between financial and tax reporting. In 1993, these differences consisted principally of $.9 million in state income taxes resulting from the utilization, for financial reporting purposes, of New Jersey net operating loss carryforwards, a $.6 million restricted interest assessment, net of tax, resulting from an Internal Revenue Service audit of prior years and $.4 million resulting from the increase in federal tax rates. In February 1992, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 109 ("FAS 109"), "Accounting for Income Taxes." The Company adopted the provisions of FAS 109 effective January 1, 1993 without restating prior years' financial statements. The adoption of FAS 109 resulted in a reduction of net deferred tax liability of $.6 million and this amount was reported separately as a cumulative effect of the change in the method of accounting for income taxes in the 1993 Consolidated Statement of Income. 29 NET INCOME In 1993, the Company realized income before an extraordinary loss on the extinguishment of debt and the cumulative effect of the change in the method of accounting for income taxes of $23.9 million or $.89 per share. On June 18, 1993, the Company redeemed all of the outstanding 11 3/8% Bonds at 105.7% of the principal amount plus accrued and unpaid interest up to and including the redemption date. The Company recognized an extraordinary loss, before an income tax benefit, of $11.2 million as a result of the write-off of unamortized debt issue costs of $2.7 million and payment of a 5.7% redemption premium of $8.5 million. The after tax loss was $6.7 million or $.44 per share. The Company also recognized a cumulative effect adjustment for the change in the method of accounting for income taxes of $.6 million or $.04 per share. Net income for 1993 was $7.3 million or $.49 per share. In 1992, the Company realized income before an extraordinary loss on the extinguishment of debt of $15.9 million or $1.37 per share. As a result of the repurchase of the Company's outstanding 13% Debentures, the Company recognized an extraordinary loss, net of tax, of $3.4 million or $.29 per share. This loss resulted from the write-off of original issue discount and issuance costs associated with the 13% Debentures. Net income for 1992 was $12.4 million or $1.08 per share. Year Ended December 31, 1992 (1992) Compared to Year Ended December 31, 1991 (1991) REVENUES Net revenues for the Company increased to $355.2 million in 1992 from $331.6 million in 1991, an increase of $23.6 million or 7.1%. Casino revenues increased $24.8 million or 8.6% to $313.2 million in 1992 from $288.4 million in 1991. Nongaming revenues were $71.2 million in 1992 compared to $71.7 million in 1991, a decrease of $.5 million or .7%. The Atlantic City Showboat generated $277.3 million of net revenues in 1992 compared to $260.8 million in 1991, an increase of $16.5 million or 6.3%. Casino revenues were $254.7 million in 1992 compared to $237.2 million in 1991, an increase of $17.5 million or 7.4%. The increase in casino revenues was due primarily to an increase in slot machine revenues of $20.4 million or 12.6% to $182.1 million in 1992 from $161.7 million in 1991. This compares to a 14.2% growth in slot machine revenues in the Atlantic City market in 1992 compared to 1991. Slot machine revenues were also favorably impacted by a one-time reversal of a $1.2 million slot progressive jackpot accrual. Slot machine revenues at the Atlantic City Showboat accounted for 71.5% of casino revenues in 1992 and 68.2% of casino revenues in 1991. The increase in slot machine revenues was partially offset by the $2.9 million or 3.8% decrease in table games revenues to $72.6 million in 1992 from $75.5 million in 1991. The decrease in table games revenues resulted primarily from the Company decreasing the number of table games units by 24 tables in the third quarter of 1991 and by the 3.4% decline in table games revenues in the Atlantic City market during 1992 compared to 1991. Nongaming revenues declined $1.0 million or 2.2% in 1992 to $47.1 million from $48.1 million in 1991. This decrease was primarily attributed to a $3.1 million or 9.4% decline in food and beverage revenues associated with a reduction in promotional offers. The reduction in food and beverage revenues were partially offset by a $1.3 million or 12.8% increase in room revenues due to more effective room utilization and a $.9 million or 77.2% increase in entertainment revenues. At the Las Vegas Showboat, net revenues increased to $77.9 million in 1992 from $70.8 million in 1991, an increase of $7.1 million or 10.1%. Casino revenues increased $7.3 million or 14.3% in 1992 to $58.5 million from $51.2 million in 1991. The most significant improvement in casino revenues occurred in slot machine revenues which increased $5.7 million or 13.1% in 1992. Casino revenues were also favorably impacted by a $1.1 million or 49.9% reduction in bingo losses in 1992. Slot machine revenues continued to dominate casino revenues at 84.5% of casino revenues in 1992 and 85.3% of casino revenues in 1991. Increases in casino revenues were due to an overall increase in the volume of business, principally as a result of the continuation of certain targeted marketing activities. Nongaming revenues increased $.5 million or 2.0% in 1992 to $24.1 million from $23.6 million in 1991. Increases in food and beverage revenues of $.9 30 million or 6.5% and hotel revenues of $.3 million or 6.3% were offset by a reduction of $.7 million in other revenues as a result of the recognition in 1991 of a one-time benefit of $.8 million from the reversal of an accrual. INCOME FROM OPERATIONS The Company's income from operations increased to $46.5 million in 1992 from $35.5 million in 1991, an increase of $11.0 million or 31.0%. Income from operations at the Atlantic City Showboat was $39.6 million in 1992 compared to $31.2 million in 1991, an increase of $8.4 million or 26.9%. This increase was primarily due to improved casino revenues caused by the 14.2% slot machine revenue growth experienced in the Atlantic City market in 1992. Operating expenses increased $8.1 million or 3.5% to $237.7 million in 1992 compared to $229.6 million in 1991. The increase in operating expenses was comprised of a $5.6 million or 28.9% increase in promotional coin incentives offered in conjunction with slot marketing programs and a 6.8% increase in general and administrative costs consisting primarily of a $3.0 million increase in payroll and benefits. Increases in operating expenses were offset by a $3.3 million or 16.0% decrease in depreciation and amortization expense to $17.5 million in 1992 from $20.8 million in 1991. Improvements in income from operations, excluding that realized from the reduction in depreciation and amortization expense, occurred principally in the quarter ended March 31, 1992. At the Las Vegas Showboat, income from operations, increased to $7.8 million in 1992 from $4.3 million in 1991, an increase of $3.5 million or 81.4%. The improvement in operating results reflected the continued implementation of cost effective marketing programs which resulted in increased revenues of $7.2 million offset by a $3.7 million or 5.6% increase in operating expenses in 1992 to $70.1 million from $66.4 million in 1991. In general, increases in operating expenses were consistent with increases in business volume. Income from operations in 1992 was adversely impacted by $.9 million of expenses incurred by the Company in conjunction with the investigation of new gaming opportunities outside of Nevada and New Jersey. OTHER (INCOME) EXPENSE In 1992, other (income) expense consisted of $25.3 million of interest expense and $1.4 million of interest income compared to $27.5 million and $2.1 million, respectively, in 1991. Reductions in interest expense of $1.4 million were realized as a result of the fourth quarter 1991 repurchase of $12.1 million of the 11 3/8% Bonds. Other reductions in interest expense were primarily a result of reduced principal balances due to scheduled principal amortization. INCOME TAXES In 1992, the Company incurred income tax expense, before income tax benefit on an extraordinary loss, of $6.8 million, or an effective tax rate of 29.9%, compared to $4.1 million, or an effective tax rate of 40.5%, in 1991. Differences between the Company's effective tax rate and statutory federal tax rates are due to permanent differences between financial and tax reporting which consisted principally of the estimated tax reporting impact of the financial reporting provision for loss on Casino Reinvestment Development Authority obligations and disallowance of certain employee meals. NET INCOME In 1992, the Company realized income before an extraordinary loss on the extinguishment of debt of $15.9 million or $1.37 per share. The Company recognized an extraordinary loss, net of tax, of $3.4 million or $.29 per share as a result of the write-off of original issue discount and issuance costs associated with the redemption of the Debentures. Net income for 1992 was $12.4 million or $1.08 per share. 31 In 1991, the Company realized income before an extraordinary gain on the extinguishment of debt of $6.0 million or $.53 per share. In 1991, the Company purchased $12.1 million face value of the 11 3/8% Bonds and realized an extraordinary gain, net of tax, of $.2 million or $.02 per share. Net income for 1991 was $6.2 million or $.55 per share. LIQUIDITY AND CAPITAL RESOURCES As of March 31, 1994, the Company held cash and cash equivalents of $107.5 million compared to $122.8 million at December 31, 1993. On March 1, 1994 the Company purchased from a partner an additional 20% equity interest in Showboat Star Partnership for $9.0 million. The Company has expended approximately $2.3 million in the quarter ended March 31, 1994 in its investigation of expansion opportunities in new jurisdictions. During the quarter ended March 31, 1994 and the year ended December 31, 1993, the Company expended approximately $19.7 million and $59.7 million, respectively, on capital improvements at its Las Vegas and Atlantic City facilities which were funded from operations. Costs associated with the expansion project in Atlantic City were $15.2 million during the quarter ended March 31, 1994. Capital expenditures relating to the expansion project in Atlantic City are expected to be $36.2 million for the remainder of 1994 and $2.3 million in 1995. The Company has announced expansion opportunities, including foreign gaming opportunities and renovation and expansion of the Las Vegas Showboat, which will require additional expenditures of approximately $230 million. See "Company--Expansion Opportunities." Concurrent with the Note Offering, the Company is offering 3,000,000 shares of its Common Stock in the Common Stock Offering. The Company believes that the proceeds from the Note Offering, the Common Stock Offering and working capital from operations will be sufficient to fund currently announced expansion opportunities, subject to additional funding being provided from other entities for the development of the Sydney Harbour Casino. The closing of the Note Offering is not contingent on the closing of the Common Stock Offering. There can be no assurance that funds will be available on acceptable terms to the Company to finance the development of all announced or other gaming opportunities if the Common Stock Offering is not consummated. The Company believes that is has sufficient capital resources to cover the cash requirements of its existing operations. The ability of the Company to satisfy its cash requirements, however, will be dependent upon the future performance of its casino hotels which will continue to be influenced by prevailing economic conditions and financial, business and other factors, certain of which are beyond the control of the Company. CERTAIN INDEBTEDNESS Lines of Credit At March 31, 1994, ACSI had available an unsecured line of credit for general working capital purposes totaling $15.0 million. Interest is payable monthly at the bank's prime rate plus .5%. The bank's prime rate at March 31, 1994 was 6.75%. The line of credit is guaranteed by OSI and expires in August 1994. Borrowings on this line of credit may not be used for the payment of management fees or to fund ventures in other jurisdictions. At March 31, 1994, ACSI had all the funds under this line of credit available for use. On March 24, 1994, the Company secured a line of credit for A$8.4 million ($6.1 million) in compliance with NSWCCA's licensing requirements. This line of credit is secured by a $6.3 million certificate of deposit. Interest on this line of credit is payable at the bank's prime rate plus 2.0%. This line of credit expires in December 1994. At March 31, 1994, all funds were available under this line of credit. 32 First Mortgage Bonds On May 18, 1993, the Company issued $275 million aggregate principal amount of 9 1/4% First Mortgage Bonds. The proceeds from the sale of the First Mortgage Bonds were $268,468,750, net of underwriting discounts and commissions. Proceeds from the sale of the First Mortgage Bonds were used to redeem all of the outstanding 11 3/8% Bonds at 105.7% of the principal amount plus accrued interest. The First Mortgage Bonds are unconditionally guarantied by OSI, ACSI and SBOC. Interest on the First Mortgage Bonds is payable semi-annually on May 1 and November 1 of each year commencing November 1, 1993. The First Mortgage Bonds are not redeemable prior to May 1, 2000. Thereafter, the First Mortgage Bonds will be redeemable, in whole or in part, at redemption prices specified in the Indenture for the First Mortgage Bonds (the "Bond Indenture"). The First Mortgage Bonds are senior secured obligations of the Company and rank senior in right of payment to all existing and future subordinated indebtedness of the Company, including the Notes, and pari passu with the Company's senior indebtedness. The First Mortgage Bonds are secured by a deed of trust representing a first lien on the Las Vegas Showboat (other than certain assets), by a pledge of all outstanding shares of capital stock of OSI, an intercompany note by ACSI in favor of the Company and a pledge of certain intellectual property rights of the Company. OSI's obligation under its guaranty is secured by a pledge of all outstanding shares of capital stock of ACSI. ACSI's obligation under its guaranty is secured by a leasehold mortgage representing a first lien on the Atlantic City Showboat (other than certain assets). SBOC's guaranty is secured by a pledge of certain assets related to the Las Vegas hotel casino. The Bond Indenture places significant restrictions on the Company and its subsidiaries, including restrictions on making loans and advances by the Company to subsidiaries in which the Company owns less than 50% of the equity. 33 MANAGEMENT The following table sets forth information concerning the Company's executive officers, directors and other key employees:
NAME AGE POSITION J.K. Houssels......................... 71 Chairman of the Board J. Kell Houssels, III................. 44 Director, President and Chief Executive Officer William C. Richardson(2).............. 67 Director John D. Gaughan(1).................... 73 Director Jeanne S. Stewart..................... 71 Director Frank A. Modica....................... 66 Director and Executive Vice President and Chief Operating Officer H. Gregory Nasky...................... 52 Director and Secretary George A. Zettler(1)(2)............... 67 Director Carolyn M. Sparks(1).................. 52 Director G. Clifford Taylor, Jr................ 49 Treasurer R. Craig Bird......................... Vice President--Financial 47 Administration Leann K. Schneider.................... 40 Vice President--Finance and Chief Financial Officer Mark J. Miller........................ 37 Executive Vice President and Chief Operating Officer of ACSI
- --------------------- (1) Member of Audit Committee of the Board of Directors. (2) Member of Compensation Committee of the Board of Directors. J.K. Houssels is the Chairman of the Board of the Company, SBOC, SDC, OSI, OSFC, SBL, LPSI, SBI, SBM and Showboat Australia. Mr. Houssels was the President and Chief Executive Officer of the Company until May 25, 1994. Mr. Houssels is Vice-Chairman of the Board of Directors of Union Plaza Hotel and Casino, Inc., Las Vegas, Nevada. Until July 25, 1991, he was Director of First Western Financial Corporation (savings and loan association), Las Vegas, Nevada. J. Kell Houssels, III is a Director and the President and Chief Executive Officer of the Company, a Director of OSI, OSFC, SBOC, SDC, SBL, LPSI and Showboat Australia, Executive Vice President of OSI, and the President and Chief Executive Officer of ACSI and SDC. From January 1, 1990 until May 25, 1994, Mr. Houssels was the Vice President of the Company. From June 1989 until January 1, 1990, Mr. Houssels was the Senior Vice President and Chief Operating Officer of ACSI. From January 1989 until June 1989 he was the Senior Vice President and General Manager of ACSI. William C. Richardson is a Director of the Company and OSI. Mr. Richardson is an independent financial consultant, Los Angeles, California. Since April 1, 1991, he has been an arbitrator and mediator for the American Arbitration Association. Until March 30, 1991, Mr. Richardson was President, Chief Executive Officer and the Vice Chairman of Western Capital Financial Group, Los Angeles, California. John D. Gaughan is a Director of the Company, ACSI, SBOC, SDC, OSI, OSFC, SBL, LPSI, SBI, SBM and Showboat Australia. Mr. Gaughan is Chairman of the Board and President of Exber, Inc., doing business as the El Cortez Hotel and the Western Hotel and Casino, Las Vegas, Nevada. Mr. Gaughan is also the Chairman of the Board of Union Plaza Hotel and Casino, Inc., Las Vegas, Nevada. Jeanne S. Stewart is a Director of the Company and OSI. Mrs. Stewart is a retired attorney, Las Vegas, Nevada. 34 Frank A. Modica is the Chief Operating Officer, Executive Vice President and Director of the Company. He is also a Director, President and Chief Executive Officer of SBOC and OSI. He also serves as a Director and the President of OSFC, a Director and Vice Chairman of SBI and SBM, a Director of SDC and Showboat Australia, and the Chairman of the Board of ACSI. Until December 31, 1989, Mr. Modica was the President and Chief Executive Officer of ACSI. Mr. Modica is a Director of First Security Bank (formerly Continental National Bank), Las Vegas, Nevada. H. Gregory Nasky is the Secretary and a Director of the Company and all subsidiaries. He also serves as Chief Executive officer and Managing Director of Showboat Australia and SHCL. Since March 1, 1994, Mr. Nasky has been of counsel to the law firm of Kummer Kaempfer Bonner & Renshaw, Las Vegas, Nevada, general counsel to the Company. Until February 28, 1994, Mr. Nasky was a member of the law firm of Vargas & Bartlett, Las Vegas and Reno, Nevada, former general counsel to the Company. George A. Zettler is a Director of the Company and OSI. Since February 1, 1994, Mr. Zettler has been the President of Zimex, Redondo Beach, California. Until February 1, 1994, he was the President of World Trade Services Group, Long Beach, California. Prior to January 1, 1991, he was the President of United Export Trading Company, Los Angeles, California. Carolyn M. Sparks is a Director of the Company and OSI. Mrs. Sparks is a co- owner of International Insurance Services, Las Vegas, Nevada. Until January 1991, Mrs. Sparks was the Vice-President, Secretary and Treasurer of International Insurance Services, Ltd. Until December 31, 1990, she was a claims administrator for International Insurance Services, Ltd. She is also a Director of Southwest Gas Corporation, a Director of PriMerit Bank--Federal Savings Bank and a Regent of the University and Community College System of Nevada. G. Clifford Taylor, Jr. has been the Executive Vice President and Chief Operating Officer of SBOC since December 1, 1988. He has served as the Assistant Secretary of the Company since May 1990. He has also served as the Treasurer of the Company and SBOC since February 1981. He served as the Treasurer of SDC from June 1983 to May 1993. He has been the Treasurer of OSI since December 1983, ACSI since June 1984 and OSFC since December 1986. He serves at the pleasure of the respective board of directors. R. Craig Bird has been the Vice President--Financial Administration of the Company since February 1988 and Executive Vice President and Chief Operating Officer of SDC since October 1993. Mr. Bird was the Vice President--Financial Administration of ACSI from March 1990 to October 1993. He serves at the pleasure of the respective boards of directors. Leann K. Schneider has been the Vice President--Finance and Chief Financial Officer of the Company and the Vice President--Finance and Chief Financial Officer of SBOC since May 1990. Ms. Schneider has also served as the Chief Financial Officer and Treasurer of SDC since May 1993, the Treasurer of SBL and SBM since July 1993 and the Treasurer of SBI since September 1993. From December 1989 until May 1990, she served as the Vice President--Financial Relations and Chief Financial Officer of the Company. From December 1988 until December 1989, she served as the Vice President--Financial Relations and Acting Chief Financial Officer of the Company. She serves at the pleasure of the respective boards of directors. Mark J. Miller has served as the Executive Vice President and Chief Operating Officer of ACSI since October 1993, the Vice President--Finance of OSI since April 1988 and the Vice President--Finance and Chief Financial Officer of OSFC since April 1991. Mr. Miller served as the Vice President--Finance and Chief Financial Officer of ACSI from December 1988 to October 1993. He serves at the pleasure of the respective boards of directors. 35 REGULATION The operations of the Company are subject to extensive regulation by the States of Nevada, New Jersey, Louisiana and local governmental authorities in Nevada, New Jersey and Louisiana. Such regulations impose restrictions on the Company's operations in such states, including, among other things, restrictions on the manner of operation of the casinos, licensing of officers, directors and certain key employees, and the submission of extensive financial and operating reports. Although the Company believes that it is in substantial compliance in all material respects with applicable local, state and federal laws, rules and regulations, there can be no assurance that more restrictive laws, rules and regulations will not be adopted in the future which could make compliance much more difficult or expensive, restrict the Company's ability to attract investors or lenders, or otherwise adversely affect the business or prospects of the Company. The Company may be required to disclose to the Gaming Authorities, upon request, the identities of the holders of the Notes. The Gaming Authorities may, in their discretion, (i) require holders of the Company's securities to file applications in states in which the Company does business; (ii) investigate such holders; and (iii) require such holders to be found suitable or qualified to own such securities. Pursuant to the regulations of the Gaming Authorities, such gaming corporations may be sanctioned, including the loss of its approvals, if, without prior approval of the Gaming Authorities, it (i) pays to the unsuitable or unqualified person any dividend, interest or other distribution; (ii) recognizes any voting right by such unsuitable or unqualified person in connection with the securities; (iii) pays the unsuitable or unqualified person remuneration in any form; or (iv) makes any payments to the unsuitable or unqualified person by way of principal, redemption, conversion, exchange, liquidation, or similar transaction. The Indenture requires that if any Gaming Authority requires that a holder or beneficial owner of Notes must be licensed, qualified or found suitable under any applicable gaming law and the holder or beneficial owner fails to apply for a license, qualification or a finding of suitability within 30 days after being requested to do so by the Gaming Authority, or if such holder or such beneficial owner is not so licensed, qualified or found suitable, the Company shall have the right, at its option, (i) to require such holder or beneficial owner to dispose of such holder's or beneficial owner's Notes within 30 days of receipt of such notice of such finding by the applicable Gaming Authority or such earlier date as may be ordered by such Gaming Authority or (ii) to call for the redemption of the Notes of such holder or beneficial owner at the lesser of the principal amount thereof or the price at which such holder or beneficial owner acquired the Notes, together with, in either case, accrued interest to the earlier of the date of the finding of unsuitability by such Gaming Authority, which may be less than 30 days following the notice of redemption, if so ordered by such Gaming Authority. See "Description of Notes-- Optional Redemption." Pursuant to the regulations of the Nevada Gaming Commission (the "Nevada Commission") and the Nevada State Gaming Control Board ( the "Nevada Board"), the Company may not make a public offering of its securities, such as the Notes, without the prior approval of the Nevada Commission if the securities or proceeds therefrom are intended to be used to construct, acquire or finance gaming facilities in Nevada, or to retire or extend obligations incurred for such purposes. On November 18, 1993, the Nevada Commission granted the Company prior approval to make public offerings for a period of one year, subject to certain conditions (the "Shelf Approval"). The Shelf Approval is for a period of one year and expires on the date of the November 1994 Nevada Commission meeting. The Shelf Approval may be rescinded without prior notice upon the issuance of an interlocutory stop order by the Chairman of the Nevada Board. This Offering is made pursuant to the Shelf Approval. If the Company becomes involved in gaming operations in any other jurisdictions, such gaming operations will subject the Company and certain of its officers, directors, key employees, stockholders and other affiliates ("Regulated Persons") to strict legal and regulatory requirements, including mandatory licensing and approval requirements, suitability requirements, and ongoing regulatory oversight with respect to such gaming operations. Such legal and regulatory requirements and oversight will be administered and exercised by the relevant regulatory agency or agencies in each jurisdiction. The Company and the Regulated Persons will need to satisfy the licensing, approval and suitability requirements of each jurisdiction in which the Company seeks to become involved in gaming operations. To date, other than Nevada, New Jersey and 36 Louisiana, no such gaming licenses, approvals or fundings of suitability have been obtained or, other than in Sydney, Australia, Indiana or the St. Regis Mohawk Reservation, applied for by the Company. A more extensive discussion of the Nevada, New Jersey and Louisiana gaming statutes and regulations, and other statutes and regulations in jurisdictions to which the Company and its subsidiaries are subject, or may become subject, is contained in the Company's Annual Report on Form 10-K for the Year Ended December 31, 1993 under the respective headings "Item 1. Business--Regulation and Licensing." DESCRIPTION OF NOTES GENERAL The Notes will be issued pursuant to the Indenture among the Company, the Guarantors and , as trustee (the "Trustee"). The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The Notes are subject to all such terms, and holders of the Notes are referred to the Indenture and the Trust Indenture Act for a statement thereof. The following summary of certain provisions of the Indenture does not purport to be complete and is qualified in its entirety by reference to the Indenture, including the definitions therein of certain terms used below. A copy of the proposed form of Indenture has been filed as an exhibit to the Registration Statement of which this Prospectus is a part. The definitions of certain terms used in the following summary are set forth below under "Certain Definitions." The Notes will be unsecured general obligations of the Company and will be subordinated in right of payment to all Senior Debt of the Company. See "-- Subordination." At March 31, 1994, the Company and its Restricted Subsidiaries had an aggregate of $279.6 million in principal amount of Senior Debt outstanding, including $275 million in principal amount of the First Mortgage Bonds. In addition, substantially all of the Company's and the Guarantors' assets have been pledged to secure the First Mortgage Bonds. The Company's obligations under the Notes and the Indenture will be unconditionally guaranteed on a senior subordinated basis by each of ACSI, OSI and SBOC. The Company is a holding company that operates its casino hotels and related facilities through its subsidiaries. Repayment of intercompany notes and payment of management fees, rent and dividends from its subsidiaries are the Company's principal sources of cash to pay operating expenses and principal of and interest on debt. The ability of the Company's New Jersey subsidiaries to make payments on intercompany notes and to pay management fees and dividends to the Company may, under certain circumstances, be subject to regulatory approval by the New Jersey Commission in the event that such payment would affect the "financial stability" of such subsidiary. Under New Jersey gaming law, a company's "financial stability" is evaluated pursuant to certain financial standards, including (i) cash availability to pay gaming wagers and gaming and nongaming expenditures, (ii) ability to make capital and maintenance expenditures in a timely manner and (iii) ability to provide for the servicing of debt. PRINCIPAL, MATURITY AND INTEREST The Notes are limited in aggregate principal amount to $150 million and will mature on , 2009. Interest on the Notes will accrue at the rate of % per annum and will be payable semi-annually on and , commencing on , 1995, to holders of record on the immediately preceding and . Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of original issuance. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. The Notes will be payable both as to principal and interest at the office or agency of the Company maintained for such purpose within the City and State of New York or, at the option of the Company, payment of interest may be made by check mailed to the holders of the Notes at their respective addresses set forth in the register of holders of Notes. Until otherwise designated by the Company, the Company's office or agency in New York will be the office of the Trustee maintained for such purpose. The Notes will be issued in registered form, without coupons, and in denominations of $1,000 and integral multiples thereof. 37 OPTIONAL REDEMPTION The Notes are not redeemable at the Company's option prior to , 2001, except as may be required by a Gaming Authority as provided below. Thereafter, the Notes will be subject to redemption at the option of the Company, in whole or in part, upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest thereon to the applicable redemption date, if redeemed during the twelve-month period beginning on of the years indicated below:
YEAR PERCENTAGE ---- ---------- 2001......................................................... % 2002......................................................... % 2003......................................................... % 2004 and thereafter.......................................... 100.000%
Notwithstanding any other provision hereof, if any Gaming Authority requires that a holder or beneficial owner of Notes must be licensed, qualified or found suitable under any applicable gaming law in order to maintain any gaming license or franchise of the Company or any Restricted Subsidiary and such holder or beneficial owner fails to apply for a license, qualification or a finding of suitability within 30 days after being requested to do so by the Gaming Authority (or such lesser period that may be required by such Gaming Authority), or if such holder or such beneficial owner is not so licensed, qualified or found suitable, the Company shall have the right, at its option, (i) to require such holder or beneficial owner to dispose of such holder's or beneficial owner's Notes within 30 days of receipt of such notice of such finding by the applicable Gaming Authority or such earlier date as may be ordered by such Gaming Authority or (ii) to call for the redemption of the Notes of such holder or beneficial owner at the lesser of the principal amount thereof or the price at which such holder or beneficial owner acquired the Notes, together with, in either case, accrued interest to the earlier of the date of redemption or such earlier date as may be required by such Gaming Authority or the date of the finding of unsuitability by such Gaming Authority, which may be less than 30 days following the notice of redemption, if so ordered by such Gaming Authority. The Company shall notify the Trustee in writing of any such redemption as soon as practicable. The holder of Notes or beneficial owner applying for a license, qualification or a finding of suitability must pay all costs of the licensure or investigation for such qualification or finding of suitability. Under the Indenture, the Company is not required to pay or reimburse any holder of the Notes or beneficial owner who is required to apply for such license, qualification or finding of suitability for the costs of the licensure or investigation for such qualification or finding of suitability. Such expense will, therefore, be the obligation of such holder or beneficial owner. See "Certain Considerations-- Regulatory Matters" and "Regulation." MANDATORY REDEMPTION The Company is not required to make mandatory redemption or sinking fund payments with respect to the Notes. REPURCHASE AT THE OPTION OF HOLDERS CHANGE OF CONTROL Upon the occurrence of a Change of Control, each holder of Notes shall have the right to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of such holder's Notes pursuant to the offer described below (the "Change of Control Offer") at a purchase price equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase (the "Change of Control Payment"). Within 30 days following any Change of Control, the Company shall mail a notice to each holder stating: (1) that the Change of Control Offer is being made pursuant to the covenant entitled "Change of Control" and that all Notes tendered will be accepted for payment; (2) the purchase price and the purchase date (the "Change of Control Payment Date"), which shall be no earlier than 30 days nor later than 40 days from the date such notice is mailed (unless a longer period is required by law); (3) that any Note not tendered will continue to accrue interest; (4) that, unless the Company defaults in the payment of the Change of Control Payment, all Notes accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest after the Change of Control Payment Date; (5) that holders electing to have any 38 Notes purchased pursuant to a Change of Control Offer will be required to surrender the Notes, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Notes completed, to the Paying Agent at the address specified in the notice prior to the close of business on the third business day preceding the Change of Control Payment Date; (6) that holders will be entitled to withdraw their election if the Paying Agent receives, not later than the close of business on the second business day preceding the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the holder, the principal amount of Notes delivered for purchase, and a statement that such holder is withdrawing his election to have such Notes purchased; and (7) that holders whose Notes are being purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered, which unpurchased portion must be equal to $1,000 in principal amount or an integral multiple thereof. On the Change of Control Payment Date, the Company will, to the extent lawful, (1) accept for payment Notes or portions thereof tendered pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all Notes or portions thereof so tendered and (3) deliver or cause to be delivered to the Trustee the Notes so accepted together with an Officers' Certificate stating the Notes or portions thereof tendered to the Company. The Paying Agent shall promptly mail to each holder of Notes so accepted payment in an amount equal to the purchase price for such Notes, and the Trustee shall promptly authenticate and mail to each holder a new Note equal in principal amount to any unpurchased portion of the Notes surrendered, if any; provided, that each such new Note shall be in a principal amount of $1,000 or an integral multiple thereof. Prior to complying with the provisions of this covenant, but in any event within 90 days following a Change of Control, the Company shall either repay all outstanding Senior Debt or obtain the requisite consents, if any, under all agreements governing outstanding Senior Debt to permit the repurchase of Notes required by this covenant. The Company will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. Except as described above with respect to a Change of Control, the Indenture does not contain any other provisions that permit the holders of the Notes to require that the Company repurchase or redeem the Notes in the event of a takeover, recapitalization or similar restructuring. The Working Capital Credit Agreement and the First Mortgage Bond Indenture currently restrict the Company's ability to purchase any Notes upon a Change of Control. In the event a Change of Control occurs at a time when the Company is prohibited from purchasing Notes, the Company could seek the consent of its lenders to the purchase of Notes or could attempt to refinance the borrowings that contain such prohibition. If the Company does not obtain such a consent or repay such borrowings, the Company will remain prohibited from purchasing Notes. In such case, the Company's failure to purchase tendered Notes would constitute an Event of Default under the Indenture which would, in turn, constitute a default under the Working Capital Credit Agreement and the First Mortgage Bond Indenture. In such circumstances, the subordination provisions in the Indenture would restrict payments to the holders of Notes. The Change of Control purchase feature of the Notes may in certain circumstances make more difficult or discourage a takeover of the Company and, thus, the removal of incumbent management. The Change of Control purchase feature, however, is not the result of management's knowledge of any specific effort to accumulate the Company's stock or to obtain control of the Company by means of a merger, tender offer, solicitation or otherwise, or part of a plan by management to adopt a series of anti-takeover provisions. Instead, the Change of Control purchase feature is a result of negotiations between the Company and the Underwriter. Management has no present intention to engage in a transaction involving a Change of Control, although it is possible that the Company would decide to do so in the future. Subject to the limitations discussed below, the Company could, in the future, enter into certain transactions including acquisitions, refinancings or other recapitalizations, that would not constitute a Change of Control under the Indenture, but that could increase the amount of indebtedness outstanding at such time or otherwise affect the Company's capital structure or credit ratings. The Company will comply with all applicable laws, including without limitation Section 14(e) of the Exchange Act and the rules thereunder, in the event that it is required to offer to repurchase any Notes upon a Change of Control. 39 The Company and the Trustee may not waive or modify any rights of the holders of the Notes upon a Change of Control without the consent of the holders of 66 2/3% of the principal amount of the then outstanding Notes. The definition of Change of Control includes a phrase relating to the sale, lease, transfer, conveyance or other disposition of "all or substantially all" of the Company's assets. Although there is a developing body of case law interpreting the phrase "substantially all," there is no precise established definition of the phrase under applicable law. Accordingly, the ability of a holder of Notes to require the Company to repurchase such Notes as a result of a sale, lease, transfer, conveyance or other disposition of less than all of the assets of the Company and its Subsidiaries to another person may be uncertain. Asset Sales The Indenture will provide that the Company will not, and will not permit any of its Restricted Subsidiaries to, cause, make or suffer to exist any Asset Sale unless (i) no Default exists or is continuing immediately prior to and after giving effect to such Asset Sale, (ii) the Company (or such Restricted Subsidiary, as the case may be) receives consideration at the time of each such Asset Sale at least equal to the fair market value (evidenced by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee) of the assets or equity securities sold or otherwise disposed of and (iii) at least 90% of the consideration therefor received by the Company or such Restricted Subsidiary is in the form of cash; provided, however, that the amount of (x) any liabilities (as shown on the Company's or such Restricted Subsidiary's most recent balance sheet or in the notes thereto) of the Company or any Restricted Subsidiary (other than liabilities that are by their terms subordinated to the Notes or any Guarantee thereof) that are assumed by the transferee of any such assets and (y) any notes or other obligations received by the Company or any such Restricted Subsidiary from such transferee that are immediately converted by the Company or such Restricted Subsidiary into cash, shall be deemed to be cash (to the extent of the cash received) for purposes of this provision. Within 360 days after any Asset Sale, the Company (or the Subsidiary, as the case may be) may apply the Net Proceeds from such Asset Sale, at its option, either (a) to permanently reduce Senior Debt of the Company or (b) to reinvest or cause to be reinvested the Net Proceeds from such Asset Sale in another asset or business in a Gaming Related Business. Pending the final application of any such Net Proceeds, the Company may temporarily reduce Senior Debt of the Company, including under the Working Capital Credit Agreement, or otherwise invest such Net Proceeds in any manner that is not prohibited by the Indenture. Any Net Proceeds from any Asset Sale that are not applied as provided in the first sentence of this paragraph constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $10 million, the Company will make an offer (an "Asset Sale Offer") to (i) all holders of Notes to purchase the maximum principal amount of Notes that may be purchased out of the Excess Proceeds or (ii) at the Company's option, make an Asset Sale Offer to redeem outstanding Notes and Pari Passu Indebtedness, on a pro rata basis in relation to the outstanding aggregate principal amount of such Indebtedness and the aggregate principal amount of the Notes then outstanding, in each case at an offer price in cash in an amount equal to 100% of the outstanding principal amount thereof plus accrued and unpaid interest, if any, to the date fixed for the closing of such offer, in accordance with the procedures set forth in the Indenture. To the extent that the aggregate amount of Notes tendered pursuant to an Asset Sale Offer to purchase is less than the Excess Proceeds, the Company may use such deficiency for general corporate purposes. If the aggregate principal amount of Notes surrendered by holders thereof exceeds the amount of Excess Proceeds, the Trustee will select the Notes to be purchased on a pro rata basis. Upon completion of such offer to purchase, the amount of Excess Proceeds will be reset at zero. Escrow Account The Indenture will provide that the Company must place $100 million of net proceeds from the Note Offering into an escrow account. The escrow agent for the escrow account will be permitted to apply the 40 amount in the escrow account only to fund the Company's investment in SHCL. In the event that Australian Gaming Approval or Management Contract Approval (as defined in the Indenture) has not occurred on or prior to December 31, 1995, the Company will be obligated to apply the amount in the escrow account to an offer to all holders of Notes to purchase the maximum principal amount of Notes that may be purchased with such amount a purchase price equal to 100% of the principal amount thereof plus accrued and unpaid interest to the date of purchase in accordance with the procedures set forth in the Indenture. If the aggregate principal amount of Notes surrendered by holders thereof exceeds the amount in the escrow account, the Trustee will select the Notes to be purchased on a pro rata basis. If the amount in the escrow account exceeds the amount necessary to purchase all Notes surrendered in such offer, the Company will be obligated to apply such excess amount to an offer to purchase First Mortgage Bonds. Any funds remaining in the escrow account after the Company has fully funded its investment in SHCL or after the required offers to purchase shall be released to the Company and may be used for general corporate purposes. SELECTION AND NOTICE If less than all of the Notes are to be redeemed at any time, selection of Notes for redemption will be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed, or, if the Notes are not so listed, on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate, provided that no Notes of $1,000 or less shall be redeemed in part. Notice of redemption shall be mailed by first class mail at least 30 but not more than 60 days before the redemption date to each holder of Notes to be redeemed at its registered address. If any Note is to be redeemed in part only, the notice of redemption that relates to such Note shall state the portion of the principal amount thereof to be redeemed. A new Note in principal amount equal to the unredeemed portion thereof will be issued in the name of the holder thereof upon cancellation of the original Note. On and after the redemption date, interest ceases to accrue on Notes or portions of them called for redemption. SUBORDINATION The payment of principal of and interest on the Notes will be subordinated in right of payment, as set forth in the Indenture, to the prior payment in full of all Obligations with respect to Senior Debt of the Company, including without limitation, the First Mortgage Bonds, whether outstanding on the date of the Indenture or thereafter incurred. Upon any distribution to creditors of the Company in a liquidation or dissolution of the Company or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Company or its property, an assignment for the benefit of creditors or any marshalling of the Company's assets and liabilities, the holders of Senior Debt of the Company will be entitled to receive payment in full of all Obligations due in respect of such Senior Debt (including interest after the commencement of any such proceeding at the rate specified in the applicable Senior Debt) before the holders of Notes will be entitled to receive any payment with respect to the Notes, and until all Obligations with respect to Senior Debt of the Company are paid in full, any distribution to which the holders of Notes would be entitled shall be made to the holders of Senior Debt (except that holders of Notes may receive securities that are subordinated at least to the same extent as the Notes to Senior Debt and any securities issued in exchange for Senior Debt). The Company also may not make any payment upon or in respect of the Notes (except in such subordinated securities) if (a) a default in the payment of the principal of or interest on Designated Senior Debt of the Company occurs and is continuing beyond any applicable grace period or (b) any other default occurs and is continuing with respect to Designated Senior Debt of the Company that permits holders of the Designated Senior Debt as to which such default relates to accelerate its maturity and the Trustee receives a notice of such default (a "Payment Blockage Notice") from the Company or the holders of any Designated Senior Debt. Payments on the Notes may and shall be resumed (i) in the case of a payment default, upon the date on which such default is cured or waived and (ii) in case of a nonpayment default, the earlier of the date on which nonpayment default is cured or waived or 179 days after the date on which the applicable Payment 41 Blockage Notice is received, unless the maturity of any Designated Senior Debt has been accelerated. No new period of payment blockage may be commenced within 360 days after the receipt by the Trustee of any prior Payment Blockage Notice. No nonpayment default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice. The Indenture will further require that the Company promptly notify holders of Designated Senior Debt if payment of the Notes is accelerated because of an Event of Default. As a result of the subordination provision described above, in the event of a liquidation or insolvency, holders of Notes may recover less ratably than creditors of the Company who are holders of Senior Debt. At March 31, 1994, the principal amount of Senior Debt of the Company outstanding was approximately $279.6 million. The Indenture will limit, subject to certain financial tests, the amount of additional Indebtedness, including Senior Debt, that the Company and its Subsidiaries can incur. See "--Certain Covenants." CERTAIN COVENANTS RESTRICTED PAYMENTS The Indenture will provide that the Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make any distribution on account of the Company's or any of its Restricted Subsidiaries' Equity Interests (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Company or such Restricted Subsidiary or dividends or distributions by a Restricted Subsidiary of the Company provided, that to the extent that a portion of such dividend or distribution is paid to a holder other than the Company or a Restricted Subsidiary, such portion of such dividend or distribution is not greater than such holder's pro rata aggregate common equity interest in such Restricted Subsidiary; (ii) purchase, redeem or otherwise acquire or retire for value any Equity Interests of the Company or any Subsidiary or other Affiliate of the Company (other than any such Equity Interests owned by the Company or any Restricted Subsidiary of the Company); (iii) voluntarily purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness that is pari passu with or subordinated to the Notes; or (iv) make any Restricted Investment (all such payments and other actions set forth in clauses (i) through (iv) above being collectively referred to as "Restricted Payments"), unless, at the time of such Restricted Payment: (a) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; and (b) With respect to a Restricted Payment other than a Regular Quarterly Dividend or a Restricted Investment in a Subsidiary engaged in a Gaming Related Business, the Company would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the covenant entitled "Incurrence of Indebtedness"; and (c) such Restricted Payment, together with the aggregate of all other Restricted Payments made by the Company and its Restricted Subsidiaries after the date of the Indenture (including Restricted Payments permitted by clauses (i) and (ii) of the next succeeding paragraph but excluding any Restricted Payments permitted by clauses (iii)-(ix) of the next succeeding paragraph), is less than the sum of (x) 50% of the Consolidated Net Income of the Company for the period (taken as one accounting period) from April 1, 1993 to the end of the Company's most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, 100% of such deficit), plus (y) 100% of the aggregate net cash proceeds received by the Company from the issuance or sale of Equity Interests of the Company (other than Equity Interests sold to a Restricted Subsidiary of the Company and other than Disqualified Stock) from and including the date of the First Mortgage Bond Indenture (including any such Equity Interests issued concurrently with the issuance of the Notes), plus (z) Excess Non-Recourse Subsidiary Cash Proceeds received after the date of the First Mortgage Bond Indenture. 42 The foregoing provisions will not prohibit (i) the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would have complied with the provisions of the Indenture; (ii) the redemption, repurchase, retirement or other acquisition of any Equity Interests of the Company in exchange for, or out of the proceeds of, the substantially concurrent sale (other than to a Restricted Subsidiary of the Company) of other Equity Interests of the Company (other than any Disqualified Stock); (iii) Investments by the Company or any Restricted Subsidiary in an amount not to exceed $75 million in the aggregate (measured as of the date such Investments were made) in any Non-Recourse Subsidiaries engaged in a Gaming Related Business; provided that any loan to, or Investment Guarantee in favor of, a Non-Recourse Subsidiary that is not a Subsidiary shall mature prior to the earlier of (x) the termination of the management contract pursuant to which the Company or any of its Restricted Subsidiaries manages such Non-Recourse Subsidiary and (y) the Company or any of its Restricted Subsidiaries otherwise ceasing to have control over the direction of the day-to-day operations of such Non-Recourse Subsidiary; (iv) Investments by the Company or any Restricted Subsidiary in any Non-Recourse Subsidiary engaged in a Gaming Related Business in an amount (measured as of the date such Investments were made) not to exceed in the aggregate 100% of all cash received by the Company or any Restricted Subsidiary from any Non-Recourse Subsidiary (other than cash which is or may be required to be repaid or returned to such Non-Recourse Subsidiary) up to $75.0 million in the aggregate and thereafter 50% of all cash received by the Company or any Restricted Subsidiary from any Non-Recourse Subsidiary (other than cash which is or may be required to be repaid or returned to such Non-Recourse Subsidiary); provided that the aggregate amount of Investments pursuant to this clause (iv) does not exceed $125.0 million in the aggregate; (v) the purchase, redemption, defeasance, or other acquisition or retirement for value of any Pari Passu Indebtedness with the substantially concurrent purchase, redemption, defeasance, or other acquisition or retirement for value of the Notes (on a pro rata basis in relation to the outstanding aggregate principal amount of such Indebtedness and the aggregate principal amount of the outstanding Notes or which was on a basis offered pro rata to the holders of the Notes); (vi) any voluntary purchase, redemption, defeasance or other acquisition or retirement for value of any Pari Passu Indebtedness with the proceeds of the substantially concurrent issuance of Refinancing Indebtedness relating to such Pari Passu Indebtedness in accordance with the "Incurrence of Indebtedness" covenant; (vii) dividends or distributions from a Non-Recourse Subsidiary or dividends or distributions from a Controlled Entity; (viii) any purchase, redemption, defeasance or other acquisition or retirement for value of any Pari Passu Indebtedness (other than pursuant to clause (v) or (vi) above) up to $30.0 million in aggregate principal amount; and (ix) Investments by the Company or any Guarantor in Controlled Entities, so long as such Persons remain Controlled Entities, provided that (A) any Investment in SHCL exceeding $110.0 million shall be a Restricted Payment pursuant to the preceding paragraph, (B) neither the Company nor any Guarantor shall invest any portion of the Las Vegas Showboat or the Atlantic City Showboat in, or contribute any such assets to, a Controlled Entity and (C) the Issuer would have at the time of such Investment and after giving effect thereto as if such Investment had been made at the beginning of the applicable four-quarter period, a Fixed Charge Coverage Ratio of at least 1.5 to 1 if such Investment is made prior to December 31, 1996 and at least 1.75 to 1 if such Investment is made thereafter; provided that, with respect to clauses (iii)-(ix) above, immediately after giving effect to the transaction contemplated therein, no Default or Event of Default would occur as a consequence thereof. Any Investment in a Restricted Subsidiary that becomes a Non-Recourse Subsidiary or any Investment in a wholly owned Subsidiary that becomes a non- wholly owned Restricted Subsidiary that is not a Guarantor shall become a Restricted Payment made on such date in the amount of the greater of (x) the book value of the Investment in such Subsidiary on such date and (y) the fair market value of the Investment in such Subsidiary on such date as determined (A) in good faith by the Board of Directors of the Company if such fair market value is determined to be less than $10.0 million and (B) by an investment banking firm of national standing with high yield underwriting expertise if such fair market value is determined to be in excess of $10.0 million. Any Guarantee that is an Investment in a Non-Recourse Subsidiary shall cease to be deemed an Investment (and shall be deemed to have not been made) to the extent that the Guarantee is released without payment on the obligations guaranteed by the Company or any Restricted Subsidiary. 43 If any Controlled Entity ceases to be a Controlled Entity, then all Investments owned by the Company or any Restricted Subsidiary in such Controlled Entity shall be deemed to be a Restricted Investment made on such date, unless such former Controlled Entity purchases or redeems all such Investments for a price at least equal to the greater of the book value of such Investments on the date such entity ceases to be a Controlled Entity or the original amount of such Investments. INCURRENCE OF INDEBTEDNESS The Indenture will provide that the Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable with respect to or become responsible for (collectively, "incur") any Indebtedness and the Company will not issue any Disqualified Stock and will not permit any of its Subsidiaries to issue any shares of preferred stock; provided, however, that the Company or any Restricted Subsidiary may incur Indebtedness if (i) the Fixed Charge Coverage Ratio for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred is greater than 2.0 to 1, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom) as if the additional Indebtedness had been incurred at the beginning of such four-quarter period, and (ii) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof. The foregoing limitations will not apply to (a) the incurrence by the Company or any Restricted Subsidiary of up to $25.0 million in aggregate principal amount of Indebtedness outstanding at any one time, the proceeds of which are used to acquire or lease tangible assets, (b) the incurrence by the Company or any Restricted Subsidiary of Indebtedness pursuant to the Working Capital Credit Agreement for working capital purposes in an aggregate principal amount not to exceed $25.0 million outstanding at any one time; provided that there shall be no such Indebtedness outstanding for a period of 14 consecutive days in each calendar year (other than in respect of standby letters of credit), (c) the incurrence by the Company and its Restricted Subsidiaries of the Existing Indebtedness, (d) the incurrence by the Company of Indebtedness represented by the Notes and the incurrence by the Guarantors of the Subsidiary Guarantees, (e) Indebtedness incurred in connection with Hedging Obligations with respect to Indebtedness otherwise permitted under this paragraph, (f) the incurrence by the Company of Indebtedness issued in exchange for, or the proceeds of which are used to extend, refinance, renew, replace, or refund Indebtedness referred to in the first paragraph of this covenant or clauses (a) through (e) above and (h) below (the "Refinancing Indebtedness"); provided, however, that (1) the principal amount of such Refinancing Indebtedness shall not exceed the principal amount of Indebtedness so extended, refinanced, renewed, replaced, substituted or refunded (plus the amount of reasonable expenses incurred in connection therewith); (2) the Refinancing Indebtedness shall have a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of the Indebtedness being extended, refinanced, renewed, replaced or refunded; (3) the Refinancing Indebtedness shall be subordinated in right of payment to the Notes on terms at least as favorable to the holders of Notes as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced or refunded; and (4) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof, (g) Indebtedness between the Company and any Restricted Subsidiary; and (h) the incurrence by the Company or any Restricted Subsidiary of Indebtedness that is not otherwise permitted under this covenant not to exceed an aggregate principal amount of $10.0 million outstanding at any one time under this clause (h). The Indenture will provide that the Company will not permit any of its Non- Recourse Subsidiaries to incur any Indebtedness or issue any shares of Disqualified Stock, other than Non-Recourse Indebtedness; provided, however, that if any such Non-Recourse Subsidiary ceases to remain a Non-Recourse Subsidiary, such event shall be deemed to constitute the incurrence of the Indebtedness in such Subsidiary by a Restricted Subsidiary. LIENS The Indenture will provide that neither the Company nor any of its Restricted Subsidiaries may directly or indirectly create, incur, assume or suffer to exist any Lien on any asset now owned or hereafter acquired, 44 or any income or profits therefrom or assign or convey any right to receive income therefrom, except: (i) Liens securing Obligations under Senior Debt permitted to be incurred under the Indenture or (ii) Permitted Liens. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES The Indenture will provide that the Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Restricted Subsidiary, other than a Guarantor, to (a) pay dividends or make any other distributions to the Company or any of its Restricted Subsidiaries (i) on its Capital Stock or (ii) with respect to any other interest or participation in, or measured by, its profits, or (b) pay any Indebtedness owed to the Company or any of its Restricted Subsidiaries; (c) make loans or advances to the Company or any of its Restricted Subsidiaries; or (d) transfer any of its properties or assets to the Company or any of its Restricted Subsidiaries, except for such encumbrances or restrictions existing under or by reasons of (i) Existing Indebtedness as in effect on the Issue Date, (ii) the Working Capital Credit Agreement as in effect as of the Issue Date, (iii) the Indenture and the Notes, (iv) applicable law, (v) any instrument governing Indebtedness or Capital Stock of a person acquired by the Company or any of its Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness was incurred in connection with such acquisition), which encumbrance or restriction is not applicable to any person, or the properties or assets of any person, other than the person, or the property or assets of the person, so acquired, provided that the Consolidated Cash Flow of such person is not taken into account in determining whether such acquisition was permitted by the terms of the Indenture, (vi) by reason of customary non-assignment provisions in leases entered into in the ordinary course of business and consistent with past practices, (vii) with respect to clause (c) above, purchase money obligations for property acquired in the ordinary course of business, or (viii) permitted Refinancing Indebtedness, provided that the restrictions contained in the agreements governing such Refinancing Indebtedness are substantially not more restrictive taken as a whole than those contained in the agreements governing the Indebtedness being refinanced. MERGER, CONSOLIDATION, OR SALE OF ASSETS The Indenture will provide that the Company may not consolidate or merge with or into (whether or not the Company is the surviving corporation), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets in one or more related transactions to, another corporation, person or entity unless (i) the Company is the surviving corporation or the entity or the person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia; (ii) the entity or person formed by or surviving any such consolidation or merger (if other than the Company) or the entity or person to which such sale, assignment, transfer, lease, conveyance or other disposition will have been made assumes all the obligations of the Company pursuant to a supplemental indenture in a form reasonably satisfactory to the Trustee, under the Notes and the Indenture; (iii) immediately after such transaction no Default or Event of Default exists; (iv) the Company or any entity or person formed by or surviving any such consolidation or merger, or to which such sale, assignment, transfer, lease, conveyance or other disposition will have been made (A) will have Consolidated Net Worth (immediately after the transaction but prior to any purchase accounting adjustments resulting from the transaction) equal to or greater than the Consolidated Net Worth of the Company immediately preceding the transaction and (B) will, at the time of such transaction and after giving pro forma effect thereto as if such transaction had occurred at the beginning of the applicable four-quarter period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the covenant entitled "Incurrence of Indebtedness"; (v) such transactions would not require any holder of Notes to obtain a gaming license or be qualified under the laws of any applicable gaming jurisdiction, provided that such holder would not have been required to obtain a gaming license or be qualified under the laws of any applicable gaming jurisdiction in the absence of such transactions; and (vi) such transactions would not result in the loss of any qualification or any material license of the Company or its Subsidiaries necessary for any Gaming Related Business then operated by the Company or its Subsidiary. 