-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PQrQiDuSX90B+AMOphfgv4oaocK/ACd1YIs/QGyBsTL3WqQJDtAD5HfUJcHbfOYd aRaeDtm0I/5ZSb5Ip2fyFw== 0000902561-02-000575.txt : 20021118 0000902561-02-000575.hdr.sgml : 20021118 20021114173953 ACCESSION NUMBER: 0000902561-02-000575 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PENINSULA GAMING CO LLC CENTRAL INDEX KEY: 0001095997 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS AMUSEMENT & RECREATION [7990] IRS NUMBER: 421483875 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-88829 FILM NUMBER: 02826607 BUSINESS ADDRESS: STREET 1: 3RD STREET ICE HARBOR STREET 2: P O BOX 1750 CITY: DUBUQUE STATE: IA ZIP: 52004 BUSINESS PHONE: 3195837005 MAIL ADDRESS: STREET 1: 3RD STREE ICE HARBOR STREET 2: P O BOX 1750 CITY: DUBUQUE STATE: IA ZIP: 52004 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PENINSULA GAMING CORP CENTRAL INDEX KEY: 0001096051 IRS NUMBER: 522192665 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-88829-01 FILM NUMBER: 02826608 BUSINESS ADDRESS: STREET 1: 3RD STREET ICE HARBOR STREET 2: P O BOX 1750 CITY: DUBUQUE STATE: IA ZIP: 520041683 BUSINESS PHONE: 3195837005 MAIL ADDRESS: STREET 1: 3RD STREET ICE HARBOR STREET 2: P O BOX 1750 CITY: DUBUQUE STATE: IA ZIP: 520041683 10-Q 1 form10-q_lopez111402.txt FORM 10-Q -- QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2002. or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________________________ to ____________________ Commission File Number: 333-88829 PENINSULA GAMING COMPANY, LLC/PENINSULA GAMING CORP. (Exact name of registrant as specified in its charter) IOWA 42-1483875 (State or other jurisdiction of incorporation (I.R.S. Employer or organization) Identification No.) 3rd STREET ICE HARBOR, P.O. BOX 1750, DUBUQUE, IOWA 52001-1750 (Address of principal executive offices) (Zip code) (563) 583-7005 (Registrant's telephone number including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the last 90 days. Yes [X] No [] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [] No [X] All of the common equity interests of Peninsula Gaming Company, LLC (the "Company") are held by Peninsula Gaming Partners, LLC, and all of the common stock of Peninsula Gaming Corp. is held by Peninsula Gaming Company, LLC. PENINSULA GAMING COMPANY, LLC INDEX TO FORM 10-Q
Part I - Financial Information Item 1 - Financial Statements Peninsula Gaming Company, LLC: Condensed Consolidated Balance Sheets as of September 30, 2002 (Unaudited) and December 31, 2001.......................................................3 Condensed Consolidated Statements of Operations (Unaudited) for the Three and Nine Months Ended September 30, 2002 and 2001 ..................................................4 Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2002 and 2001...............................................5 Notes to Condensed Consolidated Financial Statements (Unaudited)...........................6 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations.............................................................16 Item 3 - Quantitative and Qualitative Disclosures About Market Risk...............................25 Item 4 - Controls and Procedures .................................................................25 Part II - Other Information Item 1 - Legal Proceedings ....................................................................26 Item 2 - Changes in Securities and Use of Proceeds ............................................26 Item 3 - Defaults Upon Senior Securities......................................................26 Item 4 - Submission of Matters to a Vote of Security Holders ..................................26 Item 5 - Other Information ....................................................................26 Item 6 - Exhibits and Reports on Form 8-K .....................................................27 Signatures................................................................................................28 Certification of Chief Executive Officer .................................................................29 Certification by Chief Financial Officer .................................................................30 Certification by President and Treasurer .................................................................31
-2- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS
PENINSULA GAMING COMPANY, LLC CONDENSED CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, DECEMBER 31, 2002 (UNAUDITED) 2001 ------------------ -------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 9,454,616 $ 7,523,652 Restricted cash 3,020 Accounts receivable, less allowance for doubtful accounts of $50,001 and $56,917, respectively 800,490 105,480 Inventory 128,474 97,677 Prepaid expenses 421,896 307,064 ------------- ------------ Total current assets 10,808,496 8,033,873 ------------- ------------ PROPERTY AND EQUIPMENT, NET 17,904,408 17,930,643 ------------- ------------ RACINO PROJECT DEVELOPMENT COSTS 5,545,207 246,753 ------------- ------------ OTHER ASSETS: Deferred financing costs, net of amortization of $2,347,650 and $1,844,783, respectively 4,542,344 3,687,698 Goodwill 83,839,717 53,083,429 Business acquisition and licensing costs 1,355,750 Deposits 110,988 35,405 ------------- ------------ Total other assets 88,493,049 58,162,282 ------------- ------------ TOTAL $ 122,751,160 $ 84,373,551 ============= ============ LIABILITIES AND MEMBERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 2,059,710 $ 335,416 Purse settlement payable 112,664 Accrued payroll and payroll taxes 1,315,898 1,280,177 Other accrued expenses 5,429,002 2,234,922 Current maturity - capital lease obligations 113,552 113,552 Current maturity - line of credit 600,000 Term loan payable 8,450,000 Notes payable 11,825,000 ------------- ------------ Total current liabilities 29,905,826 3,964,067 ------------- ------------ LONG-TERM LIABILITIES: Senior secured notes, net of discount 70,464,707 70,384,482 Line of credit 11,400,000 Capital lease obligations 362,229 362,229 ------------- ------------ Total long-term liabilities 82,226,936 70,746,711 ------------- ------------ Total liabilities 112,132,762 74,710,778 COMMITMENTS AND CONTINGENCIES PREFERRED MEMBERS' INTEREST, REDEEMABLE 4,000,000 4,000,000 MEMBERS' EQUITY 6,618,398 5,662,773 ------------- ------------ TOTAL $ 122,751,160 $ 84,373,551 ============= ============
See notes to condensed consolidated financial statements (unaudited). -3- PENINSULA GAMING COMPANY, LLC CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS ENDED ENDED ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2002 2001 2002 2001 ---------------- --------------- --------------- --------------- REVENUES: Casino $ 12,762,874 $ 12,802,047 $ 36,291,517 $ 35,972,418 Racing 3,191,913 8,104,750 Food and beverage 1,155,560 780,523 3,050,119 2,042,030 Other 34,513 31,798 90,444 92,217 Less promotional allowances (707,514) (611,618) (1,939,388) (1,869,477) --------------- -------------- -------------- ------------- Total net revenues 16,437,346 13,002,750 45,597,442 36,237,188 --------------- -------------- -------------- ------------- EXPENSES: Casino 5,065,022 4,993,588 15,315,316 15,140,244 Racing 2,546,436 6,283,735 Food and beverage 1,053,541 731,714 2,881,622 2,138,760 Boat operations 588,865 567,177 1,740,137 1,701,064 Other 7,521 4,951 22,799 14,770 Selling, general and administrative 2,081,157 1,947,941 5,953,694 4,930,327 Referendum 136,681 136,681 Depreciation and amortization 756,990 964,647 2,190,432 2,876,655 --------------- -------------- -------------- ------------- Total expenses 12,236,213 9,210,018 34,524,416 26,801,820 --------------- -------------- -------------- ------------- INCOME FROM OPERATIONS 4,201,133 3,792,732 11,073,026 9,435,368 --------------- -------------- -------------- ------------- OTHER INCOME (EXPENSE): Interest income 6,706 38,432 37,776 149,219 Interest expense (including amortization of deferred financing costs and bond discount of $372,564 and $225,255 for the three months ended September 30, 2002 and 2001, respectively, and $928,079 and $670,713 for the nine months ended September 30, 2002 and 2001, respectively) (3,049,134) (2,418,946) (8,580,758) (7,215,312) Loss on sale of assets (36,462) (112,227) --------------- -------------- ------------- ------------- Total other expense (3,042,428) (2,416,976) (8,542,982) (7,178,320) --------------- -------------- ------------- ------------- NET INCOME BEFORE PREFERRED MEMBER DISTRIBUTIONS AND MINORITY INTEREST 1,158,705 1,375,756 2,530,044 2,257,048 LESS PREFERRED MEMBER DISTRIBUTIONS (93,263) (93,263) (279,788) (292,911) LESS MINORITY INTEREST (96,744) (292,888) --------------- -------------- ------------- ------------- NET INCOME TO COMMON MEMBERS' INTEREST $ 968,698 $ 1,282,493 $ 1,957,368 $ 1,964,137 =============== ============== ============= =============
See notes to condensed consolidated financial statements (unaudited). -4-