45 ADDITIONAL SUBSIDIARY GUARANTEES The Indenture will provide that if the Company or any of its Restricted Subsidiaries shall transfer or cause to be transferred, in one or a series of related transactions, any assets, businesses, divisions, real property or equipment having a book value in excess of $5.0 million to any Restricted Subsidiary that is not a Guarantor (other than any such transfer that is a Restricted Payment permitted by the Indenture), then such transferee or acquired Subsidiary shall execute a Subsidiary Guarantee and deliver an opinion of counsel, in accordance with the terms of the Indenture. The Subsidiary Guarantee shall be released if the Company or its Restricted Subsidiaries cease to own any Equity Interests in such Restricted Subsidiary or if such Restricted Subsidiary becomes a Non-Recourse Subsidiary in accordance with the terms of the Indenture. NO SENIOR SUBORDINATED DEBT The Indenture will provide that (i) the Company will not incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is subordinate or junior in right of payment to any Senior Debt of the Company and senior in any respect in right of payment to the Notes and (ii) no Guarantor will incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is subordinate or junior in right of payment to Senior Debt of such Guarantor and senior in any respect in right of payment to such Guarantor's Subsidiary Guarantee. TRANSACTIONS WITH AFFILIATES The Indenture will provide that the Company will not, and will not permit any of its Restricted Subsidiaries to, sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or maintain any contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"), unless (a) such Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Company or such Restricted Subsidiary with an unrelated person, (b) with respect to any Affiliate Transaction with a Non-Recourse Subsidiary, which, either individually or when combined with all other Affiliate Transactions with Non-Recourse Subsidiaries during the past year, involves aggregate payments in excess of $1.0 million, a majority of the Board of Directors approves each such transaction, (c) with respect to any Affiliate Transaction (other than with any Non-Recourse Subsidiary) involving aggregate payments in excess of $1.0 million, or with respect to any Affiliate Transaction with all Non-Recourse Subsidiaries, which, either individually or when combined with all other Affiliate Transactions with Non-Recourse Subsidiaries during the past year, involves aggregate payments in excess of $3.0 million, the Company delivers to the Trustee a resolution of the Board of Directors set forth in an Officers' Certificate certifying that any such Affiliate Transaction complies with clause (a) above and such Affiliate Transaction is approved by a majority of the Board of Directors, and (d) with respect to any Affiliate Transaction involving aggregate payments in excess of $10.0 million, the Company delivers to the Trustee an opinion as to the fairness to the Company or such Restricted Subsidiary from a financial point of view issued by an investment banking firm of national standing with expertise in high yield debt offerings or in the case of a transaction involving the sale or transfer of assets subject to valuation, such as real estate, an appraisal by a nationally recognized appraisal firm; provided, however, that the following shall not be deemed Affiliate Transactions: (i) any employment agreement entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business and consistent with the past practice of the Company or such Restricted Subsidiary, (ii) transactions between or among the Company and/or its Restricted Subsidiaries, (iii) payments made pursuant to the Tax Sharing Agreement, (iv) Restricted Payments, dividends, distributions or Investments permitted by the provisions of the Indenture described above under the covenant "Restricted Payments," (v) payments to an Affiliate of ACSI in respect of the leasing of the Land from such Affiliate; provided that the terms of clause (a) above are complied with; (vi) payments by the Company pursuant to the indemnification agreement with its directors and officers in such director's or officer's capacity as a director or officer of the Company or a Restricted Subsidiary; (vii) the engagement of Kummer Kaempfer Bonner & Renshaw (or any successor firm) for legal services in connection with the business of the Company or its Subsidiaries; provided that the payment for such services 46 does not exceed $1.0 million in any fiscal year; (viii) loans to employees of the Company or any Restricted Subsidiary, other than relocation loans, in an amount not to exceed $500,000 in aggregate principal amount outstanding at any one time; (ix) loans to employees of the Company or any Restricted Subsidiary in connection with the relocation of such employee in an amount not to exceed $2.0 million in aggregate principal amount outstanding at any one time; (x) transactions pursuant to any management agreement or trademark license agreement between the Company and any of its Restricted Subsidiaries; (xi) the engagement of International Insurance Services, Ltd. for insurance adjustment services in the ordinary course of business of the Company or its Subsidiaries, provided that the payments for such services do not exceed $1.0 million in any fiscal year; and (xii) the lease of a gift shop in the Atlantic City Showboat to Ocean 11, a sole proprietorship, provided that the payments for such lease do not exceed $1.0 million in any fiscal year. BUSINESS ACTIVITIES The Indenture will provide that the Company will not, and will not permit any Subsidiary to, engage in any business other than (i) those necessary for, incident to, connected with or arising out of the gaming business (including developing and operating hotel casinos, sports or entertainment facilities, transportation services or other related activities or enterprises and any additions or improvements thereto) and (ii) such other businesses as the Company or its Restricted Subsidiaries are engaged in on the Issue Date. The Company or its Subsidiaries may not enter into any gaming jurisdictions in which the Company or its Subsidiary is not presently licensed if all of the holders of Notes will be required to be licensed, provided that this sentence shall not prohibit the Company or its Subsidiary from entering any jurisdiction that does not require the licensing or qualification of all of the holders of the Notes, but reserves the discretionary right to license or qualify any holder of Notes. REDESIGNATION OF NON-RECOURSE SUBSIDIARY Any Non-Recourse Subsidiary may be redesignated by the Company as a Restricted Subsidiary, provided that at the time of such designation after giving pro forma effect to such designation as if it occurred at the beginning of the applicable four-quarter period, the Company could incur $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the "Incurrence of Indebtedness" covenant and no Default or Event of Default then exists and is continuing. REPORTS Whether or not required by the rules and regulations of the Securities and Exchange Commission (the "Commission"), so long as any Notes are outstanding, the Company will furnish to the holders of Notes all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K if the Company were required to file such Forms, including a "Management's Discussion and Analysis of Results of Operations and Financial Condition" and, with respect to the annual information only, a report thereon by the Company's certified independent accountants. PAYMENTS FOR CONSENT Neither the Company nor any of its Subsidiaries shall, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any holder of any Notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of the Indenture or the Notes unless such consideration is offered to be paid or agreed to be paid to all holders of the Notes that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement. SUBSIDIARY GUARANTEES The Company's obligations under the Notes will be jointly and severally guaranteed (the "Subsidiary Guarantees"), on a senior subordinated basis, by the Guarantors. The Subsidiary Guarantee of each Guarantor will be subordinated to the prior payment in full of all Senior Debt of such Guarantor, which 47 in the aggregate for all Guarantors would be approximately $279.6 million of Senior Debt outstanding as of March 31, 1994, and the amounts for which the Guarantors will be liable under the guarantees issued from time to time with respect to Senior Debt. The obligations of each Guarantor under its Subsidiary Guarantee will be limited to a maximum amount which will result in the obligations of such Guarantor in respect of such amount to not be deemed to constitute a fraudulent conveyance. Each of the Guarantors may consolidate with, merge with or into, or transfer all or substantially all of its assets to any other person to the same extent that the Company may consolidate with, merge with or into, or transfer all or substantially all of its assets to any other person; provided, however, that if such other person is not the Company or another Guarantor, such Guarantor's obligations under its Subsidiary Guarantee must be expressly assumed by such other person. In addition, if any Guarantor is or becomes insolvent, the Subsidiary Guarantees could be challenged, including, but not limited to, under applicable provisions of federal bankruptcy law or comparable provisions of state fraudulent conveyance law, and the payment of amounts by Guarantors pursuant to the Subsidiary Guarantees could be voided and be required to be returned to such Guarantors, or to a fund for the benefit of the creditors of such Guarantor or to certain judgment creditor thereof. EVENTS OF DEFAULT AND REMEDIES The Indenture will provide that each of the following constitutes an Event of Default: (i) default in payment when due at maturity of principal on the Notes by the Company or any Guarantor (whether or not prohibited by the subordination provisions of the Indenture); (ii) default for 30 days in the payment when due of interest on the Notes by the Company or any Guarantor (whether or not prohibited by the subordination provisions of the Indenture); (iii) failure by the Company or any Guarantor for 30 days after notice to comply with the provisions described under the covenants "Change of Control," "Asset Sale," "Restricted Payments," "Liens," "Transactions with Affiliates," or "Incurrence of Indebtedness"; (iv) failure by the Company or any Guarantor for 60 days after notice to comply with certain other agreements in the Indenture or the Notes; (v) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any Guarantor or any of their respective Restricted Subsidiaries, or the payment of which is guaranteed by the Company or any Guarantor or any of their respective Restricted Subsidiaries, whether such Indebtedness or guarantee now exists, or is created after the date of the Indenture, which default (a) is caused by a failure to pay when due principal or interest on such Indebtedness within the grace period provided in such Indebtedness (which failure continues beyond any applicable grace period) (a "Payment Default") or (b) results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $10.0 million or more; (vi) failure by the Company or any Guarantor or any of their respective Restricted Subsidiaries to pay any final judgments aggregating in excess of $5.0 million which judgments are not stayed within 60 days after their entry; (vii) except as permitted by the Indenture, any Subsidiary Guarantee is held in any judicial proceeding to be unenforceable or invalid or ceases for any reason to be in full force and effect or any Guarantor, or any person acting on behalf of any Guarantor, denies or disaffirms its obligations under its Subsidiary Guarantee; and (viii) certain events of bankruptcy or insolvency with respect to the Company or any of its Restricted Subsidiaries that individually or as a group constitute a Significant Subsidiary. If any Event of Default occurs and is continuing, the Trustee or the holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, with respect to the Company or any Subsidiary, all outstanding Notes will become due and payable without further action or notice. Holders of the Notes may not enforce the Indenture or the Notes 48 except as provided in the Indenture. Subject to certain limitations, holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. The holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest on, or the principal of, the Notes. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND SHAREHOLDERS No director, officer, employee, incorporator or shareholder of the Company, as such, shall have any liability for any obligations of the Company under the Notes, the Indenture or the Related Documents or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each holder of the Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. Such waiver may not be effective to waive liabilities under the federal securities laws, and it is the view of the Commission that such a waiver is against public policy. DEFEASANCE AND DISCHARGE OF THE INDENTURE AND THE NOTES The Indenture will provide that the Company at any time may terminate all of its obligations under the Notes and the Indenture ("legal defeasance"), except for certain obligations, including those with respect to the defeasance trust and obligations to register the transfer or exchange of the Notes, to replace mutilated, destroyed, lost or stolen Notes and to maintain a registrar and paying agent in respect of the Notes. If the Company exercises its legal defeasance option, payment of the Notes may not be accelerated because of an Event of Default with respect thereto. Subject to the conditions described below, the Company at any time may terminate its obligations under the covenants described under "Certain Covenants," "Change of Control," and "Asset Sale," and the operation of the provisions described in clauses (v) and (vi) under "Event of Default" ("covenant defeasance"). The Company may exercise its legal defeasance option notwithstanding its prior exercise of its covenant defeasance option. In order to exercise either defeasance option, (i) the Company must irrevocably deposit in trust (the "defeasance trust") with the Trustee, money, U.S. Governmental Obligations, or a combination thereof sufficient to pay the principal of, premium, if any, and interest on the Notes to redemption or maturity, as the case may be, (ii) the Company delivers to the Trustee a certificate from a nationally recognized firm of independent accountants expressing their opinion that the payments of principal and interest when due and without reinvestment on the deposited U.S. Government Obligations plus any deposited money without investment will provide cash at such times and in such amounts as will be sufficient to pay principal and interest when due on all the Notes to maturity or redemption, as the case may be; (iii) the Company shall have delivered to the Trustee an opinion of counsel to the effect that all preference periods applicable to the defeasance trust have expired under any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; (iv) such legal defeasance or covenant defeasance shall not result in a breach or violation of or constitute a default under the Indenture, or any other material agreement or instrument to which the Company is a party or by which the Company is bound; (v) the Company delivers 49 to the Trustee an opinion of counsel to the effect that the trust resulting from the deposit does not constitute, or is qualified as, a regulated investment company under the Investment Company Act of 1940, as amended; (vi) the Company shall have delivered an opinion of counsel to the effect that the holders of Notes shall have a perfected security interest under applicable law in the U.S. Government Obligations so deposited; (vii) in the case of legal defeasance, the Company shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that (a) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (b) since the date of the Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such opinion of counsel shall confirm that, the holders of the Notes will not recognize income, gain or loss for federal income tax purposes as a result of such legal defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such legal defeasance had not occurred; (viii) in the case of covenant defeasance, the Company shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that the holders of the Notes will not recognize income, gain or losses for federal income tax purposes as a result of such covenant defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such tenant defeasance had not occurred; and (ix) the Company shall have delivered to the Trustee an officers' certificate and an opinion of counsel, each stating that all conditions precedent provided for relating to either the legal defeasance or the covenant defeasance, as the case may be, have been complied with. TRANSFER AND EXCHANGE A holder may transfer or exchange Notes in accordance with the Indenture. The Registrar and the Trustee may require a holder, among other things, to furnish appropriate endorsements and transfer documents, and the Company may require a holder to pay any taxes and fees required by law or permitted by the Indenture. The Company is not required to transfer or exchange any Note selected for redemption. Also, the Company is not required to transfer or exchange any Note for a period of 15 days before a selection of Notes to be redeemed. The registered holder of a Note will be treated as the owner of it for all purposes. AMENDMENT, SUPPLEMENT AND WAIVER Except as provided in the next succeeding paragraphs, the Indenture or the Notes may be amended or supplemented with the consent of the holders of at least a majority in principal amount of the Notes then outstanding (including consents obtained in connection with a tender offer or exchange offer for Notes), and any existing default or compliance with any provision of the Indenture or the Notes may be waived with the consent of the holders of a majority in principal amount of the then outstanding Notes (including consents obtained in connection with a tender offer or exchange offer for Notes). Without the consent of each holder affected, an amendment or waiver may not (with respect to any Notes held by a non-consenting holder of Notes) (i) reduce the principal amount of Notes whose holders must consent to an amendment, supplement or waiver, (ii) reduce the principal of or change the fixed maturity of any Note or alter the provisions with respect to the redemption of the Notes, (iii) reduce the rate of or change the time for payment of interest on any Note, (iv) waive a Default or Event of Default in the payment of principal of or premium, if any, or interest on the Notes (except a rescission of acceleration of the Notes by the holders of at least a majority in aggregate principal amount of the Notes and a waiver of the payment default that resulted from such acceleration), (v) make any Note payable in money other than that stated in the Notes, (vi) make any change in the provisions of the Indenture relating to waivers of past Defaults or the rights of holders of Notes to receive payments of principal of or interest on the Notes or make any change in the foregoing amendment and waiver provisions or (vii) waive a redemption payment with respect to any Note. 50 Notwithstanding the foregoing, without the consent of any holder of Notes, the Company and the Trustee may amend or supplement the Indenture or the Notes to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, to provide for the assumption of the Company's or any Guarantor's obligations to holders of the Notes in the case of a merger or consolidation, to make any change that would provide any additional rights or benefits to the holders of the Notes or that does not adversely affect the legal rights under the Indenture of any such holder, or to comply with requirements of the Commission in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act. CONCERNING THE TRUSTEE The Indenture contains certain limitations on the rights of the Trustee, should it become a creditor of the Company, to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The Trustee will be permitted to engage in other transactions; however, if it acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the Commission for permission to continue or resign. The holders of a majority in principal amount of the then outstanding Notes will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee, subject to certain exceptions. The Indenture provides that in case an Event of Default shall occur (which shall not be cured), the Trustee will be required, in the exercise of its power, to use the degree of care of a prudent man in the conduct of his own affairs. Subject to such provisions, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request of any holder of Notes, unless such holder shall have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense. ADDITIONAL INFORMATION Anyone who receives this Prospectus may obtain a copy of the Indenture without charge by writing to Showboat, Inc., 2800 Fremont Street, Las Vegas, Nevada 89104, Attention: H. Gregory Nasky, Secretary. CERTAIN DEFINITIONS Set forth below are certain defined terms used in the Indenture. Reference is made to the Indenture for a full disclosure of all such terms, as well as any other capitalized terms used herein for which no definition is provided. "Affiliate" of any specified person means any other individual, corporation, partnership, trust, incorporated or unincorporated associated, joint venture, joint stock company, government or other entity of any kind directly or indirectly controlling or controlled by or under direct or indirect common control with such specified person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such person, whether through the ownership of voting securities, by agreement or otherwise; provided, however, that beneficial ownership of 10% or more of the voting securities of a person shall be deemed to be control. "Asset Sale" means (i) the sale, lease, conveyance, transfer or other disposition (whether in a single transaction or a series of related transactions) of property or assets (including by way of a sale and leaseback) of the Company or any Restricted Subsidiary (each referred to in this definition as a "disposition") or (ii) the issuance or sale of Equity Interests of any Restricted Subsidiary (whether in a single transaction or a series of related transactions) in each case, other than (a) a disposition of inventory in the ordinary course of business, (b) the disposition of all or substantially all of the assets of the Company in a manner permitted pursuant to 51 the provisions described above under "Merger, Consolidation or Sale of Assets" and "Change of Control," (c) any disposition that is a Restricted Payment or that is a dividend or distribution permitted under the covenant described above under "Restricted Payments" or any Investment that is not prohibited thereunder or any disposition of cash or Cash Equivalents, and (d) any single disposition, or related series of dispositions, of assets with an aggregate fair market value of less than $3.0 million. "Atlantic City Showboat" means (i) all of ACSI's interest in its hotel casino and related properties located at 801 Boardwalk, Atlantic City, New Jersey and any Project Expansion relating thereto and (ii) any contiguous property acquired by the Company or any of its Subsidiaries and any Project Expansion relating thereto. "Australian Gaming Approval" means the official selection of SHCL (or a subsidiary of SHCL) as the sole licensee or operator of a casino gaming operation in Sydney, Australia. "Capital Stock" means any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, including, without limitation, partnership interests. "Change of Control" means the occurrence of any of the following events: (i) the sale, lease, transfer, conveyance or other disposition, in one or a series of related transactions, of all or substantially all of the assets of the Company and its Subsidiaries, taken as a whole; (ii) the liquidation or dissolution of the Company; (iii) the Company becomes aware of (by way of a report or any other filing pursuant to Section 13(d) of the Exchange Act, proxy vote, written notice or otherwise) the acquisition by any "person" or related group (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, or any successor provision to either of the foregoing, including any "group" acting for the purpose of acquiring, holding or disposing of securities within the meaning of Rule 13d-5(b)(1) under the Exchange Act), other than the Company's Existing Management, in a single transaction or in a related series of transactions, by way of merger, consolidation or other business combination or purchase of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act, or any successor provision) of 30% or more of the total voting power entitled to vote in the election of the Board of Directors of the Company or such other person surviving the transaction; or (iv) during any period of two consecutive years, individuals who at the beginning of such period constituted the Company's Board of Directors (together with any new directors whose election or appointment by such board or whose nomination for election by the shareholders of the Company was approved by a vote of a majority of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Company's Board of Directors then in office. "Consolidated Cash Flow" means, with respect to any person for any period, the Consolidated Net Income of such person and its Restricted Subsidiaries for such period plus (a) an amount equal to any extraordinary loss plus any net loss realized in connection with an Asset Sale (to the extent such losses were deducted in computing Consolidated Net Income), plus (b) provision for taxes based on income or profits to the extent such provision for taxes was included in computing Consolidated Net Income, plus (c) consolidated interest expense of such person for such period, whether paid or accrued (including amortization of original issue discount, non-cash interest payments, amortization of deferred financing charges and the interest component of capital lease obligations), to the extent such expense was deducted in computing Consolidated Net Income, plus (d) depreciation, amortization (including amortization of goodwill and other intangibles) and other non-cash charges (excluding any such non-cash charge that requires an accrual of or reserve for cash charges for any future period and excluding any such non-cash charge that is included in consolidated interest expense or consolidated tax expense) of such person for such period to the extent such depreciation, amortization and other non-cash charges were deducted in computing Consolidated Net Income, in each case, on a consolidated basis for such person and its Restricted Subsidiaries and determined in accordance with GAAP. "Consolidated Net Income" means, with respect to any person for any period, the aggregate of the Net Income of such person and its Restricted Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP, provided, that (i) the Net Income of any person that is not a Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of 52 dividends or distributions paid to the referent person or a wholly owned Subsidiary, (ii) the Net Income of any person that is a Subsidiary (other than a Subsidiary of which at least 80% of the Capital Stock having ordinary voting power for the election of directors or other governing body of such Subsidiary is owned by the referent person directly or indirectly through one or more Subsidiaries) shall be included only to the extent of the amount of dividends or distributions paid to the referent person, (iii) the Net Income of any person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded, and (iv) the cumulative effect of a change in accounting principles shall be excluded. "Consolidated Net Worth" means, with respect to any person, the sum of (i) the consolidated equity of the common stockholders of such person and its consolidated Subsidiaries plus (ii) the respective amounts reported on such person's most recent balance sheet with respect to any series of preferred stock (other than Disqualified Stock) that by its terms is not entitled to the payment of dividends unless such dividends may be declared and paid only out of net earnings in respect of the year of such declaration and payment, but only to the extent of any cash received by such person upon issuance of such preferred stock, less (x) all write-ups (other than write-ups resulting from foreign currency translations and write-ups of tangible assets of a going concern business made within 12 months after the acquisition of such business) subsequent to the date of the Indenture in the book value of any asset owned by such person or a consolidated Subsidiary of such person, (y) all investments in unconsolidated Subsidiaries and in persons that are not Subsidiaries (except, in each case, Permitted Investments), and (z) all unamortized debt discount and expense and unamortized deferred charges, all of the foregoing determined in accordance with GAAP. "Controlled Entity" means: any of (a) SHCL, (b) any Non-Recourse Subsidiary of the Issuer, including Showboat Star Partnership and Showboat Marina Partnership, provided that the Issuer or a Subsidiary of the Issuer owns at least 50% of the outstanding Capital Stock of such Non-Recourse Subsidiary, and which is designated by the Issuer as a Controlled Entity or (c) any Qualified Native American Gaming Project, including the Qualified Native American Gaming Project to be managed by Showboat Mohawk Investment Limited Partnership, provided that in each case: (i) each Subsidiary of the Issuer that owns, directly or indirectly (through one or more Subsidiaries), any Capital Stock of such Controlled Entity shall become a Guarantor of the Notes by executing a Subsidiary Guarantee; and (ii) such Controlled Entity is a Managed Entity or a Subsidiary of such Controlled Entity which is engaged in gaming activities is a Managed Entity. "Default" means any event that is or with the passage of time or the giving of notice or both would be an Event of Default. "Designated Senior Debt" means, with respect to any person, (i) the First Mortgage Bonds and (ii) any other Senior Debt of such person permitted under the Indenture the principal amount of which is $50 million or more. "Disqualified Stock" means any Capital Stock which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder thereof, in whole or in part, on or prior to , 2005. "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "Excess Non-Recourse Subsidiary Cash Proceeds" means 50% of all cash received by the Company or any Restricted Subsidiary from any Non-Recourse Subsidiary (other than cash that is or may be required to be returned or repaid to such Non-Recourse Subsidiary) in excess of $125 million in the aggregate. "Existing Hotel Casinos" means the Las Vegas Showboat and the Atlantic City Showboat. "Existing Indebtedness" means Indebtedness of the Company or its Restricted Subsidiaries (other than under the Working Capital Credit Agreement) in existence on the date of the Indenture, until such amounts are repaid, including without limitation, the First Mortgage Bonds. "Existing Management" means J. K. Houssels, members of his family and his estate. 53 "First Mortgage Bond Indenture" means the Indenture, dated as of May 18, 1993, among the Company, the Guarantors and IBJ Schroeder Bank & Trust Company, as amended, pursuant to which the First Mortgage Bonds were issued. "Fixed Charges" means, with respect to any person for any period, the sum of (a) consolidated interest expense of such person and its Restricted Subsidiaries for such period, whether paid or accrued, to the extent such expense was deducted in computing Consolidated Net Income (including amortization of original issue discount, non-cash interest payments and the interest component of capital leases but excluding amortization of deferred financing fees and excluding capitalized interest) and (b) the product of (i) all cash dividend payments (and non-cash dividend payments in the case of a person that is a Subsidiary) on any series of preferred stock of such person, times (ii) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such person, expressed as a decimal, in each case, on a consolidated basis for such person and its Restricted Subsidiaries and in accordance with GAAP. "Fixed Charge Coverage Ratio" means with respect to any person for any period, the ratio of the Consolidated Cash Flow of such person for such period to the Fixed Charges of such person for such period; provided that (a) in the event that the Company or any of its Restricted Subsidiaries incurs, assumes, guarantees or redeems any Indebtedness (other than revolving credit borrowings) or issues preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated but prior to the event for which the calculation of the Fixed Charge Coverage Ratio is made, then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such incurrence, assumption, guarantee or redemption of Indebtedness, or such issuance or redemption of preferred stock, as if the same had occurred at the beginning of the applicable period, (b) in making such computation, the Fixed Charges of such person attributable to interest on any Indebtedness bearing a floating interest rate shall be computed on a pro forma basis as if the rate in effect on the date of computation had been the applicable rate for the entire period, (c) in making such computation, the Fixed Charges of such person attributable to interest on any Indebtedness under a revolving credit facility shall be computed on a pro forma basis based upon the average daily balance of such Indebtedness outstanding during the applicable period, (d) in the event that the Company or any of its Restricted Subsidiaries consummates a Material Acquisition or an Asset Sale subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated, then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such material acquisition or Asset Sale (including the incurrence of any Indebtedness in connection therewith), as if the same had occurred at the beginning of the applicable period and in the event that the Company or any of its Restricted Subsidiaries purchases any assets or property (including the real property on which the Atlantic City Showboat is situated) which was previously leased by the Company or any of its Restricted Subsidiaries subsequent to the commencement of the period for which the calculation of the Fixed Charge Coverage Ratio is being calculated but prior to the event for which the calculation of the Fixed Charge Coverage Ratio is made, then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such purchase as if the same had occurred at the beginning of the applicable period. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as approved by a significant segment of the accounting profession, which are in effect from time to time. "Gaming Authority" means any agency, authority, board, bureau, commission, department, office or instrumentality of any nature whatsoever of the United States federal or foreign government, any state, province or any city or other political subdivision or otherwise and whether now or hereafter in existence, or any officer or official thereof, including, without limitation, the Nevada Commission, the Nevada State Gaming Control Board, the City Council of the City of Las Vegas, and the New Jersey Commission with 54 authority to regulate any gaming operation (or proposed gaming operation) owned, managed or operated by the Company or any of its Subsidiaries. "Gaming Related Business" means the gaming business and other businesses necessary for, incident to, connected with or arising out of the gaming business (including developing and operating lodging facilities, sports or entertainment facilities, transportation services or other related activities or enterprises and any additions or improvements thereto). "Guarantors" means each of (i) SBOC, OSI and ACSI and (ii) any other Subsidiary that executes a Subsidiary Guarantee in accordance with the provisions of the Indenture, and their respective successors and assigns. "Hedging Obligations" means, with respect to any person, the obligations of such person under (i) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements and (ii) other agreements or arrangements designed to protect such person against fluctuations in interest rates. "Indebtedness" of any person means, without duplication, (i) the principal of and premium (if any) in respect of (A) indebtedness of such person for money borrowed and (B) indebtedness evidenced by notes, debentures, bonds or other similar instruments for the payment of which such person is responsible or liable; (ii) all capitalized lease obligations of such person; (iii) all obligations of such person issued or assumed as the deferred purchase price of property, all conditional sale obligations of such person and all obligations of such person under any title retention agreement (but excluding trade accounts payable arising in the ordinary course of business); (iv) all obligations of such person for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction (other than obligations with respect to letters of credit securing obligations (other than obligations described in clauses (i), (ii) and (iii) above) entered into in the ordinary course of business of such person to the extent such letters of credit are not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no later than the third business day following receipt by such person of a demand for reimbursement following payment on the letter of credit); (v) the amount of all obligations of such person with respect to the redemption, repayment or other repurchase of any Disqualified Stock (but excluding any accrued distributions or dividends); (vi) all obligations existing at the time under Hedging Obligations, foreign currency hedges and similar agreements; (vii) all obligations of the type referred to in clauses (i) through (vi) of other persons and all dividends and distributions of other persons for the payment of which, in either case, such person is responsible or liable as obligor, guarantor or otherwise; and (viii) all obligations of the type referred to in clauses (i) through (vi) of other persons secured by any Lien on any property or asset of such person (whether or not such obligation is assumed by such person), the amount of such obligation being deemed to be the lesser of the value of such property or assets or the amount of the obligation so secured. "Investment Grade Securities" means (i) Marketable Securities, (ii) any other debt securities or debt instruments with a rating of "BBB-" (the lowest investment grade rating by S&P) or higher by S&P, "Baa-3" (the lowest investment grade rating by Moody's) or higher by Moody's or the equivalent of such rating by any other nationally recognized securities rating agency, and (iii) any fund investing exclusively in investments of the types described in clauses (i) and (ii) above. "Investment Guarantee" means, with respect to any person, any direct or indirect liability, contingent or otherwise, of such person with respect to any Indebtedness of another person, including, without limitation, any Indebtedness directly or indirectly guaranteed, endorsed (otherwise than for collection or deposit in the ordinary course of business) or discounted or sold with recourse by such person, or in respect of which such person is otherwise directly or indirectly liable, or any other obligation under which any contract which, in economic effect, is substantially equivalent to a guarantee, including, without limitation, any Indebtedness of a partnership in which such person is a general partner or of a joint venture in which such person is a joint venturer, and any Indebtedness in effect guaranteed by such person through any agreement (contingent or otherwise) to purchase, repurchase or otherwise acquire such Indebtedness or any security therefor, or to 55 provide funds for the payment or discharge of such Indebtedness (whether in the form of loans, advances, stock purchases, capital contributions or otherwise), or to maintain the solvency or any balance sheet or other financial condition of the obligor of such Indebtedness, or to make payment for any products, materials or supplies or for any transportation or services regardless of the non-delivery or nonfurnishing thereof, in any such case if the purpose or intent of such agreement is to provide assurance that such Indebtedness will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such Indebtedness will be protected against loss in respect thereof. "Investments" means, with respect to any person, all investments by such person in other persons (including Affiliates) in the forms of loans, Investment Guarantees, advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities and all other items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. "Issue Date" means , 1994, the date on which the Notes are first authenticated and issued. "Las Vegas Showboat" means (i) the Company's hotel casino and related properties at 2800 Fremont Street, Las Vegas, Nevada and any Project Expansion relating thereto and (ii) any contiguous property acquired by the Company or any of its Subsidiaries and any Project Expansion relating thereto. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction). "Managed Entity" mean either (i) any Person that is not under Third-Party Management, so long as such Person is not under Third-Party Management or (ii) a Person that the Company or any Subsidiary has a contract to manage the day- to-day gaming operations and affairs, so long as such contract remains in effect. "Management Contract Approval" means, with respect to the Sydney Harbour Casino, a binding agreement with SHCH that provides that the Company or a Person at least 80% of whose equity interest are owned by the Company or a wholly-owned Subsidiary (other than a Non-Recourse Subsidiary) will manage the gaming operations of the Sydney Harbour Casino for a period of not less than 12 years. "Marketable Securities" means (1) U.S. Government Obligations; (2) any certificate of deposit, maturing not more than 270 days after the date of acquisition, issued by, or time deposit of, a commercial banking institution that has combined capital and surplus of not less than $100,000,000 or its equivalent in foreign currency, whose debt is rated at the time as of which any investment is made, of "A" (or higher) according to S&P or Moody's, or if none of S&P or Moody's shall then exist, the equivalent of such rating by any other nationally recognized securities rating agency; (3) commercial paper, maturing not more than 270 days after the date of acquisition, issued by a corporation (other than an Affiliate or Subsidiary of the Company) with a rating, at the time as of which any investment therein is made, of "A-1" (indicating that the degree of timely payment is strong) (or higher) according to S&P or "P-1" (having a superior capacity for punctual repayment of short-term promissory obligations) (or higher) according to Moody's, or if neither of S&P and Moody's shall then exist, the equivalent of such rating by any other nationally recognized securities ratings agency; (4) any bankers acceptances or any money market deposit accounts, in each case, issued or offered by any commercial bank having capital and surplus in excess of $100,000,000 or its equivalent in foreign currency, whose debt is rated at the time as of which any investment there is made of "A" (an upper medium grade bond obligation) (or higher) according to S&P or Moody's, or if none of S&P or Moody's shall then exist, the equivalent of such rating by any other nationally recognized securities rating agency and (5) any 56 fund investing exclusively in investments of the types described in clauses (1) through (4) above, and if such fund has at least $500,000,000 under management, including investments in repurchase obligations of the foregoing investments. "Material Acquisition" means any acquisition of a business, including the acquisition of operating commercial real estate, that has a fair market value in excess of $3.0 million and which the Company intends to continue to operate. "Net Income" means, with respect to any person, the net income (loss) of such person, determined in accordance with GAAP, excluding, however, (i) any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with any Asset Sale (including, without limitation, dispositions pursuant to sale and leaseback transactions) and (ii) any extraordinary gain (but not loss), together with any related provision for taxes on such extraordinary gain (but not loss). "Net Proceeds" means the aggregate cash proceeds received by the Company or any of its Restricted Subsidiaries in respect of any Asset Sale (including insurance proceeds), net of the direct costs relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees, and sales commissions) and any relocation expenses incurred as a result thereof, taxes paid or payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements), amounts required to be applied to the repayment of Indebtedness secured by a Lien on the asset or assets which are the subject of such Asset Sale and any reserve for adjustment in respect of the sale price of such asset or assets. "Non-Recourse Debt" means Indebtedness or that portion of Indebtedness (a) as to which none of the Company, the Guarantors and any of their respective Restricted Subsidiaries: (i) provides credit support (including any undertaking, agreement or instrument which would constitute Indebtedness); (ii) is directly or indirectly liable; and (iii) constitutes the lender; and (b) no default with respect to which (including any rights which the holders thereof may have to take enforcement action against a Non-Recourse Subsidiary) would permit (upon notice, lapse of time or both) any holder of any other Indebtedness of the Company, the Guarantors or any of their respective Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity. "Non-Recourse Subsidiary" means any Non-Recourse Subsidiary under the First Mortgage Bonds on the Issue Date and (i) a Subsidiary or (ii) any entity in which the Company or any of its Subsidiaries has an equity investment and pursuant to a contract or otherwise has the right to direct the day-to-day operation of such entity that, in the case of (i) or (ii), (a) at the time of its designation as a Non-Recourse Subsidiary has not acquired any assets (other than as specifically permitted by the "Restricted Payments" covenant), at any previous time, directly or indirectly from the Company, any of the Guarantors, or any of their respective Subsidiaries, (b) does not own, operate or manage any portion of any Existing Hotel Casino on the Issue Date, and (c) has no Indebtedness other than Non-Recourse Debt provided that at the time of such designation, after giving pro forma effect to such designation as if it occurred at the beginning of the applicable four-quarter period, the Company's Fixed Charge Coverage Ratio is not less than 70% of the Company's Fixed Charge Coverage Ratio immediately prior to such designation. "Obligations" means any principal, premium, interest (including post-petition interest), penalties, fees, indemnifications, reimbursements, damages and other monetary liabilities payable under the documentation governing any Indebtedness. "Pari Passu Indebtedness" means senior subordinated Indebtedness of the Company or its Restricted Subsidiaries permitted by the Covenant entitled "Incurrence of Indebtedness," other than the Notes which is pari passu in right of payment with the Notes or the Subsidiary Guarantees. 57 "Permitted Investments" means (a) any Investments in the Company, in a wholly owned Restricted Subsidiary of the Company or in a Guarantor; (b) any Investments in Marketable Securities; and (c) Investments by the Company or any Subsidiary of the Company in a person, if as a result of such Investment (i) such person becomes a wholly owned Restricted Subsidiary of the Company or a Guarantor or (ii) such person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a wholly owned Subsidiary of the Company (other than a Non-Recourse Subsidiary). "Permitted Liens" means (a) Liens in favor of the Company; (b) Liens on property of a person existing at the time such person is merged into or consolidated with the Company or any Subsidiary of the Company; provided, that such Liens were in existence prior to the contemplation of such merger or consolidation and less than one year prior to such person becoming merged into or consolidated with the Company or any of its Subsidiaries; (c) Liens on property existing at the time of acquisition thereof by the Company or any Subsidiary of the Company; provided, that such Liens were in existence prior to the contemplation of such acquisition and less than one year prior to such acquisition; (d) Liens to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business; (e) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded; provided, that any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made therefor; (f) ground leases in respect of the real property on which facilities owned or leased by the Company or any of its Subsidiaries are located; (g) Liens arising from UCC financing statements regarding property leased by the Company or any of its Subsidiaries; (h) easements, rights-of-way, navigational servitudes, restrictions, minor defects or irregularities in title and other similar charges or encumbrances which do not interfere in any material respect with the ordinary conduct of business of the Company and its Subsidiaries; (i) Liens securing purchase money obligations incurred or assumed in connection with the purchase of real or personal property to be used in the business of the Company or any of its Subsidiaries (other than a Non-Restricted Subsidiary) within 180 days of such incurrence or assumption and (j) Liens on the real property underlying the Atlantic City Showboat securing the Resorts Bonds provided that the obligations under the Resorts Bonds can be assumed under the "Incurrence of Indebtedness" covenant at the time the real property is acquired by the Company or any of its Subsidiaries. "Project Expansion" means any addition, improvement, extension or capital repair to the Las Vegas Showboat or the Atlantic City Showboat or any contiguous or adjacent property, including the purchases of real estate or improvements thereon; but excluding separable furniture. "Qualified Native American Gaming Project" means any Gaming Related Business in the United States owned by a tribe or band of Native Americans in which the Issuer or a Subsidiary holds a management contract to manage or operate the day-to-day casino or gaming operations. "Regular Quarterly Dividend" means the quarterly dividend determined by the Board of Directors of the Company in its reasonable judgment to be its regular and normal quarterly dividend and paid by the Company in accordance with the Company's prior business practices in an amount per share not to exceed $0.10 per fiscal year (or the equivalent thereof after giving effect to any stock splits, stock dividends or recapitalizations of the Common Stock after June 17, 1994). "Resorts Bonds" means the First Mortgage Non-Recourse Pass-Through Notes due June 30, 2000 of Resorts. "Restricted Investment" means an Investment other than a Permitted Investment. "Restricted Subsidiary" means any Subsidiary of the Company that is not a Non-Recourse Subsidiary. "SHCL" means Sydney Harbour Casino Holdings Limited, a New South Wales corporation. "Senior Debt" means (a) with respect to the Company, (i) the Obligations of the Company with respect to the Working Capital Credit Agreement and First Mortgage Bonds and (ii) any other Indebtedness permitted to be incurred by the Company under the terms of the Indenture, unless the instrument under which such Indebtedness is incurred expressly provides that it is pari passu with or subordinated in right of payment to the Notes, and (b) with respect to any Guarantor, (i) the Obligations of such Guarantor with 58 respect to the Working Capital Credit Agreement and First Mortgage Bonds, (ii) any Guarantee by such Guarantor of any Senior Debt of the Company and (iii) any other Indebtedness permitted to be incurred by such Guarantor under the terms of the Indenture, unless the instrument under which such Indebtedness is incurred expressly provides that it is pari passu with or subordinated in right of payment to the Subsidiary Guarantee of such Guarantor. Notwithstanding anything to the contrary in the foregoing, Senior Debt shall not include (v) any obligation of the Company or any Guarantor to, in respect of or imposed by any environmental, landfill, waste management or other regulatory or governmental agency, statute, law or court order, (w) any liability for federal, state, local or other taxes owed or owing by the Company or any Guarantor, (x) any Indebtedness of the Company or any Guarantor to any of the Company's Subsidiaries or other Affiliates, (y) any trade payables or (z) any Indebtedness that is incurred in violation of the Indenture on or after the date of the Indenture. "Significant Subsidiary" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Act, as such Regulation is in effect on the date hereof. "Subsidiary" means (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by any person or one or more of the other Subsidiaries of that person or a combination thereof and (ii) any Non-Recourse Subsidiary. "Sydney Harbour Casino" means all of SHCL's interest in its proposed casino and related properties located in Sydney, Australia. "Tax Sharing Agreement" means the Tax Sharing Agreement, substantially in the form attached as an exhibit to the Indenture, as amended, supplemented or modified from time to time as permitted by the Indenture. "Third-Party Management" with respect to any Person means that the day-to-day affairs or business operations of such Person are managed by a third party that is not the Company or any of its Subsidiaries (other than a Non-Recourse Subsidiary). "U.S. Government Obligations" means securities that are (a) direct obligations of the United States of America for the timely payment of which its full faith and credit is pledged or (b) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the timely payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case, are not callable or redeemable at the option of the issuer thereof, and shall also include a depository receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act of 1933, as amended), as custodian with respect to any such U.S. Government Obligation or a specific payment of principal of or interest on any such U.S. Government Obligation held by such custodian for the account of the holder of such depository receipt; provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the U.S. Government Obligation or the specific payment of principal of or interest on the U.S. Government Obligation evidenced by such depository receipt. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (a) the sum of the products obtained by multiplying (x) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (y) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (b) the then outstanding principal amount of such Indebtedness; provided, however, that with respect to any revolving Indebtedness, the foregoing calculation of Weighted Average Life to Maturity shall be determined based upon the total available commitments and the required reductions of commitments in lieu of the outstanding principal amount and the required payments of principal, respectively. 59 "Working Capital Credit Agreement" means that certain Credit Agreement, dated as of September 30, 1992, by and among ACSI and National Westminster Bank, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, modified, renewed, refunded, replaced or refinanced from time to time. UNDERWRITING Subject to the terms and conditions set forth in the Underwriting Agreement (the "Underwriting Agreement") among the Company, the Guarantors and Donaldson, Lufkin & Jenrette Securities Corporation (the "Underwriter"), the Company has agreed to issue and sell to the Underwriter, and the Underwriter has agreed to purchase from the Company, $150 million aggregate principal amount of the Notes. The Underwriting Agreement provides that the obligation of the Underwriter to purchase the Notes is subject to the approval of certain legal matters by counsel and to certain other conditions. If any of the Notes are purchased by the Underwriter pursuant to the Underwriting Agreement, all such Notes must be so purchased. The Underwriter has advised the Company that it proposes to offer the Notes to the public initially at the price to the public set forth on the cover page of this Prospectus and to certain dealers at such offering price less a concession not to exceed % of the principal amount of the Notes. The Underwriter may allow and such dealers may reallow discounts not in excess of % of such principal amount to certain other dealers. After the initial public offering, the public offering price and such concessions may be changed. There is currently no public market for the Notes and the Company does not intend to list the Notes on any national securities exchange. The Underwriter has indicated that it intends to make a market in the Notes, subject to applicable laws and regulations. However, the Underwriter is not obligated to do so and any such market-making may be discontinued at any time at the Underwriter's sole discretion. No assurance can be given as to the development of liquidity of, or any trading market for, the Notes. See "Certain Considerations--Market for the Notes." The Company and the Guarantors have agreed to indemnify the Underwriter against certain liabilities, including liabilities under the Securities Act, or to contribute to payments that the Underwriter may be required to make in respect thereof. The Underwriter will also be a managing underwriter in connection with the Common Stock Offering. In addition, the Underwriter is acting as financial advisor to the Company in connection with a pending consent solicitation relating to the First Mortgage Bonds, for which it will receive customary fees. An affiliate of the Underwriter has provided a standby bridge loan commitment to the Company relating to the Company's investment in SHCL, for which it received customary fees. LEGAL MATTERS Certain legal matters with regard to the validity of the Notes will be passed upon for the Company by Kummer Kaempfer Bonner & Renshaw, Las Vegas, Nevada. H. Gregory Nasky, of counsel to the law firm of Kummer Kaempfer Bonner & Renshaw, is a Director and the Secretary of the Company. Latham & Watkins, New York, New York, is acting as counsel for the Underwriter in connection with certain legal matters relating to the Notes. From time to time Latham & Watkins has represented certain subsidiaries of the Company on matters not related to the Note Offering or the Common Stock Offering. EXPERTS The consolidated financial statements and schedules of Showboat, Inc. and its subsidiaries as of December 31, 1993 and 1992, and for each of the years in the three-year period ended December 31, 1993, included and incorporated by reference herein and elsewhere in the Registration Statement, have been included and incorporated by reference herein and elsewhere in the Registration Statement in reliance upon the reports of KPMG Peat Marwick, independent certified public accountants, included and incorporated by reference herein and elsewhere in the Registration Statement, and upon the authority of said firm as experts in accounting and auditing. 60 SHOWBOAT, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Independent Auditors' Report............................................. F-2 Consolidated Balance Sheets at December 31, 1993 and 1992 and March 31, 1994 (unaudited)........................................................ F-3 Consolidated Statements of Income for the Years Ended December 31, 1993, 1992 and 1991 and Three Months Ended March 31, 1994 and 1993 (unau- dited).................................................................. F-4 Consolidated Statements of Stockholders' Equity for the Years Ended De- cember 31, 1993, 1992 and 1991 and the Three Months Ended March 31, 1994 (unaudited)............................................................. F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 1993, 1992 and 1991 and the Three Months Ended March 31, 1994 (unau- dited).................................................................. F-6 Notes to Consolidated Financial Statements............................... F-7
F-1 INDEPENDENT AUDITORS' REPORT The Shareholders and Board of Directors Showboat, Inc.: We have audited the accompanying consolidated balance sheets of Showboat, Inc. and subsidiaries as of December 31, 1993 and 1992, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1993. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Showboat, Inc. and subsidiaries as of December 31, 1993 and 1992, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1993, in conformity with generally accepted accounting principles. As discussed in Notes 1 and 8 to the consolidated financial statements, the Company changed its method of accounting for income taxes in 1993 to adopt the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." KPMG Peat Marwick Las Vegas, Nevada February 18, 1994, except for Note 1 paragraph 3 and Note 12 paragraph 2 which are as of March 1, 1994 F-2 SHOWBOAT, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, ------------------ MARCH 31, 1993 1992 1994 -------- -------- ----------- (UNAUDITED) (IN THOUSANDS) ASSETS ------ Current assets: Cash and cash equivalents..................... $122,787 $ 99,601 $107,458 Receivables, net.............................. 5,913 5,092 6,086 Income taxes receivable....................... -- -- 435 Inventories................................... 2,359 2,411 2,213 Prepaid expenses.............................. 4,044 3,969 4,114 Current deferred income taxes................. 4,865 3,483 5,847 -------- -------- -------- Total current assets........................ 139,968 114,556 126,153 -------- -------- -------- Property and equipment: Land.......................................... 9,425 3,609 9,425 Land improvements............................. 541 841 541 Buildings..................................... 261,009 246,090 261,398 Furniture and equipment....................... 145,178 122,573 146,079 Construction in progress...................... 27,194 7,253 45,274 -------- -------- -------- 443,347 380,366 462,717 Less accumulated depreciation and amortization................................. 145,527 129,183 150,795 -------- -------- -------- 297,820 251,183 311,922 -------- -------- -------- Other assets, at cost: Deposits and other assets..................... 7,892 16,074 8,167 Investment in unconsolidated affiliate........ 17,750 -- 29,090 Debt issuance costs, net of accumulated amortization of $323,000 at December 31, 1993, $3,131,000 at December 31, 1992 and $450,000 at March 31, 1994................... 7,270 3,087 7,143 -------- -------- -------- 32,912 19,161 44,400 -------- -------- -------- $470,700 $384,900 $482,475 ======== ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Current liabilities: Current maturities of long-term debt.......... $ 3,574 $ 54,055 $ 2,549 Accounts payable.............................. 14,173 10,096 16,497 Income taxes payable.......................... 1,752 1,453 -- Dividends payable............................. 375 284 375 Accrued liabilities........................... 23,664 25,167 30,787 -------- -------- -------- Total current liabilities................... 43,538 91,055 50,208 -------- -------- -------- Long-term debt................................. 277,043 155,061 277,021 -------- -------- -------- Deferred income taxes.......................... 14,961 12,766 16,685 -------- -------- -------- Commitments and contingencies (Note 12) Shareholders' equity (Note 14): Common stock, $1 par value; 20,000,000 shares authorized; issued 15,794,578 shares at December 31, 1993, 1992 and March 31, 1994... 15,795 15,795 15,795 Additional paid-in capital.................... 71,162 69,374 71,437 Retained earnings............................. 54,628 48,778 57,693 -------- -------- -------- 141,585 133,947 144,925 Less: Cost of common stock in treasury, 814,483 shares and 991,043 shares at December 31, 1993 and 1992, respectively; and 809,383 shares at March 31, 1994................................ (6,370) (7,761) (6,328) Unearned compensation for restricted stock.. (57) (168) (36) -------- -------- -------- Total shareholders' equity.................. 135,158 126,018 138,561 -------- -------- -------- $470,700 $384,900 $482,475 ======== ======== ========