PENINSULA GAMING COMPANY, LLC CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) NINE MONTHS NINE MONTHS ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, 2002 2001 ----------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,957,368 $ 1,964,137 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization 2,190,432 2,876,655 Provision for doubtful accounts 98,332 114,673 Amortization of deferred financing costs and bond discount 928,079 670,713 Loss on sale of assets 112,227 Minority interest share of income 292,888 Changes in operating assets and liabilities: Restricted cash 1,477,001 Receivables (575,648) (120,226) Inventory 15,227 10,661 Prepaid expenses and other assets (58,191) 219,530 Accounts payable (436,480) (402,796) Accrued expenses 2,567,598 2,482,664 ------------- ------------- Net cash flows from operating activities 8,456,606 7,928,238 CASH FLOWS FROM INVESTING ACTIVITIES: Business acquisition and licensing costs (1,045,887) (370,482) Acquisition of business, net of cash acquired (29,275,862) Racino Project development costs (4,750,352) Proceeds from sale of property and equipment 51,378 Purchase of property and equipment (1,005,919) (1,439,557) ------------- ------------- Net cash flows from investing activities (36,078,020) (1,758,661) CASH FLOWS FROM FINANCING ACTIVITIES: Preferred members' interest redeemed (3,000,000) Deferred financing costs (1,702,500) (484,984) Member distributions (1,001,743) (1,470,631) Principal payments on long-term debt to related party (18,379) Proceeds from notes payable 11,825,000 Proceeds from term loan 8,450,000 Proceeds from line of credit 12,000,000 ------------- ------------- Net cash flows from financing activities 29,552,378 (4,955,615) ------------- ------------- NET INCREASE IN CASH 1,930,964 1,213,962 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 7,523,652 8,362,122 ------------- ------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 9,454,616 $ 9,576,084 ============= =============
See notes to condensed consolidated financial statements (unaudited). -5- PENINSULA GAMING COMPANY, LLC NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. Organization and Basis of Presentation Peninsula Gaming Company, LLC (the "Company" or "PGC") is wholly owned by Peninsula Gaming Partners, LLC, a Delaware limited liability company ("PGP") and our sole managing member. The Company is a Delaware limited liability company formed on January 26, 1999 for the purpose of purchasing assets comprised of the Diamond Jo Casino and related real property. Peninsula Gaming Corp. is a wholly owned subsidiary of the Company, has no assets or operations and was formed solely to facilitate the offering of our 12 1/4% Senior Secured Notes due 2006 (the "Notes") in certain jurisdictions. OED Acquisition, LLC ("OEDA") is a wholly owned subsidiary of PGC formed on July 9, 2001 to facilitate the purchase of a 50% membership interest in The Old Evangeline Downs, L.C. ("OED"), a Louisiana limited liability company that currently operates a racetrack that provides both live horse racing and off-track betting in and around Lafayette, LA. On August 30, 2002, OEDA consummated the purchase of the remaining 50% membership interest in OED. The financial position of OED as of September 30, 2002 and the results of its operations and its cash flows for the period February 15, 2002 (date of acquisition) to September 30, 2002 have been consolidated into the Company's consolidated financial statements. During the period February 15, 2002 to August 30, 2002, the Company had substantive control of OED. All significant intercompany transactions have been eliminated. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments, consisting only of normal recurring entries unless otherwise disclosed, necessary to present fairly the financial information of the Company for the interim periods presented and have been prepared in accordance with accounting principles generally accepted in the United States of America. The interim results reflected in the financial statements are not necessarily indicative of results for the full year or other periods. The financial statements contained herein should be read in conjunction with the audited financial statements and accompanying notes to the financial statements included in the Company's Annual Report on Form 10-K for the period ended December 31, 2001. Accordingly, footnote disclosure which would substantially duplicate the disclosure in the audited financial statements has been omitted in the accompanying unaudited financial statements. 2. Acquisition of OED On February 15, 2002, OEDA consummated its acquisition of: (i) 50% of the membership interests (the "BIM3 Interests") of OED from BIM3 Investments, a Louisiana partnership ("BIM3"); and (ii) BIM3's one-half (1/2) interest in two promissory notes issued by OED in the aggregate principal amount of $10,909,244 (the "OED Notes"), for an aggregate purchase price of $15,000,000 in cash. The remaining 50% of the membership interests in OED were owned by William E. Trotter, II Family L.L.C., a Louisiana limited liability company. The acquisition was made pursuant to a purchase agreement dated June 27, 2001 by and among the Company's parent, PGP, OED and BIM3 (as amended, the "Moody Purchase Agreement"). Pursuant to the terms of the Moody Purchase Agreement, PGP paid a cash deposit of $500,000 which was applied against the purchase price when the acquisition was consummated. The Moody Purchase Agreement was assigned to OEDA by PGP on October 23, 2001 for a purchase price of $523,836 which was paid by OEDA in cash. -6- The source of funds for the transaction described above was $3,000,000 of cash on-hand and $12,000,000 of borrowings under the Company's credit agreement with Foothill Capital Corporation. During the first quarter of 2002, the Company amended its credit facility to increase the available funds to $12,500,000 and obtained consents under the indenture governing its Notes to consummate the acquisition. On March 7, 2002, the Company paid consent fees totaling $887,500 to holders of the Notes related to the above transaction. In October 2002, the Company further amended its credit facility which requires the Company to begin making principal payments on the amount advanced of $50,000 per month beginning in October 2002 and continuing through February 2005. In addition, the maximum available funds under the facility shall be reduced by the total amount of the principal repayments. On June 25, 2002, PGP entered into an agreement with William E. Trotter, II ("WET2") and William E. Trotter, II Family LLC, a Louisiana limited liability company ("WET2LLC") to acquire (i) the 50% interest in the OED Notes owned by WET2, and (ii) the 50% membership interest in OED, owned by WET2LLC (the "Trotter Purchase"). On August 30, 2002, OEDA completed the Trotter Purchase for a purchase price of $15,546,000 plus a contingent fee of one half of one percent (.5%) of the net slot revenues from the date of opening of a new casino, located in St. Landry Parish, until the date that is ten years after the opening of the casino to the public. The source of funds for the Trotter Purchase described above was $8,450,000 of borrowings under OED's loan and security agreement with Foothill Capital Corporation entered into on August 30, 2002 and maturing on the earlier of (a) June 30, 2003 or (b) the date on which OED consummates its financing of the Racino Project (the "Term Loan") and proceeds from a $7,325,000 note payable to WET2LLC (the "WET2LLC Note") due June 30, 2003. The WET2LLC Note was issued by PGP. The Term Loan contains, among other things, covenants, representations and warranties and events of default customary for loans of this type, including, but not limited to, certain requirements relating to the financing, construction and development of the Racino Project and a minimum EBITDA maintenance covenant. The obligations under the Term Loan are secured by substantially all of the assets of OED and guaranteed by PGP. The Term Loan is not guaranteed by the Company and is not secured by any assets or property of the Company. -7- During the period February 15, 2002 through September 30, 2002, OED paid principal of $18,379 and interest of $297,536 to WET2 related to WET2's 50% interest in the OED Notes. The Company accounted for its acquisition as a purchase in accordance with Statement of Financial Accounting Standards ("SFAS") No. 141 "Business Combinations" and SFAS No. 142 "Goodwill and Other Intangible Assets". The purchase price has been allocated to the underlying assets and liabilities based on their estimated fair values at the date of acquisition. To the extent the purchase price exceeded the fair value of the net identifiable assets acquired, such excess has been recorded as goodwill. As of September 30, 2002, the Company recorded goodwill of approximately $30.8 million related to the acquisition. The Company has not completed its evaluation of the intangible assets acquired in the OED acquisition. This evaluation may result in adjustments to the purchase price allocation. Under the provisions of SFAS 142, goodwill and other intangible assets with indefinite lives arising from the acquisition will not be amortized but will be reviewed at least annually for impairment and written down and charged to income when its recorded value exceeds its estimated fair value. The results of operations of OED are