See accompanying notes to consolidated financial statements. F-3 SHOWBOAT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED FOR THE THREE MONTHS ENDED DECEMBER 31, MARCH 31, ---------------------------- ------------------------------ 1993 1992 1991 1994 1993 -------- -------- -------- ------------- ------------- (UNAUDITED) (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA) Revenues: Casino................. $329,522 $313,247 $288,442 $ 76,897 $ 75,272 Food and beverage...... 48,669 44,511 46,802 11,202 10,972 Rooms.................. 19,355 17,280 15,612 4,225 3,834 Sports and special events................ 4,251 4,443 4,506 1,106 1,159 Management Fees........ -- -- -- 948 -- Other.................. 5,982 4,932 4,791 1,398 1,345 -------- -------- -------- ------------- ------------- 407,779 384,413 360,153 95,776 92,582 Less complimentaries... 32,052 29,177 28,593 6,997 7,086 -------- -------- -------- ------------- ------------- Net revenues........... 375,727 355,236 331,560 88,779 85,496 -------- -------- -------- ------------- ------------- Costs and expenses: Casino................. 129,898 125,773 115,468 31,005 31,906 Food and beverage...... 55,608 51,173 51,388 13,567 12,689 Rooms.................. 13,083 12,169 11,282 3,253 3,049 Sports and special events................ 3,198 3,141 3,140 878 869 General and administrative........ 92,739 84,058 78,022 23,333 21,898 Selling, advertising and promotion......... 11,629 10,402 11,067 2,534 2,260 Depreciation and amortization.......... 23,303 22,012 25,692 6,361 5,140 -------- -------- -------- ------------- ------------- 329,458 308,728 296,059 80,931 77,811 -------- -------- -------- ------------- ------------- Income from operations of consolidated subsidiaries........... 46,269 46,508 35,501 7,848 7,685 Equity in income (loss) of unconsolidated affiliate.............. (850) -- -- 3,240 -- -------- -------- -------- ------------- ------------- Income from operations.. 45,419 46,508 35,501 11,088 7,685 -------- -------- -------- ------------- ------------- Other (income) expense: Interest income........ (3,215) (1,441) (2,098) (803) (401) Interest expense, net of amounts capitalized........... 24,696 25,335 27,497 6,202 4,900 -------- -------- -------- ------------- ------------- 21,481 23,894 25,399 5,399 4,499 -------- -------- -------- ------------- ------------- Income before income tax expense, extraordinary items and cumulative effect adjustment...... 23,938 22,614 10,102 5,689 3,186 Income tax expense...... 10,474 6,757 4,088 2,249 1,265 -------- -------- -------- ------------- ------------- Income before extraordinary items and cumulative effect adjustment............. 13,464 15,857 6,014 3,440 1,921 Extraordinary items, net of income tax.......... (6,679) (3,408) 180 -- -- Cumulative effect of change in method of accounting for income taxes.................. 556 -- -- -- 556 -------- -------- -------- ------------- ------------- Net income.............. $ 7,341 $ 12,449 $ 6,194 $ 3,440 $ 2,477 ======== ======== ======== ============= ============= Income per common and equivalent share: Income before extraordinary items and cumulative effect adjustment............ $ .89 $ 1.37 $ .53 $ .23 $ .13 Extraordinary items, net of income tax..... (.44) (.29) .02 -- -- Cumulative effect of change in method of accounting for income taxes................. .04 -- -- -- .03 -------- -------- -------- ------------- ------------- Net income............. $ .49 $ 1.08 $ .55 $ .23 $ .16 ======== ======== ======== ============= =============
See accompanying notes to consolidated financial statements. F-4 SHOWBOAT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
ADDITIONAL LESS LESS COMMON PAID-IN RETAINED TREASURY UNEARNED STOCK CAPITAL EARNINGS STOCK COMPENSATION TOTAL ------- ---------- -------- -------- ------------ -------- (IN THOUSANDS) Balance, December 31, 1990................... $12,345 $22,416 $32,405 $(7,765) $(553) $ 58,848 Net income.............. -- -- 6,194 -- -- 6,194 Cash dividends ($.10 per share)................. -- -- (1,135) -- -- (1,135) Share transactions under stock plans............ -- 27 -- (19) 15 23 Amortization of unearned compensation........... -- -- -- -- 203 203 ------- ------- ------- ------- ----- -------- Balance, December 31, 1991................... 12,345 22,443 37,464 (7,784) (335) 64,133 Net income.............. -- -- 12,449 -- -- 12,449 Cash dividends ($.10 per share)................. -- -- (1,135) -- -- (1,135) Issuance of 3,450,000 shares of common stock. 3,450 46,916 -- -- -- 50,366 Share transactions under stock plans............ -- 15 -- 23 11 49 Amortization of unearned compensation........... -- -- -- -- 156 156 ------- ------- ------- ------- ----- -------- Balance, December 31, 1992................... 15,795 69,374 48,778 (7,761) (168) 126,018 Net income.............. -- -- 7,341 -- -- 7,341 Cash dividends ($.10 per share)................. -- -- (1,491) -- -- (1,491) Share transactions under stock plans............ -- 1,788 -- 1,391 -- 3,179 Amortization of unearned compensation........... -- -- -- -- 111 111 ------- ------- ------- ------- ----- -------- Balance, December 31, 1993................... $15,795 $71,162 $54,628 $(6,370) $ (57) $135,158 ======= ======= ======= ======= ===== ======== (Balances from January 1, 1994 to March 31, 1994 are unaudited)............. Net income.............. -- -- 3,440 -- -- 3,440 Cash dividends ($.025 per share)............. -- -- (375) -- -- (375) Share transactions under stock plans............ -- 275 -- 42 9 326 Amortization of unearned compensation........... -- -- -- -- 12 12 ------- ------- ------- ------- ----- -------- Balance, March 31, 1994. $15,795 $71,437 $57,693 $(6,328) $ (36) $138,561 ======= ======= ======= ======= ===== ========
See accompanying notes to consolidated financial statements. F-5 SHOWBOAT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE FOR THE YEARS ENDED MONTHS ENDED DECEMBER 31, MARCH 31, -------------------------- ----------------------- 1993 1992 1991 1994 1993 -------- ------- ------- ----------- ----------- (UNAUDITED) (UNAUDITED) (IN THOUSANDS) Cash flows from operating activities: Net income................ $ 7,341 $12,449 $ 6,194 $ 3,440 $ 2,477 Adjustments to reconcile net income to net cash provided by operating activities: Allowance for doubtful accounts................. 1,849 1,644 2,924 58 513 Depreciation and amortization............. 23,303 22,012 25,692 6,361 5,140 Amortization of original issue discount and debt issuance costs........... 744 1,011 811 127 134 Provision for deferred income taxes............. 813 238 1,230 742 141 Amortization of unearned compensation............. 111 156 203 12 30 Provision for loss on Casino Reinvestment Development Authority obligation............... 1,122 1,068 1,057 255 249 Equity in (income) loss of unconsolidated affiliate. 850 -- -- (3,240) -- Extraordinary (gain) loss on extinguishment of debt..................... 11,166 5,164 (273) -- -- Loss on disposition of property and equipment... 517 264 350 -- -- (Increase) decrease in receivables, net......... (2,670) (1,537) (899) (231) 43 (Increase) decrease in inventories and prepaid expenses................. (23) (265) 599 76 (339) (Increase) decrease in deposits and other assets................... (554) 284 (448) 235 52 Increase (decrease) in accounts payable......... 85 395 (826) 1,556 1,236 Increase (decrease) in income taxes payable..... 968 429 2 (1,996) (1,531) Increase (decrease) in accrued liabilities...... (1,503) 400 1,007 7,123 (5,038) Other..................... (66) 346 -------- ------- ------- -------- ------- Net cash provided by operating activities.... 44,119 43,712 37,623 14,452 3,453 -------- ------- ------- -------- ------- Cash flows from investing activities: Acquisition of property and equipment............ (59,686) (21,050) (13,381) (19,693) (17,286) Proceeds from sale of property and equipment... 78 105 311 47 29 Investment in unconsolidated affiliate. (18,600) -- -- (9,000) -- (Increase) decrease in deposits and other assets................... 4,046 910 (1,097) -- (67) Deposit for Casino Reinvestment Development Authority obligation..... (3,289) (3,161) (2,892) (792) (717) Distribution of earnings of unconsolidated affiliate................ -- -- -- 900 -- -------- ------- ------- -------- ------- Net cash used in investing activities.... (77,451) (23,196) (17,059) (28,538) (18,041) -------- ------- ------- -------- ------- Cash flows from financing activities: Principal payments of long-term debt and capital lease obligations.............. (3,914) (8,879) (7,635) (1,047) (51,080) Proceeds from issuance of long-term debt........... 275,000 -- 1,098 -- -- Proceeds from note payable.................. -- -- -- -- 1,100 Early extinguishment of debt..................... (208,085) -- (11,696) -- -- Debt issuance costs....... (7,593) -- (74) -- -- Payment of dividends...... (1,400) (1,141) (1,140) (375) (284) Issuance of common stock.. 2,510 50,366 -- 179 18 Other..................... -- 49 23 -- -- -------- ------- ------- -------- ------- Net cash provided by (used in) financing activities.............. 56,518 40,395 (19,424) (1,243) (50,246) -------- ------- ------- -------- ------- Net increase (decrease) in cash and cash equivalents. 23,186 60,911 1,140 (15,329) (64,834) Cash and cash equivalents at beginning of period.... 99,601 38,690 37,550 122,787 99,601 -------- ------- ------- -------- ------- Cash and cash equivalents at end of period.......... $122,787 $99,601 $38,690 $107,458 $34,767 ======== ======= ======= ======== ======= Supplemental disclosures of cash flow information: Cash paid during the period for: Interest, net of amount capitalized.............. $ 25,741 $24,562 $26,937 $ 164 $10,275 Income taxes.............. 3,650 4,400 2,948 3,503 2,100 Supplemental schedule of non-cash investing and financing activities: Capital lease obligations incurred in connection with acquisition of equipment................ -- 152 131 -- -- Increase (decrease) in property and equipment acquisitions included in construction contracts and retentions payable and long-term debt....... 3,914 1,890 (309) 795 483 Share transactions under long-term incentive plan. -- 27 35 -- -- Transfer deposits for Casino Reinvestment Development Authority obligation to construction in progress. 6,667 -- -- -- --
See accompanying notes to consolidated financial statements. F-6 SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS AND PRINCIPLES OF CONSOLIDATION Showboat, Inc. and subsidiaries, collectively the Company, conduct casino gaming operations in Las Vegas, Nevada, Atlantic City, New Jersey and New Orleans, Louisiana. In addition, the Company operates support services including hotel, restaurant, bar, bowling and convention facilities. The Consolidated Financial Statements for the three months ended March 31, 1993 and 1994 and related amounts in the Notes to the consolidated financial statements are unaudited, but in the opinion of management reflect all normal and recurring adjustments necessary for a fair representation of the results of those periods. The consolidated financial statements include the accounts of Showboat, Inc. (SBO) and its wholly-owned subsidiaries which are Showboat Development Company (SDC), Showboat Operating Company (SBOC) and Ocean Showboat, Inc. (OSI). They also include SDC's wholly-owned subsidiaries, Lake Pontchartrain Showboat, Inc. (LPSI) and Showboat Louisiana, Inc. (SBL), and OSI's wholly-owned subsidiaries Atlantic City Showboat, Inc. (ACSI) and Ocean Showboat Finance Corporation (OSFC). Showboat, Inc. and its subsidiaries own and operate hotel casinos in Las Vegas, Nevada (Las Vegas Showboat) and Atlantic City, New Jersey (Atlantic City Showboat) and own an equity interest in and manage a riverboat casino on Lake Pontchartrain in New Orleans, Louisiana (Showboat Star Casino). All material intercompany balances and transactions have been eliminated in consolidation. On March 1, 1994, the Company purchased an additional 20% equity interest from its partner for $9 million, increasing its interest in Showboat Star Partnership to 50%. The Company's equity in the income or loss of Showboat Star Partnership is included in the Consolidated Statements of Income. LPSI receives a management fee from Showboat Star Partnership of 5.0% of casino revenues net of gaming taxes of 18.5% and boarding fees of $5.00 per person. Management fees are included in other revenues in the Consolidated Statements of Income. CASINO REVENUE AND COMPLIMENTARIES In accordance with common industry practice, casino revenues are the net of gaming wins less losses. Complimentaries primarily consist of rooms, food and beverage furnished gratuitously to customers. The sales values of such services are included in the respective revenue classifications and are then deducted as complimentaries. Complimentary rates are periodically reviewed and adjusted by management. CASH EQUIVALENTS For purposes of the statements of cash flows, the Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. INVENTORIES Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out method. FAIR VALUE OF CERTAIN FINANCIAL INSTRUMENTS The carrying amount of cash equivalents, accounts receivable and all current liabilities approximates fair value because of the short maturity of these instruments. See Notes 4 and 11 for additional fair value disclosures. F-7 SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation, including amortization of capitalized leases, is computed using the straight-line method. The cost of maintenance and repairs is charged to expense as incurred; significant renewals and betterments are capitalized. Estimated useful lives for property and equipment are 5 to 15 years for land improvements, 10 to 40 years for buildings and 2 to 10 years for furniture and equipment. INTEREST COSTS Interest is capitalized in connection with the construction of major facilities. The capitalized interest is recorded as part of the asset to which it relates and is amortized over the asset's estimated useful life. For the year ended December 31, 1993, $1,085,000 of interest cost was capitalized. No interest was capitalized in the years ended December 31, 1992 and 1991. For the three-month periods ended March 31, 1994 and 1993, interest costs of $449,000 and $189,000, respectively, were capitalized (unaudited). INCOME TAXES In February 1992, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (FAS 109). Under the asset and liability method of FAS 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under FAS 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. Effective January 1, 1993, the Company adopted FAS 109 and has reported the cumulative effect of that change in accounting method in the 1993 Consolidated Statement of Income. The Company previously used the asset and liability method under Statement of Financial Accounting Standards No. 96 (FAS 96). Under the asset and liability method of FAS 96, deferred tax assets and liabilities were recognized for all the events that had been recognized in the financial statements. Under FAS 96, the future tax consequences of recovering assets or settling liabilities at their financial statement carrying amounts were considered in calculating deferred income taxes. Generally, FAS 96 prohibited consideration of any other future events in calculating deferred income taxes. The Company and its subsidiaries file a consolidated federal income tax return. For tax reporting purposes, the Company has elected to continue its fiscal year ending June 30. POSTEMPLOYMENT AND POSTRETIREMENT BENEFITS The Company does not currently provide any significant postemployment or postretirement benefits. AMORTIZATION OF ORIGINAL ISSUE DISCOUNT AND DEBT ISSUANCE COSTS Original issue discount is amortized over the life of the related indebtedness using the effective interest method. Costs associated with the issuance of debt have been deferred and are being amortized over the life of the related indebtedness using a weighted average method based on retirement schedules specified in the debt indentures. F-8 SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) INCOME PER COMMON AND EQUIVALENT SHARE Income per common and equivalent share is based on the weighted average number of shares outstanding. Such averages were 15,099,147, 11,584,275 and 11,410,208 for the years ended December 31, 1993, 1992 and 1991, respectively and 15,180,008 and 15,141,493 for the three-months ended March 31, 1994 and 1993, respectively (unaudited). Fully-diluted and primary income per common and equivalent share are the same. PREOPENING AND DEVELOPMENT COSTS The Company is currently investigating expansion opportunities in new gaming jurisdictions. Costs associated with these investigations are expensed as incurred until such time as a particular opportunity is determined to be viable, generally when the Company is selected as the operator of a new gaming facility or a gaming license has been granted. Costs incurred during the construction and preopening phase are capitalized. Types of costs capitalized include professional fees, salaries and wages, temporary office expenses, marketing expenses and training costs. When the new operation opens for business, preopening costs will be amortized over a period not to exceed 12 months using the straight-line method. Costs associated with the preopening of the Showboat Star Casino on Lake Pontchartrain in New Orleans, Louisiana were written-off upon commencement of operations on November 8, 1993 and totaled $4,246,000. The Company's share of those costs of $1,274,000 are included in equity in loss of unconsolidated affiliate in the December 31, 1993 Consolidated Statement of Income. RECLASSIFICATIONS Certain prior period balances have been reclassified to conform to the current year's presentation. 2. RECEIVABLES Receivables consist of the following:
DECEMBER 31, MARCH 31, --------------- 1994 1993 1992 (UNAUDITED) ------- ------- ----------- (IN THOUSANDS) Casino.............................................. $ 6,816 $ 6,964 $6,621 Hotel............................................... 1,020 715 772 Employees........................................... 88 86 80 Other............................................... 935 406 1,248 ------- ------- ------ 8,859 8,171 8,721 Less allowance for doubtful accounts................ 2,946 3,079 2,635 ------- ------- ------ Receivables, net.................................... $ 5,913 $ 5,092 $6,086 ======= ======= ======
F-9 SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 3. ACCRUED LIABILITIES Accrued liabilities consist of the following:
DECEMBER 31, MARCH 31, --------------- 1994 1993 1992 (UNAUDITED) ------- ------- ----------- (IN THOUSANDS) Interest............................................ $ 4,240 $ 6,029 $10,599 Salaries and wages.................................. 8,289 7,540 7,918 Taxes, other than taxes on income................... 1,988 1,641 3,264 Medical and liability claims........................ 2,983 3,036 3,045 Advertising and promotion........................... 2,397 3,068 2,375 Outstanding chips and tokens........................ 1,204 1,308 1,066 Other............................................... 2,563 2,545 2,520 ------- ------- ------- Total accrued liabilities........................... $23,664 $25,167 $30,787 ======= ======= =======
4. LONG-TERM DEBT Long-term debt consists of the following:
DECEMBER 31, MARCH 31, ----------------- 1994 1993 1992 (UNAUDITED) -------- -------- ----------- (IN THOUSANDS) 9 1/4% First Mortgage Bonds due 2008 (a)......... $275,000 $ -- $275,000 11 3/8% Mortgage-Backed Bonds Due 2002 (b)....... -- 149,444 -- 13% Subordinated Sinking Fund Debentures Due Oc- tober 1, 2004 (c)............................... -- 32,949 -- Construction and term loan, repaid in 1993....... -- 17,192 -- Capitalized lease obligations (Note 5)........... 5,617 9,531 4,570 -------- -------- -------- 280,617 209,116 279,570 Less current maturities.......................... 3,574 54,055 2,549 -------- -------- -------- $277,043 $155,061 $277,021 ======== ======== ========
(a) On May 18, 1993, the Company issued $275,000,000 of 9 1/4% First Mortgage Bonds due 2008 (First Mortgage Bonds). The proceeds from the sale of the First Mortgage Bonds were $268,469,000, net of underwriting discounts and commissions. Proceeds from the sale of the First Mortgage Bonds were used to redeem all of the outstanding 11 3/8% Mortgage-Backed Bonds Due 2002 at 105.7% of the principal amount plus accrued interest. The remaining proceeds were reserved by the Company to benefit existing facilities and to expand into new facilities or gaming jurisdictions. The First Mortgage Bonds are unconditionally guaranteed by OSI, ACSI and SBOC. Interest on the First Mortgage Bonds is payable semi-annually on May 1 and November 1 of each year commencing November 1, 1993. The First Mortgage Bonds are not redeemable prior to May 1, 2000. Thereafter, the First Mortgage Bonds will be redeemable, in whole or in part, at redemption prices specified in the Indenture for the First Mortgage Bonds (Indenture). The First Mortgage Bonds are senior secured obligations of the Company and rank senior in right of payment to all existing and future subordinated indebtedness of the Company and pari passu with the Company's senior indebtedness. The First Mortgage Bonds are secured by a deed of trust representing a first lien on the Las Vegas Showboat (other than certain assets), by a pledge of all outstanding shares of capital stock of OSI, an intercompany note by ACSI in favor of SBO and a pledge of certain intellectual property rights of the Company. OSI's obligation under its guaranty is secured by a pledge of all outstanding shares of capital stock of ACSI. ACSI's obligation under its guaranty is secured by F-10 SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) a leasehold mortgage representing a first lien on the Atlantic City Showboat (other than certain assets). SBOC's guaranty is secured by a pledge of certain assets related to the Las Vegas Showboat. The Indenture places significant restrictions on SBO and its subsidiaries, including restrictions on making loans and advances by SBO to subsidiaries which are Non-Recourse Subsidiaries or subsidiaries in which SBO owns less than 50% of the equity. All capitalized terms not otherwise defined in this paragraph have the meanings assigned to the Indenture. The Indenture also places significant restrictions on the incurrence of additional Indebtedness by SBO and its subsidiaries, the creation of additional Liens on the Collateral securing the First Mortgage Bonds, transactions with Affiliates and the investment of SBO and its subsidiaries in certain Investments. In addition, the terms of the Indenture prohibit SBO and its subsidiaries from making a Restricted Payment unless, at the time of such Restricted Payment: (i) no Default or Event of Default has occurred or would occur as a consequence of such restricted payment; (ii) SBO, at the time of Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, would have been permitted to incur at least $1.00 of additional Indebtedness; and (iii) such Restricted Payment, together with the aggregate of all other Restricted Payments by SBO and its subsidiaries is less than the sum of (x) 50% of the Consolidated Net Income of SBO for the period (taken as one accounting period) from April 1, 1993 to the end of SBO's most recently ended fiscal quarter for which internal financial statements are available, plus (y) 100% of the aggregate net cash proceeds received by SBO from the issuance or sale of Equity Interests of SBO since the Issue Date, plus (z) Excess Non-Recourse Subsidiary Cash Proceeds received after the Issue Date. The Term Restricted Payment does not include, among other things, the payment of any dividend if, at the time of declaration of such dividend, the dividend would have complied with the provisions of the Indenture; the redemption, repurchase, retirement, or other acquisition of any Equity Interest of SBO out of proceeds of, the substantially concurrent sale of other Equity Interests of SBO; Investments by SBO in an amount not to exceed $75,000,000 in the aggregate in any Non-Recourse Subsidiary engaged in a Gaming Related Business; Investments by SBO in any Non-Recourse Subsidiary engaged in a Gaming Related Business in an amount not to exceed in the aggregate 100% of all cash received by SBO from any Non-Recourse Subsidiary up to $75,000,000 in the aggregate and thereafter, 50% of all cash received by SBO from any Non- Recourse Subsidiary other than cash required to be repaid or returned to such Non-Recourse Subsidiary provided that the aggregate amount of Investments pursuant thereto does not exceed $125,000,000 in the aggregate; and the purchase, redemption, defeasance of any pari passu Indebtedness with a substantially concurrent purchase, redemption, defeasance, or retirement of the First Mortgage Bonds (on a pro rata basis). (b) In March 1987, the Company issued $180,000,000 of 11 3/8% Mortgage-Backed Bonds Due 2002 (11 3/8% Bonds). Interest was payable semi-annually on March 15 and September 15 of each year. During the years ended December 31, 1991 and 1990, the Company repurchased $12,096,000 and $18,460,000 face value, respectively, of the 11 3/8% Bonds (Note 10). In accordance with the provisions of the Indenture for the First Mortgage Bonds, the 11 3/8% Bonds were redeemed on June 18, 1993 at 105.7% of par plus accrued interest. (c) During fiscal year 1985, the Company issued $57,500,000 of 13% (effective rate of 15.75%) Subordinated Sinking Fund Debentures Due October 1, 2004 (Debentures), with interest payable semi-annually. The Debentures were redeemable at any time at the option of the Company, in whole or in part, at par plus accrued interest or the Debentures may have been reacquired through purchases in the open market. The Debentures had a mandatory sinking fund requirement beginning October 1, 1991, designed to retire 80% of the issue prior to maturity. On October 1, 1992 and 1991, the Company applied $2,875,000 of previously repurchased Debentures toward the sinking fund requirement. On October 29, 1992, the Company made a redemption of $2,875,000 of Debentures. On January 29, 1993, the Company redeemed in full the Debentures at par plus accrued interest (Note 10). F-11 SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) At December 31, 1993 and March 31, 1994, the Company's Atlantic City subsidiary, ACSI, had available an unsecured line of credit for general working capital purposes totaling $15,000,000. Interest is payable monthly at the bank's prime rate plus .5%. The Bank's prime rate was 6.0% and 6.75% at December 31, 1993 and March 31, 1994, respectively. The line of credit is guaranteed by OSI and expires in August 1994. Borrowings on this line of credit may not be used for the payment of management fees or to fund ventures in other jurisdictions. At December 31, 1993 and March 31, 1994, ACSI had all the funds under this line of credit available for use. Maturities of the Company's long-term debt are as follows:
(IN THOUSANDS) Year Ending December 31, 1994........................................................... $ 3,574 1995........................................................... 20 1996........................................................... 1,950 1997........................................................... 25 1998........................................................... 29 Thereafter....................................................... 275,019 -------- $280,617 ========
The fair value of the Company's First Mortgage Bonds was $283,250,000 at December 31, 1993 based on the quoted market price of the First Mortgage Bonds. The carrying amount of capital leases approximates fair value at December 31, 1993. 5. LEASES The Company leases certain furniture and equipment and a warehouse under long-term lease agreements. The leases covering furniture and equipment expire in 1994 and the warehouse lease expires in 2001. The Company has the option to purchase the warehouse from January 1, 1996 through March 31, 2001 at an option price of approximately $1,928,000. Property leased under capital leases by major classes are as follows:
DECEMBER 31, --------------- MARCH 31, 1994 1993 1992 (UNAUDITED) ------- ------- ----------- (IN THOUSANDS) Building--warehouse................................. $ 2,050 $ 2,050 $ 2,050 Furniture and equipment............................. 22,621 23,417 22,262 ------- ------- ------- 24,671 25,467 24,312 Less accumulated amortization....................... 19,456 21,308 21,667 ------- ------- ------- $ 5,215 $ 4,159 $ 2,645 ======= ======= =======
F-12 SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) ACSI is leasing 10 1/2 acres of Boardwalk property in Atlantic City, New Jersey for a term of 99 years commencing October 1983. Annual rent payments, which are payable monthly, commenced upon opening of the Atlantic City Showboat. The rent is adjusted annually based upon increases or decreases in the Consumer Price Index. In April 1993, the annual rent increased $243,000 to $8,118,000. ACSI is responsible for taxes, assessments, insurance and utilities. The following is a schedule of future minimum lease payments for capital leases and operating leases (with initial or remaining terms in excess of one year) as of December 31, 1993:
CAPITAL OPERATING LEASES LEASES ------- --------- (IN THOUSANDS) Year ending December 31, 1994........................................................ $4,014 $ 9,537 1995........................................................ 286 9,773 1996........................................................ 1,961 9,629 1997........................................................ 33 9,783 1998........................................................ 33 9,916 Thereafter.................................................... 20 797,971 ------ -------- Total minimum lease payments.................................. 6,347 $846,609 ======== Less amount representing interest (10.4% to 12.9%)............ 730 ------ Present value of net minimum capital lease payments........... $5,617 ======
Rent expense for all operating leases was $9,287,000, $8,659,000 and $8,046,000 for the years ended December 31, 1993, 1992 and 1991, respectively and $2,406,000 and $2,157,000 for the three-months ended March 31, 1994 and 1993. 6. STOCK PLANS On May 17, 1990, the shareholders of SBO approved a long-term incentive plan in which officers and key employees of the Company participate. Up to 600,000 shares of SBO common stock may be awarded to plan participants as either restricted shares or stock options. Restricted shares and options shall vest over a five-year period. The options are exercisable, subject to vesting, over ten years at option prices determined by SBO's Compensation Committee provided that the option price is not less than 100% of the fair market value of the Company's common stock determined on the date of grant of the options. As of December 31, 1993, 127,900 restricted shares have been issued from treasury. On May 17, 1990, the shareholders of SBO approved the Directors' Stock Option Plan whereby options to purchase up to 120,000 shares of SBO common stock may be granted at an option price no less than 100% of the fair market value of the shares on the date of grant. Under the terms of the Directors' Plan, each option shall be exercisable in full one year after the date of grant. Unless special circumstances exist, each option shall expire on the tenth anniversary of the date of grant or two years after the director's retirement. In April 1992, the Board of Directors of the Company adopted the 1992 Employee Stock Option Plan (Plan) for all full-time and part-time employees. The Company reserved an aggregate of 1,000,000 shares of SBO common stock for issuance under the Plan. The exercise price of an option awarded under the Plan cannot be less than the fair market value of the Company's common stock on the date of grant. The number of options granted to an employee is based on the employee's years of service with the Company. Options, all of which expire ten years from the date of grant, are subject to vesting and continued affiliation with the Company. F-13 SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) A summary of certain stock option information is as follows:
YEAR ENDED DECEMBER 31, ---------------------------- 1993 1992 1991 -------- -------- -------- Options outstanding at January 1........................................ 901,080 393,570 386,850 Granted........................................... 96,550 521,550 21,000 Exercised......................................... (176,560) (6,840) (2,280) Forfeited......................................... (8,750) (7,200) (12,000) -------- -------- -------- Options outstanding at December 31...................................... 812,320 901,080 393,570 ======== ======== ======== Option price range at $6.50 to $6.50 to $6.50 to December 31...................................... $18.00 $14.50 $8.00 Options exercisable at December 31...................................... 529,495 120,430 82,245
Unearned compensation in connection with restricted stock issued for future services was recorded on the date of grant at the fair market value of SBO's common stock and is being amortized ratably from the date of grant over the five-year vesting period as it is earned. Compensation expense of $111,000, $156,000 and $203,000 was recognized during the years ended December 31, 1993, 1992 and 1991, respectively. Unearned compensation has been shown as a reduction of shareholders' equity in the accompanying Consolidated Balance Sheets. 7. SHAREHOLDERS' EQUITY On December 24, 1992, the Company issued 3,450,000 shares of its $1.00 par value common stock in a public offering. The price to the public was $15.50 per share. Net proceeds of the offering, after deducting all associated costs, was $50,366,000 or $14.60 per newly issued share. Proceeds of the offering were used in January 1993 to redeem all of SBO's 13% Subordinated Sinking Fund Debentures Due 2004 and to fully prepay the balance outstanding on the construction and term loan. 8. INCOME TAXES As discussed in Note 1, the Company adopted FAS 109 effective January 1, 1993. The cumulative effect of the change in method of accounting for income taxes of $556,000 is determined as of January 1, 1993 and is reported separately in the Consolidated Statement of Income for the year ended December 31, 1993. Prior year financial statements have not been restated to apply the provisions of FAS 109. Total income tax expense for the year ended December 31, 1993 was allocated as follows:
(IN THOUSANDS) Continuing operations...................................... $10,474 Extraordinary item......................................... (4,487) Shareholders' equity, related to compensation expense de- ferred and reported as a reduction of shareholders' equity for financial reporting purposes.......................... (661) ------- $ 5,326 =======
F-14 SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Income tax expense (benefit) attributable to income from continuing operations consists of:
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, ------------------------ 1994 1993 1992 1991 (UNAUDITED) -------- ------- ------- ------------ (IN THOUSANDS) U.S. federal Current................................. $ 7,910 $ 6,519 $ 2,858 $1,260 Deferred................................ 965 238 1,230 853 -------- ------- ------- ------ 8,875 6,757 4,088 2,113 -------- ------- ------- ------ State and local Current................................. 1,195 -- -- 248 Deferred................................ 404 -- -- (112) -------- ------- ------- ------ 1,599 -- -- 136 -------- ------- ------- ------ Total Current................................. 9,105 6,519 2,858 1,508 Deferred................................ 1,369 238 1,230 741 -------- ------- ------- ------ $ 10,474 $ 6,757 $ 4,088 $2,249 ======== ======= ======= ======
In 1992 and 1991, income tax expense of $6,757,000 and $4,088,000, respectively, represents income tax expense from continuing operations before extraordinary items. In 1992, as a result of an extraordinary loss of $5,164,000 (Note 10), the Company recognized an income tax benefit of $1,756,000 resulting in total income tax expense of $5,001,000. In 1991, as a result of an extraordinary gain of $273,000 (Note 10), the Company recognized additional income tax expense of $93,000 resulting in total income tax expense of $4,181,000. Income tax expense attributable to income from continuing operations differed from the amounts computed by applying the U.S. federal income tax rate of 35% for the year ended December 31, 1993 and 34% for the years ended December 31, 1992 and 1991 to pretax income from continuing operations as a result of the following:
YEAR ENDED DECEMBER 31, -------------------------- 1993 1992 1991 -------- ------- ------- (IN THOUSANDS) Computed "expected" tax expense..................... $ 8,378 $ 7,689 $ 3,435 Increase (reduction) in income taxes resulting from: Change in the beginning of the year balance of the valuation allowance for deferred tax assets allo- cated to income tax expense...................... 224 -- -- Adjustment to deferred tax assets and liabilities for enacted changes in tax rates................. 383 -- -- State and local income taxes, net of federal tax benefit.......................................... 930 -- -- Impact of settlement of Internal Revenue Service examination...................................... -- (102) -- Restricted interest assessment, net of tax........ 619 -- -- Impact of graduated tax rates..................... (90) -- -- Other, net........................................ 30 (830) 653 -------- ------- ------- Income tax expense................................ $ 10,474 $ 6,757 $ 4,088 ======== ======= =======
F-15 SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) The significant components of deferred income tax expense attributable to income from continuing operations for the year ended December 31, 1993 are as follows:
(IN THOUSANDS) Deferred tax expense (exclusive of other components listed below).................................................... $ 762 Adjustment to deferred tax assets and liabilities for en- acted changes in tax rates................................ 383 Change in beginning of the year balance of the valuation allowance for deferred tax assets......................... 224 ------ $1,369 ======
For the years ended December 31, 1992 and 1991, deferred income tax expense of $238,000 and $1,230,000, respectively, results from temporary differences in the recognition of income and expenses for income tax and financial reporting purposes. The sources and tax effects of these temporary differences are as follows:
YEAR ENDED DECEMBER 31, ---------------- 1992 1991 ------- ------- (IN THOUSANDS) Depreciation and amortization................................ $ 1,250 $ 556 Utilization of credit carryforwards, net..................... 1,145 (676) Provisions for loss on Casino Reinvestment Development Au- thority obligation.......................................... (1,496) 31 Allowance for doubtful accounts.............................. 309 342 Preopening costs............................................. 369 1,511 Accrued vacations............................................ (359) (149) Impact of settlement of Internal Revenue Service examination. (625) -- Other, net................................................... (355) (385) ------- ------- $ 238 $ 1,230 ======= =======
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1993 are as follows:
(IN THOUSANDS) Deferred tax assets: Casino Reinvestment Development Authority obligation........ $(1,566) Accrued vacations........................................... (1,621) Allowance for doubtful accounts............................. (1,210) Alternative minimum tax credit carryforwards................ (2,423) Other....................................................... (3,606) ------- Total gross deferred tax assets............................. (10,426) Less valuation allowance.................................... 601 ------- Net deferred tax assets.................................... (9,825) ------- Deferred tax liabilities: Depreciation and amortization.............................. 17,350 Capitalized interest....................................... 2,571 ------- Total gross deferred tax liabilities....................... 19,921 ------- Net deferred tax liability................................... $10,096 =======
F-16 SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Temporary differences between the financial statement carrying amounts and tax bases of assets and liabilities that give rise to significant portions of the net deferred tax liability at December 31, 1992 relate to the following:
(IN THOUSANDS) Depreciation and amortization.............................. $13,931 Utilization of credit carryforwards........................ (2,032) Capitalized interest....................................... 2,572 Allowance for doubtful accounts............................ (1,047) Accrued vacations.......................................... (1,328) Provisions for loss on Casino Reinvestment Development Au- thority obligation................................................ (1,496) Other...................................................... (1,317) ------- Net deferred tax liability................................. $ 9,283 =======
The valuation allowance for deferred tax assets as of January 1, 1993 was $377,000. The net change in the total valuation allowance for the year ended December 31, 1993 was an increase of $224,000. At December 31, 1993, the Company had available $2,423,000 of alternative minimum tax credit carryforwards which are available to reduce future federal regular income taxes, if any, over an indefinite period. For State of New Jersey income tax purposes, the Company has available $1,144,000 of net operating loss carryforwards which expire through 1997. 9. EMPLOYEE BENEFIT PLANS The Company maintains a profit sharing and retirement plan for eligible employees who are not covered by a collective bargaining agreement or by another retirement plan to which the Company is required to contribute. Contributions to the plan are made at the discretion of the Board of Directors of SBO. The benefits are limited to the allocated interest in the fund assets and each participant's account vests over a seven-year period. Contributions accrued by the Company were $195,000, $175,000 and $150,000 for the years ended December 31, 1993, 1992 and 1991, respectively. The Company maintains a retirement and savings plan for eligible employees of ACSI and OSI. Under the terms of the plan, eligible employees may defer up to 3% of their compensation, as defined, of which 100% of the deferral is matched by ACSI. Eligible employees may contribute an additional 12% of their compensation which will not be matched by the Company. Contributions by the Company vest over a five-year period. The Company contributed $1,330,000, $1,110,000 and $776,000 to this plan for the years ended December 31, 1993, 1992 and 1991, respectively. Effective January 1, 1994, SBOC and LPSI adopted the provisions of the retirement and savings plan previously available to the eligible employees of ACSI and OSI. The Company has requested a determination letter from the Internal Revenue Service to allow the Company to merge the present profit sharing plan and the retirement and savings plan. The Company's union employees are covered by union-sponsored, collectively- bargained, multi-employer pension plans. The Company contributed and charged to expense $1,197,000, $1,182,000 and $1,184,000 during the years ended December 31, 1993, 1992 and 1991, respectively. These contributions are F-17 SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) determined in accordance with the provisions of negotiated labor contracts and generally are based on the number of hours worked. 10. EXTRAORDINARY ITEMS On June 18, 1993, the Company redeemed all of its remaining 11 3/8% Bonds at 105.7% plus accrued and unpaid interest up to and including the redemption date. The Company recognized an extraordinary loss before any income tax benefit of $11,166,000 as a result of the write-off of the unamortized debt issuance costs of $2,666,000 and the payment of a 5.7% redemption premium of $8,500,000. The after tax loss was $6,679,000 or $.44 per share. On December 30, 1992, the Company notified debentureholders of its intent to redeem all of the outstanding Debentures at par plus accrued interest on January 29, 1993. Accordingly, at December 31, 1992, the Company reclassified the outstanding principal balance of $32,949,000 to current maturities of long- term debt and recognized an extraordinary loss of $5,164,000 before an income tax benefit of $1,756,000 as a result of the write-off of the unamortized discount and debt issuance costs. The after tax loss was $3,408,000 or $.29 per share. In 1991, OSI purchased $12,096,000 face value of the Company's 11 3/8% Bonds for $11,696,000. Accordingly, after a charge of $127,000 for unamortized bond issuance costs, the Company realized an extraordinary gain of $273,000 before income taxes of $93,000 resulting in an after tax gain of $180,000 or $.02 per share. 11. NEW JERSEY INVESTMENT OBLIGATION The New Jersey Casino Control Act (Act) provides, among other things, for an assessment on a gaming licensee based upon its gross casino revenues after completion of its first full year of operation. This assessment may be satisfied by investing in qualified direct investments, purchasing bonds issued by the Casino Reinvestment Development Authority (CRDA), or paying an "alternative tax." In order for direct investments to be eligible, they must be approved by the CRDA. Deposits with the CRDA bear interest at two-thirds of market rates resulting in a current value lower than cost. At December 31, 1993 and 1992, deposits and other assets include $5,010,000 and $9,431,000, respectively, representing the Company's deposit with the CRDA of $7,488,000 as of December 31, 1993 and $14,121,000 as of December 31, 1992, net of a valuation allowance of $2,478,000 and $4,690,000, respectively. The carrying value of these deposits, net of the valuation allowance, approximates fair value. The CRDA, as an agency of the City of Atlantic City, is responsible for the redevelopment of the area surrounding the Boardwalk. The Company has requested and the CRDA has approved that $8,000,000 of the Company's deposits with the CRDA will be used in connection with the expansion of a City street leading to the Atlantic City Showboat. In connection with its approval, the CRDA required the Company to donate $2,000,000 of its deposits with the CRDA to certain public programs. Construction of the City street commenced in the fourth quarter of 1993 and is expected to be completed in 1994. The Company has reclassified these CRDA deposits, net of the valuation allowance, totaling $6,667,000 to construction in progress. When construction is complete, these costs will be amortized over seven years. The CRDA has set aside these deposits in a restricted account and the Company no longer receives the benefit of investment income on these funds. The Company has applied for and received approval for approximately $8,800,000 in funding credits from the CRDA in connection with the construction of Atlantic City Showboat's additional hotel rooms. F-18 SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Pending the execution of a Credit Agreement with the CRDA, which states the terms and conditions by which the Company may receive funding credit, the Company may begin applying for and receiving funds from the CRDA as expenditures are made for the construction of the hotel rooms to the extent ACSI has available funds on deposit with the CRDA. The Company has approximately $2,500,000 in available deposits with the CRDA which they may apply for upon execution of the Credit Agreement, with the balance being applied to portions of future CRDA deposits. 12. COMMITMENTS AND CONTINGENCIES During 1993, the Company entered into construction contracts which commit the Company to approximately $39,000,000 in expenditures in 1994 and approximately $7,000,000 in 1995. In December 1993, the Company agreed to purchase an additional 20% equity interest in Showboat Star Partnership from a partner for $9,000,000, increasing the Company's interest in the partnership to 50% subject to the approval of the Louisiana Riverboat Gaming Commission. The Louisiana Riverboat Gaming Commission approved the transaction in February 1994 and effective March 1, 1994, the Company acquired the additional 20% equity interest in Showboat Star Partnership. In February 1994, Showboat and Waterfront Entertainment and Development, Inc. formed the Showboat Marina Partnership (Indiana Partnership). The Indiana Partnership has filed a gaming application with the Indiana Gaming Commission to operate a riverboat on Lake Michigan in East Chicago, Indiana. Under the terms of the partnership agreement, Showboat will own 55% of the Indiana Partnership and is required to make an initial capital contribution of $1,000,000 and an additional contribution of $16,500,000 at such later dates as specified in an initial development budget. The Company is involved in various claims and legal actions arising in the ordinary course of business. Additionally, the Company is presently undergoing an audit by the Internal Revenue Service for the tax years ending June 30, 1989 and 1990. The State of New Jersey is currently auditing the Company's state income tax returns for the tax years ended June 30, 1986 through 1992. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company's financial position or results of operations. F-19 SHOWBOAT, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONCLUDED) 13. SELECTED QUARTERLY DATA (UNAUDITED) Summarized unaudited financial data for interim periods for the years ended December 31, 1993 and 1992 are as follows:
QUARTER ENDED (A) YEAR -------------------------------------- ENDED 3/31/93 6/30/93 9/30/93 12/31/93 12/31/93 -------- -------- --------- --------- -------- (IN THOUSANDS EXCEPT PER SHARE DATA) Net revenues.................. $ 85,496 $ 92,706 $ 108,005 $ 89,520 $375,727 Income from operations (b).... 7,685 11,983 18,250 7,501 45,419 Income before extraordinary loss and cumulative effect adjustment (c)(d)............ 1,921 3,751 7,356 436 13,464 Net income (loss)............. 2,477 (2,928) 7,356 436 7,341 Income before extraordinary loss and cumulative effect adjustment per share (c)(d).. .13 .24 .48 .03 .89 Net income (loss) per share... .16 (.20) .48 .03 .49
QUARTER ENDED (A) YEAR --------------------------------------- ENDED 3/31/92 6/30/92 9/30/92 12/31/92 12/31/92 --------- --------- --------- --------- -------- (IN THOUSANDS EXCEPT PER SHARE DATA) Net revenues................. $ 85,523 $ 89,250 $ 99,105 $ 81,358 $355,236 Income from operations....... 10,074 12,224 18,981 5,229 46,508 Income before extraordinary loss (e).................... 2,628 3,973 8,426 830 15,857 Net income (loss)............ 2,628 3,973 8,426 (2,578) 12,449 Income before extraordinary loss per share(e)........... .23 .34 .73 .07 1.37 Net income (loss) per share.. .23 .34 .73 (.22) 1.08
- --------------------- (a) Quarterly results may not be comparable due to the seasonal nature of the Atlantic City operation. (b) In 1993, the Company acquired a 30% equity interest in Showboat Star Partnership which was engaged in the development of a riverboat casino on Lake Pontchartrain in New Orleans, Louisiana. Operation of the riverboat casino commenced on November 8, 1993. The Company's share of the partnership's loss from the commencement of operations through December 31, 1993, including the write-off of preopening costs of $1,274,000, is included in income from operations for the quarter ended December 31, 1993. (c) The Company adopted FAS 109 in 1993 and reported the cumulative effect of the change in method of accounting for income taxes as of January 1, 1993 in the 1993 Consolidated Statement of Income. (d) In the quarter ended June 30, 1993, the Company recognized an extraordinary loss of $6,679,000, net of tax, as a result of the redemption of all of its outstanding 11 3/8% Bonds (Note 10). (e) In the quarter ended December 31, 1992, the Company recognized an extraordinary loss of $3,408,000, net of tax, as a result of the planned redemption of all of its outstanding Debentures (Note 10). 14. SUBSEQUENT EVENTS (UNAUDITED) On May 6, 1994, the New South Wales Casino Control Authority announced that Sydney Harbour Casino Pty Limited, a wholly owned subsidiary of a company in which Showboat, Inc. is a principal founding shareholder, was the preferred applicant to develop a casino in Sydney, Australia. The preferred applicant will work during the next six months to obtain all the necessary regulatory approvals. Subsequently, the Authority will enter into a 99-year lease for the site of the casino in New South Wales and issue an exclusive casino license for 12 years to cover the State of New South Wales. The Company will have an approximate 27% equity interest in the casino at a cost of approximately $98.5 million. The Company anticipates making its investment in November 1994. F-20 On March 24, 1994, SBO secured a line of credit for A$8.4 million (U.S. dollar equivalent approximately $6.1 million) in compliance with the New South Wales Casino Control Authority's licensing requirements. This line of credit is secured by a $6.3 million certificate of deposit. Interest on this line of credit is payable at the bank's prime rate plus 2.0%. This line of credit expires in December 1994. At March 31, 1994, ACSI had all the funds under this line of credit available for use. On May 25, 1994, the Shareholders approved an increase in the number of Shares of Common Stock authorized from 20,000,000 to 50,000,000 Shares. On May 25, 1994, the Shareholders approved a long-term incentive plan in which officers and most management level employees of the Company participate. Up to 2,000,000 Shares of SBO Common Stock may be awarded to plan participants as either restricted shares or stock options. Restricted shares and options generally vest over a five-year period. The options are exercisable, subject to vesting, over ten years at option prices determined by SBO's Compensation Committee provided that the option price is not less than 100% of the fair market value of the Company's Common Stock determined on the date of grant of the options. F-21 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- NO DEALER, SALESMAN OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY IN- FORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING MADE HEREBY. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHO- RIZED BY THE COMPANY OR THE UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OFFERED HEREBY IN ANY JURISDICTION IN WHICH OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCE, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. ---------------- TABLE OF CONTENTS
PAGE Available Information..................................................... 3 Incorporation of Certain Documents by Reference........................... 3 Prospectus Summary........................................................ 4 The Company............................................................... 10 Certain Considerations.................................................... 18 Use of Proceeds........................................................... 23 Capitalization............................................................ 24 Selected Consolidated Financial Data...................................... 25 Management's Discussion and Analysis of Financial Condition and Results of Operations............................................................... 26 Management................................................................ 34 Regulation................................................................ 36 Description of Notes...................................................... 37 Underwriting.............................................................. 60 Legal Matters............................................................. 60 Experts................................................................... 60 Index to Consolidated Financial Statements................................ F-1
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- $150,000,000 LOGO SHOWBOAT, INC. % SENIOR SUBORDINATED NOTES DUE 2009 ---------------- PROSPECTUS ---------------- DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION , 1994 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The estimated expenses of the issuance and distribution of the Notes, as set forth below, will be borne entirely by the Company:
ITEM AMOUNT ---- ------- Securities and Exchange Commission Registration Fee................. $51,725 Blue Sky Fees*...................................................... NASD Fees........................................................... 15,500 Rating Agency Fees*................................................. Transfer Agents' Fees*.............................................. Printing and Engraving Fees and Expenses*........................... Legal Fees and Expenses*............................................ Accounting Fees and Expenses*....................................... Trustee's Fees*..................................................... Miscellaneous Expenses*............................................. ------- Total*.......................................................... $ =======
- --------------------- * Amount to be provided by amendment. ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS Articles of Incorporation. Section 78.037 of the Nevada Revised Statutes and Article XI of the Company's Articles of Incorporation contain provisions that eliminate or limit, in certain situations, the personal liability of a director or officer of the Company. The Articles of Incorporation provide that a director or officer of the Company will not be personally liable to the Company or its shareholders for breach of his fiduciary duty as a director or officer, but Article XI does not eliminate or limit the director's or officer's liability for: (i) acts or omissions which involve intentional misconduct, fraud or a knowing violation of law; or (ii) the unlawful payment of distributions. Bylaws. Section 78.751 of the Nevada Revised Statutes and Article VIII of the Company's Bylaws contain provisions for the indemnification of directors, officers, employees or agents of the Company. The Company's Bylaws provide that the Company shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such person is or was a director, officer, employee or agent of the Company or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise. Such indemnification may be against expenses, including attorneys' fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner which the individual reasonably believed to be in or not opposed to, the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person's conduct was unlawful. Where the action or suit for which indemnification is sought is one brought by or in the name of the Company to procure a judgment in the Company's favor, no indemnification shall be made in respect to any claim, issue, for matter as to which such person has been adjudged to be liable or negligence or misconduct in the performance of such person's duty to the Company unless and only to the extent that the court in which such action or suit was brought shall determine upon application that, in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnification, despite the adjudication of liability. II-1 The indemnification discussed above shall only be made where a determination is made that such indemnification is proper in the circumstances because such person has met the applicable standard of conduct discussed above. Such determination is to be made: (i) by the shareholders; (ii) by a majority vote of the Board of Directors consisting of a quorum of disinterested directors; (iii) if such a quorum of disinterested directors so orders; or (iv) if such a quorum of disinterested directors cannot be obtained, by independent legal counsel in a written opinion. To the extent that a director, officer, employee or agent of the Company has been successful on the merits or otherwise in defense of any action, suit or proceeding of the type discussed above, the Bylaws state that such person shall be indemnified against expenses, including attorneys' fees, actually and reasonably incurred by him in connection with such defense. Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid by the Company in advance of the final disposition of such action, suit or proceeding as authorized by the Board of Directors upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount unless it shall be ultimately determined that he is entitled to indemnification by the Company as authorized by the Bylaws. The indemnification described above does not exclude any other rights to which a person seeking indemnification may be entitled under any agreement, vote of shareholders or disinterested directors under the Articles of Incorporation or Bylaws, if amended to so provide in the future or otherwise, and the above right shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors, and administrators of such person. The Company's Bylaws also indemnify the spouses of the Company's directors and officers for such director's or officer's acts if such spouses were or are a party or threatened to be made a party to any threatened, pending or completed action, suit or proceeding due to the fact that they are married to a director or officer of the Company. Each spouse's indemnification rights are governed by Article VIII of the Bylaws. Indemnification Agreements. The Company has entered into indemnification agreements with each member of the Board of Directors and certain officers of the Company (individually, an "Indemnified Person"). The agreement provides that the Company will hold harmless and indemnify such Indemnified Person in certain specified instances and, in any event, to the fullest extent authorized or permitted by law. However, no such specified indemnity shall be paid by the Company if payment is actually made to such Indemnified Person under an insurance policy (except in the event that an award is in excess of the insured amount, in which case the payment may be made for such excess); aggregate losses do not exceed $1,000; the Indemnified Person is indemnified by the Company otherwise than pursuant to the indemnity agreement; a judgment is rendered against such Indemnified Person for the payment of dividends or other distributions in violation of Section 78.300 the Nevada Revised Statutes, as amended; a judgment is rendered against such Indemnified Person for "short swing" profits pursuant to Section 16(b) of the Securities Exchange Act of 1934, as amended, or similar state and local laws; such Indemnified Person's conduct is finally adjudged by a court of competent jurisdiction to have involved intentional misconduct, fraud or a knowing violation of the law and such conduct was material to the cause of action; a judgment is rendered against such person by a court of competent jurisdiction, after exhaustion of all appeals therefrom, and the court determines that such Indemnified Person is not entitled to indemnity; or, except as otherwise provided in such agreement, the Indemnified Person initiates or maintains an action against the Company or the Company's directors, officers, employees or other agents. All agreements and obligations of the Company contained in the indemnity agreement shall continue during the period the person is serving in such position and shall continue so long as such person shall be subject to any possible claim or threatened, pending or completed action, suit or proceeding. II-2 ITEM 16. EXHIBITS
EXHIBIT NUMBER DESCRIPTION/1/ ------- -------------- 1.01 Form of Underwriting Agreement. 4.01 Specimen Common Stock Certificate for the Common Stock of the Company./2/ 4.02 Restated Articles of Incorporation of the Company dated June , 1994./2/ 4.03 Restated Bylaws of the Company dated February 25, 1993 are incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1992, Part IV, Item 14(a)(3), Exhibit 3.02. 4.04 Indenture relating to the 9 1/4% First Mortgage Bonds due 2008 is incorporated by reference from the Company's Form 8-K dated May 18, 1993, Item 5, Exhibit 28.01. 4.05 Bond Certificate relating to the 9 1/4% First Mortgage Bonds due 2008 is incorporated herein by reference from the Company's Form 8-K dated May 18, 1993, Item 5, Exhibit 28.01. 4.06 Form of Indenture relating to the % Senior Subordinated Notes due 2009, including form of Note. 5.01 Opinion and consent of Kummer Kaempfer Bonner & Renshaw as to the legality of securities being registered./2/ 12.01 Statement re: Computation of Ratios of Earnings to Fixed Charges. 23.01 Consent of Kummer Kaempfer Bonner & Renshaw, contained in Exhibit 5.01./2/ 23.02 Consent of KPMG Peat Marwick. 24.01 Powers of Attorney (see pp. II-5, II-7, II-8 and II-9). 25.01 Form T-1 Statement of Eligibility and Qualification under the Trust Indenture Act of 1939 of ./2/
- --------------------- /1/All exhibits which are incorporated by reference are incorporated from the Company's respective periodic reports, Securities and Exchange Commission File No. 1-7123. /2/To be filed by amendment. ITEM 17. UNDERTAKINGS The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers, and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-3 The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of Prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purposes of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-4 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANTS CERTIFY THAT THEY HAVE REASONABLE GROUNDS TO BELIEVE THAT THEY MEET ALL OF THE REQUIREMENTS FOR FILING ON FORM S-3 AND HAVE DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON THEIR BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF LAS VEGAS, STATE OF NEVADA ON JUNE 28, 1994. Showboat, Inc. Atlantic City Showboat, Inc. /s/ J. Kell Houssels, III /s/ J. Kell Houssels, III By: _________________________________ By: _________________________________ J. KELL HOUSSELS, III PRESIDENT J. KELL HOUSSELS, III PRESIDENT AND CHIEF EXECUTIVE OFFICER AND CHIEF EXECUTIVE OFFICER Ocean Showboat, Inc. Showboat Operating Company /s/ Frank A. Modica /s/ Frank A. Modica By: _________________________________ By: _________________________________ FRANK A. MODICA PRESIDENT AND FRANK A. MODICA PRESIDENT AND CHIEF EXECUTIVE OFFICER CHIEF EXECUTIVE OFFICER The undersigned Directors and Officers of Showboat, Inc. hereby appoint Leann K. Schneider, R. Craig Bird or John N. Brewer as attorney-in-fact for the undersigned, with full power of substitution, for and in the name, place and stead of the undersigned, to sign and file with the Securities and Exchange Commission under the Securities Act of 1933 any and all amendments (including post-effective amendments) and exhibits to this Registration Statement and any and all applications and other documents to be filed with the Securities and Exchange Commission pertaining to the registration of the securities covered hereby, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary or desirable, hereby ratifying and confirming all that said attorney-in-fact, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED. SIGNATURES TITLE DATE /s/ J.K. Houssels Chairman of the June 28, 1994 - ------------------------------------- Board J.K. HOUSSELS /s/ J. Kell Houssels, III Director, President June 28, 1994 - ------------------------------------- and Chief Executive J. KELL HOUSSELS, III Officer (Principal Executive Officer) /s/ Leann K. Schneider Vice President-- June 28, 1994 - ------------------------------------- Finance and Chief LEANN K. SCHNEIDER Financial Officer (Principal Financial Officer and Principal Accounting Officer) II-5 SIGNATURES TITLE DATE /s/ William C. Richardson Director June 28, 1994 - ------------------------------------- WILLIAM C. RICHARDSON /s/ John D. Gaughan Director June 28, 1994 - ------------------------------------- JOHN D. GAUGHAN /s/ Jeanne S. Stewart Director June 28, 1994 - ------------------------------------- JEANNE S. STEWART /s/ Frank A. Modica Director, Executive June 28, 1994 - ------------------------------------- Vice President and FRANK A. MODICA Chief Operating Officer /s/ H. Gregory Nasky Director and June 28, 1994 - ------------------------------------- Secretary H. GREGORY NASKY /s/ George A. Zettler Director June 28, 1994 - ------------------------------------- GEORGE A. ZETTLER /s/ Carolyn M. Sparks Director June 28, 1994 - ------------------------------------- CAROLYN M. SPARKS II-6 THE UNDERSIGNED DIRECTORS AND OFFICERS OF ATLANTIC CITY SHOWBOAT, INC. HEREBY APPOINT LEANN K. SCHNEIDER, R. CRAIG BIRD OR JOHN N. BREWER AS ATTORNEY-IN-FACT FOR THE UNDERSIGNED, WITH FULL POWER OF SUBSTITUTION, FOR AND IN THE NAME, PLACE AND STEAD OF THE UNDERSIGNED, TO SIGN AND FILE WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933 ANY AND ALL AMENDMENTS (INCLUDING POST-EFFECTIVE AMENDMENTS) AND EXHIBITS TO THIS REGISTRATION STATEMENT AND ANY AND ALL APPLICATIONS AND OTHER DOCUMENTS TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PERTAINING TO THE REGISTRATION OF THE SECURITIES COVERED HEREBY, WITH FULL POWER AND AUTHORITY TO DO AND PERFORM ANY AND ALL ACTS AND THINGS WHATSOEVER REQUISITE AND NECESSARY OR DESIRABLE, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID ATTORNEY-IN-FACT, OR HIS SUBSTITUTE OR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF. PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Frank A. Modica Chairman of the Board June 28, 1994 - ------------------------------------ Frank A. Modica /s/ J. Kell Houssels, III Director, President and June 28, 1994 - ------------------------------------ Chief Executive Officer J. Kell Houssels, III (Principal Executive Officer) /s/ Kathy Caracciolo Vice President--Finance June 28, 1994 - ------------------------------------ (Principal Financial Kathy Caracciolo Officer and Principal Accounting Officer) /s/ John D. Gaughan Director June 28, 1994 - ------------------------------------ John D. Gaughan /s/ J.K. Houssels Director June 28, 1994 - ------------------------------------ J.K. Houssels /s/ H. Gregory Nasky Director and Secretary June 28, 1994 - ------------------------------------ H. Gregory Nasky