included in the condensed consolidated financial statements from the date of acquisition through September 30, 2002. The Company will manage the existing racetrack and, subject to receipt of required gaming approvals, is planning to design, construct, manage and operate a new casino and contiguous racetrack facility with pari-mutuel wagering, slots and OTB parlors in St. Landry Parish, Louisiana (the "Racino Project"). The cost to construct and develop the Racino Project is estimated at $90 million. The Company is currently investigating financing alternatives for the financing of construction and development costs including, but not limited to, a private placement of debt securities. The Racino Project is expected to include at least 1,525 slot machines, dirt and turf racetracks and several dining options. The Racino Project is one of only three racetracks in the State of Louisiana currently authorized to conduct casino operations. The successful completion of the Racino Project is subject to factors beyond the control of OED. The extent and timing of the development and construction of the Racino Project will depend on available cash flow or the ability to obtain financing. There can be no assurance that sufficient cash flow or necessary financing will be available on satisfactory terms to OED. In addition, the Company and OED will be subject to comprehensive and stringent government regulations. The Company and OED and their respective officers, directors, members, significant shareholders and employees will be subject to the Louisiana Gaming Control Board and the Louisiana Gaming Commission and will need to submit to a regulatory review process prior to mandatory licensing. There can be no assurance that all necessary licenses will be issued, or issued on a timely basis. For the foregoing reasons, there can be no assurance that the Racino Project will be completed, or completed in a timely manner. The following unaudited consolidated pro forma information presents a summary of the consolidated results of operations of the Company for the nine months ended September 30, 2002 and 2001 as if the acquisition of 100% of OED had occurred January 1, 2001. -8- Consolidated Pro Forma Information (Unaudited) (in thousands) 2002 2001 -------- -------- Net revenues $ 46,967 $ 46,980 Income from operations 11,324 11,206 Net income to common interests 1,782 1,281 The consolidated pro forma adjustments included in the consolidated pro forma information above represents interest on borrowings of $12.0 million under PGC's credit facility with Foothill Capital Corp., interest on borrowings of $8,450,000 under OED's Loan and Security Agreement with Foothill Capital Corp. and interest on the proceeds received from notes payable issued to WET2 and WET2LLC of $11,825,000, all proceeds of which were used to finance the purchase of OED and land located in St. Landry Parish, the elimination of interest expense associated with the debt under the old debt structure, and the elimination of amortization of goodwill related to OED. The pro forma results do not purport to be indicative of results that would have occurred had the acquisition been in effect for the periods presented, nor do they purport to be indicative of the results that will be obtained in the future. 3. Summary of Significant Accounting Policies and Recent Accounting Pronouncements RESTRICTED CASH - Restricted cash represents amounts for purses to be paid during the live meet racing season at OED. Additionally, restricted cash includes entrance fees for a special futurity race during the current racing season, plus any interest earnings. These funds will be used to pay the purse for the race. A separate interest bearing bank account is required for these funds. PROPERTY AND EQUIPMENT - Property and equipment are recorded at cost and capitalized lease assets are recorded at their fair market value at the inception of the lease. Major renewals and improvements are capitalized, while maintenance and repairs are expensed as incurred. Depreciation and amortization are computed on a straight-line basis over the following estimated useful lives: Land improvements 20-40 years Building and leasehold improvements* 9-40 years Riverboat and improvements 5-20 years Furniture, fixtures and equipment 3-12 years Computer equipment 3-5 years Vehicles 5 years * The Company currently leases the land on which the OED building and leasehold improvements are located. The ground lease annual rental is $0 per year and the lease term expires on the earlier of December 31, 2004 or the first day the Company opens a new racetrack facility for business in St. Landry Parish, Louisiana. In the event a financing to fund the Racino Project is not consummated prior to December 15, 2003, OED may extend the term of the lease to December 31, 2005 (the "First Renewal Option"), and if the First Renewal Option is exercised, OED may further extend the term of the lease to December 31, 2006 (the "Second Renewal Option"). OED must give written notice to the lessor of its exercise of the First Renewal Option and the Second Renewal Option by December 31, 2003 and December 31, 2004, respectively. Rent associated with the First Renewal Option and the Second Renewal Option will be $75,000 per month, due on the first of each month. The remaining net book value of the Company's leasehold improvements at The Old Evangeline Downs racetrack as of September 30, 2002 is being amortized over the period in which management estimates that the facility will be used by OED. If an event occurs that should cause OED management to change its estimate, the amortization period will be adjusted accordingly on a go-forward basis. -9- RACINO PROJECT DEVELOPMENT COSTS - Included in Racino Project development costs as of September 30, 2002 are land and land acquisition costs associated with the Racino Project of approximately $5.1 million and architecture fees associated with the design and development of the Racino Project of approximately $0.4 million as of September 30, 2002 and $0.2 million as of December 31, 2001. BUSINESS ACQUISITION AND LICENSING COSTS - At December 31, 2001, the Company recorded approximately $1.4 million on its balance sheet for directly related legal and other incremental costs associated with the acquisition of OED and obtaining the relevant gaming licenses to conduct gaming operations associated with the Racino Project in Louisiana. These costs, including related costs incurred during the nine months ended September 30, 2002, are included as a cost of the acquisition and will be evaluated under SFAS 141 and SFAS 142. As of September 30, 2002, the Company has not completed its evaluation of the intangible assets acquired in the OED acquisition. REVENUE RECOGNITION - In accordance with common industry practice, our casino revenues are the net of gaming wins and losses. Racing revenues include our share of pari-mutuel wagering on live races after payment of amounts returned as winning wagers, and our share of wagering from import and export simulcasting as well as our share of wagering from our off-track betting parlors. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - Included in selling, general and administrative expenses for the three and nine months ended September 30, 2002 are consulting and lobbying expenses of $30,000 and $87,500, respectively, related to the proposed Racino Project. In addition, during the nine months ended September 30, 2002, the Company incurred selling, general and administrative expenses totaling $55,000 related to a governmental relations services agreement with respect to gaming issues and developments in Wisconsin which might affect the Company and its gaming operations in Iowa. The Company does not plan to incur any significant additional expenses in this regard. REFERENDUM EXPENSES - In accordance with Iowa law, a referendum must be held every eight years in each of the counties where gambling games are conducted and the proposition to continue to allow gambling games in such counties must be approved by a majority of the county electorate voting on the proposition. Such a referendum took place on November 5, 2002. During the three months ended September 30, 2002, the Company incurred various advertising and promotional expenses totaling $136,681 to promote the approval of continued gaming in Dubuque County. The measure was approved on November 5, 2002 with 79% of the electorate voting on the proposition favoring continued gaming on riverboats in Dubuque County. Total expenses related to the referendum are expected to be approximately $750,000. As the Company will not be required to be a part of another referendum until 2010, such referendum related costs are not expected to be incurred in the future until that time. RECLASSIFICATIONS - Certain prior year amounts have been reclassified to conform with current year presentation. SFAS 142 "GOODWILL AND OTHER INTANGIBLE ASSETS" - SFAS 142 provides that goodwill and certain indefinite lived intangible assets will no longer be amortized but will be reviewed at least annually for impairment and written down and charged to income when their recorded value exceeds their estimated fair value. During the first quarter of 2002, the Company performed a transitional impairment test on goodwill in accordance with SFAS 142 and determined the estimated fair value of the Company exceeded its carrying value. Based on that review, management determined that there was no impairment of goodwill. Goodwill amortization during the three and nine months ended September 30, 2001 was $353,497 and $1,060,490, respectively. Assuming the non-amortization provisions of these standards had -10- been adopted at the beginning of 2001, the Company's adjusted net income for the three and nine months ended September 30, 2001 would have been $1,635,990 and $3,024,627, respectively. RECENTLY ISSUED ACCOUNTING STANDARDS - In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities". This statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies the previous guidance on the subject. This statement requires, among other things, that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. The provisions for this statement are effective for exit or disposal activities that are initiated after December 31, 2002. MINORITY INTEREST - Minority interest on the Condensed Consolidated Statement of Operations represents the 50% portion of net income from OED allocated to WET2LLC, who owned the remaining 50% interest in OED during the period February 15, 2002 through August 30, 2002. 