II-7 THE UNDERSIGNED DIRECTORS AND OFFICERS OF OCEAN SHOWBOAT, INC. HEREBY APPOINT LEANN K. SCHNEIDER, R. CRAIG BIRD OR JOHN N. BREWER AS ATTORNEY-IN-FACT FOR THE UNDERSIGNED, WITH FULL POWER OF SUBSTITUTION, FOR AND IN THE NAME, PLACE AND STEAD OF THE UNDERSIGNED, TO SIGN AND FILE WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933 ANY AND ALL AMENDMENTS (INCLUDING POST-EFFECTIVE AMENDMENTS) AND EXHIBITS TO THIS REGISTRATION STATEMENT AND ANY AND ALL APPLICATIONS AND OTHER DOCUMENTS TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PERTAINING TO THE REGISTRATION OF THE SECURITIES COVERED HEREBY, WITH FULL POWER AND AUTHORITY TO DO AND PERFORM ANY AND ALL ACTS AND THINGS WHATSOEVER REQUISITE AND NECESSARY OR DESIRABLE, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID ATTORNEY-IN-FACT, OR HIS OR HER SUBSTITUTE OR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF. PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE --------- ----- ---- /s/ J.K. Houssels Chairman of the Board June 28, 1994 - ------------------------------------ J.K. Houssels /s/ Frank A. Modica Director, President and June 28, 1994 - ------------------------------------ Chief Executive Officer Frank A. Modica (Principal Executive Officer) /s/ Mark J. Miller Executive Vice President-- June 28, 1994 - ------------------------------------ Finance and Chief Operating Mark J. Miller Officer (Principal Financial Officer and Principal Accounting Officer) /s/ William C. Richardson Director June 28, 1994 - ------------------------------------ William C. Richardson /s/ John D. Gaughan Director June 28, 1994 - ------------------------------------ John D. Gaughan /s/ Jeanne S. Stewart Director June 28, 1994 - ------------------------------------ Jeanne S. Stewart /s/ H. Gregory Nasky Director and Secretary June 28, 1994 - ------------------------------------ H. Gregory Nasky /s/ J. Kell Houssels, III Director and Executive Vice June 28, 1994 - ------------------------------------ President J. Kell Houssels, III /s/ George A. Zettler Director June 28, 1994 - ------------------------------------ George A. Zettler /s/ Carolyn M. Sparks Director June 28, 1994 - ------------------------------------ Carolyn M. Sparks
II-8 THE UNDERSIGNED DIRECTORS AND OFFICERS OF SHOWBOAT OPERATING COMPANY HEREBY APPOINT LEANN K. SCHNEIDER, R. CRAIG BIRD OR JOHN N. BREWER AS ATTORNEY-IN-FACT FOR THE UNDERSIGNED, WITH FULL POWER OF SUBSTITUTION, FOR AND IN THE NAME, PLACE AND STEAD OF THE UNDERSIGNED, TO SIGN AND FILE WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933 ANY AND ALL AMENDMENTS (INCLUDING POST-EFFECTIVE AMENDMENTS) AND EXHIBITS TO THIS REGISTRATION STATEMENT AND ANY AND ALL APPLICATIONS AND OTHER DOCUMENTS TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PERTAINING TO THE REGISTRATION OF THE SECURITIES COVERED HEREBY, WITH FULL POWER AND AUTHORITY TO DO AND PERFORM ANY AND ALL ACTS AND THINGS WHATSOEVER REQUISITE AND NECESSARY OR DESIRABLE, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID ATTORNEY-IN-FACT, OR HIS OR HER SUBSTITUTE OR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF. PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE --------- ----- ---- /s/ J.K. Houssels Chairman of the Board June 28, 1994 - ------------------------------------ J.K. Houssels /S/ Frank A. Modica Director, President and June 28, 1994 - ------------------------------------ Chief Executive Officer Frank A. Modica (Principal Executive Officer) /s/ Leann K. Schneider Vice President--Finance and June 28, 1994 - ------------------------------------ Chief Financial Officer Leann K. Schneider (Principal Financial Officer and Principal Accounting Officer) /S/ John D. Gaughan Director June 28, 1994 - ------------------------------------ John D. Gaughan /S/ H. Gregory Nasky Directory and Secretary June 28, 1994 - ------------------------------------ H. Gregory Nasky /S/ J. Kell Houssels, III Director June 28, 1994 - ------------------------------------ J. Kell Houssels, III
II-9 EXHIBIT INDEX
EXHIBIT PAGE NUMBER DESCRIPTION/1/ NUMBER ------- -------------- ------ 1.01 Form of Underwriting Agreement. 4.01 Specimen Common Stock Certificate for the Common Stock of the Company./2/ 4.02 Restated Articles of Incorporation of the Company dated June , 1994./2/ 4.03 Restated Bylaws of the Company dated February 25, 1993 are incorporated herein by reference from the Company's Form 10-K for the Year Ended December 31, 1992, Part IV, Item 14(a)(3), Exhibit 3.02. 4.04 Indenture relating to the 9 1/4% First Mortgage Bonds due 2008 is incorporated by reference from the Company's Form 8-K dated May 18, 1993, Item 5, Exhibit 28.01. 4.05 Bond Certificate relating to the 9 1/4% First Mortgage Bonds due 2008 is incorporated herein by reference from the Company's Form 8-K dated May 18, 1993, Item 5, Exhibit 28.01. 4.06 Form of Indenture relating to the % Senior Subordinated Notes due 2009, including form of Note. 5.01 Opinion and consent of Kummer Kaempfer Bonner & Renshaw as to the legality of securities being registered./2/ 12.01 Statement re: Computation of Ratios of Earnings to Fixed Charges. 23.01 Consent of Kummer Kaempfer Bonner & Renshaw, contained in Exhibit 5.01./2/ 23.02 Consent of KPMG Peat Marwick. 24.01 Powers of Attorney (see p. II-5, II-7, II-8 and II-9). 25.01 Form T-1 Statement of Eligibility and Qualification under the Trust Indenture Act of 1939 of ./2/
- --------------------- /1/All exhibits which are incorporated by reference are incorporated from the Company's respective periodic reports, Securities and Exchange Commission File No. 1-7123. /2/To be filed by amendment. EX-1 2 UNDERWRITING AGREEMENT EXHIBIT 1.01 ================================================================================ SHOWBOAT, INC. $150,000,000 __% Senior Subordinated Notes Due 2009 Underwriting Agreement July __, 1994 DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION ================================================================================ SHOWBOAT, INC. $150,000,000 % Senior Subordinated Notes due 2009 Payment of Principal and Interest Unconditionally Guaranteed By Ocean Showboat, Inc. Atlantic City Showboat, Inc. and Showboat Operating Company UNDERWRITING AGREEMENT ---------------------- July __, 1994 DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION, 140 Broadway New York, New York 10005 Dear Sirs: Showboat, Inc., a Nevada corporation (the "COMPANY"), proposes to issue and sell to you (the "UNDERWRITER") $150,000,000 in aggregate principal amount of its % Senior Subordinated Notes due 2009 (the "NOTES"). The Notes will be issued pursuant to an indenture (the "INDENTURE") among the Company, Ocean Showboat, Inc., a New Jersey corporation ("OSI"), Atlantic City Showboat, Inc., a New Jersey corporation ("ACSI"), and Showboat Operating Company, a Nevada corporation ("SBOC"), as guarantors (collectively, the "GUARANTORS") and as Trustee (the "TRUSTEE"). The Notes will be unsecured general obligations of the Company, subordinated in right of payment to all existing and future Senior Debt (as that term is defined in the Indenture) of the Company. The Company's obligations under the Notes will be unconditionally guaranteed on a senior subordinated basis by OSI, ACSI and SBOC (the "OSI GUARANTY," the "ACSI GUARANTY," and the "SBOC GUARANTY," respectively, and collectively, the "SUBSIDIARY GUARANTEES"). The Company, OSI, ACSI and SBOC are hereinafter referred to collectively as the "REGISTRANTS." The Notes and the Subsidiary Guarantees are more fully described in the Registration Statement referred to below and in the Indenture, the form of which has been filed as an exhibit to such Registration Statement. Terms not otherwise defined herein have the same meanings as set forth in the Indenture. 1. REGISTRATION STATEMENT AND PROSPECTUS. Each of the Registrants has prepared and filed with the Securities and Exchange Commission (the "COMMISSION") in accordance with the provisions of the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder (collectively the "ACT"), a registration statement (including a prospectus) on Form S-3 (No. 33- ) relating to the Notes and the Subsidiary Guarantees, which may be amended. The registration statement as amended at the time when it becomes effective or, if a post- effective amendment is filed with respect thereto, as amended by such post- effective amendment at the time of its effectiveness, including in each case financial statements and exhibits filed as a part thereof or incorporated by reference therein and the information (if any) contained in a prospectus subsequently filed with the Commission pursuant to Rule 424(b) under the Act and deemed to be part of the registration statement at the time of effectiveness pursuant to Rule 430A under the Act, is hereinafter referred to as the REGISTRATION STATEMENT, and the prospectus in the form first used to confirm sales of the Notes, whether or not filed with the Commission pursuant to Rule 424(b) under the Act, is hereinafter referred to as the PROSPECTUS. Any reference herein to the Registration Statement, Prospectus and any amendment or supplement thereto shall be deemed to refer to and include the documents incorporated by reference therein, and any reference herein to the terms "amend," "amendment" or supplement" with respect to the Registration Statement or the Prospectus shall be deemed to refer to and include the filing after the execution hereof of any document with the Commission deemed to be incorporated by reference therein. 2. AGREEMENTS TO SELL AND PURCHASE. On the basis of the representations and warranties contained in this Agreement, and subject to the terms and conditions contained herein, (i) the Company agrees to issue and sell to the Underwriter, and (ii) the Underwriter agrees to purchase from the Company, the principal amount of Notes set forth opposite the name of the Underwriter in Schedule I hereto. The purchase price for the Notes shall be % of the principal amount thereof (the "PURCHASE PRICE"). 3. TERMS OF PUBLIC OFFERING. The Underwriter has advised the Company that the Underwriter proposes (i) to make a public offering of the Notes as soon after the effective date of the Registration Statement as in its judgment is advisable and (ii) initially to offer the Notes upon the terms set forth in the Prospectus. 4. DELIVERY AND PAYMENT. Delivery to the Underwriter of and payment for the Notes shall be made at such place or places in New York, New York as Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") shall designate, at 10:00 A.M., New York City time, on the fifth business day following the date of the Agreement (the "CLOSING DATE"). The Closing Date and the location of delivery of and the form of payment for the Notes may be varied by mutual agreement between the Underwriter and the Company. The certificates in definitive form evidencing the Notes shall be registered in such names and issued in such denominations as the Underwriter shall request in writing not later than two full business days prior to the Closing Date, and such certificates shall be made available to the Underwriter for inspection at the offices of DLJ in New York, New York not later than 9:30 A.M., New York City time, on the business day immediately preceding the Closing Date. Certificates in definitive form evidencing the Notes shall be delivered to the Underwriter on the Closing Date, with any transfer taxes thereon duly paid by the Company, for the account of the Underwriter, against payment of the Purchase Price therefor by certified or official bank checks payable in New York Clearing House funds (next day) to the order of the Company. 5. AGREEMENTS OF REGISTRANTS. The Registrants jointly and severally hereby agree with the Underwriter: (a) To file, if necessary, (i) an amendment to the Registration Statement or (ii) a post-effective amendment to the Registration Statement pursuant to Rule 430A under the Act, as 2 soon as practicable after the execution and delivery of this Agreement and to use their best efforts to cause the Registration Statement or such post- effective amendment to become effective at the earliest possible time. (b) To advise the Underwriter promptly and, if requested by the Underwriter, to confirm such advice in writing, (i) when the Registration Statement has become effective and when any post-effective amendment thereto becomes effective, (ii) of any request by the Commission for amendments to the Registration Statement or amendments or supplements to the Prospectus or for additional information, (iii) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or of the suspension by any state securities commission of the qualification of the Notes for offering or sale in any jurisdiction, or the initiation of any proceeding for such purposes, and (iv) of the happening of any event during the period referred to in paragraph (e) below that makes any statement of a material fact made in the Registration Statement or the Prospectus untrue or that requires the making of any additions to or changes in the Registration Statement or the Prospectus in order to make the statements therein not misleading. If at any time the Commission shall issue any stop order suspending the effectiveness of the Registration Statement, or any state securities commission or other regulatory authority shall issue an order suspending the qualification or exemption from qualification of the Notes under state securities or Blue Sky laws, the Registrants will make every reasonable effort to obtain the prompt withdrawal or lifting of such order. (c) To furnish to the Underwriter and its counsel, without charge, three signed copies of the Registration Statement (including documents incorporated by reference) as first filed with the Commission and of each amendment to it, including all exhibits, and to furnish to the Underwriter as many conformed copies of the Registration Statement (including documents incorporated by reference) as so filed and of each amendment to it, without exhibits, and each preliminary prospectus as the Underwriter may reasonably request. (d) Not to file any amendment or supplement to the Registration Statement, whether before or after the time when it becomes effective, or to make any amendment or supplement to the Prospectus of which the Underwriter shall not previously have been advised or to which the Underwriter shall reasonably object in writing within three business days after being furnished a copy thereof, and to prepare and file with the Commission, promptly upon the Underwriter's reasonable request, any amendment to the Registration Statement or supplement to the Prospectus which may be necessary or advisable in connection with the distribution of the Notes by the Underwriter, and to use their best efforts to cause the same to become effective promptly. (e) Promptly after the Registration Statement becomes effective, and from time to time thereafter for such period as in the opinion of counsel to the Underwriter a prospectus is required by law to be delivered in connection with sales of the Notes by the Underwriter or dealers, to furnish to the Underwriter and dealers, without charge, as many copies of the Prospectus (and of any amendment or supplement to the Prospectus) as the Underwriter or dealers may reasonably request. The Registrants consent to the use of the Prospectus and any amendment or supplement thereto by the Underwriter and by all dealers to whom the Notes may be sold, both in connection with the offering or sale of the Notes and for such period of time thereafter as the Prospectus is required by law to be delivered in connection therewith. (f) If during the period specified in paragraph (e) above any event shall occur as a result of which, in the opinion of counsel to the Underwriter it becomes necessary or advisable 3 to amend or supplement the Prospectus in order to make the statements therein, in the light of the circumstances then existing, not misleading, or if it is necessary to amend or supplement the Prospectus to comply with any law, forthwith to promptly prepare and file with the Commission an appropriate amendment or supplement to the Prospectus so that the statements in the Prospectus, as so amended or supplemented will not, in the light of the circumstances then existing, be misleading, or so that the Prospectus will comply with law, and to furnish to the Underwriter and to such dealers as the Underwriter shall specify, such number of copies thereof as the Underwriter or such dealers may reasonably request. (g) Prior to any public offering of the Notes, to cooperate with the Underwriter and counsel to the Underwriter in connection with obtaining the registration or qualification of the Notes for offer and sale by the Underwriter and by dealers under the state securities or Blue Sky laws of such jurisdictions as the Underwriter may reasonably request, to continue such qualification in effect so long as reasonably required for distribution of the Notes and to file such consents to service of process or other documents as may be necessary in order to effect such registration or qualification, provided, however, that in no event shall the Registrants be obligated to qualify to do business or to take any action that would subject any of them to service of process in suits, other than as to matters and transactions relating to the offer and sale of the Notes or to subject themselves to taxation in respect of doing business in any jurisdiction in which they are not so subject. (h) To make generally available to the holders of the Notes as soon as reasonably practicable an earnings statement (which need not be audited) covering a period of at least twelve months beginning on the first day of the first fiscal quarter of the Company after the effective date of the Registration Statement which shall satisfy the provisions of Section 11(a) of the Act and Rule 158 promulgated thereunder, and to advise the Underwriter in writing when such statement has been so made available. (i) As long as the Notes remain outstanding, to furnish to the Underwriter as soon as available a copy of each report, document or other publicly available information of the Registrants mailed to the holders of the Notes pursuant to the terms of the Indenture or to the holders of the Company's common stock. (j) Whether or not the transactions contemplated by this Agreement are consummated or this Agreement becomes effective or is terminated, to pay all costs, expenses, fees and taxes incident to, and in connection with: (i) the preparation, printing, filing and distribution under the Act of the Registration Statement (including, without limitation, financial statements and exhibits contained therein), each preliminary prospectus relating to the Notes and all amendments and supplements to any of them prior to or during the period specified in paragraph (e) above (excluding legal fees and expenses of counsel to the Underwriter incurred in connection therewith), (ii) the preparation, printing and delivery of the Prospectus and all amendments or supplements thereto during the period specified in paragraph (e) above, (iii) the preparation, printing, execution and delivery of this Agreement, the Indenture, the Notes, the preliminary and supplemental Blue Sky memoranda and all other 4 agreements, memoranda, correspondence and other documents printed and delivered in con-nection with the offering of the Notes, (iv) the registration with the Commission, and the issuance and delivery by the Company of, the Notes, (v) the registration or qualification of the Notes for offer and sale under the securities or Blue Sky laws or regulations of the several states (including, without limitation, the fees and disbursements of counsel to the Underwriter relating to such registration or qualification and memoranda relating thereto), (vi) filings and clearance with the National Association of Securities Dealers, Inc. ("NASD") in connection with the offering (including, without limitation, the fees and expenses, including reasonable legal fees and expenses, of the "qualified independent underwriter" required by Schedule E to the By-Laws of the NASD), (vii) furnishing such copies of the Registration Statement, the Prospectus and all amendments and supplements thereto as may be requested for use in connection with the offering or sale of the Notes by the Underwriter or by dealers to whom the Notes may be sold, (viii) the performance by the Trustee of its obligations under the Indenture, (ix) the rating of the Notes by rating agencies, if any, and (x) the performance by the Registrants of their other obligations under this Agreement. (k) To use the proceeds from the sale of the Notes in the manner specified in the Registration Statement under the caption "Use of Proceeds." (l) Not to claim voluntarily, and to resist actively any attempts to claim, the benefit of any usury laws against the holders of the Notes. (m) From and after the date the Registration Statement becomes effective, for such period as in the opinion of counsel to the Underwriter a prospectus is required by law to be delivered in connection with market- making activities, to prepare, file and maintain an effective Registration Statement to permit the Underwriter (or any affiliates of the Underwriter) to make a market in the Notes. (n) If this Agreement shall be terminated pursuant to any of the provisions hereof (otherwise than a default by the Underwriter) or if for any reason the Company shall be unable or unwilling to perform its obligations hereunder, to reimburse the Underwriter for the fees and expenses to be paid or reimbursed pursuant to 5(j) above, and to reimburse the Underwriter for all out-of-pocket expenses (including the reasonable fees and expenses of counsel to the Underwriter) reasonably incurred by the Underwriter in connection herewith. If the transactions contemplated hereby are consummated, each of the parties shall pay its own expenses, including the costs and expenses of its counsel, except as otherwise provided in 5(j) above. 5 (o) Not to distribute prior to the Closing Date any offering material in connection with the offering and sale of the Notes other than the Registration Statement, the preliminary prospectus, the Prospectus or other materials, if any, permitted by the Act. (p) To use its best efforts to do and perform all things required or necessary to be done and performed under this Agreement by the Registrants prior to the Closing Date and to satisfy all conditions precedent to the delivery of the Notes. (q) To comply to the best of its ability in a timely manner with the Act (including, without limitation, the applicable provisions of Rules 424 and 430A under the Act), the Securities Exchange Act of 1934, as amended, and rules and regulations of the Commission thereunder (the "EXCHANGE ACT") and the Trust Indenture Act of 1939, as amended (the "TRUST INDENTURE ACT") so as to permit the completion of the distribution of the Notes as contemplated in this Agreement and in the Prospectus. (r) Prior to the Closing Date, to furnish to the Underwriter, as soon as they have been prepared by the Company, a copy of any consolidated financial statements of the Company for any period subsequent to the period covered by the financial statements appearing in the Registration Statement and the Prospectus. (s) Not to register, offer, sell, contract to sell or grant any option to purchase or otherwise dispose of any Notes or any other debt securities (other than any private loan, credit or financing agreement with a bank or similar financial institution) for a period of 90 days after the commencement of the public offering of the Notes by the Underwriter, without its prior written consent. 6. REPRESENTATIONS AND WARRANTIES OF THE REGISTRANTS. The Registrants jointly and severally represent and warrant to the Underwriter that: (a) (i) The Registration Statement, as originally filed, and each preliminary prospectus filed as part of the Registration Statement as originally filed or as part of any amendment thereto, or filed pursuant to Rule 424 under the Act, complied when so filed in all material respects with the Act and (ii) when the Registration Statement becomes effective and on the Closing Date (A) the Registration Statement and any amendments thereto will comply in all material respects with the provisions of the Act and will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and (B) the Prospectus and any supplements thereto will not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that the representations and warranties contained in this paragraph (a) shall not apply to statements or omissions in the Registration Statement or the Prospectus (or any supplement or amendment to them) based upon information relating to the Underwriter furnished to the Company in writing by the Underwriter or counsel to the Underwriter expressly for use therein. (b) The documents incorporated by reference in the Registration Statement, the Prospectus, any amendment or supplement thereto or any preliminary prospectus, when they became or become effective under the Act or were or are filed with the Commission under the Exchange Act, as the case may be, conformed or will conform in all material respects with the 6 requirements of the Act or the Exchange Act, as applicable, and the rules and regulations of the Commission thereunder. (c) The Indenture has been qualified under the Trust Indenture Act. (d) The Company has been duly organized, is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation, has all requisite corporate power and authority to carry on its business as it is currently being conducted and to own, lease and operate its respective properties as described in the Registration Statement, and is duly qualified and in good standing as a foreign corporation registered to do business in each jurisdiction in which the nature of its business or its ownership or leasing of property requires such qualification, except where the failure to be so qualified would not have a material adverse effect on the business, condition (financial or other), results of operations, properties or prospects of the Company. (e) The entities listed in Exhibit A hereto are all of the Subsidiaries of the Company (the "SUBSIDIARIES"). Each Subsidiary is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation with corporate power and authority under such laws to own, lease and operate its properties and conduct its business, and each Subsidiary is duly qualified to transact business as a foreign corporation and is in good standing in each other jurisdiction in which it owns or leases property of a nature, or transacts business of a type, that would make such qualification necessary, except to the extent that the failure to so qualify or be in good standing would not have a material adverse effect on the business, condition (financial or other), results of operations, properties or prospects of the Company and the Subsidiaries, taken as a whole. All of the outstanding capital stock or other securities evidencing equity ownership of each Subsidiary of the Company has been duly authorized and validly issued, is fully paid and nonassessable, is not subject to preemptive or similar rights and is owned by the Company, free and clear of any security interest, claim, lien or encumbrance except for the pledge pursuant to the Working Capital Credit Agreement and the Senior Debt of the Company, including the 9 1/4% First Mortgage Bonds due 2008. There are no outstanding rights, warrants or options to acquire, or instruments convertible into or exchangeable for, any shares of capital stock or other equity interest in any such Subsidiary. (f) Each of the Registrants has all necessary corporate power and authority to enter into and perform its obligations under this Agreement and the Indenture. (g) The Company has all necessary corporate power and authority to issue, sell and deliver the Notes to the Underwriter, to be sold by the Underwriter pursuant hereto. (h) This Agreement has been duly authorized, validly executed and delivered by each of the Registrants and (assuming the due execution and delivery thereof by the Underwriter) is the legally valid and binding obligation of each of the Registrants, enforceable against each of the Registrants in accordance with its terms, except as the enforceability thereof may be limited by (i) the effect of bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to or affecting the rights and remedies of creditors generally, (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 and (iii) state or federal laws or policies relating to the non-enforceability of the indemnification or contribution provisions contained in this Agreement. 7 (i) The Indenture has been duly authorized by the Registrants and, when duly executed and delivered by each of the Registrants (assuming the due authorization, execution and delivery thereof by the Trustee thereunder), will be the legally valid and binding obligation of each of the Registrants, enforceable against each of the Registrants in accordance with its terms, except as the enforceability thereof may be limited by (i) the effect of bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to or affecting the rights and remedies of creditors 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. The Indenture, when executed and delivered, will conform in all material respects to the description thereof in the Prospectus. (j) The Notes have been duly authorized for issuance and sale by the Company to the Underwriter pursuant to this Agreement and, when issued and authenticated by the Trustee in accordance with the terms of the Indenture and delivered to and paid for by the Underwriter in accordance with the terms hereof, the Notes will conform in all material respects to the description thereof in the Registration Statement and the Prospectus, will be the legally valid and binding obligation of the Company, enforceable against the Company in accordance with their terms, and will be entitled to the benefits of the Indenture except as the enforceability thereof may be limited by (i) the effect of bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to or affecting the rights and remedies of creditors 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. (k) The authorized, issued and outstanding capital stock of the Company as of March 31, 1994 is as set forth in the Registration Statement under the caption "Capitalization," and all of the outstanding shares of capital stock of the Company have been duly authorized and validly issued and are fully paid, non-assessable and not subject to any preemptive or similar rights. There are no outstanding rights, warrants or options to acquire, or instruments convertible into or exchangeable for, any shares of capital stock or other equity interest in the Company other than pursuant to the 1989 Executive Officer Plan, the 1989 Director Stock Option Plan, the Showboat, Inc. Employee Stock Option Plan and outstanding warrants to purchase 150,000 shares of common stock of the Company. (l) Neither the Company nor any of its Subsidiaries is in violation of its respective charter or by-laws, as the case may be, or in default in the performance of any obligation, agreement or condition contained in any bond, debenture, note or any other evidence of indebtedness or in any other agreement, indenture or instrument material to the conduct of the busi-ness of the Company and its Subsidiaries, taken as a whole, to which the Company or any of its Subsidiaries is a party or by which it or any of the Subsidiaries or their respective property is bound. (m) The issuance and sale of the Notes by the Company, the execution, delivery and performance of this Agreement and the Indenture by each of the Registrants and compliance by each of the Registrants with the provisions hereof, of the Indenture and the Notes will not conflict with or constitute a breach of any of the terms or provisions of, or cause a default under, or result in the imposition of a lien or encumbrance on any properties of any of the Registrants or their Subsidiaries or an acceleration of indebtedness pursuant to, (i) the charter or by-laws of any of the Registrants or their Subsidiaries, (ii) any bond, debenture, note, indenture, mortgage, deed of trust or other agreement or instrument to which any of the Registrants or their Subsidiaries is a party 8 or by which any of them or their property is bound, or (iii) any law or administrative regulation applicable to any of the Registrants, any of their Subsidiaries or any of their assets or properties, or any judgment, order or decree of any court or governmental agency or authority (including, without limitation, the Nevada Gaming Commission, the Nevada State Gaming Control Board, the New Jersey Casino Control Commission or any other gaming authority in any State of the United States or foreign country (collectively, the "GAMING AUTHORITIES")) entered in any proceeding to which any of the Registrants or any of their Subsidiaries was or is now a party or to which any of them or their respective properties may be subject. Except as disclosed in the Registration Statement, no authorization, approval, consent or license of any government, governmental agency (including, without limitation, any Gaming Authorities) or court, domestic or foreign (other than under the Act, the Trust Indenture Act and the securities or Blue Sky laws or regulations of the various states) is required for the valid authorization, issuance, sale and delivery of the Notes by the Company or for the execution, delivery or performance of this Agreement and the Indenture by the Registrants. No consents or waivers from any person are required to consummate the transactions contemplated by this Agreement and the Indenture other than such consents and waivers as have been or will be obtained, except for such consents and waivers which, if not obtained, would not, either individually or in the aggregate, have a material adverse effect on the business, condition (financial or other), results of operations, properties or prospects of the Company and the Subsidiaries, taken as a whole. (n) Except as disclosed in the Registration Statement, to the best knowledge of the Company, there is (i) no action, suit or proceeding before or by any court, arbitrator or governmental agency (including, without limitation, any Gaming Authorities), body or official, domestic or foreign, now pending, or threatened or contemplated to which the Company or any of the Subsidiaries is or may be a party or to which the business or property of the Company or any of the Subsidiaries is or may be subject, (ii) no statute, rule, regulation or order that has been enacted, adopted or issued by any governmental agency or that has been proposed by any governmental body, or (iii) no injunction, restraining order or order of any nature by a federal or state court of competent jurisdiction to which the Company or any of the Subsidiaries is or may be subject has been issued that, in the case of clauses (i), (ii) and (iii) above, (w) is required to be disclosed in the Registration Statement or the Prospectus and that is not so disclosed, (x) might have a material adverse effect on the business, condition (financial or other), results of operations, properties or prospects of the Company and the Subsidiaries, taken as a whole, (y) would interfere with or adversely affect the issuance of the Notes in any material respect or (z) in any manner seeks to challenge the validity of this Agreement, the Indenture or the Notes. There is no contract or document concerning the Company or any of the Subsidiaries of a character required to be described in the Registration Statement or in the Prospectus or to be filed as an exhibit to the Registration Statement or incorporated by reference therein that is not so described, or filed or incorporated as required. (o) There are no holders of securities of the Company who, by reason of the filing of the Registration Statement under the Act or the execution by the Company of this Agreement, have the right to request or demand that the Company include any such securities in the registration or offering contemplated hereby. (p) Neither the Company nor any of its Subsidiaries is involved in any material labor dispute nor, to the knowledge of the Company or any of its Subsidiaries, is any material dispute threatened which, if such dispute were to occur, would have a material adverse effect on 9 the business, condition (financial or other), results of operations, properties or prospects of the Company and its Subsidiaries, taken as a whole. (q) Neither the Company nor any of its Subsidiaries has violated any safety or similar law applicable to its business, nor any federal or state law relating to discrimination in the hiring, promotion or pay of employees nor any applicable federal or state wages and hours laws, nor any provisions of the Employee Retirement Income Security Act, as amended, or the rules and regulations promulgated thereunder, which in each case might result in any material adverse effect on the business, condition (financial or other), results of operations, properties or prospects of the Company and its Subsidiaries, taken as a whole. (r) Except as set forth in the Registration Statement, the Company and its Subsidiaries are in material compliance with all applicable existing federal, state, local and foreign laws and regulations relating to protection of human health or the environment or imposing liability or standards of conduct concerning any Hazardous Material ("ENVIRONMENTAL LAWS"), except for those liabilities reserved for on the Company's financial statements contained in the Registration Statement and for such instances of noncompliance which, either singly or in the aggregate, would not have a material adverse effect on the business, condition (financial or other), results of operations, properties or prospects of the Company and its Subsidiaries, taken as a whole. The term "Hazardous Material" means (i) any "hazardous substance" as defined by the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, (ii) any "hazardous waste" as defined by the Resource Conservation and Recovery Act, as amended, (iii) any petroleum or petroleum product, (iv) any polychlorinated biphenyl, and (v) any pollutant or contaminant or hazardous, dangerous or toxic chemical, material, waste or substance regulated under or within the meaning of any other Environmental Law. (s) In the ordinary course of its business, the Company conducts a periodic review of the effect of Environmental Laws on the business, operations and properties of the Company and its Subsidiaries, in the course of which it identifies and evaluates associated costs and liabilities. Except as set forth in the Registration Statement, there is no alleged liability, or to the best knowledge and information of the Company and its Subsidiaries, potential liability (including, without limitation, alleged or potential liability for investigatory costs, cleanup costs, governmental response costs, natural resources damages, property damages, personal injuries, or penalties) of the Company or any of its Subsidiaries arising out of, based on or resulting from (i) the presence or release into the environment of any Hazardous Material at any location at which the Company or any Subsidiary is currently conducting any business whether or not owned by the Company or any of its Subsidiaries, or which the Company or any Subsidiary owns or (ii) any violation or alleged violation of any Environmental Law, which alleged or potential liability, singly or in the aggregate, would have a material adverse effect on the business, condition (financial or other), results of operations, properties or prospects of the Company and its Subsidiaries, taken as a whole. (t) Except as disclosed in the Registration Statement, no Gaming Authority has issued any order or decree or is otherwise impairing, restricting or prohibiting (i) a payment of dividends by any Subsidiary to its parent or the Company, or (ii) the continuation of the business of any Subsidiary as presently conducted. (u) Except as disclosed in the Registration Statement, each of the Company and its Subsidiaries has such material permits, licenses, franchises and authorizations of governmental or regulatory authorities (including, without limitation, licenses, certificates, permits and other required 10 authorizations from the Gaming Authorities and other governmental authorities) ("PERMITS") as are necessary to own, lease and operate its respective properties and to conduct its business in the manner described in the Prospectus. All such Permits are in full force and effect, and each of the Company and its Subsidiaries has fulfilled and performed all of its material obligations with respect to such Permits. No event has occurred which allows, or after notice or lapse of time would allow, revocation or termination by the issuer thereof or which results in any other material impairment of the rights of the holder of any such Permits. Such Permits contain no restrictions that are materially burdensome to the Company or any of its Subsidiaries in light of their respective business, and the Company and its Subsidiaries have no reason to believe that any governmental body or agency is considering limiting, suspending or revoking any such Permit. (v) Except as otherwise set forth in the Prospectus or such as are not material to the business, condition (financial or other), results of operations, properties or prospects of the Company and its Subsidiaries, taken as a whole, the Company and its Subsidiaries have good and marketable title, free and clear of all liens, claims, encumbrances and restrictions (except liens for taxes not yet due and payable and immaterial liens and liens disclosed in the Registration Statement) to all property and assets described in the Registration Statement as being owned by it. All leases to which the Company or any of its Subsidiaries is a party are valid and binding obligations of the Company or its Subsidiaries, and no default has occurred or is continuing there-under which might result in any material adverse effect on the business, condition (financial or other), results of operations, properties or prospects of the Company and its Subsidiaries, taken as a whole. The Company and its Subsidiaries enjoy peaceful and undisturbed possession under all such leases to which any of them is a party as lessee with such exceptions as do not materially interfere with the use made by the Company or such Subsidiary. (w) The Company and each of its Subsidiaries maintain reasonably adequate insurance on their assets. (x) The financial statements, together with related schedules and notes forming part of the Registration Statement and the Prospectus (and any amendment or supplement thereto), comply in all material respects with the requirements of the Act and present fairly the consolidated financial position, results of operations and cash flows of the Company and its Subsidiaries on the basis stated in the Registration Statement at the respective dates or for the respective periods to which they apply; except as disclosed therein, such statements and related schedules and notes have been prepared in accordance with generally accepted accounting principles consistently applied throughout the periods involved; the pro forma financial statements and the related notes thereto included in the Registration Statement and Prospectus have been prepared in accordance with the applicable requirements of the Act, have been compiled on the pro forma basis described therein, and in the opinion of the Company, all assumptions used in the preparation thereof were reasonable at the time made and all adjustments used therein are based upon good faith estimates and assumptions believed by the Company to be reasonable at the time made. (y) Each of the Company and its Subsidiaries maintains a system of internal accounting controls sufficient to provide reasonable assurance that: (i) transactions are executed in accordance with management's general or specific authorizations, and 11 (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles. (z) Subsequent to the respective dates as of which information is given in the Registration Statement and Prospectus, and except as set forth in the Prospectus, and up to the Closing Date, unless the Company has notified the Underwriter as provided in Section 5(b)(iv) above: (i) neither the Company nor any of its Subsidiaries has incurred any liabilities or obligations, direct or contingent, that are material, individually or in the aggregate, to the Company and its Subsidiaries, taken as a whole, nor entered into any material transactions not in the ordinary course of business, (ii) there has not been any decrease in the Company's or any of its Subsidiaries' capital stock or any increase in long-term indebtedness to meet working capital requirements or any material increase in short-term indebtedness of the Company or its Subsidiaries or any payment of or declaration to pay any dividends or any other distribution with respect to the Company's or any of its Subsidiaries' capital stock, as the case may be, (iii) there has not been any material adverse effect on the business, condition (financial or other), results of operations, properties or prospects of the Company and its Subsidiaries, taken as a whole and (iv) to the best knowledge of the Company and its Subsidiaries, there has been no change in the gaming laws, regulations or administrative practices of the Gaming Authorities of the State of Nevada, the State of New Jersey, the State of Louisiana, the State of New York, the State of Indiana or any other State in the United States or foreign country, including the State of New South Wales, Australia, which would have a material adverse effect on the business, condition (financial or other), results of operations, properties or prospects of the Company and its Subsidiaries, taken as a whole. (aa) The present fair salable value of the assets of the Company and its Subsidiaries, taken as a whole, exceeds the amount that will be required to be paid on or in respect of the existing debts and other liabilities (including contingent liabilities) of the Company and its Subsidiaries as they become absolute and matured. The assets of the Company and its Subsidiaries, taken as a whole, do not constitute unreasonably small capital to carry out their business as conducted or as proposed to be conducted. The Company does not intend to, and does not believe that it will, incur debts beyond its ability to pay such debts as they mature. The Company does not intend to permit any of its Subsidiaries to incur debts beyond their respective ability to pay such debts as they mature. Upon the issuance of the Notes and the Subsidiary Guarantees, (i) the present fair salable value of the assets of the Company and its Subsidiaries, taken as a whole, will exceed the amount that will be required to be paid on or in respect of their existing debts and other liabilities (including contingent liabilities) as they become absolute and matured, and (ii) the assets of the Company and its Subsidiaries, taken as a whole, will not constitute unreasonably small capital to carry out their business as now conducted or as proposed to be conducted, including the capital needs of the Company and each of its Subsidiaries, taking into account the projected capital requirements and capital availability of the Company and each of its Subsidiaries. (ab) The Company and any agent thereof acting on its behalf, has not taken and will not take any action that might cause this Agreement or the issuance or sale of the Notes to violate Regulation G (12 C.F.R. Part 207), Regulation T (12 C.F.R. Part 220), Regulation U (12 C.F.R. Part 221) or Regulation X (12 C.F.R. Part 224) of the Board of Governors of the Federal Reserve System, in each case as in effect now or as the same may hereafter be in effect on the Closing Date. 12 (ac) Neither the Company nor any of its Subsidiaries is an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended, and the rules and regulations and interpretations promulgated thereunder. (ad) KPMG Peat Marwick is an independent public accountant with respect to the Company, as required by the Act. (ae) The Registrants have complied with all provisions of Florida H.B. 1771, codified as Section 517.075 of the Florida statutes, and all regulations promulgated thereunder relating to issuers doing business with the Government of Cuba or with any person or any affiliate located in Cuba. (af) Exhibit B attached hereto contains a complete and accurate list of all material agreements between the Company or any of its Subsidiaries, on the one hand, and any of their affiliates, on the other hand, (i) that are in effect as of the date of this Agreement, copies of which have been provided previously to the Underwriter and (ii) that will be in effect as of the Closing Date, copies of which will be provided to the Underwriter on or prior to the Closing Date. (ag) Except as disclosed in the Registration Statement, no change in any gaming laws, regulations or administrative practices, or recommendations or guidelines of the Gaming Authorities of the State of Nevada, the State of New Jersey, the State of Louisiana, the State of New York, the State of Indiana or any other State or foreign country, including the State of New South Wales, Australia, is pending which could reasonably be expected to be adopted and if adopted, could reasonably be expected to have, individually or in the aggregate with all such changes, a material adverse effect upon the business, condition (financial or other), results of operations, properties or prospects of the Company and its Subsidiaries, taken as a whole. 7. INDEMNIFICATION. (a) Each of the Registrants jointly and severally agrees (i) to indemnify and hold harmless the Underwriter, each person, if any, who controls the Underwriter within the meaning of Section 15 of the Act or Section 20 of the Exchange Act and the respective officers, directors, partners, employees, representatives and agents of the Underwriter, from and against any and all losses, claims, damages, liabilities and judgments arising out of or relating to any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or Prospectus (as amended or supplemented if the Registrants shall have furnished any amendments or supplements thereto) or any preliminary prospectus, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the case of the Prospectus, in light of the circumstances under which they were made, not misleading, except insofar as such losses, claims, damages, liabilities or judgments are caused by any such untrue statement or omission or alleged untrue statement or omission based upon information relating to the Underwriter furnished in writing to the Registrants by such Underwriter or counsel to the Underwriter expressly for use therein and (ii) to reimburse the Underwriter, each person, if any, who controls the Underwriter within the meaning of Section 15 of the Act or Section 20 of the Exchange Act and the respective officers, directors, partners, employees, representatives and agents of the Underwriter, for any legal or other expenses reasonably incurred by them in connection with investigating or defending against such losses, claims, damages, liabilities and judgments as such expenses are incurred. 13 (b) In case any action (including any governmental action or proceeding by the Gaming Authorities) shall be brought against the Underwriter or any person controlling such Underwriter, based upon any preliminary prospectus, the Registration Statement or the Prospectus or any amendment or supplement thereto and with respect to which indemnity may be sought against the Registrants, such Underwriter shall promptly notify the Company in writing and the Registrants shall assume the defense thereof, including the employment of counsel reasonably satisfactory to such indemnified party and payment of all fees and expenses. Such Underwriter or any such controlling person shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Underwriter or such controlling person unless (i) the employment of such counsel has been specifically authorized in writing by the Registrants, (ii) the Registrants have failed to assume the defense with counsel reasonably satisfactory to such Underwriter or (iii) the named parties to any such action (including any impleaded parties) include both such Underwriter or such controlling person and the Registrants, and such Underwriter or such controlling person shall have been advised by counsel that there may be one or more legal defenses available to it that are different from or additional to those available to the Registrants (in which case the Registrants shall not have the right to assume the defense of such action on behalf of such Underwriter or such controlling person, it being understood, however, that the Registrants shall not, in connection with any one such action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys (in addition to any local counsel) for such Underwriter and the controlling persons, which firm shall be designated in writing by such Underwriter, and that all such fees and expenses shall be reimbursed as they are incurred). The Registrants shall not be liable for any settlement of any such action effected without the written consent of the Company but if settled with the Company's written consent, the Registrants agree to indemnify and hold harmless such Underwriter and any such controlling person from and against any loss or liability by reason of such settlement. Notwithstanding the foregoing sentence, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel as contemplated by the second sentence of this paragraph, the indemnifying party agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 10 business days after receipt by such indemnifying party of the aforesaid request and (ii) such indemnifying party shall not have reimbursed the indemnified party in accordance with such request prior to the date of such settlement. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such proceeding. (c) The Underwriter agrees to indemnify and hold harmless the Registrants and the Subsidiaries and their respective directors, the officers who sign the Registration Statement, and any person controlling the Registrants within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, to the same extent as the foregoing indemnity from the Registrants to such Underwriter but only with reference to information relating to such Underwriter furnished in writing by or on behalf of such Underwriter or counsel to such Underwriter expressly for use in the Registration Statement, the Prospectus or any preliminary prospectus. In case any action shall be brought against the Registrants in respect of which indemnity may be sought against the Underwriter, such Underwriter shall have the rights and duties given to the Registrants (except that if the Registrants shall have assumed the defense thereof, such Underwriter shall not be required 14 to do so, but may employ separate counsel therein and participate in the defense thereof but the fees and expenses of such counsel shall be at the expense of such Underwriter), and the Registrants shall have the rights and duties given to such Underwriter, by Section 7(b) hereof. (d) If the indemnification provided for in this Section 7 is unavailable to an indemnified party in respect of any losses, claims, damages, liabilities or judgments referred to therein, then each indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities and judgments (i) in such proportion as is appropriate to reflect the relative benefits received by the Registrants, on the one hand, and the Underwriter, on the other hand, from the offering of the Notes or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Registrants and the Underwriter in connection with the statements or omissions that resulted in such losses, claims, damages, liabilities or judgments, as well as any other relevant equitable considerations. The relative benefits received by the Registrants and the Underwriter shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Registrants, and the total underwriting discounts and commissions received by the Underwriter, bear to the total price to the public of the Notes, in each case as set forth in the table on the cover page of the Prospectus. The relative fault of the Registrants and the Underwriter shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Registrants or the Underwriter and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Registrants and the Underwriter agree that it would not be just and equitable if contribution pursuant to this Section 7(d) were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. The losses, claims, damages, liabilities or judgments of an indemnified party referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating, preparing to defend or defending any such action or claim. Notwithstanding the provisions of this Section 7(d), the Underwriter shall not be required to contribute any amount in excess of the amount by which the underwriting discounts and commissions received by it exceeds the amount of any damages that the Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. (e) The statements with respect to the offering of the Notes set forth on the cover page of the Prospectus (to the extent such statements relate to the Underwriter) and the first and third paragraph, as well as the statement in the third sentence of the fourth paragraph that following completion of the initial offering of the Notes, the Underwriter intends to make a market in the Notes but the Underwriter is not obligated to do so and may discontinue any market making at any time without notice, under the caption "Underwriting" in the Prospectus constitute the only information heretofore furnished to the Registrants in writing by or on behalf of or by the Underwriter expressly for use in the Registration Statement, the Prospectus or any amendment or supplement thereto or any preliminary prospectus. 15 (f) The indemnity and contribution agreements contained in this Section 7 are in addition to any liability that the indemnifying persons may otherwise have to the indemnified persons referred to above. 8. CONDITIONS OF THE UNDERWRITER'S OBLIGATIONS. The obligation of the Underwriter to purchase the Notes under this Agreement is subject to the satisfaction or waiver of each of the following conditions: (a) All the representations and warranties of the Registrants and its Subsidiaries contained in this Agreement shall be true and correct on the Closing Date with the same force and effect as if made on and as of the Closing Date. The Registrants shall have performed or complied with all of the agreements and satisfied all conditions on its part to be performed, complied with or satisfied at or prior to the Closing Date. (b) (i) the Registration Statement shall have become effective (or if a post-effective amendment is required to be filed pursuant to Rule 430A under the Act, such post-effective amendment shall have become effective) not later than 1:00 p.m., New York City time, on the date of this Agreement or at such later date and time as the Underwriter may approve in writing, (ii) no injunction, restraining order or order of any nature by a federal or state court of competent jurisdiction shall have been issued as of the Closing Date that would prevent or interfere with the issuance of the Notes, and (iii) at the Closing Date, no stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been commenced or shall be pending before or contemplated by the Commission and no stop order suspending the sale of the Notes in any jurisdiction designated by the Underwriter pursuant to Section 5(g) hereof shall have been issued and no proceeding for that purpose shall have been commenced or be pending or, to the knowledge of the Registrants, be contemplated. (c) No action shall have been taken and no statute, rule or regulation or order shall have been enacted, adopted or issued by any governmental agency that would as of the Closing Date prevent the issuance of the Notes; and on the Closing Date, no action, suit or proceeding shall be pending against or affecting or, to the knowledge of the Registrants or any Subsidiary, threatened against, the Registrants or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official, except for such actions, suits or proceedings that if adversely determined would not, either individually or in the aggregate, have a material adverse effect on the issuance or marketability of the Notes, or would, except as disclosed in the Registration Statement and Prospectus, individually or in the aggregate have a material adverse effect on the business, condition (financial or other), results of operations, properties or prospects of the Company and its Subsidiaries, taken as a whole. (d) (i) Except as disclosed in the Registration Statement and the Prospectus, since the date of the latest balance sheet included in the Registration Statement and the Prospectus, there shall not have been any material adverse effect or any development involving a prospective material adverse effect on the equity ownership of the Registrants and its Subsidiaries or in the business, condition (financial or other), results of operation, properties or prospects, whether or not arising in the ordinary course of business, of the Company and its Subsidiaries, taken as a whole, 16 (ii) the Registrants and its Subsidiaries shall have no liability or obligation, direct or contingent, that is material to the Registrants and its Subsidiaries, other than those reflected in the Registration Statement and the Prospectus, and (iii) at the Closing Date the Underwriter shall have received a certificate dated the Closing Date, signed by the President and Secretary of the Registrants and each Subsidiary (who may, as to proceedings contemplated, rely upon his information and belief), confirming the matters set forth in paragraphs (a), (b), (c) and (d) of this Section 8. (e) The Underwriter shall have received on the Closing Date an opinion (reasonably satisfactory to the Underwriter and counsel to the Underwriter) dated the Closing Date, of Kummer Kaempfer Bonner & Renshaw, counsel to the Company, in the form of Exhibit C attached hereto. (f) The Underwriter shall have received on the Closing Date an opinion (reasonably satisfactory to the Underwriter and counsel to the Underwriter) dated the Closing Date, of Thomas Bonner, General Counsel of ACSI, in the form of Exhibit D attached hereto. (g) The Underwriter shall have received on the Closing Date an opinion, dated the Closing Date, of Latham & Watkins, in form and substance satisfactory to the Underwriter, and Latham & Watkins shall have received such papers and information as it requests to enable it to pass upon the matters contained in such opinion. (h) Prior to the Closing Date, the Registrants shall have received the requisite approval or approvals of the transactions contemplated by this Agreement and described in the Registration Statement from the Gaming Authorities of the State of Nevada and the State of New Jersey and no such approval or approvals shall impose on the Registrants or any Subsidiary thereof any conditions which adversely effect the ability of the Registrants and the Subsidiaries to conduct their business as is presently being conducted. (i) At the time this Agreement is executed by the Registrants, the Underwriter shall have received from KPMG Peat Marwick a letter, dated such date, in form and substance satisfactory to the Underwriter and counsel to the Underwriter, confirming that they are independent public accountants with respect to the financial statements and certain financial information of the Registrants contained in the Registration Statement and the Prospectus within the meaning of the Act and applicable published regulations of the Act, and otherwise in the form previously agreed. (j) At the Closing Date, the Underwriter shall have received from KPMG Peat Marwick a letter, in form and substance satisfactory to the Underwriter and counsel to the Underwriter and dated as of the Closing Date, to the effect that they reaffirm the statements made in the letter furnished pursuant to Section 8(k), except that the specified date referred to shall be a date not more than five days prior to the Closing Date. (k) At the Closing Date, the Underwriter shall have received a certificate of solvency, dated the Closing Date, signed by the Chairman and Chief Executive Officer and Principal Accounting officer of the Company, substantially in the form previously approved by the Underwriter. 17 (l) Counsel to the Underwriter shall have been furnished with such documents as they may reasonably require for the purpose of enabling them to review or pass upon the matters referred to in this Section 8 and in order to evidence the accuracy, completeness or satisfaction in all material respects of any of the representations, warranties or conditions herein contained. All opinions, certificates, letters and other documents required by this Section 8 to be delivered by the Company and its Subsidiaries will be in compliance with the provisions hereof only if they are reasonably satisfactory in form and substance to the Underwriter. The Company and its Subsidiaries will furnish the Underwriter with such conformed copies of such opinions, certificates, letters and other documents as the Underwriter shall reasonably request. 9. EFFECTIVE DATE OF AGREEMENT AND TERMINATION. This Agreement shall become effective upon the later of (i) execution of this Agreement and (ii) the effectiveness of the Registration Statement. The Underwriter may terminate this Agreement at any time prior to the Closing Date by written notice to the Company if any of the following has occurred: (a) since the respective dates as of which information is given in the Registration Statement and the Prospectus, any material adverse effect or development involving a prospective material adverse effect on the business, condition (financial or other), results of operations, properties or prospects of the Company and its Subsidiaries, taken as a whole, whether or not arising in the ordinary course of business, that would, in the Underwriter's judgment, make it impracticable or inadvisable to proceed with the offering or delivery of the Notes on the terms and in the manner contemplated in the Prospectus, (b) any outbreak or escalation of hostilities or other national or international calamity or crisis or material change in economic conditions, if the effect of such outbreak, escalation, calamity, crisis or change on the financial markets of the United States or elsewhere would, in the Underwriter's judgment, make it impracticable to market the Notes on the terms and in the manner contemplated in the Prospectus, (c) the suspension or material limitation of trading generally in securities on the New York Stock Exchange, the American Stock Exchange or the NASDAQ National Market System or limitation on prices for securities on any such exchange or National Market System, (d) the enactment, publication, decree or other promulgation after the date hereof of any federal or state statute, regulation, rule or order of any court or other governmental authority that in the Underwriter's opinion materially and adversely affects, or will materially and adversely affect, the business, condition (financial or other), results of operations, properties or prospects of the Company and its Subsidiaries, taken as a whole, (e) any securities of the Company or any of its Subsidiaries shall have been downgraded or placed on any "watch list" for possible downgrading by any nationally recognized statistical rating organization, provided, that in the case of such "watch list" placement, termination -------- shall be permitted only if such placement would, in the judgment of any underwriter, make it impracticable or inadvisable to market the Notes or to enforce contracts for the sale of the Notes or materially impair the investment quality of the Notes, 18 (f) the declaration of a banking moratorium by either federal or New York State authorities, or (g) the taking of any action by any federal, state or local government or agency after the date hereof in respect of its monetary or fiscal affairs that in the Underwriter's opinion has a material adverse effect on the financial markets in the United States. In any such case which does not result in termination of this Agreement, you shall have the right to postpone the Closing Date, but in no event for longer than seven days, in order that the required changes, if any, in the Registration Statement and the Prospectus or any other documents or arrangements may be effected. Any action taken under this paragraph shall not relieve any defaulting Underwriter from liability in respect of any default of any such Underwriter under this Agreement. 10. MISCELLANEOUS. (a) Notices given pursuant to any provision of this Agreement shall be addressed as follows: (i) if to the Registrants, c/o Showboat, Inc., 2800 Fremont Street, Las Vegas, Nevada 89104, Attention: J. K. Houssels, with a copy to Kummer Kaempfer Bonner & Renshaw, 3800 Howard Hughes Parkway, Seventh Floor, Las Vegas, Nevada 89109, Attention: John N. Brewer, Esq. and (ii) if to the Underwriter, c/o Donaldson, Lufkin & Jenrette Securities Corporation, 140 Broadway, New York, New York 10005, Attention: Steve Puccinelli, with a copy to Latham & Watkins, 885 Third Avenue, Suite 1000, New York, New York 10022, Attention: Raymond Y. Lin, Esq. (provided that any notice to the Underwriter pursuant to section 7 hereof will be mailed, delivered, telegraphed or telecopied and confirmed to the Underwriter and its counsel), or in any case to such other address as the person to be notified may have requested in writing. (b) The respective indemnities, contribution agreements, representations, warranties and other statements set forth in or made pursuant to this Agreement shall remain operative and in full force and effect, and will survive delivery of and payment for the Notes, regardless of (i) any investigation or statement as to the results thereof, made by or on behalf of any such person, (ii) acceptance of the Notes and payment for them hereunder and (iii) termination of this Agreement. (c) Except as otherwise provided, this Agreement has been and is made solely for the benefit of and shall be binding upon the Registrants, the Underwriter, any controlling persons referred to herein and their respective successors and assigns, all as and to the extent provided in this Agreement, and no other person shall acquire or have any right under or by virtue of this Agreement. The term "successors and assigns" shall not include a purchaser of any of the Notes from the Underwriter merely because of such purchase. (d) This Agreement shall be construed, interpreted and the rights of the parties determined in accordance with the laws of the State of New York without reference to its choice of law provisions. (e) This Agreement may be signed in various counterparts which together shall constitute one and the same instrument. 19 Please confirm that the foregoing correctly sets forth the agreement between the Company and the Underwriter. Very truly yours, SHOWBOAT, INC. By: _____________________________________ Name: Title: Subsidiary Guarantors: OCEAN SHOWBOAT, INC. By: _____________________________________ Name: Title: ATLANTIC CITY SHOWBOAT, INC. By: _____________________________________ Name: Title: SHOWBOAT OPERATING COMPANY By: _____________________________________ Name: Title: 20 Accepted and Agreed to: DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION By: _____________________________________ Name: Title: 21 SCHEDULE I ---------- Aggregate Principal Amount of Senior Subordinated Notes Underwriter to be Purchased - ----------- -------------------- Donaldson, Lufkin & Jenrette $150,000,000 Securities Corporation ____________ Total $150,000,000 ============ 22 EXHIBIT A --------- [LIST OF SUBSIDIARIES] 23 EXHIBIT B --------- [LIST OF AGREEMENTS BETWEEN THE COMPANY AND ITS SUBSIDIARIES] 24 EXHIBIT C --------- Form of Opinion of Kummer Kaempfer Bonner & Renshaw. The Underwriter shall have received on the Closing Date an opinion (satisfactory to the Underwriter and counsel to the Underwriter) dated the Closing Date, of Kummer Kaempfer Bonner & Renshaw, counsel to the Company, to the effect that: (i) Each of the Registrants and the Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, has full corporate power and authority to carry on its business as it is described in the Prospectus and as it is currently being conducted and to own, lease and operate its properties, and is duly qualified and is in good standing as a foreign corporation registered to do business in each jurisdiction in which the nature of its business or its ownership or leasing of property requires such qualification, except where the failure to be so qualified would not have a material adverse effect on the Registrants and the Subsidiaries, taken as a whole. (ii) The authorized, issued and outstanding capital stock of the Company is as set forth in the Registration Statement under the caption "Capitalization" and all of the shares of issued and outstanding capital stock of the Company have been duly authorized and validly issued and are fully paid and non-assessable and, to the knowledge of such counsel, are not subject to preemptive or similar rights. (iii) The authorized capital stock of SBOC consists of [2,500,000] shares of common stock, [$1.00] par value, of which [1,000,000] shares are issued and outstanding. The authorized capital stock of OSI consists of [10,000,000] shares of common stock, [$1.00] par value, of which [10,000,000] shares are issued and outstanding. The authorized capital stock of ACSI consists of [2,500] shares of common stock, no par value, of which [1,500] are issued and outstanding. All shares of such outstanding capital stock of such Subsidiaries of the Company have been duly authorized and validly issued and are fully paid and nonassessable, are not subject to preemptive or similar rights and are currently owned by the Company, free and clear of any security interest, claim, lien or encumbrance, except for the pledge pursuant to the Working Capital Credit Agreement. (iv) There are no outstanding rights, warrants or options to acquire, or instruments convertible into or exchangeable for, any shares of capital stock or other equity interest in the Company (other than pursuant to the 1989 Executive Officer Plan, the 1989 Director Stock Option Plan, the Showboat, Inc. Employee Stock Option Plan and outstanding warrants to purchase 150,000 shares of common stock of the Company), or any Subsidiary. (v) There are no holders of securities of the Company who, by reason of the filing of the Registration Statement under the Act or the execution by the Company of this Agreement, have the right to request or demand that the Company include any such securities in the registration or offering contemplated hereby. (vi) Each of the Registrants has all necessary corporate power and authority to enter into and perform its obligations under this Agreement and the Indenture. The Company 25 has all necessary corporate power and authority to issue, sell and deliver the Notes to the Underwriter to be sold by the Underwriter pursuant hereto. (vii) This Agreement has been duly authorized and validly executed by each of the Registrants. (viii) The Indenture has been duly authorized by each of the Registrants, and when duly executed and delivered by such Registrant (assuming due authorization, execution and delivery thereof by the Trustee thereunder), will be a legally valid and binding obligation of such Registrant, enforceable against such Registrant in accordance with its terms, except as the enforceability thereof may be limited by (1) the effect of bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to or affecting the rights and remedies of creditors, and (2) 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. (ix) The Notes have been duly authorized for issuance and sale by the Company to the Underwriter pursuant to this Agreement and, when issued and authenticated in accordance with the terms of the Indenture and delivered to and paid for by the Underwriter in accordance with the terms hereof, the Notes will be the legally valid and binding obligation of the Company, enforceable against the Company in accordance with their terms and will be entitled to the benefits of the Indenture, except as the enforceability thereof may be limited by (1) the effect of bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to or affecting the rights and remedies of creditors, and (2) 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. (x) The issuance and sale of the Notes by the Company, the execution, delivery and performance of this Agreement and the Indenture by each of the Registrants and compliance by each of the Registrants with the provisions hereof and of the Indenture and the Notes will not conflict with or constitute a breach of any of the terms or provisions of, or a default under, or result in the imposition of a lien or encumbrance on any properties of such Registrant or any of its Subsidiaries, or an acceleration of indebtedness pursuant to (1) the charter or by-laws of such Registrant or any of its Subsidiaries, (2) any bond, debenture, note, indenture, mortgage, deed of trust or other agreement or instrument to which such Registrant or any of its Subsidiaries is a party or by which any of them or their property is bound, or (3) any law or administrative regulation applicable to such Registrant, any of its Subsidiaries or any of their assets or properties, or any judgment, order or decree of any court or governmental agency or authority (including, without limitation, any Gaming Authorities) entered in any proceeding to which such Registrant or any of its Subsidiaries was or is now a party or to which any of them or their respective properties may be subject. (xi) None of the Company, SBOC and their Subsidiaries is, or will be upon the execution and delivery of the Indenture, the issuance and sale of the Notes and the fulfillment of the terms of this Agreement, subject to regulation under any Nevada statute or regulation limiting their respective ability to incur indebtedness for borrowed money, except statutes or regulations applicable generally to business corporations incorporated or doing business in 26 Nevada, and except the Nevada Gaming Control Act, the regulations thereunder and any rules, ordinances or regulations of local regulatory authorities. (xii) The guarantees by OSI, ACSI and SBOC (the "Subsidiary Guarantees") have been duly authorized, executed and delivered by OSI, ACSI and SBOC. The SBOC Guaranty is a valid and binding obligation of SBOC, enforceable against SBOC in accordance with its terms, in each case except as such enforceability may be limited by (i) the effect of bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to or affecting the rights and remedies of creditors 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. (xiii) The execution, delivery and performance of the SBOC Guaranty by SBOC and compliance by such parties with all applicable provisions thereof and the consummation of the transactions contemplated thereby, will not conflict with or constitute a breach of any of the terms or provisions of, or a default under, or result in the imposition of a lien or encumbrance on any properties of the Company, SBOC or any of their Subsidiaries, or an acceleration of indebtedness pursuant to (1) the charter or by-laws of the Company, SBOC or any of their Subsidiaries, (2) any bond, debenture, note, indenture, mortgage, deed of trust or other agreement or instrument to which the Company, SBOC or any of their Subsidiaries is a party or by which any of them or their property is bound, or (3) any law or administrative regulation applicable to the Company, SBOC any of their Subsidiaries or any of their assets or properties, or any judgment, order or decree of any court or governmental agency or authority (including, without limitation, any Gaming Authorities) entered in any proceeding to which the Company, SBOC or any of their Subsidiaries was or is now a party or to which any of them or their respective properties may be subject. (xiv) No consent, approval, authorization or order of, or filing or registration with, any regulatory body, administrative agency, or other governmental agency (including, without limitation, any Gaming Authorities), except as securities or Blue Sky laws of the various states may require, which has not been made or obtained, is required for the execution, delivery and performance of this Agreement, the Indenture and for the valid issuance and sale of Notes to the Underwriter as contemplated by this Agreement or the offering of Notes contemplated by the Prospectus; and no consent, approval, authorization or order of, or filing or registration with, any regulatory body, administrative agency, or other governmental agency (including, without limitation, any Gaming Authorities), except as the securities or Blue Sky laws of the various states may require, which was not made or obtained, was required for the consummation of the transactions (other than future transactions to benefit the Company's existing facilities or to expand into new facilities or gaming jurisdictions for which the net proceeds from the sale of Notes pursuant to this agreement have been reserved) described in the Registration Statement under the caption "Use of Proceeds." (xv) The Indenture has been duly qualified under the Trust Indenture Act. (xvi) The Registration Statement has become effective under the Act. (xvii) Any required filing of the Prospectus, or any supplement thereto, pursuant to Rule 424(b) under the Act has been made in the manner and within the time period required thereunder and, to the best knowledge of such counsel, no stop order suspending the 27 effectiveness of the Registration Statement has been issued and no proceedings for that purpose are pending before or contemplated by the Commission. (xviii) The Registration Statement, as of its effective date, and the Prospectus, as of its date, complied as to form in all material respects with the requirements of the Act, except that in each case such counsel expresses no opinion with respect to the financial statements or other financial data contained in the Registration Statement or the Prospectus or with respect to the Statement of Eligibility of Qualification on Form T-1 of the Trustee under the Indenture. The documents incorporated by reference in the Registration Statement or Prospectus or any amendment or supplement thereto, when they became effective under the Act or were filed with the Commission under the Exchange Act, as the case may be, complied as to form in all materials respects with the requirements of the Act or the Exchange Act, as applicable, and the rules and regulations of the Commission thereunder. There has been no document required to be filed under the Exchange Act and the rules and regulations of the Commission thereunder that upon such filing would be deemed to be incorporated by reference in the Prospectus that has not been so filed. (xix) The Notes and the Indenture conform in all material respects to the descriptions thereof in the Registration Statement. (xx) The statements in the Registration Statement under the caption "Certain Considerations-Regulatory Matters," in Item 15 of the Registration Statement under the caption "Indemnification of Officers and Directors" and in the Annual Report on Form 10-K of the Company for the year ended December 31, 1993 (the "10-K"), and incorporated by reference in the Registration Statement under the caption "Regulation," to the extent they constitute matters of Nevada law, summaries of Nevada legal matters, documents or proceedings, or legal conclusions with respect to Nevada law, have been reviewed by us and are correct summaries in all respects. (xxi) There is no contract or document concerning any of the Registrants or any of the Subsidiaries of a character required to be described in the Registration Statement or in the Prospectus or to be filed as an exhibit to the Registration Statement that is not so described or filed or incorporated by reference therein. (xxii) Neither the Company nor any of its Subsidiaries is in violation of its charter or by-laws, as the case may be, and, to the best knowledge of such counsel after due inquiry, neither the Company nor any of its Subsidiaries is in default in the performance of any obliga-tion, agreement or condition contained in any bond, debenture, note or any other evidence of indebtedness or in any other agreement, indenture or instrument material to the conduct of the business of the Company and its Subsidiaries, taken as a whole, to which the Company or any of its Subsidiaries is a party or by which it or any of its Subsidiaries or their respective property is bound. (xxiii) To the best of such counsel's knowledge, there is (1) no action, suit or proceeding before or by any court, arbitrator or governmental agency (including, without limitation, any Gaming Authority), body or official, domestic or foreign, now pending, threatened or contemplated to which the Company or any of its Subsidiaries is or may be a party or to which the business or property of the Company or any of its Subsidiaries is or may be subject, (2) no statute, rule, regulation (including any gaming statutes and regulations) or 28 order that has been enacted, adopted or issued by any governmental agency or that has been proposed by any governmental body or (3) no injunction, restraining order or order of any nature by a federal or state court of competent jurisdiction to which the Company or any of its Subsidiaries is or may be subject issued that, in the case of clauses (1), (2) and (3) above, (x) is required to be disclosed in the Registration Statement or the Prospectus and that is not so disclosed, (y) would adversely affect the Company, any of its Subsidiaries, or the property of the Company or any of its Subsidiaries in any material respect or (z) would interfere with or adversely affect the issuance of the Notes. (xxiv) Except as otherwise set forth in the Prospectus, or such as would not have a material adverse effect on the Company and its Subsidiaries, taken as a whole, each of the Company and its Subsidiaries has good and marketable title, free and clear of all liens, claims, encumbrances and restrictions (except liens for taxes not yet due and payable and immaterial liens and liens disclosed in the Registration Statement) to all property and assets described in the 10-K and incorporated by reference in the Registration Statement as being owned by it. (xxv) All leases to which each of the Company or any of its Subsidiaries is a party are valid and binding and no default has occurred or is continuing thereunder which might result in any material adverse effect on the Company and its Subsidiaries, taken as a whole, and the Company and the Subsidiaries enjoy peaceful and undisturbed possession under all such leases to which any of them is a party lessee with such exceptions as do not materially interfere with the use made by the Company or such Subsidiary. (xxvi) Except as otherwise set forth in the Registration Statement, each of the Company and its Subsidiaries has such Permits as are necessary to own, lease and operate its respective properties and to conduct its business in the manner described in the Registration Statement. Each of the Company and its Subsidiaries has fulfilled and performed all of its material obligations with respect to such Permits and no event has occurred which allows, or after notice or lapse of time would allow, revocation or termination thereof or which results in any other material impairment of the rights of the holder of any such Permit and such Permits contain no restrictions that are materially burdensome to the Company or any of its Subsidiaries. (xxvii) The indebtedness represented by the Notes is not usurious under any applicable Nevada law. (xxviii) Neither the Company nor any of its Subsidiaries is an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended. (xxix) Neither the issuance, sale or delivery of the Notes nor the application of the proceeds thereof by the Company in accordance with this Agreement will violate Regulations G, T, U or X of the Board of Governors of the Federal Reserve System. In addition, such counsel shall state that it has participated in conferences with representatives of the Company, representatives of the Company's accountants, the Underwriter's representatives and counsel to the Underwriter, at which conferences the contents of the Registration Statement and the Prospectus and related matters were discussed and although such counsel has not independently verified 29 and is not passing upon and assumes no responsibility for the accuracy, completeness or fairness of the statements contained in the Registration Statement and Prospectus (other than those that such counsel must opine on pursuant to Section 8(e) of this Agreement), no facts have come to such counsel's attention which led it to believe that the Registration Statement, on the effective date thereof, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements contained therein, in the light of the circumstances under which they were made, not misleading or that the Prospectus, on the date thereof or on the date of such opinion, contained or contains an untrue statement of a material fact or omitted or omits to state a material fact necessary to make the statements contained therein, in the light of the circumstances under which they were made, not misleading (it being understood that such counsel need express no view with respect to the financial statements and related notes, the financial statement schedules and other financial, statistical and accounting data included in the Registration Statement or Prospectus or incorporated by reference therein or with respect to the Statements of Eligibility of Qualification on Form T-1 of the Trustee under the Indenture). 30 EXHIBIT D --------- Form of Opinion of Thomas Bonner The Underwriter shall have received on the Closing Date and opinion (reasonably satisfactory to the Underwriter and counsel to the Underwriter), dated the Closing Date, of Thomas Bonner, General Counsel of ACSI, to the effect that: (i) Each of OSI, ACSI and their Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, has full corporate power and authority to carry on its business as it is described in the Prospectus and as it is currently being conducted and to own, lease and operate its properties, and is duly qualified and is in good standing as a foreign corporation registered to do business in each jurisdiction in which the nature of its business or its ownership or leasing of property requires such qualification, except where the failure to be so qualified would not have a material adverse effect on OSI, ACSI and their Subsidiaries, taken as a whole. (ii) The authorized, issued and outstanding capital stock of OSI and its Subsidiaries is as set forth in the Form 10-K for OSI for the year ended December 31, 1993, under the caption "OSI, Inc. and Subsidiaries Consolidated Balance Sheets" and all of the shares of issued and outstanding capital stock of OSI and its Subsidiaries have been duly authorized and validly issued and are fully paid and non-assessable and, to the knowledge of such counsel, are not subject to preemptive or similar rights. (iii) The authorized capital stock of ACSI consists of [2,500] shares of common stock, no par value, of which [1,500] shares are issued and outstanding. All of such shares have been duly authorized and validly issued and are fully paid and nonassessable, are not subject to preemptive or similar rights and are currently owned by OSI, free and clear of any security interest, claim, lien or encumbrance. (iv) There are no outstanding rights, warrants or options to acquire, or instruments convertible into or exchangeable for, any shares of capital stock or other equity interest in each of OSI, ACSI or their Subsidiaries. (v) Each of OSI and ACSI has all necessary corporate power and authority to enter into and perform its obligations under this Agreement and the Indenture. (vi) This Agreement has been duly authorized and validly executed by each of OSI and ACSI. (vii) The Indenture has been duly authorized by each of OSI and ACSI, and when duly executed and delivered by OSI and ACSI (assuming due authorization, execution and delivery thereof by the Trustee thereunder), will be a legally valid and binding obligation of each of OSI and ACSI, enforceable against OSI and ACSI in accordance with its terms, except as the enforceability thereof may be limited by (1) the effect of bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to or affecting the rights and remedies of creditors, and (2) the effect of general principles of equity, 31 whether enforcement is considered in a proceeding in equity or at law, and the discretion of the court which any proceeding therefor may be brought. (viii) None of OSI, ACSI and their Subsidiaries is, or will be upon the execution and delivery of Indenture, the issuance and sale of the Notes and the fulfillment of the terms of this Agreement, subject to regulation under any New Jersey statute or regulation limiting their respective ability to incur indebtedness for borrowed money, except statutes or regulations applicable generally to business corporations incorporated or doing business in New Jersey, and except the New Jersey Casino Control Act, the regulations thereunder and any rules, ordinances or regulations of local regulatory authorities. (ix) The Subsidiary Guarantees are valid and binding obligations of OSI and ACSI enforceable against OSI and ACSI in accordance with their terms, except as such enforceability may be limited by (1) the effect of bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to or affecting the rights and remedies of creditors and (2) 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. (x) The execution, delivery and performance of this Agreement, the Indenture and the Subsidiary Guarantees by ACSI and compliance by such parties with all applicable provisions thereof and the consummation of the transactions contemplated thereby will not conflict with or constitute a breach of any of the terms or provisions of, or a default under, or result in the imposition of a lien or encumbrance on any properties of each of OSI, ACSI or any of their Subsidiaries, or an acceleration of indebtedness pursuant to (1) the charter or by-laws of OSI, ACSI or any of their Subsidiaries, (2) any bond, debenture, note, indenture, mortgage, deed of trust or other agreement or instrument to which OSI, ACSI or any of their Subsidiaries is a party or by which any of them or their property is bound or (3) any law or administrative regulation applicable to OSI, ACSI, any of their Subsidiaries or any of their assets or properties, or any judgment, order or decree of any court or governmental agency or authority (including, without limitation, any Gaming Authorities) entered in any proceeding to which OSI, ACSI or any of their Subsidiaries was or is now a party or to which any of them or their respective properties may be subject. (xi) No consent, approval, authorization or order of, or filing or registration with, any regulatory body, administrative agency, or other governmental agency (including, without limitation, any Gaming Authorities), except as securities or Blue Sky laws or the gaming securities laws or regulations of the various states may require, which has not been made or obtained, is required for the execution, delivery and performance of this Agreement and the Indenture; and no consent, approval, authorization or order of, or filing or registration with, any regulatory body, administrative agency, or other governmental agency (including, without limitation, any Gaming Authorities), except as the securities or Blue Sky laws of the various states may require, which was not made or obtained, was required for the consummation of the transactions (other than future transactions to benefit the Company's existing facilities or to expand into new facilities or gaming jurisdictions for which the net proceeds from the sale of the Notes pursuant to this Agreement have been reserved) described in the Registration Statement under the caption "Use of Proceeds." 32 (xii) The statements in the Registration Statement under the caption "Certain Considerations-Regulatory Matters" and in the Annual Report on Form 10-K of the Company for the year ended December 31, 1993 (the "10-K") and incorporated by reference into the Registration Statement, under the caption "Regulation" to the extent they constitute matters of New Jersey law, summaries of New Jersey legal matters, documents or proceedings, or legal conclusions with respect to New Jersey law, have been reviewed by us and are correct summaries in all respects. (xiii) None of OSI, ACSI and any of their Subsidiaries is in violation of its charter or by-laws, as the case may be, and, to the best knowledge of such counsel after due inquiry, none of OSI, ACSI and any of their Subsidiaries is in default in the performance of any obligation, agreement or condition contained in any bond, debenture, note or any other evidence of indebtedness or in any other agreement, indenture or instrument material to the conduct of the business of OSI, ACSI and their Subsidiaries, taken as a whole, to which OSI, ACSI or any of their Subsidiaries is a party or by which it or any of the Subsidiaries or their respective property is bound. (xiv) To the best of such counsel's knowledge, there is (1) no action, suit or proceeding before or by any court, arbitrator or governmental agency (including, without limitation, any Gaming Authority), body or official, domestic or foreign, now pending, threatened or contemplated to which OSI, ACSI or any of their Subsidiaries is or may be a party or to which the business or property of OSI, ACSI or any of their Subsidiaries is or may be subject, (2) no statute, rule, regulation (including gaming statutes and regulations) or order that has been enacted, adopted or issued by any governmental agency or that has been proposed by any governmental body or (3) no injunction, restraining order or order of any nature by a federal or state court of competent jurisdiction to which OSI, ACSI or any of their Subsidiaries is or may be subject issued that, in the case of clauses (1), (2) and (3) above (x) is required to be disclosed in the Registration Statement or the Prospectus and that is not so disclosed, (y) might adversely affect OSI, ACSI or any of their Subsidiaries, or the property of OSI, ACSI or any of their Subsidiaries in any material respect or (z) would interfere with or adversely affect the issuance of the Notes. (xv) Except as otherwise set forth in the Prospectus, or such as would not have a material adverse effect on OSI, ACSI and their Subsidiaries, taken as a whole, each of OSI, ACSI and their Subsidiaries has good and marketable title, free and clear of all liens, claims, encumbrances and restrictions (except liens for taxes not yet due and payable and immaterial liens and liens disclosed in the Registration Statement) to all property and assets described in the 10-K and incorporated by reference in the Registration Statement as being owned by them. (xvi) All leases to which each of OSI, ACSI or any of their Subsidiaries is a party are valid and binding and no default has occurred or is continuing thereunder which might result in any material adverse effect on OSI, ACSI and their Subsidiaries, taken as a whole, and OSI, ACSI and their Subsidiaries enjoy peaceful and undisturbed possession under all such leases to which any of them is a party lessee with such exceptions as do not materially interfere with the use made by each of OSI, ACSI or their Subsidiaries. (xvii) Each of OSI, ACSI and their Subsidiaries has such Permits as are necessary to own, lease and operate its respective properties and to conduct its business in the manner 33 described in the Registration Statement. Each of OSI, ACSI and their Subsidiaries has fulfilled and performed all of its material obligations with respect to such Permits and no event has occurred which allows, or after notice or lapse of time would allow, revocation or termination thereof or which results in any other material impairment of the rights of the holder of any such Permit and such Permits contain no restrictions that are materially burdensome to OSI, ACSI or any of their Subsidiaries. (xviii) The indebtedness represented by the promissory note issued by ACSI in favor of the Company is not usurious under any applicable New Jersey law. (xix) Neither OSI, ACSI nor any of their Subsidiaries is an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended. 34 EX-4 3 INDENTURE Exhibit 4.06 DRAFT 6/28/94 ================================================================================ SHOWBOAT, INC. __% SENIOR SUBORDINATED NOTES DUE 2009 INDENTURE Dated as of ________ __, 1994 [___________________] Trustee ================================================================================ CROSS-REFERENCE TABLE*
Trust Indenture Act Section Indenture Section 310 (a)(1)........................................................................... 7.10 (a)(2)........................................................................... 7.10 (a)(3) .......................................................................... N.A. (a)(4)........................................................................... N.A. (a)(5)........................................................................... 7.10 (b) ............................................................................. 7.10 (c) ............................................................................. N.A. 311 (a) ............................................................................. 7.11 (b) ............................................................................. 7.11 (c) ............................................................................. N.A. 312 (a).............................................................................. 2.05 (b).............................................................................. 12.03 (c) ............................................................................. 12.03 313 (a) ............................................................................. 7.06 (b)(1) .......................................................................... 7.06 (b)(2) .......................................................................... 7.06;7.07 (c) ............................................................................. 7.06;12.02 (d).............................................................................. 7.06 314 (a) ............................................................................. 4.03;12.02 (b) ............................................................................. N.A. (c)(1) .......................................................................... 12.04 (c)(2) .......................................................................... 12.04 (c)(3) .......................................................................... N.A. (d).............................................................................. N.A. (e) ............................................................................ 12.05 (f).............................................................................. N.A. 315 (a).............................................................................. 7.01 (b).............................................................................. 7.05,12.02 (c) ............................................................................ 7.01 (d).............................................................................. 7.01 (e).............................................................................. 6.11 316 (a)(last sentence) .............................................................. 2.09 (a)(1)(A)........................................................................ 6.05 (a)(1)(B) ....................................................................... 6.04 (a)(2) .......................................................................... N.A. (b) ............................................................................. 6.07 (c) ............................................................................. 2.13 317 (a)(1) .......................................................................... 6.08 (a)(2)........................................................................... 6.09 (b) ............................................................................. 2.04 318 (a).............................................................................. 12.01 (b).............................................................................. N.A. (c).............................................................................. 12.01
N.A. means not applicable. *This Cross-Reference Table is not part of the Indenture. TABLE OF CONTENTS
Page ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.01. Definitions............................................................. 1 Section 1.02. Other Definitions....................................................... 13 Section 1.03. Incorporation by Reference of Trust Indenture Act....................... 13 Section 1.04. Rules of Construction................................................... 14 ARTICLE 2 THE NOTES Section 2.01. Form and Dating......................................................... 14 Section 2.02. Execution and Authentication............................................ 15 Section 2.03. Registrar and Paying Agent.............................................. 15 Section 2.04. Paying Agent to Hold Money in Trust..................................... 15 Section 2.05. Lists of Holders........................................................ 16 Section 2.06. Transfer and Exchange................................................... 16 Section 2.07. Replacement Notes....................................................... 17 Section 2.08. Outstanding Notes....................................................... 17 Section 2.09. Treasury Notes.......................................................... 17 Section 2.10. Temporary Notes......................................................... 18 Section 2.11. Cancellation............................................................ 18 Section 2.12. Defaulted Interest...................................................... 18 Section 2.13. Record Date............................................................. 18 Section 2.14. CUSIP Number............................................................ 18 ARTICLE 3 REDEMPTION AND OFFERS TO PURCHASE Section 3.01. Notices to Trustee...................................................... 19 Section 3.02. Selection of Notes to Be Purchased or Redeemed.......................... 19 Section 3.03. Notice of Redemption.................................................... 20 Section 3.04. Effect of Notice of Redemption.......................................... 20 Section 3.05. Deposit of Redemption or Purchase Price................................. 20 Section 3.06. Notes Redeemed or Purchased in Part..................................... 21 Section 3.07. Optional Redemption..................................................... 21 Section 3.08. Mandatory Redemption.................................................... 22 Section 3.09. Offers to Purchase...................................................... 22 ARTICLE 4 COVENANTS Section 4.01. Payment of Notes........................................................ 24 Section 4.02. Maintenance of Office or Agency......................................... 24 Section 4.03. Reports................................................................. 25 Section 4.04. Compliance Certificate.................................................. 25 Section 4.05. Taxes................................................................... 25 Section 4.06. Stay, Extension and Usury Laws.......................................... 26 Section 4.07. Restricted Payments..................................................... 26 Section 4.08. Dividend and Other Payment Restrictions Affecting Subsidiaries............................................................ 28
i Section 4.09. Incurrence of Indebtedness and Issuance of Disqualified Stock...................................................... 28 Section 4.10. Asset Sales............................................................. 29 Section 4.11. Transactions with Affiliates............................................ 30 Section 4.12. Liens................................................................... 31 Section 4.13. Additional Subsidiary Guarantees........................................ 31 Section 4.14. Redesignation of Non-Recourse Subsidiary................................ 31 Section 4.15. Offer to Purchase Upon Change of Control................................ 32 Section 4.16. Corporate Existence..................................................... 32 Section 4.17. Line of Business........................................................ 32 Section 4.18. No Senior Subordinated Indebtedness..................................... 33 Section 4.19. Escrow Agent............................................................ 33 ARTICLE 5 SUCCESSORS Section 5.01. Merger, Consolidation, or Sale of Assets................................ 33 Section 5.02. Successor Corporation Substituted....................................... 34 ARTICLE 6 DEFAULTS AND REMEDIES Section 6.01. Events of Default....................................................... 34 Section 6.02. Acceleration............................................................ 36 Section 6.03. Other Remedies.......................................................... 37 Section 6.04. Waiver of Past Defaults................................................. 37 Section 6.05. Control by Majority..................................................... 37 Section 6.06. Limitation on Suits..................................................... 37 Section 6.07. Rights of Holders of Notes to Receive Payment........................... 38 Section 6.08. Collection Suit by Trustee.............................................. 38 Section 6.09. Trustee May File Proofs of Claim........................................ 38 Section 6.10. Priorities.............................................................. 39 Section 6.11. Undertaking for Costs................................................... 39 ARTICLE 7 TRUSTEE Section 7.01. Duties of Trustee....................................................... 40 Section 7.02. Rights of Trustee....................................................... 41 Section 7.03. Individual Rights of Trustee............................................ 41 Section 7.04. Trustee's Disclaimer.................................................... 41 Section 7.05. Notice of Defaults...................................................... 41 Section 7.06. Reports by Trustee to Holders........................................... 42 Section 7.07. Compensation and Indemnity.............................................. 42 Section 7.08. Replacement of Trustee.................................................. 43 Section 7.09. Successor Trustee by Merger, etc........................................ 44 Section 7.10. Eligibility; Disqualification........................................... 44 Section 7.11. Preferential Collection of Claims Against Company....................... 44 ARTICLE 8 LEGAL DEFEASANCE AND COVENANT DEFEASANCE Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance.............................................................. 44 Section 8.02. Legal Defeasance and Discharge.......................................... 44
ii Section 8.03. Covenant Defeasance..................................................... 45 Section 8.04. Conditions to Legal or Covenant Defeasance.............................. 45 Section 8.05. Deposited Money and U.S. Government Obligations to be Held in Trust; Other Miscellaneous Provisions..................... 47 Section 8.06. Repayment to Company.................................................... 47 Section 8.07. Reinstatement........................................................... 47 ARTICLE 9 AMENDMENT, SUPPLEMENT AND WAIVER Section 9.01. Without Consent of Holders of Notes..................................... 48 Section 9.02. With Consent of Holders of Notes........................................ 48 Section 9.03. Compliance with Trust Indenture Act..................................... 50 Section 9.04. Revocation and Effect of Consents....................................... 50 Section 9.05. Notation on or Exchange of Notes........................................ 50 Section 9.06. Trustee to Sign Amendments, etc......................................... 50 ARTICLE 10 SUBSIDIARY GUARANTEES Section 10.01. Subsidiary Guarantee.................................................... 51 Section 10.02. Subordination........................................................... 52 Section 10.03. Liquidation; Dissolution; Bankruptcy.................................... 52 Section 10.04. Default on Senior Debt of the Guarantor................................. 53 Section 10.05. Acceleration of Notes................................................... 53 Section 10.06. When Distribution Must Be Paid Over..................................... 53 Section 10.07. Notice by a Guarantor................................................... 54 Section 10.08. Subrogation............................................................. 54 Section 10.09. Relative Rights......................................................... 54 Section 10.10. Subordination May Not Be Impaired By Any Guarantor............................................................... 55 Section 10.11. Distribution or Notice to Representative................................ 55 Section 10.12. Rights of Trustee and Paying Agent...................................... 55 Section 10.13. Authorization to Effect Subordination................................... 56 Section 10.14. Limitation of Guarantor's Liability..................................... 56 Section 10.15. Releases Following Sale of Assets....................................... 56 ARTICLE 11 SUBORDINATION Section 11.01. Subordination........................................................... 56 Section 11.02. Liquidation; Dissolution; Bankruptcy.................................... 57 Section 11.03. Default on Senior Debt.................................................. 57 Section 11.04. Acceleration of Notes................................................... 58 Section 11.05. When Distribution Must Be Paid Over..................................... 58 Section 11.06. Notice by Company....................................................... 58 Section 11.07. Subrogation............................................................. 59 Section 11.08. Relative Rights......................................................... 59 Section 11.09. Subordination May Not Be Impaired By Company............................ 59 Section 11.10. Distribution or Notice to Representative................................ 59 Section 11.11. Rights of Trustee and Paying Agent...................................... 60 Section 11.12. Authorization to Effect Subordination................................... 60 ARTICLE 12 MISCELLANEOUS
iii Section 12.01. Trust Indenture Act Controls............................................ 60 Section 12.02. Notices................................................................. 60 Section 12.03. Communication by Holders of Notes with Other Holders of Notes........................................................ 61 Section 12.04. Certificate and Opinion as to Conditions Precedent...................... 61 Section 12.05. Statements Required in Certificate or Opinion........................... 62 Section 12.06. Rules by Trustee and Agents............................................. 62 Section 12.07. No Personal Liability of Directors, Officers, Employees and Stockholders.............................................. 62 Section 12.08. Governing Law........................................................... 62 Section 12.09. No Adverse Interpretation of Other Agreements........................... 63 Section 12.10. Successors.............................................................. 63 Section 12.11. Severability............................................................ 63 Section 12.12. Counterpart Originals................................................... 63 Section 12.13. Table of Contents, Headings, etc........................................ 63 EXHIBITS Exhibit A FORM OF NOTE Exhibit B FORM OF SUPPLEMENTAL INDENTURE Exhibit C FORM OF NOTATION ON SENIOR SUBORDINATED NOTE RELATING TO NOTE GUARANTEE Exhibit D FORM OF ESCROW AGREEMENT
iv INDENTURE dated as of __________, 1994 between Showboat, Inc. a Nevada corporation (the "Company"), Atlantic City Showboat, Inc., a New Jersey corporation ("ACSI"), Ocean Showboat, Inc., a New Jersey corporation ("OSI") and Showboat Operating Company, a Nevada corporation ("SBOC", and together with ACSI and OSI, the "Guarantors") and ____________________, as trustee (the "Trustee"). The Company and the Trustee agree as follows for the benefit of each other and for the equal and ratable benefit of the Holders of the __% Senior Subordinated Notes due 2009: ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.01. Definitions. "Affiliate" of any specified Person means any other individual, corporation, partnership, trust, incorporated or unincorporated association, joint venture, joint stock company, government or other entity of any kind directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided, however, that beneficial ownership of 10% or more of the voting securities of a Person shall be deemed to be control. "Agent" means any Registrar, Paying Agent or co-registrar. "Asset Sale" means (i) the sale, lease, conveyance, transfer or other disposition (whether in a single transaction or a series of related transactions) of property or assets (including by way of a sale and leaseback) of the Company or any Restricted Subsidiary (each referred to in this definition as a "disposition") or (ii) the issuance or sale of Equity Interests of any Restricted Subsidiary (whether in a single transaction or a series of related transactions) in each case, other than (a) a disposition of inventory in the ordinary course of business, (b) the disposition of all or substantially all of the assets of the Company in a manner permitted pursuant to the provisions described above under "Merger, Consolidation or Sale of Assets" and "Offer to Purchase Upon Change of Control," (c) any disposition that is a Restricted Payment or that is a dividend or distribution permitted under the covenant described above under "Restricted Payments" or any Investment that is not prohibited thereunder or any disposition of cash or Cash Equivalents, and (d) any single disposition, or related series of dispositions, of assets with an aggregate fair market value of less than $3.0 million. "Atlantic City Showboat" means (i) all of ACSI's interest in its hotel casino and related properties located at 801 Boardwalk, Atlantic City, New Jersey and any Project Expansion relating thereto and (ii) any contiguous property acquired by the Company or any of its Subsidiaries and any Project Expansion relating thereto. "Australian Gaming Approval" means the official selection of SHCL (or a Subsidiary of SHCL) as the sole licensee or operator of a casino gaming operation in Sydney, Australia. "Bankruptcy Law" means Title 11, U.S. Code or any similar federal or state law for the relief of debtors. "Board of Directors" means the Board of Directors of the Company, or any authorized committee of the Board of Directors. "Business Day" means any day other than a Legal Holiday. "Capital Stock" means any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, including, without limitation, partnership interests. "Cash Equivalents" means (i) United States dollars, (ii) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof having maturities of not more than six months from the date of acquisition, (iii) certificates of deposit and eurodollar time deposits with maturities of six months or less from the date of acquisition, bankers' acceptances with maturities not exceeding six months from the date of acquisition and overnight bank deposits, in each case with any domestic commercial bank having capital and surplus in excess of $500 million, (iv) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (ii) and (iii) entered into with any financial institution meeting the qualifications specified in clause (iii) above and (v) commercial paper having a rating of P-2 or the equivalent thereof by Moody's Investors Service, Inc. or A-2 or the equivalent thereof by Standard & Poor's Corporation and in each case maturing within six months after the date of acquisition. "Change of Control" means the occurrence of any of the following events: (i) the sale, lease, transfer, conveyance or other disposition, in one or a series of related transactions, of all or substantially all of the assets of the Company and its Subsidiaries, taken as a whole; (ii) the liquidation or dissolution of the Company; (iii) the Company becomes aware of (by way of a report or any other filing pursuant to Section 13(d) of the Exchange Act, proxy vote, written notice or otherwise) the acquisition by any "person" or related group (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, or any successor provision to either of the foregoing, including any "group" acting for the purpose of acquiring, holding or disposing of securities within the meaning of Rule 13d-5(b)(1) under the Exchange Act), other than the Company's Existing Management, in a single transaction or in a related series of transactions, by way of merger, consolidation or other business combination or purchase of beneficial ownership (within the meaning of Rule 13d- 3 under the Exchange Act, or any successor provision) of 30% or more of the total voting power entitled to vote in the election of the Board of Directors of the Company or such other Person surviving the transaction; or (iv) during any period of two consecutive years, individuals who at the beginning of such period constituted the Company's Board of Directors (together with any new directors whose election or appointment by such board or whose nomination for election by the shareholders of the Company was approved by a vote of a majority of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Company's Board of Directors then in office. "Company" means the party named as such in the recitals to this Indenture until a successor replaces it pursuant to this Indenture and thereafter means the successor. "Consolidated Cash Flow" means, with respect to any Person for any period, the Consolidated Net Income of such Person and its Restricted Subsidiaries for such period plus (a) an amount equal to any extraordinary loss plus any net loss realized in connection with an Asset Sale (to the extent such losses were deducted in computing Consolidated Net Income), plus (b) provision for taxes based on income or profits to the extent such provision for taxes was included in computing Consolidated Net Income, plus (c) consolidated interest expense of such Person for such period, whether paid or accrued 2 (including amortization of original issue discount, non-cash interest payments, amortization of deferred financing charges and the interest component of capital lease obligations), to the extent such expense was deducted in computing Consolidated Net Income, plus (d) depreciation, amortization (including amortization of goodwill and other intangibles) and other non-cash charges (excluding any such non-cash charge that requires an accrual of or reserve for cash charges for any future period and excluding any such non-cash charge that is included in consolidated interest expense or consolidated tax expense) of such Person for such period to the extent such depreciation, amortization and other non-cash charges were deducted in computing Consolidated Net Income, in each case, on a consolidated basis for such Person and its Restricted Subsidiaries and determined in accordance with GAAP. "Consolidated Net Income" means, with respect to any Person for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP, provided, that (i) the Net Income of any Person that is not a Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid to the referent Person or a Wholly Owned Subsidiary, (ii) the Net Income of any Person that is a Subsidiary (other than a Subsidiary of which at least 80% of the Capital Stock having ordinary voting power for the election of directors or other governing body of such Subsidiary is owned by the referent Person directly or indirectly through one or more Subsidiaries) shall be included only to the extent of the amount of dividends or distributions paid to the referent Person, (iii) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded, and (iv) the cumulative effect of a change in accounting principles shall be excluded. "Consolidated Net Worth" means, with respect to any Person, the sum of (i) the consolidated equity of the common stockholders of such Person and its consolidated Subsidiaries plus (ii) the respective amounts reported on such Person's most recent balance sheet with respect to any series of preferred stock (other than Disqualified Stock) that by its terms is not entitled to the payment of dividends unless such dividends may be declared and paid only out of net earnings in respect of the year of such declaration and payment, but only to the extent of any cash received by such Person upon issuance of such preferred stock, less (x) all write-ups (other than write-ups resulting from foreign currency translations and write-ups of tangible assets of a going concern business made within 12 months after the acquisition of such business) subsequent to the date of the Indenture in the book value of any asset owned by such Person or a consolidated Subsidiary of such Person, (y) all investments in unconsolidated Subsidiaries and in Persons that are not Subsidiaries (except, in each case, Permitted Investments), and (z) all unamortized debt discount and expense and unamortized deferred charges, all of the foregoing determined in accordance with GAAP. "Controlled Entity" means any of (a) SHCL, (b) any Non-Recourse Subsidiary of the Company, including Showboat Star Partnership and Showboat Marina Partnership, provided that the Company or a Subsidiary of the Company owns at least 50% of the outstanding Capital Stock of such Non-Recourse Subsidiary, and which is designated by the Company as a Controlled Entity or (c) any Qualified Native American Gaming Project, including the Qualified Native American Project to be managed by Showboat Mohawk Investment Limited Partnership, provided that in each case: (i) each Subsidiary of the Company that owns, directly or indirectly (through one or more Subsidiaries), any Capital Stock of such Controlled Entity shall become a Guarantor of the Notes by executing a Subsidiary Guarantee; and (ii) such Controlled Entity is a Managed Entity or a Subsidiary of such Controlled Entity which is engaged in gaming activities is a Managed Entity. 3 "Corporate Trust Office of the Trustee" shall be at the address of the Trustee specified in Section 12.02 hereof or such other address as to which the Trustee may give notice to the Company. "Custodian" means any receiver, trustee, assignee, liquidator or similar official under any Bankruptcy Law. "Default" means any event that is or with the passage of time or the giving of notice or both would be an Event of Default. "Designated Senior Debt" means, with respect to any Person, (i) the First Mortgage Bonds and (ii) any other Senior Debt of such Person permitted under the Indenture the principal amount of which is $50.0 million or more or which is pari passu in right of payment to the First Mortgage Bonds and is secured by substantially the same collateral. "Disqualified Stock" means any Capital Stock which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder thereof, in whole or in part, on or prior to , 2009. "Distribution" means, for purposes of Articles 10 and 11, a distribution consisting of cash, securities or other property, by set-off or otherwise. "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "Escrow Agreement" means the Escrow Agreement between the Company and ______________, as escrow agent, substantially in the form of Exhibit D hereto. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Excess Non-Recourse Subsidiary Cash Proceeds" means 50% of all cash received by the Company or any Restricted Subsidiary from any Non-Recourse Subsidiary (other than cash that is or may be required to be returned or repaid to such Non-Recourse Subsidiary) in excess of $125 million in the aggregate. "Existing Hotel Casinos" means the Las Vegas Showboat and the Atlantic City Showboat. "Existing Indebtedness" means Indebtedness of the Company or its Restricted Subsidiaries (other than under the Working Capital Credit Agreement) in existence on the date of the Indenture, until such amounts are repaid, including without limitation, the First Mortgage Bonds. "Existing Management" means J. K. Houssels, members of his family and his estate. "First Mortgage Bond Indenture" means the Indenture, dated as of May 18, 1993, among the Company, the Guarantors and IBJ Schroeder Bank & Trust Company, as amended, pursuant to which the First Mortgage Bonds were issued. 