4. Property and equipment at September 30, 2002 and December 31, 2001 are summarized as follows: September 30, December 31, 2002 2001 ------------ ------------ Land $ 1,110,000 $ 800,000 Buildings and leasehold improvements 8,358,426 6,565,735 Riverboat and improvements 8,281,001 8,261,693 Furniture, fixtures and equipment 7,112,988 5,512,717 Computer equipment 737,957 617,538 Vehicles 130,753 65,032 Equipment held under capital lease obligations 704,527 704,527 ------------ ------------ Subtotal 26,435,652 22,527,242 Accumulated depreciation (8,531,244) (4,596,599) ------------ ------------ Property and equipment, net $17,904,408 $17,930,643 ============ ============ 5. Debt
The Company's debt consists of the following: September 30, December 31, 2002 2002 ------------- ------------ 12 1/4% Senior Secured Notes due July 15, 2006, net of discount of $535,293 and $615,518, respectively. $70,464,707 $70,384,482 -11- Line of Credit with Foothill Capital Corp., interest rate at greater of LIBOR + 3% or Prime + .75%, however, at no time shall the interest rate be lower that 8.5%, principal payments of $50,000 due monthly beginning October 2002 through February 2005, maturing March 12, 2005. 12,000,000 Term loan with Foothill Capital Corp., interest at Prime + 3.75%, however, at no time shall the interest rate be lower that 7.5% (current rate of 8.5%), maturing the earlier of (a) June 30, 2003 or (b) the date on which OED consummates its financing of the Racino Project. 8,450,000 Note payable to WET2LLC, guaranteed by PGP, interest rate of 7% until January 31, 2003, thereafter 8% until February 28, 2003, thereafter 9% until March 31, 2003, thereafter the greater of 12% or the fixed rate applicable to any debt issued to finance the Racino Project, maturing on June 30, 2003. 7,325,000 Note payable to WET2LLC, interest rate of 7% until March 31, 2003, thereafter the greater of 12% or the fixed rate applicable to any debt issued to finance the Racino Project, maturing on June 30, 2003. 4,500,000 --------------- ------------ Total debt 102,739,707 70,384,482 Less current portion (20,875,000) --------------- ------------ Total long term debt $81,864,707 $70,384,482 =============== ============
6. Capital Lease Obligations On September 6, 2002, the Company entered into a purchase and license agreement (the "CDS Agreement") with Casino Data Systems ("CDS"). The CDS Agreement contains various requirements including upgrades to Diamond Jo's current slot information system, installation of the CDS slot information system as part of the Racino Project and equipment purchases. If and when such requirements are met, CDS agrees to waive any claimed liability or responsibility of PGC for payment of the outstanding capital lease liability of $475,781. The Company has not met all of the requirements included in the CDS Agreement as of September 30, 2002. 7. Operating Leases GROUND LEASE - LAFAYETTE - The Company currently leases the land on which the OED racetrack is located. The ground lease annual rental is $0 per year and the lease term expires on the earlier of December 31, 2004 or the first day the Company opens a new racetrack facility for business in St. Landry Parish, Louisiana. In the event a financing to fund the Racino Project is not consummated prior to December 15, 2003, OED may extend the term of the lease to December 31, 2005 (the "First Renewal Option"), and if the First Renewal Option is exercised, OED may further extend the term of the lease to December 31, 2006 (the "Second Renewal Option"). OED must give written notice to the lessor of its exercise of the First Renewal Option and the Second Renewal Option -12- by December 31, 2003 and December 31, 2004, respectively. Rent associated with the First Renewal Option and the Second Renewal Option will be $75,000 per month due on the first of each month. NEW IBERIA - The Company is under a month-to-month contract for $5,000 per month to lease the New Iberia off-track betting parlor. The lease requires payment of property taxes, maintenance and insurance on the property. During the three months ended September 30, 2002 and the period February 15, 2002 (date of acquisition) to September 30, 2002, the Company paid $15,000 and $37,321, respectively, in rent for the New Iberia off-track betting parlor. PARI-MUTUEL PROCESSING EQUIPMENT - OED entered into a five-year lease agreement commencing on February 15, 2001 for computerized pari-mutuel central processing equipment, terminals and certain associated equipment at OED. Additionally, the lease agreement provides the Company with pari-mutuel services whereby the leased equipment automatically registers and totals the amounts wagered on the races held at the race track or simulcast to it and to its respective off-track wagering parlors, and displays the win pool odds, payoffs, and other pertinent horse racing information needed to operate live meet horse racing and off-track betting. The Company pays 0.43% of the handle for the services provided during both live meet racing days and off-track betting racing days. The charges are subject to a minimum of $1,950 per live meet race day and $1,150 per off-track betting race day. Additionally, if a race day is not completed, the Company must pay 50% of the minimum if less than four races are declared official and 100% of the minimum if four or more races are declared official. In a typical year, the Company has 82 live meet racing days and 228 off-track betting days. The Company paid $118,171 and $290,295 during the three months ended September 30, 2002 and the period February 15, 2002 (date of acquisition) to September 30, 2002, respectively, related to the pari-mutuel processing equipment lease. The total minimum rental payments for the lease mentioned in the preceding paragraph assuming the Company has 82 live meet racing days and 228 off-track betting days for each of the years ended December 31 are summarized as follows: 2002 $ 105,525 2003 422,100 2004 422,100 2005 422,100 ----------- $ 1,371,825 =========== OTHER - OED has operating leases for various pieces of equipment under non-cancelable agreements, which expire in various years through 2006. Total other rent expense for the three months ended September 30, 2002 and the period February 15, 2002 (date of acquisition) to September 30, 2002 was $8,837 and $19,330, respectively. The total minimum rental payments for these leases for the years ended December 31 are summarized as follows: 2002 $ 1,679 2003 2,887 2004 864 2005 864 2006 360 ---------- $ 6,654 ========== -13- 8. Contingencies The Horseman Benevolent Protection Association ("HBPA") has filed a lawsuit against all licensed racetracks in the State of Louisiana. The lawsuit alleges that HBPA is not receiving the appropriate share of net revenues from video poker devices located at licensed tracks. First Statewide Racing Co., Inc., an affiliate of The Old Evangeline Downs, L.C., was the holder of the video poker license at the time the lawsuit was filed and is the named defendant. HBPA claims that the revenue split from video poker wagering should be calculated before the tracks deduct the franchise tax owed to the State of Louisiana. It is the Company's position that this claim is contrary to the state statutes and to the interpretation applied by the Louisiana State Police Gaming Division in determining net revenues to be shared. However, should HBPA prevail in this lawsuit, each track named in the suit could be facing a judgment of several million dollars plus interest. On March 12, 2001, the 19th Judicial District Court entered a judgment in favor of the HBPA against certain licensed racetracks in the State of Louisiana, including the Company. The judgment granted HBPA's motion for summary judgment as to liability only. The Company's liability was not determined at the time of the grant of summary judgment, but the final judgment could be, based on discussions with legal counsel, in the $3 million to $5 million range. The Company appealed the verdict and the First Circuit Court of Appeal of Louisiana reversed the judgment of the District Court on June 21, 2002. The HBPA subsequently applied for writs to the Louisiana Supreme Court, which were recently granted. The court will now review the case. Although the outcome of litigation is inherently uncertain, management, after consultation with legal counsel, believes the reversal of the District Court verdict will be upheld. On June 21, 2002, PGP filed a complaint with the United States District Court in the Western District of Louisiana (the "Trotter Complaint") alleging breach of contract by WET2LLC for failing to honor its previous agreement to, among other things, enter into a management services agreement with the Company for the management of the existing OED racetrack and the development and management of the Racino Project. However, in connection with the consummation of the Trotter Purchase (as discussed in Note 2 above), the Trotter Complaint was dismissed. Notwithstanding the above mentioned HBPA lawsuit, we are not a party to, and none of our property is the subject of, any other pending legal proceedings other than litigation arising in the normal course of business. We do not believe that adverse determinations in any or all such other litigation (excluding the HBPA lawsuit) would have a material adverse effect on our financial condition, results of operations or cash flows. 9. Segment Information Pursuant to the provisions of SFAS 131 "Disclosures About Segments of an Enterprise and Related Information", the Company has determined that, in connection with the acquisition of OED, the Company currently operates two reportable segments: (1) Iowa operations, which comprise the Diamond Jo riverboat casino in Dubuque, IA; and (2) Louisiana operations, which comprise the racetrack and OTB's operated by OED in Lafayette, LA. The accounting policies for each segment are the same as those described in the "Summary of Significant Accounting Policies" in the notes to the financial statements included in the Company's Annual Report on Form 10-K for the period ended December 31, 2001 and in the "Summary of Significant Accounting Policies and Recent Accounting Pronouncements" above. The Company and the gaming industry use earnings before interest, taxes, depreciation and amortization ("EBITDA") as a means to evaluate performance. EBITDA should not be considered as an alternative to, or more meaningful than, net income (as determined in accordance with accounting principles generally accepted in the United States of America) or as a measure of the Company's limitations. -14- The table below presents information about reported segments (in thousands):
Net Revenues Net Revenues Three Months Ended September 30, Nine months ended September 30, 2002 2001 2002 2001 ---- ---- ---- ---- Diamond Jo (1) $ 12,832 $ 13,003 $ 36,547 $ 36,237 OED (2) 3,605 9,050 --------- --------- --------- --------- Total $ 16,437 $ 13,003 $ 45,597 $ 36,237
EBITDA (3) EBITDA (3) Three Months Ended September 30, Nine months ended September 30, 2002 2001 2002 2001 ---- ---- ---- ---- Diamond Jo (1) $ 4,663 $ 4,757 $ 12,121 $ 12,312 OED (2) 432 1,279 --------- --------- --------- --------- Total EBITDA 5,095 4,757 13,400 12,312 Referendum expense (137) (137) Depreciation and amortization (757) (965) (2,190) (2,877) Interest expense, net (3,042) (2,381) (8,543) (7,066) Loss on sale of assets (36) (112) Preferred member distributions (93) (93) (280) (293) Minority interests (97) (293) --------- --------- ---------- ---------- Net income to common members' interest $ 969 $ 1,282 $ 1,957 $ 1,964
Total Assets September 30, December 31, 2002 2001 ------------- ------------ Diamond Jo $ 99,678 $ 84,374 OED 40,486 Adjustments (4) (17,413) ---------- --------- Total $ 122,751 $ 84,374
(1) Reflects results of operations excluding referendum expenses for the three and nine months ended September 30, 2002 and 2001. (2) Reflects results of operations of OED for the three months ended September 30, 2002 and the period February 15, 2002 (date of acquisition) to September 30, 2002. (3) EBITDA is defined as income from operations plus depreciation and amortization and referendum related expenses (see Note 3 for discussion on referendum expense). (4) Reflects the elimination of intercompany balances such as the investment in subsidiary and related members equity and intercompany receivables / payables. -15- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND THE RELATED NOTES THERETO APPEARING ELSEWHERE IN THIS REPORT. SOME STATEMENTS CONTAINED IN MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE LITIGATION REFORM ACT, WHICH INVOLVE RISKS AND UNCERTAINTIES, INCLUDING THE RISKS AND UNCERTAINTIES DISCUSSED BELOW, AS WELL AS OTHER RISKS SET FORTH IN OUR ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2001. SHOULD THESE RISKS OR UNCERTAINTIES MATERIALIZE, OR SHOULD UNDERLYING ASSUMPTIONS PROVE INCORRECT, OUR FUTURE PERFORMANCE AND ACTUAL RESULTS OF OPERATIONS MAY DIFFER MATERIALLY FROM THOSE EXPECTED OR INTENDED. CRITICAL ACCOUNTING POLICIES The Company's consolidated financial statements are prepared in accordance with accounting principals generally accepted in the United States that require management to make significant estimates and assumptions about the effects of matters that are uncertain. Significant estimates incorporated into our condensed consolidated financial statements include the estimated useful lives for depreciable and amortizable assets, estimated cash flows in assessing the recoverability of long-lived assets and litigation, claims and assessments. Actual results could differ from those estimates. The Company believes that the foregoing estimates are the more critical judgment areas in the application of its accounting policies that currently affect its financial condition and results of operations. RESULTS OF OPERATIONS The results of operations of the Company discussed below include the combined results of operations of the Diamond Jo casino in Dubuque, Iowa for the three and nine months ended September 30, 2002 and 2001 and the results of operations of OED in Lafayette, Louisiana for the three months ended September 30, 2002 and the period February 15, 2002 (date of acquisition) through September 30, 2002. STATEMENT OF OPERATIONS DATA
DIAMOND JO OED THREE MONTHS ENDED THREE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 2002 2001 2002 ---- ---- ---- REVENUES: Casino $12,762,874 $12,802,047 Racing $3,191,913 Food and beverage 742,517 780,523 413,043 Other 34,513 31,798 Less promotional allowances (707,514) (611,618) ------------ ------------ ---------- Net revenues 12,832,390 13,002,750 3,604,956 ------------ ------------ ---------- EXPENSES: Casino 5,065,022 4,993,588 Racing 2,546,436 Food and beverage 742,093 731,714 311,448 Boat operations 588,865 567,177 -16- Other 7,521 4,951 Selling, general and administrative 1,765,630 1,947,941 315,527 Referendum 136,681 Depreciation and amortization 700,619 964,647 56,371 ------------ ------------ ---------- Total expenses 9,006,431 9,210,018 3,229,782 ------------ ------------ ---------- Income from operations $ 3,825,959 $ 3,792,732 $ 375,174 ============ ============ ==========
DIAMOND JO OED NINE MONTHS ENDED PERIOD FEBRUARY 15, SEPTEMBER 30, 2002 TO SEPTEMBER 30, 2002 2001 2002 ---- ---- ---- REVENUES: Casino $ 36,291,517 $ 35,972,418 Racing $ 8,104,750 Food and beverage 2,104,919 2,042,030 945,200 Other 90,444 92,217 Less promotional allowances (1,939,388) (1,869,477) ------------- -------------- ----------- Net revenues 36,547,492 36,237,188 9,049,950 ------------ ------------- ----------- EXPENSES: Casino 15,315,316 15,140,244 Racing 6,283,735 Food and beverage 2,095,591 2,138,760 786,031 Boat operations 1,740,137 1,701,064 Other 22,799 14,770 Selling, general and administrative 5,252,513 4,930,327 701,181 Referendum 136,681 Depreciation and amortization 2,065,774 2,876,655 124,658 ------------- ------------- ----------- Total expenses 26,628,811 26,801,820 7,895,605 ------------ ------------- ----------- Income from operations $ 9,918,681 $ 9,435,368 $ 1,154,345 ============= ============= ===========