4 "Fixed Charges" means, with respect to any Person for any period, the sum of (a) consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued, to the extent such expense was deducted in computing Consolidated Net Income (including amortization of original issue discount, non-cash interest payments and the interest component of capital leases but excluding amortization of deferred financing fees and excluding capitalized interest) and (b) the product of (i) all cash dividend payments (and non-cash dividend payments in the case of a Person that is a Subsidiary) on any series of preferred stock of such Person, times (ii) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal, in each case, on a consolidated basis for such Person and its Restricted Subsidiaries and in accordance with GAAP. "Fixed Charge Coverage Ratio" means with respect to any Person for any period, the ratio of the Consolidated Cash Flow of such Person for such period to the Fixed Charges of such Person for such period; provided that (a) in the event that the Company or any of its Restricted Subsidiaries incurs, assumes, guarantees or redeems any Indebtedness (other than revolving credit borrowings) or issues preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated but prior to the event for which the calculation of the Fixed Charge Coverage Ratio is made, then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such incurrence, assumption, guarantee or redemption of Indebtedness, or such issuance or redemption of preferred stock, as if the same had occurred at the beginning of the applicable period, (b) in making such computation, the Fixed Charges of such Person attributable to interest on any Indebtedness bearing a floating interest rate shall be computed on a pro forma basis as if the rate in effect on the date of computation had been the applicable rate for the entire period, (c) in making such computation, the Fixed Charges of such Person attributable to interest on any Indebtedness under a revolving credit facility shall be computed on a pro forma basis based upon the average daily balance of such Indebtedness outstanding during the applicable period, (d) in the event that the Company or any of its Restricted Subsidiaries consummates a Material Acquisition or an Asset Sale subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated, then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such material acquisition or Asset Sale (including the incurrence of any Indebtedness in connection therewith), as if the same had occurred at the beginning of the applicable period and in the event that the Company or any of its Restricted Subsidiaries purchases any assets or property (including the real property on which the Atlantic City Showboat is situated) which was previously leased by the Company or any of its Restricted Subsidiaries subsequent to the commencement of the period for which the calculation of the Fixed Charge Coverage Ratio is being calculated but prior to the event for which the calculation of the Fixed Charge Coverage Ratio is made, then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such purchase as if the same had occurred at the beginning of the applicable period. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as approved by a significant segment of the accounting profession, which are in effect from time to time. "Gaming Authority" means any agency, authority, board, bureau, commission, department, office or instrumentality of any nature whatsoever of the United States federal or foreign government, any state, province or any city or other political subdivision or otherwise and whether now or hereafter in existence, or any officer or official thereof, including, without limitation, the Nevada Gaming Commission, the Nevada State Gaming Control Board, the City Council of the City of Las Vegas, and 5 the New Jersey Casino Control Commission with authority to regulate any gaming operation (or proposed gaming operation) owned, managed or operated by the Company or any of its Subsidiaries. "Gaming Related Business" means the gaming business and other businesses necessary for, incident to, connected with or arising out of the gaming business (including developing and operating lodging facilities, sports or entertainment facilities, transportation services or other related activities or enterprises and any additions or improvements thereto). "Guarantors" means each of (i) SBOC, OSI and ACSI and (ii) any other Subsidiary that executes a Subsidiary Guarantee in accordance with the provisions of the Indenture, and their respective successors and assigns until any of them shall be released from their obligations as a Guarantor pursuant to the terms of this Indenture. "Hedging Obligations" means, with respect to any Person, the obligations of such Person under (i) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements and (ii) other agreements or arrangements designed to protect such Person against fluctuations in interest rates. "Holder" means a Person in whose name a Note is registered. "Indebtedness" of any Person means, without duplication, (i) the principal of and premium (if any) in respect of (A) indebtedness of such Person for money borrowed and (B) indebtedness evidenced by notes, debentures, bonds or other similar instruments for the payment of which such Person is responsible or liable; (ii) all capitalized lease obligations of such Person; (iii) all obligations of such Person issued or assumed as the deferred purchase price of property, all conditional sale obligations of such Person and all obligations of such Person under any title retention agreement (but excluding trade accounts payable arising in the ordinary course of business); (iv) all obligations of such Person for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction (other than obligations with respect to letters of credit securing obligations (other than obligations described in clauses (i), (ii) and (iii) above) entered into in the ordinary course of business of such Person to the extent such letters of credit are not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no later than the third business day following receipt by such Person of a demand for reimbursement following payment on the letter of credit); (v) the amount of all obligations of such Person with respect to the redemption, repayment or other repurchase of any Disqualified Stock (but excluding any accrued distributions or dividends); (vi) all obligations existing at the time under Hedging Obligations, foreign currency hedges and similar agreements; (vii) all obligations of the type referred to in clauses (i) through (vi) of other Persons and all dividends and distributions of other Persons for the payment of which, in either case, such Person is responsible or liable as obligor, guarantor or otherwise; and (viii) all obligations of the type referred to in clauses (i) through (vi) of other Persons secured by any Lien on any property or asset of such Person (whether or not such obligation is assumed by such Person), the amount of such obligation being deemed to be the lesser of the value of such property or assets or the amount of the obligation so secured. "Indenture" means this Indenture, as amended or supplemented from time to time. "Investment Grade Securities" means (i) Marketable Securities, (ii) any other debt securities or debt instruments with a rating of "BBB-" (the lowest investment grade rating by S&P) or higher by S&P, "Baa-3" (the lowest investment grade rating by Moody's) or higher by Moody's or the equivalent of such rating by any other nationally recognized securities rating agency, and (iii) any fund investing exclusively in investments of the types described in clauses (i) and (ii) above. 6 "Investment Guarantee" means, with respect to any Person, any direct or indirect liability, contingent or otherwise, of such Person with respect to any Indebtedness of another Person, including, without limitation, any Indebtedness directly or indirectly guaranteed, endorsed (otherwise than for collection or deposit in the ordinary course of business) or discounted or sold with recourse by such Person, or in respect of which such Person is otherwise directly or indirectly liable, or any other obligation under which any contract which, in economic effect, is substantially equivalent to a guarantee, including, without limitation, any Indebtedness of a partnership in which such Person is a general partner or of a joint venture in which such Person is a joint venturer, and any Indebtedness in effect guaranteed by such Person through any agreement (contingent or otherwise) to purchase, repurchase or otherwise acquire such Indebtedness or any security therefor, or to provide funds for the payment or discharge of such Indebtedness (whether in the form of loans, advances, stock purchases, capital contributions or otherwise), or to maintain the solvency or any balance sheet or other financial condition of the obligor of such Indebtedness, or to make payment for any products, materials or supplies or for any transportation or services regardless of the non-delivery or nonfurnishing thereof, in any such case if the purpose or intent of such agreement is to provide assurance that such Indebtedness will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such Indebtedness will be protected against loss in respect thereof. "Investments" means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the forms of loans, Investment Guarantees, advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities and all other items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. "Issue Date" means , 1994, the date on which the Notes are first authenticated and issued. "Las Vegas Showboat" means (i) the Company's hotel casino and related properties at 2800 Fremont Street, Las Vegas, Nevada and any Project Expansion relating thereto and (ii) any contiguous property acquired by the Company or any of its Subsidiaries and any Project Expansion relating thereto. "Legal Holiday" means a Saturday, a Sunday or a day on which banking institutions in the City of New York or at a place of payment are authorized by law, regulation or executive order to remain closed. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction). "Managed Entity" mean either (i) any Person that is not under Third-Party Management, so long as such Person is not under Third-Party Management or (ii) a Person that the Company or any Subsidiary has a contract to manage the day-to- day gaming operations and affairs, so long as such contract remains in effect. 7 "Management Contract Approval" means, with respect to the Sydney Harbour Casino, a binding agreement with SHCL that provides that the Company or a Person at least 80% of whose equity interests are owned by the Company or a wholly- owned Subsidiary (other than a Non-Recourse Subsidiary) will manage the gaming operations of the Sydney Harbour Casino for a period of not less than 12 years. "Marketable Securities" means (1) U.S. Government Obligations; (2) any certificate of deposit, maturing not more than 270 days after the date of acquisition, issued by, or time deposit of, a commercial banking institution that has combined capital and surplus of not less than $100,000,000 or its equivalent in foreign currency, whose debt is rated at the time as of which any investment is made, of "A" (or higher) according to S&P or Moody's, or if none of S&P or Moody's shall then exist, the equivalent of such rating by any other nationally recognized securities rating agency; (3) commercial paper, maturing not more than 270 days after the date of acquisition, issued by a corporation (other than an Affiliate or Subsidiary of the Company) with a rating, at the time as of which any investment therein is made, of "A-1" (indicating that the degree of timely payment is strong) (or higher) according to S&P or "P-1" (having a superior capacity for punctual repayment of short-term promissory obligations) (or higher) according to Moody's, or if neither of S&P and Moody's shall then exist, the equivalent of such rating by any other nationally recognized securities ratings agency; (4) any bankers acceptances or any money market deposit accounts, in each case, issued or offered by any commercial bank having capital and surplus in excess of $100,000,000 or its equivalent in foreign currency, whose debt is rated at the time as of which any investment there is made of "A" (an upper medium grade bond obligation) (or higher) according to S&P or Moody's, or if none of S&P or Moody's shall then exist, the equivalent of such rating by any other nationally recognized securities rating agency and (5) any fund investing exclusively in investments of the types described in clauses (1) through (4) above, and if such fund has at least $500,000,000 under management, including investments in repurchase obligations of the foregoing investments. "Material Acquisition" means any acquisition of a business, including the acquisition of operating commercial real estate, that has a fair market value in excess of $3.0 million and which the Company intends to continue to operate. "Net Income" means, with respect to any Person, the net income (loss) of such Person, determined in accordance with GAAP, excluding, however, (i) any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with any Asset Sale (including, without limitation, dispositions pursuant to sale and leaseback transactions) and (ii) any extraordinary gain (but not loss), together with any related provision for taxes on such extraordinary gain (but not loss). "Net Proceeds" means the aggregate cash proceeds received by the Company or any of its Restricted Subsidiaries in respect of any Asset Sale (including insurance proceeds), net of the direct costs relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees, and sales commissions) and any relocation expenses incurred as a result thereof, taxes paid or payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements), amounts required to be applied to the repayment of Indebtedness secured by a Lien on the asset or assets which are the subject of such Asset Sale and any reserve for adjustment in respect of the sale price of such asset or assets. "Non-Recourse Debt" means Indebtedness or that portion of Indebtedness (a) as to which none of the Company, the Guarantors and any of their respective Restricted Subsidiaries: (i) provides credit support (including any undertaking, agreement or instrument which would constitute Indebtedness); (ii) is directly or indirectly liable; and (iii) constitutes the lender; and (b) no default with respect to which 8 (including any rights which the holders thereof may have to take enforcement action against a Non-Recourse Subsidiary) would permit (upon notice, lapse of time or both) any holder of any other Indebtedness of the Company, the Guarantors or any of their respective Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity. "Non-Recourse Subsidiary" means any Non-Recourse Subsidiary under the First Mortgage Bonds on the Issue Date and (i) a Subsidiary or (ii) any entity in which the Company or any of its Subsidiaries has an equity investment and pursuant to a contract or otherwise has the right to direct the day-to-day operation of such entity that, in the case of (i) or (ii), (a) at the time of its designation as a Non-Recourse Subsidiary has not acquired any assets (other than as specifically permitted by the "Restricted Payments" covenant), at any previous time, directly or indirectly from the Company, any of the Guarantors, or any of their respective Subsidiaries, (b) does not own, operate or manage any portion or any Existing Hotel Casino on the Issue Date, and (c) has no Indebtedness other than Non-Recourse Indebtedness, provided that at the time of such designation, after giving pro forma effect to such designation as if it occurred at the beginning of the applicable four-quarter period, the Company's Fixed Charge Coverage Ratio is not less than 70% of the Company's Fixed Charge Coverage Ratio immediately prior to such designation. "Notes" means the ___% Senior Subordinated Notes due 2009, as amended or supplemented from time to time pursuant to the terms of this Indenture, that are issued under this Indenture. "Obligations" means any principal, premium, interest (including post- petition interest), penalties, fees, indemnifications, reimbursements, damages and other monetary liabilities payable under the documentation governing any Indebtedness. "Officer" means, with respect to any Person, the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary or any Vice President of such Person. "Officers' Certificate" means a certificate signed on behalf of the Company by two Officers of the Company, one of whom must be the principal executive officer, the principal financial officer, the treasurer or the principal accounting officer of the Company, that meets the requirements of Section 12.05 hereof. "Opinion of Counsel" means an opinion from legal counsel who is reasonably acceptable to the Trustee, that meets the requirements of Section 12.05 hereof. The counsel may be an employee of or counsel to the Company, any Subsidiary of the Company or the Trustee. "Pari Passu Indebtedness" means senior subordinated Indebtedness of the Company or its Restricted Subsidiaries permitted by the covenant entitled "Incurrence of Indebtedness and Issuance of Disqualified Stock," other than the Notes which is pari passu in right of payment with the Notes or the Subsidiary Guarantees. "Permitted Investments" means (a) any Investments in the Company, in a Wholly Owned Restricted Subsidiary of the Company or in a Guarantor; (b) any Investments in Marketable Securities; and (c) Investments by the Company or any Subsidiary of the Company in any Person, if as a result of such Investment (i) such Person becomes a Wholly Owned Restricted Subsidiary of the Company or a Guarantor or (ii) such Person is merged, consolidated or amalgamated with or into, or transfers or 9 conveys substantially all of its assets to, or is liquidated into, the Company or a Wholly Owned Subsidiary of the Company or a Guarantor. "Permitted Liens" means (a) Liens in favor of the Company; (b) Liens on property of a Person existing at the time such Person is merged into or consolidated with the Company or any Subsidiary of the Company; provided, that such Liens were in existence prior to the contemplation of such merger or consolidation and less than one year prior to such Person becoming merged into or consolidated with the Company or any of its Subsidiaries; (c) Liens on property existing at the time of acquisition thereof by the Company or any Subsidiary of the Company; provided, that such Liens were in existence prior to the contemplation of such acquisition and less than one year prior to such acquisition; (d) Liens to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business; (e) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded; provided, that any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made therefor; (f) ground leases in respect of the real property on which facilities owned or leased by the Company or any of its Subsidiaries are located; (g) Liens arising from UCC financing statements regarding property leased by the Company or any of its Subsidiaries; (h) easements, rights-of-way, navigational servitudes, restrictions, minor defects or irregularities in title and other similar charges or encumbrances which do not interfere in any material respect with the ordinary conduct of business of the Company and its Subsidiaries; and (i) Liens securing purchase money obligations incurred or assumed in connection with the purchase of real or Personal property to be used in the business of the Company or any of its Restricted Subsidiaries within 180 days of such incurrence or assumption and (j) Liens on the real property underlying the Atlantic City Showboat securing the Resorts Bonds provided that the obligations under the Resorts Bonds can be assumed under the "Incurrence of Indebtedness and Issuance of Disqualified Stock" covenant at the time that real property is acquired by the Company or any of its Subsidiaries. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. "Project Expansion" means any addition, improvement, extension or capital repair to the Las Vegas Showboat or the Atlantic City Showboat or any contiguous or adjacent property, including the purchases of real estate or improvements thereon; but excluding separable furniture. "Qualified Native American Gaming Project" means any Gaming Related Business in the United States owned by a tribe or band of Native Americans in which the Company or a Subsidiary holds a management contract to manage or operate the day-to-day casino or gaming operations. "Refinancing Disqualified Stock" means Disqualified Stock issued in exchange for, or the proceeds of which are used, to extend, refinance, renew, replace, defease or refund Disqualified Stock permitted to be issued pursuant to the Fixed Charge Coverage Ratio test set forth in Section 4.09 hereof or Disqualified Stock referred to in clause (c) of the second paragraph of Section 4.09 hereof. "Refinancing Indebtedness" means Indebtedness issued in exchange for, or the proceeds of which are used to extend, refinance, renew, replace, defease or refund Indebtedness permitted to be incurred pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of Section 4.09 hereof or Indebtedness referred to in clause (vi) of the second paragraph of Section 4.09 hereof. 10 "Regular Quarterly Dividend" means the quarterly dividend determined by the Board of Directors of the Company in its reasonable judgment to be its regular and normal quarterly dividend and paid by the Company in accordance with the Company's prior business practices in an amount per share not to exceed $0.10 per fiscal year (or the equivalent thereof after giving effect to any stock splits, stock dividends or recapitalizations of the Common Stock after June 17, 1994). "Representative" means, for purposes of Articles 10 and 11, the indenture trustee or other trustee, agent or representative for any Senior Indebtedness or, with respect to any Guarantor, for any Senior Indebtedness of such Guarantor. "Resorts Bonds" means, the First Mortgage Non-Recourse Pass-Through Notes due June 30, 2000 of Resorts. "Responsible Officer" when used with respect to the Trustee, means any officer within the Corporate Trust Administration of the Trustee (or any successor group of the Trustee) or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Restricted Investment" means an Investment other than a Permitted Investment. "Restricted Subsidiary" means any Subsidiary of the Company that is not a Non-Recourse Subsidiary. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "SHCL" means Sydney Harbour Casino Holdings Limited, a New South Wales corporation. "Senior Debt" means (a) with respect to the Company, (i) the Obligations of the Company with respect to the Working Capital Credit Agreement and First Mortgage Bonds and (ii) any other Indebtedness permitted to be incurred by the Company under the terms of the Indenture, unless the instrument under which such Indebtedness is incurred expressly provides that it is pari passu with or subordinated in right of payment to the Notes, and (b) with respect to any Guarantor, (i) the Obligations of such Guarantor with respect to the Working Capital Credit Agreement and First Mortgage Bonds, (ii) any Guarantee by such Guarantor of any Senior Debt of the Company and (iii) any other Indebtedness permitted to be incurred by such Guarantor under the terms of the Indenture, unless the instrument under which such Indebtedness is incurred expressly provides that it is pari passu with or subordinated in right of payment to the Subsidiary Guarantee of such Guarantor. Notwithstanding anything to the contrary in the foregoing, Senior Debt shall not include (v) any obligation of the Company or any Guarantor to, in respect of or imposed by any environmental, landfill, waste management or other regulatory or governmental agency, statute, law or court order, (w) any liability for federal, state, local or other taxes owed or owing by the Company or any Guarantor, (x) any Indebtedness of the Company or any Guarantor to any of the Company's Subsidiaries or other Affiliates, (y) any trade payables or (z) any Indebtedness that is incurred in violation of the Indenture on or after the date of the Indenture. 11 "Significant Subsidiary" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Act, as such Regulation is in effect on the date hereof. "Subsidiary" means, with respect to any Person, (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person or a combination thereof and (ii) any Non-Recourse Subsidiary. "Subsidiary Guarantee" means each guarantee of the Notes by a Guarantor pursuant to Article 10 hereof. "Sydney Harbour Casino" means all of SHCL's interest in its proposed casino and related properties located in Sydney, Australia. "Tax Sharing Agreement" means the Tax Sharing Agreement, substantially in the form attached as an exhibit to the Indenture, as amended, supplemented or modified from time to time as permitted by the Indenture. "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa- 77bbbb) as in effect on the date on which this Indenture is qualified under the TIA. "Trustee" means the party named as such above until a successor replaces it in accordance with the applicable provisions of this Indenture and thereafter means the successor serving hereunder. "Third-Party Management" with respect to any Person means that the day-to- day affairs or business operations of such Person are managed by a third party that is not the Company or any of its Subsidiaries. "U.S. Government Obligations" means securities that are (a) direct obligations of the United States of America for the timely payment of which its full faith and credit is pledged or (b) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the timely payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case, are not callable or redeemable at the option of the issuer thereof, and shall also include a depository receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act of 1933, as amended), as custodian with respect to any such U.S. Government Obligation or a specific payment of principal of or interest on any such U.S. Government Obligation held by such custodian for the account of the holder of such depository receipt; provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the U.S. Government Obligation or the specific payment of principal of or interest on the U.S. Government Obligation evidenced by such depository receipt. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (a) the sum of the products obtained by multiplying (x) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (y) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (b) the then 12 outstanding principal amount of such Indebtedness; provided, however, that with respect to any revolving Indebtedness, the foregoing calculation of Weighted Average Life to Maturity shall be determined based upon the total available commitments and the required reductions of commitments in lieu of the outstanding principal amount and the required payments of principal, respectively. "Wholly Owned Restricted Subsidiary" of any Person means a Restricted Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly Owned Restricted Subsidiaries of such Person. "Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly Owned Subsidiaries of such Person and one or more Wholly Owned Subsidiaries of such Person. "Working Capital Credit Agreement" means that certain Credit Agreement, dated as of September 30, 1992, by and among ACSI and National Westminster Bank, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, modified, renewed, refunded, replaced or refinanced from time to time. Section 1.02. Other Definitions.
Defined in Term Section "Affiliate Transaction".............. 4.11 "Benefitted Party"................... 10.01 "Commencement Date".................. 3.09 "Covenant Defeasance"................ 8.03 "Custodian".......................... 4.13 "Event of Default"................... 6.01 "Excess Proceeds".................... 4.10 "Guarantor".......................... 10.01 "Guarantor Payment Blockage Notice".. 10.04 "incur".............................. 4.09 "Legal Defeasance"................... 8.02 "Offer Amount"....................... 3.09 "Offer Period"....................... 3.09 "Paying Agent"....................... 2.03 "Payment Blockage Notice"............ 11.01 "Payment Default".................... 6.01 "Purchase Date"...................... 3.09 "Purchase Offer"..................... 3.09 "Registrar".......................... 2.03 "Restricted Payments"................ 4.07
Section 1.03. Incorporation by Reference of Trust Indenture Act. Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture, other than those provisions of the TIA that may be excluded herein, which provision shall be excluded to the extent specifically excluded in this Indenture. 13 The following TIA terms used in this Indenture have the following meanings: "indenture securities" means the Notes and the Subsidiary Guarantees, if any; "indenture security Holder" means a Holder of a Note; "indenture to be qualified" means this Indenture; "indenture trustee" or "institutional trustee" means the Trustee; "obligor" on the Notes means the Company, the Guarantors, if any, and any successor obligor upon the Notes or any Subsidiary Guarantee, as the case may be. All other terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by a rule or regulation promulgated by the SEC under the TIA have the meanings so assigned to them. Section 1.04. Rules of Construction. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (3) "or" is not exclusive; (4) words in the singular include the plural, and words in the plural include the singular; (5) provisions apply to successive events and transactions; and (6) references to sections of or rules under the Securities Act or the Exchange Act shall be deemed to include substitute, replacement of successor sections or rules adopted by the SEC from time to time. ARTICLE 2 THE NOTES Section 2.01. Form and Dating. The Notes and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A hereto, the terms of which are incorporated in and made a part of this Indenture. The notation on each Note relating to any Subsidiary Guarantee shall be substantially in the form set forth on Exhibit C, which is part of this Indenture. The Notes may have notations, legends or endorsements approved as to form by the Company and required by law, stock exchange rule, agreements to which the Company or any Guarantor is subject, or usage. Each Note shall be dated the date of its authentication. The Notes shall be issuable only in denominations of $1,000 and integral multiples thereof. 14 Section 2.02. Execution and Authentication. Two Officers of the Company shall sign the Notes for the Company by manual or facsimile signature. The Company's seal shall be reproduced on the Notes and may be in facsimile form. An Officer of the Guarantor, if any, shall sign any Subsidiary Guarantee for such Guarantor by manual or facsimile signature. If an Officer of the Company or any Guarantor whose signature is on a Note or a Subsidiary Guarantee, as the case may be, no longer holds that office at the time the Note is authenticated, the Note or the Subsidiary Guarantee, as the case may be, shall nevertheless be valid. A Note shall not be valid until authenticated by the manual signature of the Trustee. The signature of the Trustee shall be conclusive evidence that the Note has been authenticated under this Indenture. The form of Trustee's certificate of authentication to be borne by the Notes shall be substantially as set forth in Exhibit A hereto. The Trustee shall, upon a written order of the Company signed by two Officers of the Company, authenticate Notes for original issue up to an aggregate principal amount stated in paragraph 4 of the Notes. The aggregate principal amount of Notes outstanding at any time shall not exceed the amount set forth herein except as provided in Section 2.07 hereof. The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Notes. Unless limited by the terms of such appointment, an authenticating agent may authenticate Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with the Company or any Guarantor or an Affiliate of the Company or any Guarantor. Section 2.03. Registrar and Paying Agent. The Company shall maintain (i) an office or agency where Notes may be presented for registration of transfer or for exchange (including any co- registrar, the "Registrar") and (ii) an office or agency where Notes may be presented for payment ("Paying Agent"). The Registrar shall keep a register of the Notes and of their transfer and exchange. The Company may appoint one or more co-registrars and one or more additional paying agents. The term "Paying Agent" includes any additional paying agent. The Company may change any Paying Agent, Registrar or co-registrar without prior notice to any Holder of a Note. The Company shall notify the Trustee and the Trustee shall notify the Holders of the name and address of any Agent not a party to this Indenture. The Company or any Guarantor may act as Paying Agent, Registrar or co-registrar. The Company shall enter into an appropriate agency agreement with any Agent not a party to this Indenture, which shall be subject to any obligations imposed by the provisions of the TIA. The agreement shall implement the provisions of this Indenture that relate to such Agent. The Company shall notify the Trustee of the name and address of any such Agent. If the Company fails to maintain a Registrar or Paying Agent, or fails to give the foregoing notice, the Trustee shall act as such, and shall be entitled to appropriate compensation and indemnity in accordance with Section 7.07 hereof. The Company initially appoints the Trustee as Registrar, Paying Agent and agent for service of notices and demands in connection with the Notes. Section 2.04. Paying Agent to Hold Money in Trust. 15 The Company shall require each Paying Agent other than the Trustee to agree in writing that the Paying Agent shall hold in trust for the benefit of the Holders or the Trustee all money held by the Paying Agent for the payment of principal of, premium, if any, and interest on the Notes, and shall notify the Trustee of any Default by the Company or any Guarantor in making any such payment. While any such Default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the Company or a Guarantor, if any) shall have no further liability for the money delivered to the Trustee. If the Company or any Guarantor acts as Paying Agent, it shall segregate and hold in a separate trust fund for the benefit of the Holders all money held by it as Paying Agent. Upon any bankruptcy or reorganization proceeding relating to the Company or any Guarantor, the Trustee shall serve as Paying Agent for the Notes and the Company shall forward to the Trustee all money for the benefit of the Holders. Section 2.05. Lists of Holders. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Holders and shall otherwise comply with TIA (S) 312(a). If the Trustee is not the Registrar, the Company and/or any Guarantor shall furnish to the Trustee at least seven Business Days before each interest payment date and at such other times as the Trustee may request in writing a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Holders, including the aggregate principal amount of the Notes held by each thereof, and the Company and each Guarantor, if any, shall otherwise comply with TIA (S) 312(a). Section 2.06. Transfer and Exchange. When Notes are presented to the Registrar with a request to register the transfer or to exchange them for an equal principal amount of Notes of other denominations, the Registrar shall register the trans-fer or make the exchange if its requirements for such transactions are met; provided, however, that any Note presented or surrendered for registration of transfer or exchange shall be duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Registrar duly executed by the Holder thereof or by his attorney duly authorized in writing. To permit registrations of transfer and exchanges, the Company shall issue and the Trustee shall authenticate Notes at the Registrar's request, subject to such rules as the Trustee may reasonably require. Neither the Company nor the Registrar shall be required to (i) issue, register the transfer of or exchange Notes during a period beginning at the opening of business on a Business Day 15 days before the day of any selection of Notes for redemption or purchase under Sections 3.02 or 3.09 hereof or (ii) register the transfer of or exchange any Note so selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part. No service charge shall be made to any Holder of a Note for any registration of transfer or exchange (except as otherwise expressly permitted herein), but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than such transfer tax or similar governmental charge payable upon exchanges pursuant to Sections 2.10, 3.06 or 9.05 hereof, which shall be paid by the Company). Prior to due presentment to the Trustee for registration of the transfer of any Note, the Trustee, any Agent, the Company and any Guarantor may deem and treat the Person in whose name any Note is registered as the absolute owner of such Note for the purpose of receiving payment of principal of, 16 premium, if any, and interest on such Note and for all other purposes whatsoever, whether or not such Note is overdue, and none of the Trustee, any Agent, the Company or any Guarantor shall be affected by notice to the contrary. Section 2.07. Replacement Notes. If any mutilated Note is surrendered to the Trustee, or the Company and the Trustee receive evidence to their satisfaction of the destruction, loss or theft of any Note, the Company shall issue and the Trustee, upon the written order of the Company signed by two Officers of the Company, shall authenticate a replacement Note (accompanied by a notation of the Subsidiary Guarantee duly endorsed by the Guarantors, if applicable) if the Trustee's requirements for replacements of Notes are met. If required by the Trustee, the Company or the Guarantors, if any, an indemnity bond must be supplied by the Holder that is sufficient in the judgment of the Trustee, the Company and the Guarantors, if any, to protect the Company, the Guarantors, if any, the Trustee, any Agent or any authenticating agent from any loss which any of them may suffer if a Note is replaced. Each of the Company, the Guarantors, if any, and the Trustee may charge for its expenses in replacing a Note. Every replacement Note is an additional obligation of the Company and the Guarantors, if any, and shall be entitled to all of the benefits of this Indenture equally and ratably with all other Notes duly issued hereunder. Section 2.08. Outstanding Notes. The Notes outstanding at any time are all the Notes authenticated by the Trustee except for those cancelled by it, those delivered to it for cancellation and those described in this Section 2.08 as not outstanding. If a Note is replaced pursuant to Section 2.07 hereof, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Note is held by a bona fide purchaser. If the principal amount of any Note is considered paid under Section 4.01 hereof, it ceases to be outstanding and interest on it ceases to accrue. Subject to Section 2.09 hereof, a Note does not cease to be outstanding because the Company, a Subsidiary of the Company or an Affiliate of the Company holds the Note. Section 2.09. Treasury Notes. In determining whether the Holders of the required principal amount of Notes have concurred in any direction, waiver or consent, Notes owned by the Company, any Guarantor, any of their respective Subsidiaries or any Affiliate of the Company or any Guarantor shall be considered as though not outstanding, except that for purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Notes which a Responsible Officer knows to be so owned shall be so considered. Notwithstanding the foregoing, Notes that are to be acquired by the Company, any Guarantor, any Subsidiary of the Company or any Affiliate of the Company pursuant to an exchange offer, tender offer or other agreement shall not be deemed to be owned by the Company, such Guarantor, such Subsidiary of the Company or such Affiliate of the Company until legal title to such Notes passes to the Company, such Guarantor, such Subsidiary of the Company or such Affiliate of the Company as the case may be. 17 Section 2.10. Temporary Notes. Until definitive Notes are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Notes (accompanied by a notation of the Subsidiary Guarantee duly endorsed by the Guarantors, if applicable). Temporary Notes shall be substantially in the form of definitive Notes but may have variations that the Company and the Trustee consider appropriate for temporary Notes. Without unreasonable delay, the Company shall prepare and the Trustee, upon receipt of the written order of the Company signed by two Officers of the Company, shall authenticate definitive Notes (accompanied by a notation of the Subsidiary Guarantee duly endorsed by the Guarantors, if applicable) in exchange for temporary Notes. Until such exchange, temporary Notes shall be entitled to the same rights, benefits and privileges as definitive Notes. Section 2.11. Cancellation. The Company at any time may deliver Notes to the Trustee for cancellation. The Registrar and Paying Agent shall forward to the Trustee any Notes surrendered to them for registration of transfer, exchange or payment. The Trustee shall cancel all Notes surrendered for registration of transfer, exchange, payment, replacement or cancellation and shall destroy cancelled Notes (subject to the record retention requirement of the Exchange Act), unless the Company directs cancelled Notes to be returned to it. The Company may not issue new Notes to replace Notes that it has redeemed or paid or that have been delivered to the Trustee for cancellation. All cancelled Notes held by the Trustee shall be destroyed and certification of their destruction delivered to the Company, unless by a written order, signed by two Officers of the Company, the Company shall direct that cancelled Notes be returned to it. Section 2.12. Defaulted Interest. If the Company or any Guarantor defaults in a payment of interest on the Notes, the Company or such Guarantor (to the extent of their obligations under the Subsidiary Guarantees) shall pay the defaulted interest in any lawful manner plus, to the extent lawful, interest payable on the defaulted interest, to the Persons who are Holders on a subsequent special record date, which date shall be at the earliest practicable date but in all events at least five Business Days prior to the payment date, in each case at the rate provided in the Notes and in Section 4.01 hereof. The Company shall fix or cause to be fixed each such special record date and payment date, and shall, promptly thereafter, notify the Trustee of any such date. At least 15 days before the special record date, the Company (or the Trustee, in the name of and at the expense of the Company) shall mail to Holders a notice that states the special record date, the related payment date and the amount of such interest to be paid. Section 2.13. Record Date. The record date for purposes of determining the identity of Holders entitled to vote or consent to any action by vote or consent authorized or permitted under this Indenture shall be determined as provided for in TIA (S) 316(c). Section 2.14. CUSIP Number. The Company in issuing the Notes may use a "CUSIP" number and, if it does so, the Trustee shall use the CUSIP number in notices of redemption or exchange as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness or accuracy of the CUSIP number printed in the notice or on the Notes and that reliance may be placed only on the other 18 identification numbers printed on the Notes. The Company will promptly notify the Trustee of any change in the CUSIP number. ARTICLE 3 REDEMPTION AND OFFERS TO PURCHASE Section 3.01. Notices to Trustee. If the Company elects to redeem Notes pursuant to the optional redemption provisions of Section 3.07 hereof, it shall furnish to the Trustee, at least 30 days but not more than 60 days before a redemption date, an Officers' Certificate setting forth (i) the section of this Indenture pursuant to which the redemption shall occur, (ii) the redemption date, (iii) the principal amount of Notes to be redeemed and (iv) the redemption price. If the Company is required to make an offer to purchase Notes pursuant to the provisions of Sections 4.10, 4.15 or 4.19 it shall furnish to the Trustee, at least 30 days before the scheduled purchase date, an Officers' Certificate setting forth (i) the Section of this Indenture pursuant to which the offer to purchase shall occur, (ii) the offer's terms, (iii) the purchase price, (iv) the principal amount of the Notes that may be purchased, and (v) further setting forth a statement to the effect that (a) the Company or one of its Subsidiaries has made an Asset Sale and there are Excess Proceeds aggregating more than $10.0 million and the amount of such Excess Proceeds, (b) a Change of Control has occurred or (c) that Australian Gaming Approval and Management Contract Approval had not been obtained by December 31, 1995, as applicable. Section 3.02. Selection of Notes to Be Purchased or Redeemed. If less than all of the Notes are to be purchased in an Asset Sale Offer or redeemed at any time, the Trustee shall select the Notes to be purchased or redeemed among the applicable Holders in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed or, if the Notes are not so listed, on a pro rata basis, or in accordance with any other method the Trustee considers fair and appropriate. In the event of partial redemption in the manner provided above, the particular Notes to be redeemed shall be selected, unless otherwise provided herein, not less than 30 nor more than 60 days prior to the redemption date by the Trustee from the outstanding Notes not previously called for redemption. In the event that less than all of the Notes properly tendered in an Asset Sale Offer are to be purchased, the particular Notes to be purchased shall be selected promptly upon the expiration of such Asset Sale Offer. The Trustee shall promptly notify the Company in writing of the Notes selected for redemption and, in the case of any Note selected for partial purchase or redemption, the principal amount thereof to be purchased or redeemed. Notes and portions of Notes selected shall be in amounts of $1,000 or whole multiples of $1,000; except that if all of the Notes of a Holder are to be purchased or redeemed, the entire outstanding amount of Notes held by such Holder, even if not a multiple of $1,000, shall be purchased or redeemed. Except as provided in the preceding sentence, provisions of this Indenture that apply to Notes called for redemption also apply to portions of Notes called for redemption. In the event the Company is required to make an Asset Sale Offer pursuant to Sections 3.09 and 4.10 hereof and the amount of Excess Proceeds to be applied to such purchase would result in the purchase of a principal amount of Notes which is not evenly divisible by $1,000, the Trustee shall 19 promptly refund to the Company the portion of such Excess Proceeds that is not necessary to purchase the immediately lesser principal amount of Notes that is so divisible. Section 3.03. Notice of Redemption. At least 30 days but not more than 60 days before a purchase or redemption date, the Company shall mail or cause to be mailed, by first class mail, a notice of redemption to each Holder whose Notes are to be redeemed at its registered address. The notice shall identify the Notes to be redeemed and shall state: (a) the redemption date; (b) the redemption price; (c) if any Note is being redeemed in part, the portion of the principal amount of such Note to be redeemed and that, after the redemption date upon surrender of such Note, a new Note or Notes in principal amount equal to the unredeemed portion shall be issued upon cancellation of the original Note; (d) the name and address of the Paying Agent; (e) that Notes called for redemption must be surrendered to the Paying Agent to collect the redemption price; (f) that, unless the Company defaults in making such redemption payment, interest on Notes called for redemption ceases to accrue on and after the redemption date; (g) the paragraph of the Notes and/or Section of this Indenture pursuant to which the Notes called for redemption are being redeemed; and (h) that no representation is made as to the correctness or accuracy of the CUSIP number, if any, listed in such notice or printed on the Notes. At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at its expense; provided, however, that the Company shall have delivered to the Trustee, at least 45 days prior to the redemption date, an Officers' Certificate requesting that the Trustee give such notice and setting forth the information to be stated in such notice as provided in the preceding paragraph. Section 3.04. Effect of Notice of Redemption. Once notice of redemption is mailed in accordance with Section 3.03 hereof, Notes called for redemption become irrevocably due and payable on the redemption date at the redemption price. A notice of redemption may not be conditional. Section 3.05. Deposit of Redemption or Purchase Price. On or prior to any redemption date or purchase date with respect to an offer to purchase the Notes required hereunder, the Company shall deposit with the Trustee or with the Paying Agent money 20 sufficient to pay the redemption or purchase price of and accrued interest on all Notes to be redeemed or purchased on that date. The Trustee or the Paying Agent shall promptly return to the Company any money deposited with the Trustee or the Paying Agent by the Company in excess of the amounts necessary to pay the redemption or purchase price of, and accrued interest on, all Notes to be redeemed or purchased. If the Company complies with the provisions of the preceding paragraph, on and after the redemption or purchase date, interest shall cease to accrue on the Notes or the portions of Notes called for redemption, whether or not such Notes are presented for payment or on the Notes or the portions of Notes tendered on any offer to purchase. If a Note is redeemed or purchased on or after an interest record date but on or prior to the related interest payment date, then any accrued and unpaid interest shall be paid to the Person in whose name such Note was registered at the close of business on such record date. If a redemption or purchase date is a Legal Holiday, payment shall be made on the next succeeding Business Day and no interest shall accrue for the period from such redemption date to such succeeding Business Day. If any Note called for redemption or tendered for purchase shall not be so paid upon surrender for redemption or such tender because of the failure of the Company to comply with the preceding paragraph, interest shall be paid on the unpaid principal, from the redemption date until such principal is paid, and to the extent lawful on any interest not paid on such unpaid principal, in each case at the rate provided in the Notes and in Section 4.01 hereof. Section 3.06. Notes Redeemed or Purchased in Part. Upon surrender of a Note that is redeemed or purchased in part, the Company shall issue and, upon the Company's written request, the Trustee shall authenticate for the Holder at the expense of the Company a new Note (accompanied by a notation of the Subsidiary Guarantee duly endorsed by the Guarantors, if applicable) equal in principal amount to the unredeemed or unpurchased portion of the Note surrendered. Section 3.07. Optional Redemption. (a) Except as set forth in clause (b) of this Section 3.07, the Company shall not have the option to redeem the Notes pursuant to this Section 3.07 prior to ________ __, 2001. Thereafter, the Company shall have the option to redeem the Notes, in whole or in part, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest thereon, if any, to the applicable redemption date, if redeemed during the twelve-month period beginning on _______ of the years indicated below: YEAR PERCENTAGE ---- ---------- 2001..................... _______% 2002..................... _______% 2003..................... _______% 2004 and thereafter...... 100.000% (b) Notwithstanding any other provision hereof, if any Gaming Authority requires that a Holder or beneficial owner of Notes must be licensed, qualified or found suitable under any applicable gaming law in order to maintain any gaming license or franchise of the Company or any Restricted Subsidiary and such Holder or beneficial owner fails to apply for a license, qualification or a finding of suitability within 30 days after being requested to do so by the Gaming Authority (or such lesser period that may 21 be required by such Gaming Authority), or if such Holder or such beneficial owner is not so licensed, qualified or found suitable, the Company shall have the right, at its option (i) to require such Holder or beneficial owner to dispose of such Holder's or beneficial owner's Notes within 30 days of receipt of such notice of such finding by the applicable Gaming Authority or such earlier date as may be ordered by such Gaming Authority or (ii) to call for the redemption of the Notes of such Holder or beneficial owner at the lesser of the principal amount thereof or the price at which such Holder or beneficial owner acquired the Notes, together with, in either case, accrued interest to the earlier of the date of redemption or such earlier date as may be required by such Gaming Authority or the date of the finding of unsuitability by such Gaming Authority, which may be less than 30 days following the notice of redemption, if so ordered by such Gaming Authority. The Company shall notify the Trustee in writing of any such redemption as soon as practicable. The Holder of Notes or beneficial owner applying for a license, qualification or a finding of suitability shall pay all costs of the licensure or investigation for such qualification or finding of suitability. The Company shall not be required to pay or reimburse any Holder of the Notes or beneficial owner who is required to apply for such license, qualification or finding of suitability for the costs of the licensure or investigation for such qualification or finding of suitability. Such expense shall be the obligation of such Holder or beneficial owner. (c) Any redemption pursuant to this Section 3.07 shall be made pursuant to the provisions of Section 3.01 through 3.06 hereof. Section 3.08. Mandatory Redemption. The Company shall not be required to make mandatory redemption or sinking fund payments with respect to the Notes prior to the maturity of the Notes (whether at final maturity or upon acceleration thereof). Section 3.09. Offers to Purchase. (a) In the event that, pursuant to Sections 4.10, 4.15 or 4.19 hereof, the Company shall be required to commence an offer to all Holders to purchase some or all of the Notes (each, a "Purchase Offer"), it shall follow the procedures specified in this Section 3.09. (b) The Purchase Offer shall commence on the date (the "Commencement Date") specified in Section 4.10 or Section 4.15 hereof, as the case may be, remain open for a period specified by the Company, which shall be in accordance with Section 4.10 or Section 4.15 hereof, as the case may be, except to the extent that a longer period is required by applicable law (the "Offer Period"). No later than five Business Days after the termination of the Offer Period (the "Purchase Date"), the Company shall purchase the principal amount of Notes required to be purchased pursuant to Section 4.10 or 4.15 hereof (the "Offer Amount") or, if less than the Offer Amount has been tendered, all Notes tendered in response to such Purchase Offer. Payment for any Notes so purchased shall be made in the same manner as interest payments are made. If the Purchase Date is on or after an interest record date and on or before the related interest payment date, any accrued and unpaid interest, if any, shall be paid to the Person in whose name a Note is registered at the close of business on such record date, and no additional interest shall be payable to Holders who tender Notes pursuant to such Purchase Offer. Upon the commencement of a Purchase Offer, the Company shall send, by first class mail, a notice to each of the Holders, with a copy to the Trustee. The notice shall contain all instructions and 22 materials necessary to enable such Holders to tender Notes pursuant to such Purchase Offer. The Purchase Offer shall be made to all Holders. The notice, which shall govern the terms of the Purchase Offer, shall state: (i) that the Purchase Offer is being made pursuant to Sections 4.10, 4.15 or 4.19 hereof, as the case may be, the Offer Period, and the expiration date of the Offer Period; (ii) the Offer Amount, the purchase price and the Purchase Date; (iii) that any Note not tendered and accepted for payment shall continue to accrue interest; (iv) that, unless the Company defaults in making such payment, any Note accepted for payment pursuant to the Purchase Offer shall cease to accrue interest after the Purchase Date; (v) that Holders electing to have a Note purchased pursuant to any Purchase Offer shall be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, to the Company, a depositary, if appointed by the Company, or a Paying Agent at the address specified in the notice prior to the close of the Offer Period; (vi) that Holders shall be entitled to withdraw their election if the Company, the depositary or the Paying Agent, as the case may be, receives, not later than the close of the Offer Period, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Note the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Note purchased; (vii) that, if the aggregate principal amount of Notes surrendered by Holders exceeds the Offer Amount, the Notes shall be selected for purchase pursuant to the terms of Section 3.02 hereof, and that Holders whose Notes were purchased only in part shall be issued new Notes (accompanied by a notation of the Subsidiary Guarantee duly endorsed by the Guarantors, if applicable) equal in principal amount to the unpurchased portion of the Notes surrendered; and (viii) (x) if such Purchase Offer was pursuant to Section 4.15, the circumstances and material facts regarding such Change of Control, including but not limited to, information with respect to pro forma and historical financial information after giving effect to such Change of Control, and information regarding the Person or Persons acquiring control, (y) if such Purchase Offer was pursuant to Section 4.10, the circumstances and material facts regarding the Asset Sale or Asset Sales giving rise to such Purchase Offer, including but not limited to, information with respect to pro forma and historical financial information if material operations of the Company or any Restricted Subsidiary were divested in such Asset Sale or Asset Sales and (z) if such Purchase Offer was pursuant to the terms of Section 4.19, the circumstances and material facts regarding the failure to obtain Australian Gaming Approval or Management Contract Approval and the then current plans, if any, of SHCL with respect to the Sydney Harbour Casino. On or before the Purchase Date, the Company shall, to the extent lawful, accept for payment, pursuant to the terms of Section 3.02 hereof, the Offer Amount of Notes or portions thereof tendered pursuant to the Purchase Offer, or if less than the Offer Amount has been tendered, all Notes tendered, and shall deliver to the Trustee an Officers' Certificate stating that such Notes or portions thereof were accepted for payment by the Company in accordance with the terms of this Section 3.09. The Company, the depositary or the Paying Agent, as the case may be, shall promptly (but in any case not later than five 23 days after the Purchase Date) mail or deliver to each tendering Holder an amount equal to the purchase price of the Notes tendered by such Holder and accepted by the Company for purchase, and the Company shall promptly issue a new Note, and the Trustee, upon written request from the Company shall authenticate and mail or deliver such new Note (accompanied by a notation of the Subsidiary Guarantee duly endorsed by the Guarantors, if applicable) to such Holder, in a principal amount equal to any unpurchased portion of the Note surrendered. Any Note not so accepted shall be promptly mailed or delivered by the Company to the Holder thereof. The Company shall publicly announce the results of such Purchase Offer on the Purchase Date. Other than as specifically provided in this Section 3.09, any purchase pursuant to this Section 3.09 shall be made pursuant to the provisions of Sections 3.01 through 3.06 hereof to the extent applicable. ARTICLE 4 COVENANTS Section 4.01. Payment of Notes. The Company shall pay or cause to be paid the principal of, premium, if any, and interest on the Notes on the dates and in the manner provided in the Notes. Other than pursuant to Section 3.05, principal, premium, if any, and interest shall be considered paid on the date due if the Paying Agent, if other than the Company or a Guarantor, holds as of Noon New York City time on the due date money deposited by the Company in immediately available funds and designated for and sufficient to pay all principal, premium, if any, and interest then due. Such Paying Agent shall return to the Company no later than two days following the date of payment, any money (including accrued interest) that exceeds such amount of principal, premium, if any, and interest paid on the Notes. Section 4.02. Maintenance of Office or Agency. The Company shall maintain in the Borough of Manhattan, the City of New York, an office or agency (which may be an office of the Trustee or an affiliate of the Trustee, Registrar or co-registrar) where Notes may be surrendered for registration of transfer or for exchange and where notices and demands to or upon the Company or the Guarantors in respect of the Notes and this Indenture may be served. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee. The Company may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, the City of New York for such purposes. The Company shall give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. The Company hereby designates the Corporate Trust Office of the Trustee as one such office or agency of the Company in accordance with Section 2.03. 24 Section 4.03. Reports. Whether or not required by the rules and regulations of the SEC, so long as any Notes are outstanding, the Company shall (i) furnish to the Trustee and to all Holders all quarterly and annual financial information that would be required to be contained in a filing with the SEC on Forms 10-Q and 10-K if the Company were required to file such forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" and, with respect to the annual information only, a report thereon by the Company's certified independent accountants and (ii) file a copy of all such information with the SEC for public availability (unless the SEC will not accept such a filing) and file such information with the Trustee and make such information available to investors and securities analysts who request it in writing. The Company shall at all times comply with TIA (S) 314(a). Section 4.04. Compliance Certificate. (a) The Company shall deliver to the Trustee, within 120 days after the end of each fiscal year, an Officers' Certificate stating that a review of the activities of the Company and its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether the Company and each obligor on the Notes and this Indenture has kept, observed, performed and fulfilled its obligations under this Indenture (including with respect to any Restricted Payments made during such year, the basis upon which the calculations required by Section 4.07 were computed, which calculations may be based on the Company's latest available financial statements), and further stating, as to each such Officer signing such certificate, that to the best of his or her knowledge the Company and each such obligor, has kept, observed, performed and fulfilled each and every covenant contained in this Indenture and is not in default in the performance or observance of any of the terms, provisions and conditions of this Indenture (or, if a Default or Event of Default shall have occurred, describing all such Defaults or Events of Default of which he or she may have knowledge and what action the Company or such Guarantor, as the case may be, is taking or proposes to take with respect thereto) and that to the best of his or her knowledge no event has occurred and remains in existence by reason of which payments on account of the principal of or interest, if any, on the Notes is prohibited or if such event has occurred, a description of the event and what action the Company or any obligor, as the case may be, is taking or proposes to take with respect thereto. (b) So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, the year-end financial statements delivered pursuant to Section 4.03 above shall be accompanied by a written statement of the Company's independent public accountants (who shall be a firm of established national reputation) that in making the examination necessary for certification of such financial statements, nothing has come to their attention that would lead them to believe that the Company has violated the provisions contained in Sections 4.01, 4.05, 4.07, 4.09, 4.10, 4.17, 4.18 or 5.01 hereof or (to the extent such provisions relate to accounting matters), if any such violation has occurred, specifying the nature and period of existence thereof, it being understood that such accountants shall not be liable directly or indirectly to any Person for any failure to obtain knowledge of any such violation. (c) The Company shall, so long as any of the Notes are outstanding, deliver to the Trustee, within five Business Days upon any Officer becoming aware of any Default or Event of Default, an Officers' Certificate specifying such Default or Event of Default and what action the Company is taking or proposes to take with respect thereto. Section 4.05. Taxes. 