-17- THREE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2001 Net revenues increased 26.4% to $16.4 million for the three months ended September 30, 2002 from $13.0 million for the three months ended September 30, 2001 due to net revenues from OED of $3.6 million and an increase in the Diamond Jo's slot revenue of 2.0%, or $223,000 for the three months ended September 30, 2002 compared to the three months ended September 30, 2001. This increase in slot revenues was a result of an increased marketing focus on the addition of new players club members as well as on targeting players club promotions towards more profitable market segments. This increase in slot revenues was offset by a decrease in table games revenue at the Diamond Jo of $262,000 resulting from an 11.4% decrease in table game drop and a 0.6% decrease in our hold percentage. Casino gaming win in the Dubuque market increased 1.3% to $23.5 million for the three months ended September 30, 2002 from $23.2 million for the three months ended September 30, 2001. We believe this increase was primarily due to targeted players club promotions and a continued focus on maintenance of our slot mix as well as a continued focus by operators at the Greyhound Park on maintenance of their slot mix during such period. Our share of the Dubuque market casino gaming win decreased slightly to 54.3% for the three months ended September 30, 2002 from 55.2% for the three months ended September 30, 2001. This decrease is attributed to a decrease in our table game revenue as discussed above. Our casino revenues remained constant at $12.8 million for the three months ended September 30, 2002 and 2001. Casino revenues were derived 87.6% from slot machines and 12.4% from table games for the three months ended September 30, 2002 compared to 85.6% from slot machines and 14.4% from table games for the three months ended September 30, 2001. The number of gaming positions at the Diamond Jo at September 30, 2002 was 848 compared to 868 at September 30, 2001. This decrease was due to the elimination of seven blackjack tables, one craps table and one Caribbean stud table during the first quarter of 2002 offset by the addition of 24 slot machines in April 2002 and an additional 24 slot machines in August 2002. These changes were done to continue to improve the gaming experience for our customers while maintaining our marketing focus on more profitable segments of our business. Consistent with an increase in casino revenue, our casino win per gaming position per day at the Diamond Jo increased 2.2% to $163.90 for the three months ended September 30, 2002 from $160.31 for the three months ended September 30, 2001. Admissions to the casinos in the Dubuque market decreased slightly to 553,798 for the three months ended September 30, 2002 from 555,967 for the three months ended September 30, 2001. For the three months ended September 30, 2002, our share of the Dubuque market casino admissions decreased to 49.5% from 50.5% for the three months ended September 30, 2001. We believe this decrease is primarily attributable to our targeted use of marketing dollars towards more profitable market segments during 2002 compared to 2001. Our admissions at the Diamond Jo for the three months ended September 30, 2002 decreased slightly to 273,870 for the three months ended September 30, 2002 from 280,890 for the three months ended September 30, 2001. For the three months ended September 30, 2002 our casino win per admission at the Diamond Jo increased 2.2% to $46.60 from $45.58 for the three months ended September 30, 2001. Racing revenues of $3.2 million related solely to revenues at OED for the three months ended September 30, 2002. Net food and beverage revenues, other revenues and promotional allowances increased to $0.5 million for the three months ended September 30, 2002 from $0.2 million for the three months ended September 30, 2001 due to food and beverage revenues at OED. -18- Casino operating expenses at the Diamond Jo increased slightly to $5.1 million for the three months ended September 30, 2002 from $5.0 million for the three months ended September 30, 2001. Racing expenses at OED were $2.5 million for the three months ended September 30, 2002. Food and beverage expenses increased to $1.1 million for the three months ended September 30, 2002 from $0.7 million for the three months ended September 30, 2001 due primarily to food and beverage expenses from OED of $0.3 million. Boat operation expenses and other expenses were substantially unchanged for the three months ended September 30, 2002 and 2001. Selling, general and administrative expenses increased to $2.1 million for the three months ended September 30, 2002 from $1.9 million for the three months ended September 30, 2001 due primarily to selling, general and administrative expenses from OED of $0.3 million. In accordance with Iowa law, a referendum must be held every eight years in each of the counties where gambling games are conducted and the proposition to continue to allow gambling games in such counties must be approved by a majority of the county electorate voting on the proposition. Such a referendum took place on November 5, 2002. As such, during the three months ended September 30, 2002, the Company incurred various advertising and promotional expenses totaling $136,681 to promote the approval of continued gaming in Dubuque County. The measure was approved on November 5, 2002 with 79% of the electorate voting on the proposition favoring continued gaming on riverboats in Dubuque County. Total expenses related to the referendum are expected to be approximately $750,000. As the Company will not be required to be a part of another referendum until 2010, such referendum related costs are not expected to be incurred in the future until that time. Depreciation and amortization expenses decreased 21.5% to $0.8 million for the three months ended September 30, 2002 from $1.0 million for the three months ended September 30, 2001. This decrease is due to adoption of SFAS 142, which provides that goodwill and certain indefinite lived intangible assets will no longer be amortized but will be reviewed at least annually for impairment and written down and charged to income when their recorded value exceeds their estimated fair value. During the first quarter of 2002, the Company evaluated the estimated fair value of the Company in accordance with SFAS 142 and determined the estimated fair value exceeded the carrying value of the Company. As a result, no impairment of goodwill has been recorded during the three months ended September 30, 2002. Goodwill amortization during the three months ended September 30, 2001 was approximately $353,000. Net interest expense increased 27.8% to $3.0 million for the three months ended September 30, 2002 from $2.4 million for the three months ended September 30, 2001. This increase is due to an increase in interest expense associated with our senior credit facility with Foothill Capital Corporation providing for commitments of up to $12.5 million which mature in 2005, $12.0 million of which was drawn down by the Company on February 15, 2002 to consummate an investment in OED and net interest expense at OED. NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,2001 Net revenues increased 25.8% to $45.6 million for the nine months ended September 30, 2002 from $36.2 million for the nine months ended September 30, 2001 due to net revenues from OED of $9.0 million and an increase in the Diamond Jo's slot revenue of 3.9%, or $1.2 million for the nine months ended September 30, 2002 compared to the nine months ended September 30, 2001. This increase in slot revenues was a result of an increased marketing focus on the addition of new players club members as well as on targeting players club promotions towards more profitable market segments. This increase in slot revenues was offset by a decrease in table games revenue at the Diamond Jo of $0.9 million. This decrease was a direct result of a 1.5 percentage point decrease in our table game hold percentage and an 9.6% decrease in table game drop. Casino gaming win in the Dubuque market increased 2.3% to $66.7 million for the nine months ended September 30, 2002 from $65.2 million for the nine months ended September 30, 2001. We believe this increase was primarily due to targeted players club promotions and a continued focus on maintenance of our slot mix as well as a continued focus by operators at the Greyhound Park on maintenance of their slot mix during such period. Our share of the Dubuque market casino gaming win decreased slightly to 54.4% for the nine months ended September 30, 2002 from 55.2% for the nine months ended September -19- 30, 2001. This decrease is attributed to a decrease in our table game revenue as discussed above. However, our share of the Dubuque market slot win remained constant at 51.2% for the nine months ended September 30, 2002 compared to the nine months ended September 30, 2001. Our casino revenues increased 0.9% to $36.3 million for the nine months ended September 30, 2002 from $36.0 million for the nine months ended September 30, 2001. This increase is due to an increase in slot revenue offset by a decrease in table game revenues as discussed above. Casino revenues were derived 87.8% from slot machines and 12.2% from table games for the nine months ended September 30, 2002 compared to 85.3% from slot machines and 14.7% from table games for the nine months ended September 30, 2001. Consistent with an increase in casino revenue, our casino win per gaming position per day at the Diamond Jo increased 4.1% to $158.02 for the nine months ended September 30, 2002 from $151.81 for the nine months ended September 30, 2001. Admissions to the casinos in the Dubuque market increased slightly to 1,497,926 for the nine months ended September 30, 2002 from 1,485,178 for the nine months ended September 30, 2001. For the nine months ended September 30, 2002, our share of the Dubuque market casino admissions decreased to 50.1% from 51.3% for the nine months ended September 30, 2001. We believe this decrease is primarily attributable to our targeted use of marketing dollars directed primarily towards more profitable market segments during 2002 compared to 2001. Our admissions at the Diamond Jo for the nine months ended September 30, 2002 decreased slightly to 749,764 for the nine months ended September 30, 2002 from 762,161 for the nine months ended September 30, 2001. For the nine months ended September 30, 2002 our casino win per admission at the Diamond Jo increased 2.5% to $48.40 from $47.20 for the nine months ended September 30, 2001. Racing revenues of $8.1 million related solely to revenues at OED for the period February 15, 2002 (date of acquisition) to September 30, 2002. Net food and beverage revenues, other revenues and promotional allowances increased to $1.2 million for the nine months ended September 30, 2002 from $0.3 million for the nine months ended September 30, 2001 due to food and beverage revenues at OED. Casino operating expenses at the Diamond Jo increased slightly to $15.3 million for the three months ended September 30, 2002 from $15.1 million for the three months ended September 30, 2001 due mainly to an increase in gaming taxes paid as a result of an increase in gaming revenues and an increase in the state admission fee imposed by the State of Iowa. Racing expenses at OED were $6.3 million for the period February 15, 2002 (date of acquisition) to September 30, 2002. Food and beverage expenses increased to $2.9 million for the nine months ended September 30, 2002 from $2.1 million for the nine months ended September 30, 2001 due primarily to food and beverage expenses from OED of $0.8 million. Boat operation expenses and other expenses were substantially unchanged for the nine months ended September 30, 2002 and 2001. Selling, general and administrative expenses increased to $6.0 million for the nine months ended September 30, 2002 from $4.9 million for the nine months ended September 30, 2001. This increase in such expenses resulted from selling, general and administrative expenses at OED of $701,000, an increase in legal expenses of $286,000 (resulting from a credit of $230,000 in legal expense during the corresponding period of the prior year) and an increase in consulting and various lobbying expenses of $92,000. During the nine months ended September 30, 2002, the Company incurred various advertising and promotional expenses totaling $136,681 to promote the approval of continued gaming on riverboats in Dubuque County as discussed above. -20- Depreciation and amortization expenses decreased 23.9% to $2.2 million for the nine months ended September 30, 2002 from $2.9 million for the nine months ended September 30, 2001. This decrease is due to adoption of SFAS 142 which provides that goodwill and certain indefinite lived intangible assets will no longer be amortized but will be reviewed at least annually for impairment and written down and charged to income when their recorded value exceeds their estimated fair value. Goodwill amortization during the nine months ended September 30, 2001 was approximately $1.1 million. Net interest expense increased 20.9% to $8.5 million for the nine months ended September 30, 2002 from $7.1 million for the nine months ended September 30, 2001. This increase is due to an increase in interest expense associated with our senior credit facility with Foothill Capital Corporation providing for commitments of up to $12.5 million which mature in 2005, $12.0 million of which was drawn down by the Company on February 15, 2002 to consummate an investment in OED and net interest expense at OED. RECENT ACCOUNTING PRONOUNCEMENTS SFAS 142 "GOODWILL AND OTHER INTANGIBLE ASSETS" - SFAS 142 provides that goodwill and certain indefinite lived intangible assets will no longer be amortized but will be reviewed at least annually for impairment and written down and charged to income when their recorded value exceeds their estimated fair value. During the first quarter of 2002, the Company performed a transitional impairment test on goodwill in accordance with SFAS 142 and determined the estimated fair value of the Company exceeded its carrying value. Based on that review, management determined that there was no impairment of goodwill. Goodwill amortization during the three and nine months ended September 30, 2001 was $353,497 and $1,060,490, respectively. Assuming the non-amortization provisions of these standards had been adopted at the beginning of 2001, the Company's adjusted net income for the three and nine months ended September 30, 2001 would have been $1,322,195 and $3,017,858, respectively. In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities". This statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies the previous guidance on the subject. This statement requires, among other things, that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. The provisions for this statement are effective for exit or disposal activities that are initiated after December 31, 2002. LIQUIDITY AND CAPITAL RESOURCES CASH FLOWS FROM OPERATING, INVESTING AND FINANCING ACTIVITIES Our cash balance increased $2.0 million during the nine month period ended September 30, 2002 to $9.5 million from $7.5 million at December 31, 2001. Cash flows from operating activities of $8.5 million for the nine month period ended September 30, 2002 consisted of net income of $2.0 million increased by non-cash charges of $3.5 million, principally depreciation and amortization, and an increase in working capital of $3.0 million. The change in working capital is primarily comprised of an increase in accrued expenses of $2.6 million, which is principally due to an increase in accrued interest related to our 12 1/4% Senior Secured Notes due 2006 (the "Senior Secured Notes"). Cash flows used in investing activities for the nine month period ended September 30, 2002 was $36.1 million including $29.3 million for the purchase of OED (net of cash acquired), $4.8 million for the purchase of land at St. Landry Parish (the future site of the Racino Project) and architecture fees associated with the Racino Project and approximately $1.0 million in development costs related to the OED acquisition and license costs. In addition, cash outflows of approximately $1.0 million were used -21- for capital expenditures mainly related to the purchase of replacement slot machines in an effort to improve the gaming experience of our patrons. Cash flows from financing activities for the nine month period ended September 30, 2002 of $29.6 million reflects the proceeds of a $12.0 million borrowing under PGC's $12.5 million credit agreement with Foothill Capital Corporation, proceeds of an $8.5 million borrowing under OED's loan and security agreement with Foothill Capital Corporation, proceeds from the issuance of a $7.3 million note payable to WET2LLC and proceeds from the issuance of a $4.5 million note payable by OED to WET2. These proceeds were offset by deferred financing costs paid of $1.7 million, including consent fees totaling $887,500 paid to holders of our Senior Secured Notes related to our investment in OED and $700,000 paid to Foothill Capital Corporation related to the OED loan and security agreement, and member distributions of $1.0 million. CONTRACTUAL OBLIGATIONS AND CONTINGENT LIABILITIES AND COMMITMENTS The Company's future contractual obligations related to long-term debt, capital leases and operating leases at September 30, 2002 were as follows (in millions of dollars): PAYMENTS DUE BY PERIOD -------------------------------------------- LESS THAN CONTRACTUAL OBLIGATIONS TOTAL 1 YEAR 1-3 YEARS 4-5 YEARS ----- ------- --------- --------- Long-Term Debt $103.3 $20.9 $11.4 $71.0 Capital Lease Obligations 0.5 0.1 0.4 - Operating Leases 1.4 0.4 0.8 0.2 ------ ------ ----- ----- Total $105.2 $21.4 $12.6 $71.2 ====== ====== ===== ===== RACINO PROJECT On February 15, 2002, OEDA consummated its acquisition of: (i) 50% of the membership interests (the "BIM3 Interests") of OED from BIM3 Investments, a Louisiana partnership ("BIM3"); and (ii) BIM3's one-half (1/2) interest in two promissory notes issued by OED in the aggregate principal amount of $10,909,244 (the "OED Notes"), for an aggregate purchase price of $15,000,000 in cash. The remaining 50% of the membership interests in OED were owned by William E. Trotter, II Family L.L.C., a Louisiana limited liability company. The acquisition was made pursuant to a purchase agreement dated June 27, 2001 by and among the Company's parent, PGP, OED and BIM3 (as amended, the "Moody Purchase Agreement"). Pursuant to the terms of the Moody Purchase Agreement, PGP paid a cash deposit of $500,000 which was applied against the purchase price when the acquisition was consummated. The Moody Purchase Agreement was assigned to OEDA by PGP on October 23, 2001 for a purchase price of $523,836 which was paid by OEDA in cash. The source of funds for the transaction described above was $3,000,000 of cash on-hand and $12,000,000 of borrowings under the Company's credit agreement with Foothill Capital Corporation. During the first quarter of 2002, the Company amended its credit facility to increase the available funds