25 The Company shall pay, and shall cause each of its Restricted Subsidiaries to pay, prior to delinquency, all material taxes, assessments, and governmental levies except such as are contested in good faith and by appropriate proceedings or where the failure to effect such payment is not adverse in any material respect to the Holders. Section 4.06. Stay, Extension and Usury Laws. Each of the Company and the Guarantors covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Indenture; and each of the Company and the Guarantors (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it shall not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law has been enacted. Section 4.07. Restricted Payments. (a) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make any distribution on account of the Company's or any of its Restricted Subsidiaries' Equity Interests (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Company or such Restricted Subsidiary or dividends or distributions by a Restricted Subsidiary of the Company provided, that to the extent that a portion of such dividend or distribution is paid to a Holder other than the Company or a Restricted Subsidiary, such portion of such dividend or distribution is not greater than such Holder's pro rata aggregate common equity interest in such Restricted Subsidiary; (ii) purchase, redeem or otherwise acquire or retire for value any Equity Interests of the Company or any Subsidiary or other Affiliate of the Company (other than any such Equity Interests owned by the Company or any Restricted Subsidiary of the Company); (iii) voluntarily purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness that is pari passu with or subordinated to the Notes; or (iv) make any Restricted Investment (all such payments and other actions set forth in clauses (i) through (iv) above being collectively referred to as "Restricted Payments"), unless, at the time of such Restricted Payment: (1) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; (2) with respect to a Restricted Payment other than a Regular Quarterly Dividend or a Restricted Investment in a Subsidiary engaged in a Gaming Related Business, the Company would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the covenant entitled "Incurrence of Indebtedness and Issuance of Disqualified Stock"; and (3) such Restricted Payment, together with the aggregate of all other Restricted Payments made by the Company and its Restricted Subsidiaries after the date of this Indenture (including Restricted Payments permitted by clauses (i) and (ii) of the next succeeding paragraph but excluding any Restricted Payments permitted by clauses (iii)-(ix) of the next succeeding paragraph), is less than the sum of (x) 50% of the Consolidated Net Income of the Company for the period (taken as one accounting period) from April 1, 1993 to the end of the Company's most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, 100% of such deficit), plus (y) 100% of the aggregate net cash proceeds received by the Company from the issuance or sale of Equity Interests of the Company (other than Equity Interests sold to a Restricted Subsidiary of the Company and other than Disqualified Stock) from and including the date of the First Mortgage Bond Indenture (including any such 26 Equity Interests issued concurrently with the issuance of the Notes), plus (z) Excess Non-Recourse Subsidiary Cash Proceeds received after the date of the First Mortgage Bond Indenture. (b) The foregoing provisions of this Section 4.07 shall not prohibit: (i) the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would have complied with the provisions of this Indenture; (ii) the redemption, repurchase, retirement or other acquisition of any Equity Interests of the Company in exchange for, or out of the proceeds of, the substantially concurrent sale (other than to a Restricted Subsidiary of the Company) of other Equity Interests of the Company (other than any Disqualified Stock); (iii) Investments by the Company or any Restricted Subsidiary in an amount not to exceed $75 million in the aggregate (measured as of the date such Investments were made) in any Non-Recourse Subsidiaries engaged in a Gaming Related Business; provided that any loan to, or Investment Guarantee in favor of, a Non-Recourse Subsidiary that is not a Restricted Subsidiary shall mature prior to the earlier of (x) the termination of the management contract pursuant to which the Company or any of its Restricted Subsidiaries manages such Non-Recourse Subsidiary and (y) the Company or any of its Restricted Subsidiaries otherwise ceasing to have control over the direction of the day-to-day operations of such Non-Recourse Subsidiary; (iv) Investments by the Company or any Restricted Subsidiary in any Non-Recourse Subsidiary engaged in a Gaming Related Business in an amount (measured as of the date such Investments were made) not to exceed in the aggregate 100% of all cash received by the Company or any Restricted Subsidiary from any Non-Recourse Subsidiary (other than cash which is or may be required to be repaid or returned to such Non-Recourse Subsidiary) up to $75.0 million in the aggregate and thereafter 50% of all cash received by the Company or any Restricted Subsidiary from any Non-Recourse Subsidiary (other than cash which is or may be required to be repaid or returned to such Non-Recourse Subsidiary); provided that the aggregate amount of Investments pursuant to this clause does not exceed $125.0 million in the aggregate; (v) the purchase, redemption, defeasance, or other acquisition or retirement for value of any Pari Passu Indebtedness with the substantially concurrent purchase, redemption, defeasance, or other acquisition or retirement for value of the Notes (on a pro rata basis in relation to the outstanding aggregate principal amount of such Indebtedness and the aggregate principal amount of the outstanding Notes or which was on a basis offered pro rata to the Holders of the Notes); (vi) any voluntary purchase, redemption, defeasance or other acquisition or retirement for value of any Pari Passu Indebtedness with the proceeds of the substantially concurrent issuance of Refinancing Indebtedness relating to such Pari Passu Indebtedness in accordance with Section 4.09 hereof; (vii) dividends or distributions from a Non-Recourse Subsidiary or dividends or distributions from a Controlled Entity; (viii) any purchase, redemption, defeasance or other acquisition or retirement for value of any Pari Passu Indebtedness (other than pursuant to clause (v) or (vi) above) up to $30.0 million in aggregate principal amount; and (ix) Investments by the Company or any Guarantor in Controlled Entities, so long as such Persons remain Controlled Entities, provided that (A) any Investment in SHCL exceeding $110.0 million shall be a Restricted Payment pursuant to the proceeding paragraph, (B) neither the Company nor any Guarantor shall invest any portion of the Las Vegas Showboat or the Atlantic City Showboat in, or contribute any such assets to, a Controlled Entity and (C) the Company would have at the time of such Investment and after giving effect thereto as if such Investment had been made at the beginning of the applicable four-quarter period, a Fixed Charge Coverage Ratio of at least 1.5 to 1 if such Investment is made prior to December 31, 1996 and at least 1.75 to 1 if such Investment is made thereafter; provided that, with respect to clauses (iii)-(ix) above, immediately after giving effect to the transaction contemplated therein, no Default or Event of Default would occur as a consequence thereof. (c) Any Investment in a Restricted Subsidiary that becomes a Non-Recourse Subsidiary or any Investment in a Wholly Owned Subsidiary that becomes a Non- Wholly Owned Restricted Subsidiary that is not a Guarantor shall become a Restricted Payment made on such date in the amount of the greater of 27 (x) the book value of the Investment in such Subsidiary on such date and (y) the fair market value of the Investment in such Subsidiary on such date as determined (A) in good faith by the Board of Directors of the Company if such fair market value is determined to be less than $10.0 million and (B) by an investment banking firm of national standing with high yield underwriting expertise if such fair market value is determined to be in excess of $10.0 million. (d) Any Guarantee that is an Investment in a Non-Recourse Subsidiary shall cease to be deemed an Investment (and shall be deemed to have not been made) to the extent that the Guarantee is released without payment on the obligations guaranteed by the Company or any Restricted Subsidiary. (e) If any Controlled Entity ceases to be a Controlled Entity, then all Investments owned by the Company or any Restricted Subsidiary in such Controlled Entity shall be deemed to be a Restricted Investment made on such date, unless such former Controlled Entity purchases or redeems all such Investments for a price at least equal to the greater of the book value of such Investments on the date such entity ceases to be a Controlled Entity or the original amount of such Investments. Section 4.08. Dividend and Other Payment Restrictions Affecting Subsidiaries. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Restricted Subsidiary, other than a Guarantor, to: (i) pay dividends or make any other distributions to the Company or any of its Restricted Subsidiaries (x) on its Capital Stock or (y) with respect to any other interest or participation in, or measured by, its profits; (ii) pay any Indebtedness owed to the Company or any of its Restricted Subsidiaries; (iii) make loans or advances to the Company or any of its Restricted Subsidiaries; or (iv) transfer any of its properties or assets to the Company or any of its Restricted Subsidiaries, except for such encumbrances or restrictions existing under or by reasons of (1) Existing Indebtedness as in effect on the Issue Date, (2) the Working Capital Credit Agreement as in effect as of the Issue Date, (3) this Indenture and the Notes, (4) applicable law, (5) any instrument governing Indebtedness or Capital Stock of a Person acquired by the Company or any of its Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness was incurred in connection with such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired, provided that the Consolidated Cash Flow of such Person is not taken into account in determining whether such acquisition was permitted by the terms of this Indenture, (6) by reason of customary non-assignment provisions in leases entered into in the ordinary course of business and consistent with past practices, (7) with respect to clause (iii) above, purchase money obligations for property acquired in the ordinary course of business, or (8) permitted Refinancing Indebtedness, provided that the restrictions contained in the agreements governing such Refinancing Indebtedness are substantially not more restrictive taken as a whole than those contained in the agreements governing the Indebtedness being refinanced. Section 4.09. Incurrence of Indebtedness and Issuance of Disqualified Stock. (a) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable with respect to or become responsible for (collectively, "incur"), any Indebtedness and the Company shall not issue any Disqualified Stock and shall not permit any of its Subsidiaries to issue any shares of preferred stock; provided, however, that the Company or any Restricted Subsidiary may incur Indebtedness if (i) the Fixed Charge Coverage Ratio for the Company's most recently ended four full fiscal quarters for 28 which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred is greater than 2.0 to 1, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom) as if the additional Indebtedness had been incurred at the beginning of such four-quarter period and (ii) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof. (b) The foregoing limitations in this Section 4.09 shall not apply to: (i) the incurrence by the Company or any Restricted Subsidiary of up to $25.0 million in aggregate principal amount of Indebtedness outstanding at any one time, the proceeds of which are used to acquire or lease tangible assets; (ii) the incurrence by the Company or any Restricted Subsidiary of Indebtedness pursuant to the Working Capital Credit Agreement for working capital purposes in an aggregate principal amount not to exceed $25.0 million outstanding at any one time; provided that there shall be no such Indebtedness outstanding for a period of 14 consecutive days in each calendar year (other than in respect of standby letters of credit); (iii) the incurrence by the Company and its Restricted Subsidiaries of the Existing Indebtedness; (iv) the incurrence by the Company of Indebtedness represented by the Notes and the incurrence by the Guarantors of the Subsidiary Guarantees; (v) Indebtedness incurred in connection with Hedging Obligations with respect to Indebtedness otherwise permitted under this paragraph; (vi) the incurrence by the Company of Indebtedness issued in exchange for, or the proceeds of which are used to extend, refinance, renew, replace or refund Indebtedness referred to in the first paragraph of this covenant or in clauses (i) through (v) above and clause (viii) below (the "Refinancing Indebtedness"); provided, however, that (1) the principal amount of such Refinancing Indebtedness shall not exceed the principal amount of Indebtedness so extended, refinanced, renewed, replaced, substituted or refunded (plus the amount of reasonable expenses incurred in connection therewith), (2) the Refinancing Indebtedness shall have a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of the Indebtedness being extended, refinanced, renewed, replaced or refunded, (3) the Refinancing Indebtedness shall be subordinated in right of payment to the Notes on terms at least as favorable to the holders of Notes as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced or refunded and (4) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; (vii) Indebtedness between the Company and any Restricted Subsidiary; and (viii) the incurrence by the Company or any Restricted Subsidiary of Indebtedness that is not otherwise permitted under this covenant not to exceed an aggregate principal amount of $10.0 million outstanding at any one time under this clause (viii). (c) The Company shall not permit any of its Non-Recourse Subsidiaries to incur any Indebtedness or issue any shares of Disqualified Stock, other than Non-Recourse Indebtedness; provided, however, that if any such Non-Recourse Subsidiary ceases to remain a Non-Recourse Subsidiary, such event shall be deemed to constitute the incurrence of the Indebtedness in such Subsidiary by a Restricted Subsidiary. Section 4.10. Asset Sales. (a) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, cause, make or suffer to exist any Asset Sale unless (i) no Default exists or is continuing immediately prior to and after giving effect to such Asset Sale; (ii) the Company (or such Restricted Subsidiary, as the case may be) receives consideration at the time of each such Asset Sale at least equal to the fair market value (evidenced by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee) of the assets or equity securities sold or otherwise disposed of; and (iii) at least 90% of the consideration therefor received by the Company or such Restricted Subsidiary is in the form of cash; provided, however, that the amount of (x) any liabilities (as shown on the Company's or such Restricted Subsidiary's most recent balance sheet or in the notes thereto) of the Company or any Restricted 29 Subsidiary (other than liabilities that are by their terms subordinated to the Notes or any Guarantee thereof) that are assumed by the transferee of any such assets and (y) any notes or other obligations received by the Company or any such Restricted Subsidiary from such transferee that are immediately converted by the Company or such Restricted Subsidiary into cash, shall be deemed to be cash (to the extent of the cash received) for purposes of this provision. (b) Within 360 days after any Asset Sale, the Company (or the Subsidiary, as the case may be) may apply the Net Proceeds from such Asset Sale, at its option, either: (i) to permanently reduce Senior Debt of the Company or (ii) to reinvest or cause to be reinvested the Net Proceeds from such Asset Sale in another asset or business in a Gaming Related Business. Pending the final application of any such Net Proceeds, the Company may temporarily reduce Senior Debt of the Company, including under the Working Capital Credit Agreement, or otherwise invest such Net Proceeds in any manner that is not prohibited by this Indenture. Any Net Proceeds from any Asset Sale that are not applied as provided in clauses (i) and (ii) of this paragraph constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $10.0 million, the Company shall make an offer (an "Asset Sale Offer") to (a) all Holders of Notes to purchase the maximum principal amount of Notes that may be purchased out of the Excess Proceeds or (b) at the Company's option, make an Asset Sale Offer to redeem outstanding Notes and Pari Passu Indebtedness, on a pro rata basis in relation to the outstanding aggregate principal amount of such Indebtedness and the aggregate principal amount of the Notes then outstanding, in each case at an offer price in cash in an amount equal to 100% of the outstanding principal amount thereof plus accrued and unpaid interest, if any, to the date fixed for the closing of such offer, in accordance with the procedures set forth in this Indenture. To the extent that the aggregate amount of Notes tendered pursuant to an Asset Sale Offer to purchase is less than the Excess Proceeds, the Company may use such deficiency for general corporate purposes. If the aggregate principal amount of Notes surrendered by Holders thereof exceeds the amount of Excess Proceeds, the Trustee will select the Notes to be purchased on a pro rata basis. Upon completion of such offer to purchase, the amount of Excess Proceeds will be reset at zero. Section 4.11. Transactions with Affiliates. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or maintain any contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"), unless (i) such Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Company or such Restricted Subsidiary with an unrelated Person, (ii) with respect to any Affiliate Transaction with a Non-Recourse Subsidiary, which, either individually or when combined with all other Affiliate Transactions with Non-Recourse Subsidiaries during the past year, involves aggregate payments in excess of $1.0 million, a majority of the Board of Directors approves each such transaction, (iii) with respect to any Affiliate Transaction (other than with any Non- Recourse Subsidiary) involving aggregate payments in excess of $1.0 million, or with respect to any Affiliate Transaction with all Non-Recourse Subsidiaries, which, either individually or when combined with all other Affiliate Transactions with Non-Recourse Subsidiaries during the past year, involves aggregate payments in excess of $3.0 million, the Company delivers to the Trustee a resolution of the Board of Directors set forth in an Officers' Certificate certifying that any such Affiliate Transaction complies with clause (i) above and such Affiliate Transaction is approved by a majority of the Board of Directors, and (iv) with respect to any Affiliate Transaction involving aggregate payments in excess of $10.0 million, the Company delivers to the Trustee an opinion as to the fairness to the Company or such Restricted Subsidiary from a financial point of view issued by an investment 30 banking firm of national standing with expertise in high yield debt offerings or in the case of a transaction involving the sale or transfer of assets subject to valuation, such as real estate, an appraisal by a nationally recognized appraisal firm; provided, however, that the following shall not be deemed Affiliate Transactions: (1) any employment agreement entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business and consistent with the past practice of the Company or such Restricted Subsidiary; (2) transactions between or among the Company and/or its Restricted Subsidiaries; (3) payments made pursuant to the Tax Sharing Agreement; (4) Restricted Payments, dividends, distributions or Investments permitted by the provisions of Section 4.7 hereof; (5) payments to an Affiliate of ACSI in respect of the leasing of land from such Affiliate; provided that the terms of clause (i) above are complied with; (6) payments by the Company pursuant to the indemnification agreement with its directors and officers in such director's or officer's capacity as a director or officer of the Company or a Restricted Subsidiary; (7) the engagement of Kummer Kaempfer Bonner & Renshaw (or any successor firm) for legal services in connection with the business of the Company or its Subsidiaries; provided that the payment for such services does not exceed $1.0 million in any fiscal year; (8) loans to employees of the Company or any Restricted Subsidiary, other than relocation loans, in an amount not to exceed $500,000 in aggregate principal amount outstanding at any one time; (9) loans to employees of the Company or any Restricted Subsidiary in connection with the relocation of such employee in an amount not to exceed $2.0 million in aggregate principal amount outstanding at any one time; (10) transactions pursuant to any management agreement or trademark license agreement between the Company and any of its Restricted Subsidiaries; (11) the engagement of International Insurance Services, Ltd. for insurance adjustment services in the ordinary course of business of the Company or its Restricted Subsidiaries, provided that the payments for such services do not exceed $1.0 million in any fiscal year; and (12) the lease of a gift shop in the Atlantic City Showboat to Ocean 11, a sole proprietorship, provided that the payments for such lease do not exceed $1.0 million in any fiscal year. Section 4.12. Liens. Neither the Company nor any of its Restricted Subsidiaries shall directly or indirectly create, incur, assume or suffer to exist any Lien on any asset now owned or hereafter acquired, or any income or profits therefrom or assign or convey any right to receive income therefrom, except: (i) Liens securing Obligations under Senior Debt permitted to be incurred under this Indenture or (ii) Permitted Liens. Section 4.13. Additional Subsidiary Guarantees. If the Company or any of its Restricted Subsidiaries shall transfer or cause to be transferred, in one or a series of related transactions, any assets, businesses, divisions, real property or equipment having a book value in excess of $5.0 million to any Restricted Subsidiary that is not a Guarantor (other than any such transfer that is a Restricted Payment permitted by this Indenture), then such transferee or acquired Subsidiary shall execute a Subsidiary Guarantee and deliver an opinion of counsel, in accordance with the terms of this Indenture. The Subsidiary Guarantee shall be released if the Company or its Restricted Subsidiaries cease to own any Equity Interests in such Restricted Subsidiary or if such Restricted Subsidiary becomes a Non-Recourse Subsidiary in accordance with the terms of this Indenture. Section 4.14. Redesignation of Non-Recourse Subsidiary. The Board of Directors of the Company may redesignate any Non-Recourse Subsidiary as a Restricted Subsidiary, provided that at the time of such designation after giving pro forma effect to such designation as if it occurred at the beginning of the applicable four-quarter period, the Company could 31 incur $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in Section 4.09 hereof and no Default or Event of Default then exists and is continuing. Section 4.15. Offer to Purchase Upon Change of Control. (a) Upon the occurrence of a Change of Control, the Company shall make a Purchase Offer to each Holder to purchase all or any part of such Holder's Notes at an offer price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase. Such Purchase Offer shall be made in accordance with the procedures set forth in Article 3 hereof. The Company shall commence such Purchase Offer within 30 Business Days following any Change of Control by mailing the notice set forth in Section 3.09 to the Holders. The Offer Period shall be not less than 30 Business Days nor more than 40 Business Days from the date such notice is mailed, unless a longer period is required by law. The Company shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with such Purchase Offer. (b) Prior to making the Change of Control Payment, but in any event within 90 days following a Change of Control, the Company shall either repay all outstanding Senior Debt or obtain the requisite consents, if any, under all agreements governing outstanding Senior Debt to permit the repurchase of Notes required by this Section 4.15. The Company shall publicly announce the results of the Change of Control Offer on or as soon as practicable after the payment date for such Purchase Offer. Section 4.16. Corporate Existence. Subject to Article 5 and Article 10 hereof, as the case may be, the Company and each of the Guarantors shall do or cause to be done all things necessary to preserve and keep in full force and effect (i) its corporate existence, and the corporate, partnership or other existence of each of their Subsidiaries, in accordance with the respective organizational documents (as the same may be amended from time to time) of the Company, any such Guarantor or any such Subsidiary, as the case may be, and (ii) the rights (charter and statutory), licenses and franchises of the Company, the Guarantors and their respective Subsidiaries; provided, however, that the Company and the Guarantors shall not be required to preserve any such right, license or franchise, or the corporate, partnership or other existence of any of their respective Subsidiaries, if an officer of the Company shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company, the Guarantors and their Subsidiaries, taken as a whole. Section 4.17. Line of Business. The Company shall not, and shall not permit any Subsidiary to, engage in any business other than (i) those necessary for, incident to, connected with or arising out of the gaming business (including developing and operating hotel casinos, sports or entertainment facilities, transportation services or other related activities or enterprises and any additions or improvements thereto) and (ii) such other businesses as the Company or its Restricted Subsidiaries are engaged in on the Issue Date. The Company or its Subsidiaries may not enter into any gaming jurisdictions in which the Company or its Subsidiaries are not presently licensed if all of the Holders of Notes will be required to be licensed, provided that this sentence shall not prohibit the Company or any of its Subsidiaries from entering any jurisdiction that does not require the licensing or qualification of all of the Holders of the Notes, but reserves the discretionary right to license or qualify any Holder of Notes. 32 Section 4.18. No Senior Subordinated Indebtedness. Notwithstanding the provisions of Section 4.09 hereof, (i) the Company shall not incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is subordinate or junior in right of payment to any Senior Debt and senior in any respect in right of payment to the Notes and (ii) no Guarantor shall incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is subordinate or junior in right of payment to Senior Debt of such Guarantor and senior in any respect in right of payment to such Guarantor's Subsidiary Guarantee. Section 4.19. Escrow Agent The Company shall place $100 million of net proceeds from the offering of the Notes into an escrow account pursuant to the terms of the Escrow Agreement. The escrow agent for such escrow account may apply the amount in the escrow account only to fund the Company's investment in SHCL as provided for in the Escrow Agreement. In the event that Australian Gaming Approval or Management Contract Approval (as defined in the Indenture) has not occurred on or prior to December 31, 1995, the Company shall apply the amount in the escrow account to an offer to all Holders of Notes to purchase the maximum principal amount of Notes that may be purchased with such amount at a purchase price equal to 100% of the principal amount thereof plus accrued and unpaid interest thereon, if any, to the date of purchase in accordance with the procedures set forth in Article 3 hereof. If the aggregate principal amount of Notes surrendered by Holders thereof exceeds the amount in the escrow account, the Trustee will select the Notes to be purchased on a pro rata basis. If the amount in the escrow account exceeds the amount necessary to purchase all Notes surrendered in such offer, the Company will be obligated to apply such excess amount to an offer to purchase the First Mortgage Bonds. Any funds remaining in the escrow account after the Company has fully funded its investment in SHCL or after the required offers to purchase shall be released to the Company and may be used for general corporate purposes. ARTICLE 5 SUCCESSORS Section 5.01. Merger, Consolidation, or Sale of Assets. (a) The Company shall not consolidate or merge with or into (whether or not the Company is the surviving Person), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets in one or more related transactions, to another Person unless (i) the Company is the surviving Person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia; (ii) the Person formed by or surviving any such consolidation or merger (if other than the Company) or Person to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made assumes all the obligations of the Company pursuant to a supplemental indenture in a form reasonably satisfactory to the Trustee, under the Notes and this Indenture; (iii) immediately after such transaction no Default or Event of Default exists; (iv) the Company or any Person formed by or surviving any such consolidation or merger, or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made (A) shall have Consolidated Net Worth (immediately after the transaction but prior to any purchase accounting adjustments resulting from the transaction) equal to or greater than the Consolidated Net Worth of the Company immediately preceding the transaction and (B) shall, at the time of such transaction and after 33 giving pro forma effect thereto as if such transaction had occurred at the beginning of the applicable four-quarter period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in Section 4.09 hereof; (v) such transactions would not require any Holder of Notes to obtain a gaming license or be qualified under the laws of any applicable gaming jurisdiction, provided that such Holder would not have been required to obtain a gaming license or be qualified under the laws of any applicable gaming jurisdiction in the absence of such transactions; and (vi) such transactions would not result in the loss of any qualification or any material license of the Company or its Subsidiaries necessary for any Gaming Related Business then operated by the Company or its Subsidiaries. (b)(i) A Guarantor shall not consolidate with or merge with or into the Company unless the surviving corporation (if other than the Company) shall expressly assume by supplemental indenture complying with the requirements of this Indenture, the due and punctual payment of the principal of, premium, if any, and interest on all of the Notes, and the due and punctual performance and observance of all the covenants and conditions of this Indenture to be performed by the Company and (ii) a Guarantor may consolidate with or merge with or into any other Guarantor. Section 5.02. Successor Corporation Substituted. Upon any consolidation or merger, or any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the assets of the Company or the Company and its Subsidiaries on a consolidated basis in accordance with Section 5.01 hereof, the successor Person formed by such consolidation or into or with which the Company is merged or to which such sale, assignment, transfer, lease, conveyance or other disposition is made shall succeed to, and be substituted for (so that from and after the date of such consolidation, merger, sale, lease, conveyance or other disposition, the provisions of this Indenture referring to the "Company" or the "Guarantor," as the case may be, shall refer instead to the successor corporation and not to the Company or the Guarantor, as the case may be), and may exercise every right and power of the Company or the Guarantors, as the case may be, under this Indenture with the same effect as if such successor Person had been named as the Company or Guarantor, as the case may be, herein; provided, however, that the predecessor Company and the predecessor Subsidiaries that are Guarantors shall not be relieved from the obligation to pay the principal of and interest on the Notes except in the case of a sale of all of the Company's assets that meets the requirements of Section 5.01 hereof. ARTICLE 6 DEFAULTS AND REMEDIES Section 6.01. Events of Default. An "Event of Default" occurs if: (a) the Company or the Guarantors default in the payment when due of interest on the Notes (whether or not prohibited by the subordination provisions of Article 10 or Article 11 hereof, as the case may be) and such default continues for a period of 30 days; (b) the Company or the Guarantors default in the payment when due of principal of or premium, if any, on the Notes (whether or not prohibited by the subordination provisions of 34 Article 10 or Article 11 hereof, as the case may be) when the same becomes due and payable at maturity, upon redemption (including in connection with an offer to purchase) or otherwise; (c) the Company or the Guarantors fail to comply with any of the provisions of Sections 4.07, 4.09, 4.10 or 4.14 hereof for 60 days after notice to the Company by the Trustee or to the Company and the Trustee from Holders of at least 25% in principal amount of the Notes then outstanding; (d) the Company or the Guarantors fail to observe or perform any other covenant, representation, warranty or other agreement in this Indenture or the Notes for 60 days after notice to the Company by the Trustee or to the Company and the Trustee from Holders of at least 25% in principal amount of the Notes then outstanding; (e) a default occurs under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any Guarantor or any of their respective Restricted Subsidiaries (or the payment of which is guaranteed by the Company or any Guarantor or any of their respective Restricted Subsidiaries) whether such Indebtedness or Guarantee now exists, or is created after the Issue Date, which default (i) is caused by a failure to pay when due principal or interest on such Indebtedness within the grace period provided in such Indebtedness (which failure continues beyond any applicable grace period) (a "Payment Default") or (ii) results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated aggregates $10.0 million or more; (f) a final judgment or final judgments for the payment of money are entered by a court or courts of competent jurisdiction against the Company or any Guarantor or any of their respective Restricted Subsidiaries and such judgments are not paid, discharged or stayed for a period of 60 days, provided that the aggregate of all such undischarged judgments exceeds $5.0 million; (g) except as permitted by this Indenture, any Subsidiary Guarantee with respect to the Notes shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor (or its successors or assigns), or any Person acting on behalf of such Guarantor (or its successors or assigns), shall deny or disaffirm its obligations or shall fail to comply with any obligations under its Subsidiary Guarantee; (h) the Company, any of its Restricted Subsidiaries or any Guarantor which individually or as a group constitutes a Significant Subsidiary pursuant to or within the meaning of Bankruptcy Law: (1) commences a voluntary case, (2) consents to the entry of an order for relief against it in an involuntary case, (3) consents to the appointment of a Custodian of it or for all or substantially all of its property, 35 (4) makes a general assignment for the benefit of its creditors, or (5) generally is not paying its debts as they become due; or (i) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (1) is for relief against the Company, any of its Restricted Subsidiaries or any Guarantor which individually or as a group constitutes a Significant Subsidiary in an involuntary case; (2) appoints a Custodian of the Company, any of its Restricted Subsidiaries or any Guarantor which individually or as a group constitutes a Significant Subsidiary or for all or substantially all of the property of the Company, any of its Restricted Subsidiaries or any Guarantor which individually or as a group constitutes a Significant Subsidiary; or (3) orders the liquidation of the Company, any of its Restricted Subsidiaries or any Guarantor which individually or as a group constitutes a Significant Subsidiary ; and the order or decree remains unstayed and in effect for 60 consecutive days. Section 6.02. Acceleration. If any Event of Default (other than an Event of Default specified in clause (h) or (i) of Section 6.01 hereof with respect to the Company, any of its Restricted Subsidiaries or any Guarantor which individually or as a group constitutes Significant Subsidiary ) occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately. Notwithstanding the foregoing, in case an Event of Default specified in clause (h) or (i) of Section 6.01 hereof occurs with respect to the Company, any of its Restricted Subsidiaries or any Guarantor which individually or as a group constitutes a Significant Subsidiary , all outstanding Notes will become due and payable without further action or notice. Under certain circumstances, the Holders of a majority in principal amount of the outstanding Notes may rescind any acceleration with respect to the Notes and its consequences. Holders may not enforce this Indenture or the Notes except as provided herein. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. If an Event of Default occurs by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding payment of the premium that the Company would have had to pay if the Company then had elected to redeem the Notes pursuant to Section 3.07 hereof, then, upon acceleration of the Notes, an equivalent premium shall also become and be immediately due and payable, to the extent permitted by law, anything in this Indenture or in the Notes to the contrary notwithstanding. If an Event of Default occurs prior to ________ __, 2001 by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding the prohibition on redemption of the Notes prior to ____________ __, 2001 then, upon acceleration of the Notes, an additional premium shall also become and be immediately due and payable in an amount, for each of the years beginning on ______ of the years set forth below, as set forth below 36 (expressed as a percentage of the principal amount that would otherwise be due but for the provisions of this sentence): YEAR PERCENTAGE ---- ---------- 1994..................................... _______% 1995..................................... _______% 1996..................................... _______% 1997..................................... _______% 1998..................................... _______% 1999..................................... _______% 2000..................................... _______% Section 6.03. Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal, premium, if any, and interest on the Notes or to enforce the performance of any provision of the Notes or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder of a Note in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law. Section 6.04. Waiver of Past Defaults. Holders of not less than a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive an existing Default or Event of Default and its consequences hereunder, except a continuing Default or Event of Default in the payment of the principal of, premium, if any, or interest on, the Notes (including in connection with an offer to purchase) (provided, however, that the Holders of a majority in aggregate principal amount of the then outstanding Notes may rescind an acceleration and its consequences, including any related payment default that resulted from such acceleration). Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon. Section 6.05. Control by Majority. Holders of a majority in principal amount of the then outstanding Notes may direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee or exercising any trust or power conferred on it. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture that the Trustee determines may be unduly prejudicial to the rights of other Holders of Notes or that may involve the Trustee in Personal liability. Section 6.06. Limitation on Suits. A Holder of a Note may pursue a remedy with respect to this Indenture or the Notes only if: 37 (a) the Holder of a Note gives to the Trustee written notice of a continuing Event of Default or the Trustee receives such notice from the Company; (b) the Holders of at least 25% in principal amount of the then outstanding Notes make a written request to the Trustee to pursue the remedy; (c) such Holder of a Note or Holders of Notes offer and, if requested, provide to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense; (d) the Trustee does not comply with the request within 60 days after receipt of the request and the offer and, if requested, the provision of indemnity; and (e) during such 60-day period the Holders of a majority in principal amount of the then outstanding Notes do not give the Trustee a direction inconsistent with the request; provided, however, that such provision does not effect the right of a Holder of a Note to sue for enforcement of any overdue payment thereon. A Holder of a Note may not use this Indenture to prejudice the rights of another Holder of a Note or to obtain a preference or priority over another Holder of a Note. Section 6.07. Rights of Holders of Notes to Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder of a Note to receive payment of principal, premium, if any, and interest on the Note, on or after the respective due dates expressed in the Note (including in connection with a Purchase Offer), or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder. Section 6.08. Collection Suit by Trustee. If an Event of Default specified in Section 6.01(a) or (b) occurs and is continuing, the Trustee is authorized to recover judgment in its own name and as trustee of an express trust against the Company for the whole amount of principal of, premium, if any, and interest remaining unpaid on the Notes and interest on overdue principal and, to the extent lawful, interest and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. Section 6.09. Trustee May File Proofs of Claim. The Trustee is authorized to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Holders allowed in any judicial proceedings relative to the Company (or any other obligor upon the Notes, including the Guarantors), its creditors or its property and shall be entitled and empowered to collect, receive and distribute any money or other property payable or deliverable on any such claims and any custodian in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due 38 the Trustee under Section 7.07 hereof. To the extent that the payment of any such compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof out of the estate in any such proceeding, shall be denied for any reason, payment of the same shall be secured by a Lien on, and shall be paid out of, any and all distributions, dividends, money, securities and other properties that the Holders may be entitled to receive in such proceeding whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. Section 6.10. Priorities. If the Trustee collects any money pursuant to this Article, it shall pay out the money in the following order: First: to the Trustee, its agents and attorneys for amounts due under Section 7.07 hereof; Second: to the holders of Senior Debt of the Company or the Guarantors, as the case may be, to the extent required by Article 10 or Article 11 hereof, as applicable; Third: to Holders of Notes for amounts due and unpaid on the Notes for principal, premium, if any, and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal, premium, if any, and interest, respectively; and Fourth: to the Company or to such party as a court of competent jurisdiction shall direct. The Trustee may fix a record date and payment date for any payment to Holders of Notes pursuant to this Section 6.10. Section 6.11. Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as a Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section does not apply to a suit by the Trustee, a suit by a Holder of a Note pursuant to Section 6.07 hereof, or a suit by Holders of more than 10% in principal amount of the then outstanding Notes. 39 ARTICLE 7 TRUSTEE Section 7.01. Duties of Trustee. (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in its exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (b) Except during the continuance of an Event of Default: (i) the duties of the Trustee shall be determined solely by the express provisions of this Indenture and the Trustee need perform only those duties that are specifically set forth in this Indenture and no others, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (ii) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (c) The Trustee may not be relieved from liabilities for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (i) this paragraph (c) does not limit the effect of paragraph (b) of this Section; (ii) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (iii) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05 hereof. (d) Whether or not therein expressly so provided, every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), and (c) of this Section. (e) No provision of this Indenture shall require the Trustee to expend or risk its own funds or incur any liability. The Trustee shall be under no obligation to exercise any of its rights and powers under this Indenture at the request of any Holders, unless such Holder shall have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense. (f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. (g) The Trustee shall not be responsible for having knowledge of any defaults, except for monetary defaults, unless specifically notified in writing by the Holders. 40 Section 7.02. Rights of Trustee. (a) The Trustee may conclusively rely upon any document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection from liability in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. (c) The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within the rights or powers conferred upon it by this Indenture. (e) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Company shall be sufficient if signed by an Officer of the Company. (f) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities that might be incurred by it in compliance with such request or direction. Section 7.03. Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Company, the Guarantors, if any, or any Affiliate of the Company or the Guarantors, if any, with the same rights it would have if it were not Trustee. However, in the event that the Trustee acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the SEC for permission to continue as trustee or resign. Any Agent may do the same with like rights and duties. The Trustee is also subject to Sections 7.10 and 7.11 hereof. Section 7.04. Trustee's Disclaimer. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Notes, it shall not be accountable for the Company's use of the proceeds from the Notes or any money paid to the Company or upon the Company's direction under any provision of this Indenture, it shall not be responsible for the use or application of any money received by any Paying Agent other than the Trustee, and it shall not be responsible for any statement or recital herein or any statement in the Notes or any other document in connection with the sale of the Notes or pursuant to this Indenture other than its certificate of authentication. Section 7.05. Notice of Defaults. 41 If a Default or Event of Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to Holders of Notes a notice of the Default or Event of Default within 90 days after it occurs. Except in the case of a Default or Event of Default in payment of principal of, premium, if any, or interest on any Note, the Trustee may withhold the notice if and so long as a committee of its Responsible Officers in good faith determines that withholding the notice is in the interests of the Holders. Section 7.06. Reports by Trustee to Holders. Within 60 days after each [DATE] beginning with the [DATE] following the date of this Indenture, and for so long as Notes remain outstanding, the Trustee shall mail to the Holders a brief report dated as of such reporting date that complies with TIA (S) 313(a) (but if no event described in TIA (S) 313(a) has occurred within the twelve months preceding the reporting date, no report need be transmitted). The Trustee also shall comply with TIA (S) 313(b)(2). The Trustee shall also transmit by mail all reports as required by TIA (S) 313(c). A copy of each report at the time of its mailing to the Holders of Notes shall be mailed to the Company and filed with the SEC and each stock exchange on which the Notes are listed in accordance with TIA (S) 313(d). The Company shall promptly notify the Trustee when the Notes are listed on any stock exchange. Section 7.07. Compensation and Indemnity. The Company and the Guarantors, if any, shall pay to the Trustee from time to time reasonable compensation for its acceptance of this Indenture and services hereunder. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company and the Guarantors, if any, shall reimburse the Trustee promptly upon request for all reasonable disbursements, advances and expenses incurred or made by it in addition to the compensation for its services. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel. The Company and the Guarantors, if any, shall indemnify the Trustee and its directors, officers and employees against any and all losses, liabilities or expenses incurred by it arising out of or in connection with the acceptance or administration of its duties under this Indenture, including the costs and expenses of enforcing this Indenture against the Company and the Guarantors, if any (including this Section 7.07), and defending itself against any claim (whether asserted by the Company, any Guarantor or any Holder or any other Person) or liability in connection with the exercise or performance of any of its powers or duties hereunder, except to the extent any such loss, liability or expense may be attributable to its negligence, willful misconduct, bad faith or breach of its duties under this Indenture. The Trustee shall notify the Company promptly of any claim for which it may seek indemnity. Unless the position of the Company or the Guarantors is prejudiced by such failure, failure by the Trustee to so notify the Company shall not relieve the Company and the Guarantors, of their obligations hereunder. The Company and the Guarantors, if any, shall defend the claim and the Trustee shall cooperate in the defense. The Trustee may have separate counsel if the Trustee shall have been reasonably advised by such counsel that there may be one or more legal defenses available to it that are different from or additional to those available to the Company and in the reasonable judgment of such counsel it is advisable for the Trustee to employ separate counsel, and the Company and the Guarantors, if any, shall pay the reasonable fees and expenses of such counsel. The Company and the Guarantors, if any, need not pay for any settlement made without their consent, which consent shall not be unreasonably withheld. 42 The obligations of the Company and the Guarantors, if any, under this Section 7.07 shall survive the satisfaction and discharge of this Indenture. To secure the Company's and the Guarantors', if any, payment obligations in this Section, the Trustee shall have a Lien prior to the Notes on all money or property held or collected by the Trustee, except that held in trust to pay principal and interest on particular Notes. Such Lien shall survive the satisfaction and discharge of this Indenture. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01(h) or (i) hereof occurs, the expenses and the compensation for the services (including the fees and expenses of its agents and counsel) are intended to constitute expenses of administration under any Bankruptcy Law. The Trustee shall comply with the provisions of TIA (S) 313(b)(2) to the extent applicable. Section 7.08. Replacement of Trustee. A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section. The Trustee may resign in writing at any time and be discharged from the trust hereby created by so notifying the Company. The Holders of Notes of a majority in principal amount of the then outstanding Notes may remove the Trustee by so notifying the Trustee and the Company in writing. The Company may remove the Trustee if: (a) the Trustee fails to comply with Section 7.10 hereof; (b) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law; (c) a Custodian or public officer takes charge of the Trustee or its property; or (d) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the then outstanding Notes may appoint a successor Trustee to replace the successor Trustee appointed by the Company. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company, any Guarantor, or the Holders of Notes of at least 10% in principal amount of the then outstanding Notes may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee, after written request by any Holder of a Note who has been a Holder of a Note for at least six months, fails to comply with Section 7.10, such Holder of a Note may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. 43 A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Holders. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, provided all sums owing to the Trustee hereunder have been paid and subject to the Lien provided for in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the Company's and the Guarantors', if any, obligations under Section 7.07 hereof shall continue for the benefit of the retiring Trustee. Section 7.09. Successor Trustee by Merger, etc. If the Trustee consolidates, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the successor corporation without any further act shall be the successor Trustee; provided such corporation shall be otherwise eligible and qualified under this Article. Section 7.10. Eligibility; Disqualification. There shall at all times be a Trustee hereunder that is a corporation organized and doing business under the laws of the United States of America or of any state thereof that is authorized under such laws to exercise corporate trustee power, that is subject to supervision or examination by federal or state authorities and that has a combined capital and surplus of at least $100 million as set forth in its most recent published annual report of condition. This Indenture shall always have a Trustee who satisfies the requirements of TIA (S) 310(a)(1), (2) and (5). The Trustee is subject to TIA (S) 310(b). Section 7.11. Preferential Collection of Claims Against Company. The Trustee is subject to TIA (S) 311(a), excluding any creditor relationship listed in TIA (S) 311(b). A Trustee who has resigned or been removed shall be subject to TIA (S) 311(a) to the extent indicated therein. ARTICLE 8 LEGAL DEFEASANCE AND COVENANT DEFEASANCE Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance. The Company may, at the option of its Board of Directors evidenced by a resolution set forth in an Officers' Certificate delivered to the Trustee, at any time, elect to have either Section 8.02 or 8.03 hereof be applied to all outstanding Notes upon compliance with the conditions set forth below in this Article Eight. Section 8.02. Legal Defeasance and Discharge. Upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.02, each of the Company and the Guarantors, if any, shall, subject to the satisfaction of the conditions 44 set forth in Section 8.04 hereof, be deemed to have been discharged from its obligations with respect to all outstanding Notes and Subsidiary Guarantees on the date the conditions set forth below are satisfied (hereinafter, "Legal Defeasance"). For this purpose, Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Notes, which shall thereafter be deemed to be "outstanding" only for the purposes of Section 8.05 hereof and the other Sections of this Indenture referred to in (a) and (b) below, and to have satisfied all its other obligations under such Notes and this Indenture (and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following provisions which shall survive until otherwise terminated or discharged hereunder: (a) the rights of Holders of outstanding Notes to receive solely from the trust fund described in Section 8.04 hereof, and as more fully set forth in such Section, payments in respect of the principal of, premium, if any, and interest on such Notes when such payments are due, (b) the Company's and Guarantors' obligations with respect to such Notes under Article 2 (except those obligations set forth in Sections 2.08, 2.09 and 2.12 hereof) and Section 4.02 hereof, (c) the rights, powers, trusts, duties and immunities of the Trustee hereunder and the Company's and the Guarantors' obligations in connection therewith and (d) this Article Eight. Subject to compliance with this Article Eight, the Company may exercise its option under this Section 8.02 notwithstanding the prior exercise of its option under Section 8.03 hereof. Section 8.03. Covenant Defeasance. Upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.03, each of the Company and the Guarantors, if any, shall, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be released from its obligations under the covenants contained in Sections 4.05, 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.14, 4.15, 4.16, 4.17, 4.18, and 4.19 and Articles 5, 10 and 11 hereof and the operation of the provisions contained in Subsections (e) and (f) of Article 6 with respect to the outstanding Notes and Subsidiary Guarantees on and after the date the conditions set forth below are satisfied (hereinafter, "Covenant Defeasance"), and the Notes shall thereafter be deemed not "outstanding" for the purposes of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "outstanding" for all other purposes hereunder (it being understood that such Notes shall not be deemed outstanding for accounting purposes). For this purpose, Covenant Defeasance means that, with respect to the outstanding Notes, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 6.01 hereof, but, except as specified above, the remainder of this Indenture, such Notes and the Subsidiary Guarantees, if any, shall be unaffected thereby. In addition, upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.03 hereof, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, Sections 6.01(c) through 6.01(h) hereof shall not constitute Events of Default. Section 8.04. Conditions to Legal or Covenant Defeasance. The following shall be the conditions to the application of either Section 8.02 or 8.03 hereof to the outstanding Notes: In order to exercise either Legal Defeasance or Covenant Defeasance: 45 (a) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders, cash in United States dollars, U.S. Governmental Obligations, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants as evidenced by a certificate delivered to the Trustee, to pay the principal of, premium, if any, and interest on the outstanding Notes on the stated date for payment thereof or on the applicable redemption date, as the case may be, of such principal or installment of principal of, premium, if any, or interest on the outstanding Notes; (b) in the case of an election under Section 8.02 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel reasonably acceptable to the Trustee confirming that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the Issue Date, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (c) in the case of an election under Section 8.03 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel reasonably acceptable to the Trustee confirming that the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (d) no Default or Event of Default shall have occurred and be continuing on the date of such deposit or insofar as Sections 6.01(h) or 6.01(i) hereof is concerned, at any time in the period ending on the 91st day after the date of deposit (or greater period of time in which any such deposit of trust funds may remain subject to Bankruptcy Law insofar as those apply to the deposit by the Company) or the Company provides an Opinion of Counsel to the effect that as of the effective date of such Opinion of Counsel, the deposited trust funds are not subject to any claim by any other creditor of the Company under any Bankruptcy Law as a preferential payment; (e) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, any material agreement or instrument (other than this Indenture) to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; (f) the Company shall have delivered to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders over any other creditors of the Company or the Guarantors, if any, or with the intent of defeating, hindering, delaying or defrauding any other creditors of the Company or the Guarantors, if any; (g) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for or relating to the Legal Defeasance or the Covenant Defeasance have been complied with; and 46 (h) the Company shall have delivered to the Trustee an opinion of counsel to the effect that the Holders of Notes shall have a perfected security interest under applicable law in the U.S. Government Obligations so deposited. Section 8.05. Deposited Money and U.S. Government Obligations to be Held in Trust; Other Miscellaneous Provisions. Subject to Section 8.06 hereof, all money and non-callable U.S. Government Obligations (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 8.05, the "Trustee") pursuant to Section 8.04 hereof in respect of the outstanding Notes shall be held in trust and applied by the Trustee, in accordance with the provisions of such Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as Paying Agent) as the Trustee may determine, to the Holders of such Notes of all sums due and to become due thereon in respect of principal, premium, if any, and interest, but such money need not be segregated from other funds except to the extent required by law. The Company and the Guarantors, if any, shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the cash or non-callable U.S. Government Obligations deposited pursuant to Section 8.04 hereof or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Notes. Anything in this Article Eight to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon the request of the Company any money or non-callable U.S. Government Obligations held by it as provided in Section 8.04 hereof which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee (which may be the opinion delivered under Section 8.04(a) hereof), are in excess of the amount thereof that would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance. Section 8.06. Repayment to Company. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of, premium, if any, or interest, if any, on any Note and remaining unclaimed for two years after such principal, and premium, if any, or interest, if any, have become due and payable shall be paid to the Company on its request or (if then held by the Company) shall be discharged from such trust; and the Holder of such Note shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in the New York Times and The Wall Street Journal (national edition), notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such notification or publication, any unclaimed balance of such money then remaining will be repaid to the Company. Section 8.07. Reinstatement. 47 If the Trustee or Paying Agent is unable to apply any United States dollars or non-callable U.S. Government Obligations in accordance with Section 8.02 or 8.03 hereof, as the case may be, by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company's and the Guarantors', if any, obligations under this Indenture, the Notes and the Subsidiary Guarantees shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 8.02 or 8.03 hereof, as the case may be; provided, however, that, if the Company and the Guarantors, if any, make any payment of principal of, premium, if any, or interest, if any, on any Note following the reinstatement of its obligations, the Company and the Guarantors, if any, shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money held by the Trustee or Paying Agent. ARTICLE 9 AMENDMENT, SUPPLEMENT AND WAIVER Section 9.01. Without Consent of Holders of Notes. Notwithstanding Section 9.02 of this Indenture, the Company, the Guarantors, if any, and the Trustee may amend or supplement this Indenture or the Notes without the consent of any Holder of a Note: (a) to cure any ambiguity, defect or inconsistency; (b) to provide for uncertificated Notes in addition to or in place of certificated Notes; (c) to provide for the assumption of the Company's or any Guarantor's obligations to the Holders in the case of a merger or consolidation pursuant to Article 5 or Article 10 hereof, as the case may be; (d) to make any change that would provide any additional rights or benefits to the Holders (including providing for Subsidiary Guarantees pursuant to Section 4.13 hereof) or that does not adversely affect the legal rights hereunder of any such Holder; or (e) to comply with requirements of the SEC in order to effect or maintain the qualification of this Indenture under the TIA. Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such amended or supplemental Indenture, and upon receipt by the Trustee of the documents described in Section 9.06 hereof, the Trustee shall join with the Company and the Guarantors, if any, in the execution of any amended or supplemental Indenture authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations that may be therein contained, but the Trustee shall not be obligated to enter into such amended or supplemental Indenture that affects its own rights, duties or immunities under this Indenture or otherwise. Section 9.02. With Consent of Holders of Notes. Except as provided below in this Section 9.02, the Company, the Guarantors, if any, and the Trustee may amend or supplement this Indenture or the Notes with the consent of the Holders of at least 48 a majority in principal amount of the Notes then outstanding (including consents obtained in connection with a tender offer or exchange offer for the Notes), and, subject to Sections 6.04 and 6.07 hereof, any existing Default or Event of Default (other than a Default or Event of Default in the payment of the principal of, premium, if any, or interest on the Notes, except a payment default resulting from an acceleration that has been rescinded) or compliance with any provision of this Indenture or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes (including consents obtained in connection with a tender offer or exchange offer for the Notes). Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such amended or supplemental Indenture, and upon the filing with the Trustee of evidence satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid, and upon receipt by the Trustee of the documents described in Section 9.06 hereof, the Trustee shall join with the Company and the Guarantors, if any, in the execution of such amended or supplemental Indenture unless such amended or supplemental Indenture affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such amended or supplemental Indenture. It shall not be necessary for the consent of the Holders of Notes under this Section 9.02 to approve the particular form of any proposed amendment or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section becomes effective, the Company shall mail to the Holders of Notes affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such amended or supplemental Indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the Holders of a majority in aggregate principal amount of the Notes then outstanding may waive compliance in a particular instance by the Company or any Guarantor with any provision of this Indenture, the Note or the Subsidiary Guarantees, if any. However, without the consent of each Holder affected, an amendment or waiver may not (with respect to any Notes held at the time of such consent by a non- consenting Holder): (a) reduce the principal amount of Notes whose Holders must consent to an amendment, supplement or waiver; (b) reduce the principal of or change the fixed maturity of any Note or alter or waive any of the provisions with respect to the redemption of the Notes; (c) reduce the rate of or change the time for payment of interest, including default interest, on any Note; (d) waive a Default or Event of Default in the payment of principal of or premium, if any, or interest on the Notes (except a rescission of acceleration of the Notes by the Holders of at least a majority in aggregate principal amount of the then outstanding Notes and a waiver of the payment default that resulted from such acceleration); (e) make any Note payable in money other than that stated in the Notes; 49 (f) make any change in the provisions of this Indenture relating to waivers of past Defaults or the rights of Holders of Notes to receive payments of principal of or premium, if any, or interest on the Notes; (g) waive a redemption payment with respect to any Note; (h) make any change to the subordination provisions of Section 10.02 or Article 11 hereof that adversely affects Holders; (i) make any change in Section 6.04 or 6.07 hereof or in the foregoing amendment and waiver provisions. The right of any Holder to participate in any consent required or sought pursuant to any provision of this Indenture (and the obligations of the Company to obtain any such consent otherwise required from such Holder) may be subject to the requirements that such Holder shall have been the Holder of record of any Notes with respect to which such consent is required to be sought as of a date identified by the Trustee in a notice furnished to Holders in accordance with the terms of this Indenture. Section 9.03. Compliance with Trust Indenture Act. Every amendment or supplement to this Indenture or the Notes shall be set forth in an amended or supplemental Indenture that complies with the TIA as then in effect. Section 9.04. Revocation and Effect of Consents. Until an amendment, supplement or waiver becomes effective, a consent to it by a Holder of a Note is a continuing consent by the Holder of a Note and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder's Note, even if notation of the consent is not made on any Note. However, any such Holder of a Note or subsequent Holder of a Note may revoke the consent as to its Note if the Trustee receives written notice of revocation before the date the waiver, supplement or amendment becomes effective. An amendment, supplement or waiver becomes effective in accordance with its terms and thereafter binds every Holder. Section 9.05. Notation on or Exchange of Notes. The Trustee may place an appropriate notation about an amendment, supplement or waiver on any Note thereafter authenticated. The Company in exchange for all Notes may issue and the Trustee shall authenticate new Notes (accompanied by a notation of the Subsidiary Guarantee duly endorsed by the Guarantors) that reflect the amendment, supplement or waiver. Failure to make the appropriate notation or issue a new Note shall not affect the validity and effect of such amendment, supplement or waiver. Section 9.06. Trustee to Sign Amendments, etc. The Trustee shall sign any amended or supplemental Indenture authorized pursuant to this Article Nine if the amendment or supplement does not adversely affect the rights, duties, liabilities or immunities of the Trustee. The Company and the Guarantors, if any, may not sign an amendment or supplemental Indenture until the Board of Directors of the Company approves it. In executing any 50 amended or supplemental indenture, the Trustee shall be entitled to receive and (subject to Section 7.01) shall be fully protected in relying upon, an Officer's Certificate and an Opinion of Counsel stating that the execution of such amended or supplemental indenture is authorized or permitted by this Indenture. ARTICLE 10 SUBSIDIARY GUARANTEES Section 10.01. Subsidiary Guarantee. Each Subsidiary of the Company which in accordance with Section 4.13 hereof is required to guarantee the obligations of the Company under the Notes (each, a "Guarantor") upon execution of a counterpart of this Indenture, hereby jointly and severally unconditionally guarantees (each such guarantee being a "Subsidiary Guarantee") to each Holder of a Note authenticated and delivered by the Trustee irrespective of the validity or enforceability of this Indenture, the Notes or the Obligations of the Company under this Indenture or the Notes, that: (i) the principal of and interest on the Notes will be paid in full when due, whether at the maturity or interest payment or mandatory redemption date, by acceleration, call for redemption or otherwise, and interest on the overdue principal of and interest, if any, is lawful on the Notes and all other obligations of the Company to the Holders or the Trustee under this Indenture or the Notes will be promptly paid in full or performed, all in accordance with the terms of this Indenture and the Notes; and (ii) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, they will be paid in full when due or performed in accordance with the terms of the extension or renewal, whether at maturity, by acceleration or otherwise. Failing payment when due of any amount so guaranteed for whatever reason, each Guarantor will be obligated to pay the same whether or not such failure to pay has become an Event of Default which could cause acceleration pursuant to Section 6.02 hereof. Each Guarantor agrees that this is a guarantee of payment and not a guarantee of collection. Each Guarantor hereby agrees that its Obligations with regard to this Subsidiary Guarantee shall be joint and several, unconditional, irrespective of the validity or enforceability of the Notes or the obligations of the Company under this Indenture, the absence of any action to enforce the same, the recovery of any judgment against the Company or any other obligor with respect to this Indenture, the Notes or the obligations of the Company under this Indenture or the Notes, any action to enforce the same or any other circumstances (other than complete performance) which might otherwise constitute a legal or equitable discharge or defense of a Guarantor. Each Guarantor further, to the extent permitted by law, waives and relinquishes all claims, rights and remedies accorded by applicable law to guarantors and agrees not to assert or take advantage of any such claims, rights or remedies, including but not limited to: (a) any right to require the Trustee, the Holders or the Company (each, a "Benefitted Party") to proceed against the Company or any other Person or to proceed against or exhaust any security held by a Benefitted Party at any time or to pursue any other remedy in any Benefitted Party's power before proceeding against such Guarantor; (b) the defense of the statute of limitations in any action hereunder or in any action for the collection of any Indebtedness or the performance of any obligation 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 a Benefitted Party to file or enforce a claim against the estate (in administration, bankruptcy or any other proceeding) of any other Person; (d) demand, protest and notice of any kind including but not limited to notice of the existence, creation or incurring of any new or additional Indebtedness or Obligation or of any action or non-action on the part of such Guarantor, the Company, any Benefitted Party, any creditor of such Guarantor, the Company or on the part of any other Person whomsoever in connection with any Indebtedness or obligations hereby 51 guaranteed; (e) any defense based upon an election of remedies by a Benefitted Party, including but not limited to an election to proceed against such Guarantor for reimbursement; (f) any defense based upon any statute or rule of law which 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 defense arising because of a Benefitted Party's election, in any proceeding instituted under the Federal Bankruptcy Code, of the application of Section 1111(b)(2) of the Federal Bankruptcy Code; or (h) any defense based on any borrowing or grant of a security interest under Section 364 of the Federal Bankruptcy Code. Each Guarantor hereby covenants that its Subsidiary Guarantee will not be discharged except by complete performance of the obligations contained in its Subsidiary Guarantee and this Indenture. If any Holder or the Trustee is required by any court or otherwise to return to either the Company or any Guarantor, or any Custodian acting in relation to either the Company or such Guarantor, any amount paid by the Company or such Guarantor to the Trustee or such Holder, the applicable Subsidiary Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect. Each Guarantor agrees that it will not be entitled to any right of subrogation in relation to the Holders in respect of any obligations guaranteed hereby until payment in full of all obligations guaranteed hereby. Each Guarantor further agrees that, as between such Guarantor, on the one hand, and the Holders and the Trustee, on the other hand, (i) the maturity of the Obligations guaranteed hereby may be accelerated as provided in Section 6.02 hereof for the purposes of this Subsidiary Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration as to the Company or any other obligor on the Notes of the obligations guaranteed hereby, and (ii) in the event of any declaration of acceleration of those obligations as provided in Section 6.02 hereof, those Obligations (whether or not due and payable) will forthwith become due and payable by such Guarantor for the purpose of this Subsidiary Guarantee. Section 10.02. Subordination. Each Guarantor, the Trustee, and each Holder by accepting a Note agrees, that the Obligations of such Guarantor hereunder shall be subordinated in right of payment to the prior irrevocable and indefeasible payment in full of all Obligations of every type whatsoever, contingent or otherwise due in respect of all Senior Debt of such Guarantor and of the Company (whether outstanding on the date hereof or hereafter created, incurred, assumed or guaranteed). Section 10.03. Liquidation; Dissolution; Bankruptcy. Upon any distribution to creditors of any Guarantor in a liquidation or dissolution of such Guarantor or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to such Guarantor or its property, in an assignment for the benefit of creditors or any marshaling of such Guarantor's assets and liabilities: (1) Holders of Senior Debt of such Guarantor shall be entitled to receive payment in full of all Obligations due in respect of such Senior Debt of such Guarantor (including interest after the commencement of any such proceeding at the rate specified in the applicable Senior Debt of such Guarantor) before the Trustee or any Holder shall be entitled to receive any payment from the Guarantor under or pursuant to this Subsidiary Guarantee with respect to the Notes; and (2) until all Obligations with respect to Senior Debt of such Guarantor (as provided in subsection (1) above) are paid in full, any distribution to which the Trustee or any Holder would be 52 entitled but for this Article shall be made to holders of Senior Debt of such Guarantor (except that Holders may receive securities that are subordinated in right and priority of payment to at least the same extent as the Subsidiary Guarantee to (a) Senior Debt of such Guarantor and (b) any securities issued in exchange for Senior Debt of such Guarantor). Section 10.04. Default on Senior Debt of the Guarantor. No Guarantor shall make any payment or distribution to the Trustee or any Holder upon or in respect of its Subsidiary Guarantee or the Notes, or any obligation with respect thereto, and no Guarantor shall acquire or purchase from the Trustee or any Holder any Notes for cash or property (other than securities that are subordinated in right and priority of payment to at least the same extent as its Subsidiary Guarantee to (a) Senior Debt of such Guarantor and (b) any securities issued in exchange for Senior Debt of such Guarantor) until all principal and other obligations with respect to the Senior Debt of such Guarantor have been paid in full if: (i) a default in the payment when due, whether upon acceleration or otherwise, of any principal, premium, if any, or interest on Designated Senior Debt of such Guarantor occurs and is continuing beyond any applicable grace period; or (ii) any other default on Designated Senior Debt of such Guarantor occurs and is continuing and the Trustee receives a notice of the default from such Guarantor, or the holders of any such Designated Senior Debt of such Guarantor, stating that such Guarantor or holders are invoking a payment blockage under this Section 10.04(ii) (a "Guarantor Payment Blockage Notice"). If the Trustee receives any such notice, a subsequent notice received within 365 days thereafter shall not be effective for purposes of this Section. Each Guarantor may and shall resume payments on and distributions in respect of its Subsidiary Guarantee and all obligations with respect thereto, and may acquire obligations for value when: (1) in the case of a payment default as described in (i) above, upon the date on which such default is cured or waived, and (2) in the case of a nonpayment default as described in (ii) above, on the earlier of the date on which such nonpayment default is cured or waived or 179 days after the date on which a Guarantor Payment Blockage Notice is received unless the maturity of such Designated Senior Debt of such Guarantor has been accelerated, and this Article otherwise permits the payment at the time of such payment. Section 10.05. Acceleration of Notes. If payment of the Notes is accelerated because of an Event of Default, each Guarantor shall promptly notify the Representative of the holders of Senior Debt of such Guarantor of the acceleration. Section 10.06. When Distribution Must Be Paid Over. In the event that the Trustee or any Holder receives from a Guarantor any payment of any Obligations with respect to the Notes or any other obligation guaranteed hereby at a time when the Trustee or such Holder has actual knowledge that such payment is prohibited by Section 10.03 or Section 10.04 hereof, such payment shall be held by the Trustee or such Holder, in trust for the benefit of, and 53 shall be paid forthwith over and delivered, upon written request, to, the holders of Senior Debt of such Guarantor (to the extent necessary to pay in full all such Senior Debt, whether or not due) as their interests may appear, or their Representative under the indenture or other agreement (if any) pursuant to which Senior Debt of such Guarantor may have been issued, as their respective interests may appear, for application to the payment of all Obligations with respect to Senior Debt of such Guarantor remaining unpaid to the extent necessary to pay such Obligations in full in accordance with their terms, after giving effect to any concurrent payment or distribution to or for the holders of Senior Debt of such Guarantor. If a distribution is made to the Trustee or any Holder that because of this Article 10 should not have been made to it at a time when the Trustee or such Holder has actual knowledge that such distribution should not have been made to it, the Trustee or such Holder who receives the distribution shall hold it in trust for the benefit of, and, upon written request, pay it over to, the holders of Senior Debt of such Guarantor as their interests may appear, or their Representative under the indenture or other agreement (if any) pursuant to which Senior Debt of such Guarantor may have been issued, as their respective interests may appear, for application to the payment of all Obligations with respect to Senior Debt of such Guarantor remaining unpaid to the extent necessary to pay such Obligations in full in accordance with their terms, after giving effect to any concurrent payment or distribution to or for the holders of Senior Debt of such Guarantor. With respect to the holders of Senior Debt of any Guarantor, the Trustee undertakes to perform only such obligations on the part of the Trustee as are specifically set forth in this Article 10, and no implied covenants or obligations with respect to the holders of Senior Debt of any such Guarantor shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Debt of such Guarantor, and shall not be liable to any such holders if the Trustee shall pay over or distribute to or on behalf of Holders or the Company or any other Person money or assets to which any holders of Senior Debt of such Guarantor shall be entitled by virtue of this Article 10, except if such payment is made as a result of the willful misconduct or gross negligence of the Trustee. Section 10.07. Notice by a Guarantor. Each Guarantor shall promptly notify the Trustee and the Paying Agent of any facts known to such Guarantor that would cause a payment of any Obligations with respect to the Notes or its Subsidiary Guarantee to violate this Article, but failure to give such notice shall not affect the subordination of its Subsidiary Guarantee or of the Notes to the Senior Debt of such Guarantor as provided in this Article. Section 10.08. Subrogation. With respect to any Guarantor, after all Senior Debt of such Guarantor is paid in full (whether or not due) and until the Notes are paid in full, Holders shall, without duplication, be subrogated to the rights of holders of Senior Debt of such Guarantor to receive distributions applicable to Senior Debt of such Guarantor to the extent that distributions otherwise payable to the Holders have been applied to the payment of Senior Debt of such Guarantor. A distribution made under this Article to holders of Senior Debt of such Guarantor that otherwise would have been made to Holders is not, as between such Guarantor and Holders, a payment by such Guarantor on the Senior Debt of such Guarantor. Section 10.09. Relative Rights. 54 This Article defines the relative rights of Holders and holders of Senior Debt of such Guarantor. Nothing in this Indenture shall: (1) impair, as between such Guarantor and the Holders, the obligation of such Guarantor, which is absolute and unconditional, to pay principal of and interest on the Notes in accordance with their terms; (2) affect the relative rights of Holders and creditors of such Guarantor other than their rights in relation to holders of Senior Debt of such Guarantor; or (3) prevent the Trustee or any Holder from exercising its available remedies upon a Default or Event of Default, subject to the rights of holders of Senior Debt of such Guarantor set forth herein to receive distributions and payments otherwise payable to Holders. Section 10.10. Subordination May Not Be Impaired By Any Guarantor. With respect to any Guarantor, no right of any holder of Senior Debt of such Guarantor to enforce the subordination of the Subsidiary Guarantee shall be impaired by any act or failure to act by such Guarantor or any Holder or by failure of such Guarantor or any Holder to comply with this Indenture. Section 10.11. Distribution or Notice to Representative. With respect to any Guarantor, whenever a distribution is to be made or a notice given to holders of Senior Debt of such Guarantor, the distribution may be made and the notice given to their Representative. Upon any payment or distribution of assets referred to in this Article 10, the Trustee and the Holders shall be entitled to rely upon any order or decree made by any court of competent jurisdiction or upon any certificate of such Representative or of the liquidating trustee or agent or other Person making any distribution for the purpose of ascertaining the Persons entitled to participate in such distribution, the holders of the Senior Debt of such Guarantor, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article 10. Section 10.12. Rights of Trustee and Paying Agent. Notwithstanding the provisions of this Article 10 or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts that would prohibit the making of any payment or distribution by the Trustee, and the Trustee and the Paying Agent may continue to make payments on the Notes, unless the Trustee shall have received at its Corporate Trust Office at least five Business Days prior to the date of such payment written notice of facts that would cause the payment of any Obligations with respect to the Subsidiary Guarantee to violate this Article. Only a Guarantor, the Company, the holder of any Senior Debt of such Guarantor, or the Representative of holders of Senior Debt of such Guarantor may give the notice. Nothing in this Article 10 shall impair the claims of, or payments to, the Trustee under or pursuant to Section 7.07 hereof. With respect to any Guarantor, the Trustee in its individual or any other capacity may hold Senior Debt of such Guarantor with the same rights it would have if it were not Trustee. 55 Section 10.13. Authorization to Effect Subordination. Each Holder of a Note by the Holder's acceptance thereof authorizes and directs the Trustee on the Holder's behalf to take such action as may be necessary or appropriate to effectuate the subordination as provided in this Article 10, and appoints the Trustee the Holder's attorney-in-fact for any and all such purposes. If the Trustee does not file a proper proof of claim or proof of debt in the form required in any proceeding relative to any Guarantor referred to in Section 6.09 hereof at least 30 days before the expiration of the time to file such claim, the holders (or their Representative) of Senior Debt of each Guarantor are hereby authorized to file an appropriate claim for and on behalf of the Holders. Section 10.14. Limitation of Guarantor's Liability. Each Guarantor and by its acceptance hereof, each beneficiary hereof, hereby confirm that it is its intention that the Subsidiary Guarantee by such Guarantor not constitute a fraudulent transfer or conveyance for purposes of the Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or state law to the extent applicable to any Subsidiary Guarantees. To effectuate the foregoing intention, each such Person hereby irrevocably agrees that the obligation of such Guarantor under its Subsidiary Guarantee under this Article 10 shall be limited to the maximum amount as will, after giving effect to such maximum amount and all other (contingent or otherwise) liabilities of such Guarantor that are relevant under such laws, and after giving effect to any collections from, rights to receive contribution from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under this Article 10, result in the obligations of such Guarantor in respect of such maximum amount not constituting a fraudulent conveyance. Each beneficiary under the Subsidiary Guarantees, by accepting the benefits hereof, confirms its intention that, in the event of a bankruptcy, reorganization or other similar proceeding of the Company or any Guarantor in which concurrent claims are made upon such Guarantor hereunder, to the extent such claims will not be fully satisfied, each such claimant with a valid claim against the Company shall be entitled to a ratable share of all payments by such Guarantor in respect of such concurrent claims. Section 10.15. Releases Following Sale of Assets. Upon (i) a sale or other disposition of all or substantially all of the assets of any Guarantor, by way of merger, consolidation or otherwise, (ii) a sale or other disposition of all of the capital stock of any Guarantor or (iii) a Restricted Subsidiary becoming an Unrestricted Subsidiary pursuant to the provisions of this Indenture, then such Guarantor (in the event of a sale or other disposition, by way of such a merger, consolidation or otherwise, of all of the capital stock of such Guarantor) or the corporation acquiring the property (in the event of a sale or other disposition of all or substantially all of the assets of such Guarantor) shall be released and relieved of its obligations under its Subsidiary Guarantee; provided that the Net Proceeds of such sale or other disposition are applied in accordance with Section 4.10 hereof. ARTICLE 11 SUBORDINATION Section 11.01. Subordination. 56 The Company agrees, and each Holder by accepting a Note agrees, that the Indebtedness evidenced by the Notes shall be subordinated in right of payment to the prior irrevocable and indefeasible payment in full of all Obligations of every type whatsoever, contingent or otherwise due in respect of Senior Debt of the Company (whether outstanding on the date hereof or hereafter created, incurred, assumed or guaranteed). Section 11.02. Liquidation; Dissolution; Bankruptcy. Upon any distribution to creditors of the Company in a liquidation or dissolution of the Company or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Company or its property, an assignment for the benefit of creditors or any marshalling of the Company's assets and liabilities: (1) holders of Senior Debt of the Company shall be entitled to receive payment in full of all Obligations due in respect of such Senior Debt of the Company (including interest after the commencement of any such proceeding at the rate specified in the applicable Senior Debt of the Company) before the Holders shall be entitled to receive any payment with respect to the Notes; and (2) until all Obligations with respect to Senior Debt of the Company (as provided in subsection (1) above) are paid in full, any distribution to which Holders would be entitled but for this Article shall be made to holders of Senior Debt of the Company (except that Holders may receive securities that are subordinated in right and priority of payment to at least the same extent as the Notes to (a) Senior Debt of the Company and (b) any securities issued in exchange for any such Senior Debt of the Company). Section 11.03. Default on Senior Debt. The Company may not make any payment or distribution to the Trustee or any Holder upon or in respect of the Notes, or any Obligation with respect thereto, and may not acquire or purchase from the Trustee or any Holder any Notes for cash or property (other than securities that are subordinated in right and priority of payment to at least the same extent as the Notes to (a) Senior Debt of the Company and (b) any securities issued in exchange for Senior Debt of the Company) until all principal and other Obligations with respect to the Senior Debt of the Company have been paid in full if: (i) a default in the payment when due, whether upon acceleration or otherwise, of any principal, premium, if any, or interest on Designated Senior Debt of the Company occurs and is continuing beyond any applicable grace period; or (ii) any other default on Designated Senior Debt of the Company occurs and is continuing and the Trustee receives a notice of the default from the Company, or the holders of any such Designated Senior Debt of the Company, stating that it is or such holders are invoking a payment blockage under this Section 11.03(ii) (a "Payment Blockage Notice"). If the Trustee receives any such notice, a subsequent notice received within 365 days thereafter shall not be effective for purposes of this Section. The Company may and shall resume payments on and distributions in respect of the Notes, and all Obligations with respect thereto, and may acquire them when: 57 (1) in the case of a payment default as described in (i) above, upon the date on which such default is cured or waived, and (2) in the case of a nonpayment default as described in (ii) above, on the earlier of the date on which such nonpayment default is cured or waived or 179 days after the date on which the applicable Payment Blockage Notice is received, unless the maturity of any such Designated Senior Debt of the Company has been accelerated, and this Article otherwise permits the payment at the time of such payment. Section 11.04. Acceleration of Notes. If payment of the Notes is accelerated because of an Event of Default, the Company shall promptly notify the Representative of the holders of Senior Debt of the Company of the acceleration. Section 11.05. When Distribution Must Be Paid Over. In the event that the Trustee or any Holder receives any payment of any Obligations with respect to the Notes at a time when the Trustee or such Holder has actual knowledge that such payment is prohibited by Section 11.02 or Section 11.03 hereof, such payment shall be held by the Trustee or such Holder, in trust for the benefit of, and shall be paid forthwith over and delivered, upon written request, to, the holders of Senior Debt of the Company (to the extent necessary to pay in full all such Senior Debt, whether or not due) as their interests may appear, or their Representative under the indenture or other agreement (if any) pursuant to which Senior Debt of the Company may have been issued, as their respective interests may appear, for application to the payment of all Obligations with respect to Senior Debt of the Company remaining unpaid to the extent necessary to pay such Obligations in full in accordance with their terms, after giving effect to any concurrent payment or distribution to or for the holders of Senior Debt of the Company. If a distribution is made to the Trustee or any Holder that because of this Article 11 should not have been made to it at a time when the Trustee or such Holder has actual knowledge that such distribution should not have been made to it, the Trustee or such Holder who receives the distribution shall hold it in trust for the benefit of, and, upon written request, pay it over to, the holders of Senior Debt of the Company as their interests may appear, or their Representative under the indenture or other agreement (if any) pursuant to which Senior Debt of the Company may have been issued, as their respective interests may appear, for application to the payment of all Obligations with respect to Senior Debt of the Company remaining unpaid to the extent necessary to pay such Obligations in full in accordance with their terms, after giving effect to any concurrent payment or distribution to or for the holders of Senior Debt of the Company. With respect to the holders of Senior Debt of the Company, the Trustee undertakes to perform only such obligations on the part of the Trustee as are specifically set forth in this Article 11, and no implied covenants or obligations with respect to the holders of Senior Debt of the Company shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Debt of the Company, and shall not be liable to any such holders if the Trustee shall pay over or distribute to or on behalf of Holders or the Company or any other Person money or assets to which any holders of Senior Debt of the Company shall be entitled by virtue of this Article 11, except if such payment is made as a result of the willful misconduct or gross negligence of the Trustee. Section 11.06. Notice by Company. 58 The Company shall promptly notify the Trustee and the Paying Agent of any facts known to the Company that would cause a payment of any Obligations with respect to the Notes to violate this Article, but failure to give such notice shall not affect the subordination of the Notes to the Senior Debt of the Company as provided in this Article. Section 11.07. Subrogation. After all Senior Debt of the Company is paid in full (whether or not due) and until the Notes are paid in full, Holders shall, without duplication, be subrogated to the rights of holders of Senior Debt of the Company to receive distributions applicable to Senior Debt of the Company to the extent that distributions otherwise payable to the Holders have been applied to the payment of Senior Debt of the Company. A distribution made under this Article to holders of Senior Debt of the Company that otherwise would have been made to Holders is not, as between the Company and Holders, a payment by the Company on Senior Debt of the Company. Section 11.08. Relative Rights. This Article defines the relative rights of Holders and holders of Senior Debt of the Company. Nothing in this Indenture shall: (1) impair, as between the Company and the Holders, the obligation of the Company, which is absolute and unconditional, to pay principal of and interest on the Notes in accordance with their terms; (2) affect the relative rights of Holders and creditors of the Company other than their rights in relation to holders of Senior Debt of the Company; or (3) prevent the Trustee or any Holder from exercising its available remedies upon a Default or Event of Default, subject to the rights of holders of Senior Debt of the Company set forth herein to receive distributions and payments otherwise payable to Holders. If the Company fails because of this Article to pay principal of or interest on a Note on the due date, the failure is still a Default or Event of Default. Section 11.09. Subordination May Not Be Impaired By Company. No right of any holder of Senior Debt of the Company to enforce the subordination of the Indebtedness with respect to the Notes shall be impaired by any act or failure to act by the Company or any Holder or by failure of the Company or any Holder to comply with this Indenture. Section 11.10. Distribution or Notice to Representative. Whenever a distribution is to be made or a notice given to holders of Senior Debt of the Company, the distribution may be made and the notice given to their Representative. Upon any payment or distribution of assets referred to in this Article 11, the Trustee and the Holders shall be entitled to rely upon any order or decree made by any court of competent jurisdiction or upon any certificate of such Representative or of the liquidating trustee or agent or other Person making any distribution for the purpose of ascertaining the Persons entitled to participate in such 59 distribution, the holders of the Senior Debt of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article 11. Section 11.11. Rights of Trustee and Paying Agent. Notwithstanding the provisions of this Article 11 or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts that would prohibit the making of any payment or distribution by the Trustee, and the Trustee and the Paying Agent may continue to make payments on the Notes, unless the Trustee shall have received at its Corporate Trust Office at least five Business Days prior to the date of such payment written notice of facts that would cause the payment of any Obligations with respect to the Notes to violate this Article. Only the Company, the holder of any Senior Debt of the Company, or the Representative of holders of Senior Debt of the Company may give the notice. Nothing in this Article 11 shall impair the claims of, or payments to, the Trustee under or pursuant to Section 7.07 hereof. The Trustee in its individual or any other capacity may hold Senior Debt of the Company with the same rights it would have if it were not Trustee. Section 11.12. Authorization to Effect Subordination. Each Holder of a Note by the Holder's acceptance thereof authorizes and directs the Trustee on the Holder's behalf to take such action as may be necessary or appropriate to effectuate the subordination as provided in this Article 11, and appoints the Trustee the Holder's attorney-in-fact for any and all such purposes. If the Trustee does not file a proper proof of claim or proof of debt in the form required in any proceeding referred to in Section 6.09 hereof at least 30 days before the expiration of the time to file such claim, the holders (or their Representative) of Senior Debt of the Company are hereby authorized to file an appropriate claim for and on behalf of the Holders. ARTICLE 12 MISCELLANEOUS Section 12.01. Trust Indenture Act Controls. If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by TIA (S)318(c), the imposed duties shall control. Section 12.02. Notices. Any notice or communication by the Company, the Guarantors, if any, or the Trustee to the others is duly given if in writing and delivered in Person or mailed by first class mail (registered or certified, return receipt requested), telex, telecopier or overnight air courier guaranteeing next day delivery, to the others' address: If to the Company or any Guarantor: Showboat, Inc. 2800 Fremont Street Las Vegas, Nevada 89104 60 Telecopier No.: (702) 385-9678 Attention: With a copy to: Kummer Kaempfer Bonner & Renshaw 3800 Howard Hughes Pkwy Las Vegas, Nevada 89109 Telecopier No.: (212) 796-7181 Attention: John N. Brewer If to the Trustee: Telecopier No.: Attention: Corporate Trust Administration The Company, the Guarantors, if any, or the Trustee, by notice to the others may designate additional or different addresses for subsequent notices or communications. All notices and communications (other than those sent to Holders) shall be deemed to have been duly given: at the time delivered by hand, if Personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; when receipt acknowledged, if telecopied; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery. Any notice or communication to a Holder shall be mailed by first class mail, certified or regis-tered, return receipt requested, or by overnight air courier guaranteeing next day delivery to its address shown on the register kept by the Registrar. Any notice or communication shall also be so mailed to any Person described in TIA (S) 313(c), to the extent required by the TIA. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Hold-ers. If a notice or communication is mailed in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it. If the Company or any Guarantor mails a notice or communication to Holders, it shall mail a copy to the Trustee and each Agent at the same time. Section 12.03. Communication by Holders of Notes with Other Holders of Notes. Holders may communicate pursuant to TIA (S) 312(b) with other Holders with respect to their rights under this Indenture or the Notes. The Company, the Guarantors, if any, the Trustee, the Registrar and anyone else shall have the protection of TIA (S) 312(c). Section 12.04. Certificate and Opinion as to Conditions Precedent. 61 Upon any request or application by the Company or the Guarantors, if any, to the Trustee to take any action under this Indenture, the Company or the Guarantors, if any, shall furnish to the Trustee: (a) an Officers' Certificate in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 12.05 hereof) stating that, in the opinion of the signers, all conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been satisfied; and (b) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 12.05 hereof) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been satisfied. Section 12.05. Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than a certificate provided pursuant to TIA (S) 314(a)(4)) shall comply with the provisions of TIA (S) 314(e) and shall include: (a) a statement that the Person making such certificate or opinion has read such covenant or condition; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (c) a statement that, in the opinion of such Person, he or she has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been satisfied; and (d) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been satisfied; provided, however, that with respect to matters of fact an Opinion of Counsel may rely on an Officers' Certificate or certificates of Public Officials. Section 12.06. Rules by Trustee and Agents. The Trustee may make reasonable rules for action by or at a meeting of Holders. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions. Section 12.07. No Personal Liability of Directors, Officers, Employees and Stockholders. No past, present or future director, officer, employee, incorporator or stockholder of the Company or any Guarantor, or any successor Person as such, shall have any liability for any obligations of the Company or any Guarantor under the Notes, the Subsidiary Guarantees, this Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note and the Subsidiary Guarantees, if any, waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. Section 12.08. Governing Law. 62 THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS INDENTURE, THE NOTES AND THE SUBSIDIARY GUARANTEES, IF ANY. Section 12.09. No Adverse Interpretation of Other Agreements. This Indenture may not be used to interpret any other indenture, loan or debt agreement of the Company or its Subsidiaries or of any other Person. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. Section 12.10. Successors. All agreements of the Company and the Guarantors, if any, in this Indenture and the Notes and the Subsidiary Guarantees, as the case may be, shall bind their respective successors. All agreements of the Trustee in this Indenture shall bind its successors. Section 12.11. Severability. In case any provision in this Indenture, in the Notes or in the Subsidiary Guarantees, if any, shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 12.12. Counterpart Originals. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. Section 12.13. Table of Contents, Headings, etc. The Table of Contents, Cross-Reference Table and Headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part of this Indenture and shall in no way modify or restrict any of the terms or provisions hereof. [Signatures on following page] 63 SIGNATURES Dated as of ______, 1994 SHOWBOAT, INC. By: ------------------------------ Name: Title: Attest: (SEAL) - ------------------------------ Dated as of ______, 1994 Trustee By: ------------------------------ Name: Title: Attest: (SEAL) - ------------------------------ 64 Exhibit A (Face of Note) ____% Senior Subordinated Notes due 2009 No. $__________ SHOWBOAT, INC., or any successor thereto, promises to pay to or registered assigns, the principal sum of Dollars on _________ __, 2009. Interest Payment Dates: ________ __, and ________ __ Record Dates: ________ __, and ________ __ Dated: _______________ __, 1994 SHOWBOAT, INC. By:______________________________ Name: Title: By:______________________________ Name: Title: This is one of the Notes referred to in the within-mentioned Indenture: as Trustee By:__________________________________ ================================================================================ A-1 (Back of Security) __% SENIOR SUBORDINATED NOTE DUE ________, 2009 Capitalized terms used herein have the meanings assigned to them in the Indenture (as defined below) unless otherwise indicated. 1. Interest. Showboat, Inc., a Nevada corporation (or any successor -------- thereto as provided in the Indenture, the "Company"), promises to pay interest on the principal amount of this Note at the rate and in the manner specified below. The Company shall pay interest on the principal amount of this Note at the rate per annum of __%. The Company will pay interest semi-annually on _______ and _______ of each year, or if any such day is not a Business Day (as defined in the Indenture), on the next succeeding Business Day (each an "Interest Payment Date"). Interest will be computed on the basis of a 360-day year consisting of twelve 30-day months. Interest shall accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of the original issuance of the Notes. To the extent lawful, the Company shall pay interest on overdue principal (including post-petition interest in any proceeding under any Bankruptcy Law) at the rate of 1% per annum in excess of the then applicable interest rate on the Notes; it shall pay interest, (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest (without regard to any applicable grace periods) at the same rate to the extent lawful. 2. Method of Payment. The Company will pay interest on the Notes ----------------- (except defaulted interest) to the Persons who are registered Holders of Notes at the close of business on the record date next preceding the Interest Payment Date, even if such Notes are cancelled after such record date and on or before such Interest Payment Date. The Holder hereof must surrender this Note to a Paying Agent to collect principal payments. The Company will pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. The Company, however, may pay principal, premium, if any, and interest by check payable in such money. It may mail an interest check to a Holder's registered address. 3. Paying Agent and Registrar. Initially, the Trustee will act as -------------------------- Paying Agent and Registrar. The Company may change any Paying Agent, Registrar or co-registrar without notice to any Holder. The Company or any Guarantor may act in any such capacity. 4. Indenture. The Company issued the Notes under an Indenture dated --------- as of _________, 1994 (as it may be amended from time to time, the "Indenture") between the Company and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code (S)(S) 77aaa-77bbbb) as in effect on the date of the Indenture. The Notes are subject to all such terms, and Holders are referred to the Indenture and such act for a statement of such terms. The terms of the Indenture shall govern any inconsistencies between the Indenture and the Notes. The Notes are unsecured general obligations of the Company limited to $150,000,000 in aggregate principal amount. A-2 5. Optional Redemption. Except as set forth below, the Company shall ------------------- not have the option to redeem the Notes pursuant to Section 3.07 of the Indenture prior to ____________, 2001. Thereafter, the Company shall have the option to redeem the Notes, in whole or in part, at the redemption prices (expressed as percentages of the principal amount) set forth below, plus accrued and unpaid interest thereon to the applicable redemption date, if redeemed during the 12 month period beginning on __________ of the years indicated below: Year Percentage ---- ---------- 2001 % 2002 % 2003 % 2004 and thereafter 100.000% 6. Mandatory Redemption. The Company shall not be required to make -------------------- mandatory redemption or sinking fund payments with respect to the Notes. 7. Redemption or Repurchase at Option of Holder. Under certain ------------------------------------------- circumstances, as provided in the Indenture, the Company may be required to make an offer to purchase all or a portion of the Notes. Holders of Notes that are subject to an offer to purchase will receive an offer to purchase from the Company prior to any related purchase date, and may elect to have such Notes purchased by completing the form entitled "Option of Holder to Elect Purchase" appearing below. 8. Notice of Redemption. Notice of redemption shall be mailed at -------------------- least 30 days but not more than 60 days before the redemption date to each Holder of Notes to be redeemed at its registered address. Notes may be redeemed in part but only in whole multiples of $1,000, unless all of the Notes held by a Holder are to be redeemed. On and after the redemption date, interest ceases to accrue on Notes or portions of them called for redemption. 9. Subordination. The Notes are subordinated to Senior Debt (as ------------- defined in the Indenture) (whether outstanding on the date of the Indenture or thereafter created, incurred, assumed or guaranteed) and all Obligations (as defined in the Indenture) with respect thereto. To the extent provided in the Indenture, Senior Debt must be paid before the Notes may be paid. The Company agrees, and each Holder by accepting a Note agrees, to the subordination and authorizes the Trustee to give it effect. 10. Denominations, Transfer, Exchange. The Notes are in registered --------------------------------- form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not exchange or register the transfer of any Note or portion of a Note selected for redemption. Also, it need not exchange or register the transfer of any Notes for a period of 15 days before a selection of Notes to be redeemed, during the period between a record date and the corresponding Interest Payment Date. 11. Persons Deemed Owners. Prior to due presentment to the Trustee --------------------- for registration of the transfer of this Note, the Trustee, any Agent, the Company and the Guarantors, if any, may deem and treat the Person in whose name this Note is registered as its absolute owner for the purpose of receiving payment of principal of and interest on this Note and for all other purposes whatsoever, whether or not this Note is overdue, and neither the Trustee, any Agent, the Company nor any Guarantor shall be affected by notice to the contrary. The registered holder of a Note shall be treated as its owner for all purposes. A-3 12. Amendments and Waivers. Subject to certain exceptions, the ---------------------- Indenture or the Notes may be amended with the consent of the Holders of at least a majority in principal amount of the then outstanding Notes (including consents obtained in connection with a tender offer or exchange offer for Notes), and any existing default or compliance with any provision of the Indenture or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes (including consents obtained in connection with a tender offer or exchange offer for Notes) however, without the consent of each Holder affected, an amendment or waiver may not (with respect to any Notes held at the time of such consent by a non-consenting Holder): (a) reduce the principal amount of Notes whose Holders must consent to an amendment, supplement or waiver; (b) reduce the principal of or change the fixed maturity of any Note or alter or waive any of the provisions with respect to the redemption of the Notes; (c) reduce the rate of or change the time for payment of interest, including default interest, on any Note; (d) waive a Default or Event of Default in the payment of principal of or premium, if any, or interest on the Notes (except a rescission of acceleration of the Notes by the Holders of at least a majority in aggregate principal amount of the then outstanding Notes and a waiver of the payment default that resulted from such acceleration); (e) make any Note payable in money other than that stated in the Notes; (f) make any change in the provisions of this Indenture relating to waivers of past Defaults or the rights of Holders of Notes to receive payments of principal of or premium, if any, or interest on the Notes; (g) waive a redemption payment with respect to any Note; (h) make any change to the subordination provisions of Section 10.02 or Article 11 of the Indenture that adversely affects Holders; (i) make any change in Section 6.07 of the Indenture or in the foregoing amendment and waiver provisions. The right of any Holder to participate in any consent required or sought pursuant to any provision of this Indenture (and the obligations of the Company to obtain any such consent otherwise required from such Holder) may be subject to the requirements that such Holder shall have been the Holder of record of any Notes with respect to which such consent is required to be sought as of a date identified by the Trustee in a notice furnished to Holders in accordance with the terms of the Indenture. Without the consent of any Holder, the Indenture or the Notes may be amended to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, to provide for assumption of the Company's obligations to Holders in the case of a merger or consolidation or to make any change that would provide any additional rights or benefits to the Holders (including providing for Subsidiary Guarantees pursuant to Section 4.13 hereof) or that does not adversely affect the rights of any Holder under the Indenture or to comply with the requirements of the SEC in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act. A-4 13. Defaults and Remedies. Events of Default include (as more fully --------------------- described, and subject to, the terms and conditions of the Indenture): default for 30 days in the payment when due of interest on the Notes (whether or not prohibited by the subordination provisions of the Indenture); default in payment when due of principal of or premium, if any, on the Notes (whether or not prohibited by the subordination provisions of the Indenture); failure by the Company to comply with Sections 4.07, 4.09, 4.10 or 4.14 of the Indenture; failure by the Company or the Guarantors for 60 days after notice to comply with any of its other agreements in the Indenture or the Notes; default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Subsidiaries or Holding (or the payment of which is guaranteed by the Company or any of its Subsidiaries or Holding) whether such Indebtedness or Guarantee now exists, or is created after the Issue Date, which default (a) is caused by a failure to pay principal of or premium, if any, or interest on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness (a "Payment Default") or (b) results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $10.0 million or more; failure by the Company or any of its Subsidiaries to pay final judgments aggregating in excess of $5.0 million, which judgments are not paid, discharged or stayed for a period of 60 days; except as permitted by the Indenture, any Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor, shall deny or disaffirm its obligations or shall fail to comply with any obligations under its Subsidiary Guarantee; and certain events of bankruptcy or insolvency with respect to the Company, any Guarantor or any of their respective Subsidiaries. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately, except that in the case of an Event of Default arising from certain events of bankruptcy or insolvency, with respect to the Company or any of its Subsidiaries, all outstanding Notes will become due and payable without further action or notice. Holders may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. The Company must furnish an annual compliance certificate to the Trustee. 14. Trustee Dealings with Company. The Trustee under the Indenture, ----------------------------- in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company, any Guarantor or their respective Affiliates, and may otherwise deal with the Company, any Guarantor or their respective Affiliates, as if it were not Trustee. 15. No Recourse Against Others. No past, present or future director, -------------------------- officer, employee, incorporator or stockholder, as such, of the Company, any Guarantor, as such, shall have any liability for any obligations of the Company or any Guarantor under the Notes, the Subsidiary Guarantees or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. Each Holder by accepting a Note and the Subsidiary Guarantees, if any, waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. 16. Authentication. This Note shall not be valid until authenticated -------------- by the manual signature of the Trustee or an authenticating agent. A-5 17. Abbreviations. Customary abbreviations may be used in the name ------------- of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 18. CUSIP Numbers. Pursuant to a recommendation promulgated by the ------------- Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes and has directed the Trustee to use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. 19. Governing Law. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL ------------- GOVERN AND BE USED TO CONSTRUE THE INDENTURE, THE NOTES AND THE SUBSIDIARY GUARANTEES, IF ANY. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture. Request may be made to: Showboat, Inc. 2800 Fremont Street Las Vegas, Nevada 89104 Telecopier No.: (702) 385-9678 Attention: Chief Financial Officer A-6 Assignment Form To assign this Note, fill in the form below: (I) or (we) assign and transfer this Note to - -------------------------------------------------------------------------------- (Insert assignee's soc. sec. or tax I.D. no.) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Print or type assignee's name, address and zip code) and irrevocably appoint_________________________________________________________ to transfer this Note on the books of the Company. The agent may substitute another to act for him. - -------------------------------------------------------------------------------- Date:______________________ Your Signature:________________________________ (Sign exactly as your name appears on the face of this Note) Signature Guarantee. A-7 Option of Holder to Elect Purchase If you want to elect to have this Note purchased by the Company pursuant to Section 4.10 or 4.15 of the Indenture, check the box below: [_] Section 4.10 [_] Section 4.15 If you want to elect to have only part of the Note purchased by the Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state the amount you elect to have purchased: $___________ Date:__________________________ Your Signature:______________________ (Sign exactly as your name appears on the Note) Tax Identification No.:____________________ Signature Guarantee. A-8 EXHIBIT B Form of Supplemental Indenture to Be Delivered by Guarantors Supplemental Indenture (this "Supplemental Indenture"), dated as of ________________, between __________________ (the "Guarantor"), a subsidiary of Showboat, Inc. (or its successor), a Nevada corporation (the "Company"), and _______________, a national banking association, as trustee under the indenture referred to below (the "Trustee"). W I T N E S S E T H WHEREAS, Showboat, Inc., a Nevada corporation has heretofore executed and delivered to the Trustee an indenture (the "Indenture"), dated as of _______ __, 1994, providing for the issuance of an aggregate principal amount of $150,000,000 of ______% Senior Subordinated Notes due 2009 (the "Notes"); WHEREAS, Section 4.13 of the Indenture provides that under certain circumstances the Company is required to cause the Guarantor to execute and deliver to the Trustee a supplemental indenture pursuant to which the Guarantor shall unconditionally guarantee all of the Company's obligations under the Notes pursuant to a Subsidiary Guarantee on the terms and conditions set forth herein; and WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture. NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Guarantor and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders as follows: 1. Capitalized Terms. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture. 2. Agreement to Guarantee. The Guarantor hereby agrees that its obligations to the Holder and the Trustee pursuant to this Subsidiary Guarantee shall be as expressly set forth in Article 10 of the Indenture and in such other provisions of the Indenture as are applicable to Guarantors, and reference is made to the Indenture for the precise terms of this Supplemental Indenture. The terms of Article 10 of the Indenture and such other provisions of the Indenture as are applicable to Guarantors are incorporated herein by reference. 3. Execution and Delivery of Subsidiary Guarantees. (a) To evidence its Subsidiary Guarantee set forth in this Supplemental Indenture, the Guarantor hereby agrees that a notation of such Subsidiary Guarantee substantially in the form of Exhibit C to the Indenture shall be endorsed by an Officer of such Guarantor on each Note authenticated and delivered by the Trustee after the date hereof. (b) Notwithstanding the foregoing, the Guarantor hereby agrees that its Subsidiary Guarantee set forth herein shall remain in full force and effect notwithstanding any failure to endorse on each Note a notation of such Subsidiary Guarantee. B-1 (c) If an Officer whose signature is on this Supplemental Indenture or on the Subsidiary Guarantee no longer holds that office at the time the Trustee authenticates the Note on which a Subsidiary Guarantee is endorsed, the Subsidiary Guarantee shall be valid nevertheless. (d) The delivery of any Note by the Trustee, after the authentication thereof under the Indenture, shall constitute due delivery of the Subsidiary Guarantee set forth in this Supplemental Indenture on behalf of the Guarantor. 4. No Recourse Against Others. No past, present or future director, officer, employee, incorporator, stockholder of the Guarantor, as such, shall have any liability for any obligations of the Company or any Guarantor under the Notes, any Subsidiary Guarantees, the Indenture or this Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of the Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. 5. New York Law to Govern. The internal law of the State of New York shall govern and be used to construe this Supplemental Indenture and the Subsidiary Guarantee. 6. Counterparts The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. 7. Effect of Headings. The Section headings herein are for convenience only and shall not affect the construction hereof. IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed and attested, all as of the date first above written. Dated: ____________ ___, ____ [Guarantor] By: ___________________________ Name: Title: Dated: ____________ ___, ____ _________________________________, as Trustee By: ___________________________ Name: Title: B-2 EXHIBIT C [FORM OF NOTATION ON SENIOR SUBORDINATED NOTE RELATING TO SUBSIDIARY GUARANTEE] Each Subsidiary of the Company which in accordance with Section 4.13 of the Indenture is required to guarantee the obligations of the Company under the Notes upon execution of a counterpart of this Indenture, has jointly and severally unconditionally guaranteed (i) the due and punctual payment of the principal of and interest on the Notes, whether at the maturity or interest payment or mandatory redemption date, by acceleration, call for redemption or otherwise, and of interest on the overdue principal of and interest, if any, on the Notes and all other obligations of the Company to the Holders or the Trustee under the Indenture or the Notes and (ii) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at maturity, by acceleration or otherwise. The obligations of each Guarantor to the Holder and to the Trustee pursuant to this Subsidiary Guarantee and the Indenture are as expressly set forth in Article 10 of the Indenture and in such other provisions of the Indenture as are applicable to Guarantors, and reference is hereby made to such Indenture for the precise terms of this Subsidiary Guarantee. The terms of Article 10 of the Indenture and such other provisions of the Indenture as are applicable to Guarantors are incorporated herein by reference. This is a continuing guarantee and shall remain in full force and effect and shall be binding upon each Guarantor and its successors and assigns until full and final payment of all of the Company's obligations under the Notes and the Indenture and shall inure to the benefit of the successors and assigns of the Trustee and the Holders and, in the event of any transfer or assignment of rights by any Holder or the Trustee, the rights and privileges herein conferred upon that party shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions hereof. This is a guarantee of payment and not a guarantee of collection. This Subsidiary Guarantee shall not be valid or obligatory for any purpose until the certificate of authentication on the Note upon which this Subsidiary Guarantee is noted shall have been executed by the Trustee under the Indenture by the manual signature of one of its authorized officers. C-1 EXHIBIT D [FORM OF ESCROW AGREEMENT] 1 EX-12 4 COMPUTATION OF RATIO EXHIBIT 12.01 SHOWBOAT, INC. AND SUBSIDIARIES RATIO OF EARNINGS TO FIXED CHARGES
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, ------------------------------------------- ---------------- 1989 1990 1991 1992 1993 1993 1994 ------- ------- ------- ------- ------- ------- ------- (IN THOUSANDS, EXCEPT RATIO DATA) Income before income taxes and extraordinary items.................. $11,134 $ 2,529 $10,102 $22,614 $23,938 $ 3,186 $ 5,689 ------- ------- ------- ------- ------- ------- ------- Add: Fixed Charges: Interest--expensed.. 28,038 28,099 27,497 25,335 24,696 4,900 6,202 Interest--capital- ized............... 248 1,085 189 449 Portion of rents representative of the interest factor............. 6,965 7,471 7,710 8,096 8,467 2,031 2,155 ------- ------- ------- ------- ------- ------- ------- Total fixed charges (1). 35,003 35,818 35,207 33,431 34,248 7,120 8,806 ------- ------- ------- ------- ------- ------- ------- Less: Interest--capitalized. 248 1,085 189 449 ------- ------- ------- ------- ------- ------- ------- Earnings as adjusted(2). $46,137 $38,099 $45,309 $56,045 $57,101 $10,117 $14,046 ======= ======= ======= ======= ======= ======= ======= Ratio of earnings to fixed charges(2)/(1)... 1.32x 1.06x 1.29x 1.68x 1.67x 1.42x 1.60x ======= ======= ======= ======= ======= ======= =======
EX-23 5 ACCOUNTANTS CONSENT Exhibit 23.02 ACCOUNTANT'S CONSENT The Board of Directors Showboat, Inc. We consent to the use of our reports included and incorporated herein by reference and to the references to our Firm under the headings "Selected Consolidated Financial Data" and "Experts" in the prospectus. KPMG PEAT MARWICK Las Vegas, Nevada June 27, 1994 -----END PRIVACY-ENHANCED MESSAGE-----