to $12,500,000 and obtained consents under the indenture governing its Notes to consummate the acquisition. On March 7, 2002, the Company paid consent fees totaling $887,500 to holders of the Notes related to the above transaction. -22- In October 2002, the Company further amended its credit facility which requires the Company to begin making principal payments on the amount advanced of $50,000 per month beginning in October 2002 and continuing through February 2005. In addition, the maximum available funds under the facility shall be reduced by the total amount of the principal repayments. On June 25, 2002, PGP entered into an agreement with William E. Trotter, II ("WET2") and William E. Trotter, II Family LLC, a Louisiana limited liability company ("WET2LLC") to acquire (i) the 50% interest in the OED Notes owned by WET2, and (ii) the 50% membership interest in OED, owned by WET2LLC (the "Trotter Purchase"). On August 30, 2002, OEDA completed the Trotter Purchase for a purchase price of $15,546,000 (actual purchase price of $15,325,000 plus the reimbursement to WET2 of certain expenses related to the transaction of $221,000), plus a contingent fee of one half of one percent (.5%) of the net slot revenues from the date of opening of a new casino, located in St. Landry Parish, until the date that is ten years after the opening of the casino to the public. The source of funds for the Trotter Purchase described above was $8,450,000 of borrowings under OED's loan and security agreement with Foothill Capital Corporation entered into on August 30, 2002 and maturing on the earlier of (a) June 30, 2003 or (b) the date on which OED consummates its financing of the Racino Project (the "Term Loan") and proceeds from a $7,325,000 note payable to WET2LLC (the "WET2LLC Note") due June 30, 2003. The WET2LLC Note was issued by PGP. The Term Loan contains, among other things, covenants, representations and warranties and events of default customary for loans of this type, including, but not limited to, certain requirements relating to the financing, construction and development of the Racino Project and a minimum EBITDA maintenance covenant. The obligations under the Term Loan are secured by substantially all of the assets of OED and guaranteed by PGP. The Term Loan is not guaranteed by the Company and is not secured by any assets or property of the Company. -23- During the period February 15, 2002 through September 30, 2002, OED paid principal of $18,379 and interest of $297,536 to WET2 related to WET2's 50% interest in the OED Notes. The Company accounted for its acquisition as a purchase in accordance with SFAS No. 141 "Business Combinations" and SFAS No. 142 "Goodwill and Other Intangible Assets". The purchase price has been allocated to the underlying assets and liabilities based on their estimated fair values at the date of acquisition. To the extent the purchase price exceeded the fair value of the net identifiable assets acquired, such excess has been recorded as goodwill. As of September 30, 2002, the Company recorded goodwill of approximately $30.8 million related to the acquisition. The Company has not completed its evaluation of the intangible assets acquired in the OED acquisition. This evaluation may result in adjustments to the purchase price allocation. Under the provisions of SFAS 142, goodwill and other intangible assets with indefinite lives arising from the acquisition will not be amortized but will be reviewed at least annually for impairment and written down and charged to income when its recorded value exceeds its estimated fair value. The results of operations of OED are included in the condensed consolidated financial statements from the date of acquisition through September 30, 2002. The Company will manage the existing racetrack and, subject to receipt of required gaming approvals, is planning to design, construct, manage and operate a new casino and contiguous racetrack facility with pari-mutuel wagering, slots and OTB parlors in St. Landry Parish, Louisiana (the "Racino Project"). The cost to construct and develop the Racino Project is estimated at $90 million. The Company is currently investigating financing alternatives for the financing of construction and development costs including, but not limited to, a private placement of debt securities. The Racino Project is expected to include at least 1,525 slot machines, dirt and turf racetracks and several dining options. The Racino Project is one of only three racetracks in the State of Louisiana currently authorized to conduct casino operations. The successful completion of the Racino Project is subject to factors beyond the control of OED. The extent and timing of the development and construction of the Racino Project will depend on available cash flow or the ability to obtain financing. There can be no assurance that sufficient cash flow or necessary financing will be available on satisfactory terms to OED. In addition, the Company and OED will be subject to comprehensive and stringent government regulations. The Company and OED and their respective officers, directors, members, significant shareholders and employees will be subject to the Louisiana Gaming Control Board and the Louisiana Gaming Commission and will need to submit to a regulatory review process prior to mandatory licensing. There can be no assurance that all necessary licenses will be issued, or issued on a timely basis. For the foregoing reasons, there can no assurance that the Racino Project will be completed, or completed in a timely manner. We believe that cash on hand and cash generated from operations will be sufficient to satisfy our working capital and capital expenditure requirements (other than the Racino Project), repay borrowings under our senior credit facility, and satisfy our other debt service requirements. However, we cannot assure you that this will be the case. If cash on hand and cash generated from operations are insufficient to meet these obligations, we may have to refinance our debt or sell some or all of our assets to meet our obligations. -24- ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to certain market risks which are inherent in our financial instruments which arise from transactions entered into in the normal course of business. Market risk is the risk of loss from adverse changes in market prices and interest rates. We do not currently utilize derivative financial instruments to hedge market risk. We also do not hold or issue derivative financial instruments for trading purposes. We are exposed to interest rate risk due to changes in interest rates with respect to our long-term variable interest rate debt borrowing under our senior credit facility. As of September 30, 2002, we had $12.0 million in borrowings under the senior credit facility. We have estimated our market risk exposure using sensitivity analysis. We have defined our market risk exposure as the potential loss in future earnings and cash flow with respect to interest rate exposure of our market risk sensitive instruments assuming a hypothetical increase in market rates of interest of one percentage point. Assuming we borrow the maximum amount allowed under the senior credit facility ($12.5 million), if market rates of interest on our variable rate debt increased by one percentage point, the estimated market risk exposure under the senior credit facility would be approximately $0.1 million. We are also exposed to fair value risk due to changes in interest rates with respect to our long-term fixed interest rate debt borrowing. Our fixed rate debt instruments are not generally affected by a change in the market rates of interest, and therefore, such instruments generally do not have an impact on future earnings. However, future earnings and cash flows may be impacted by changes in interest rates related to indebtedness incurred to fund repayments as such fixed rate debt matures. The following table contains information relating to our fixed rate debt borrowings which are subject to interest rate risk (dollars in millions): DESCRIPTION CONTRACT TERMS INTEREST RATE COST FAIR VALUE - ----------- -------------- ------------- ---- ---------- Senior Secured Notes Due July 1, 2006 12 1/4% fixed $71.0 $71.0* * Represents fair value as of November 13, 2002 based on information provided by the Company's investment banking firm. ITEM 4. CONTROLS AND PROCEDURES The Company's principal executive officer and principal financial officer, after evaluating the effectiveness of the Company's disclosure controls and procedures (as defined in Exchange Act Rules 13a-14(c) and 15d-14(c)) as of a date within ninety days prior to the filing date of this report, have concluded that, as of such date, the Company's disclosure controls and procedures were effective to ensure that material information relating to the Company would be made known to them by others within the Company on a timely basis. In addition, there were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies or material weaknesses. -25- PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Horseman Benevolent Protection Association ("HBPA") has filed a lawsuit against all licensed racetracks in the State of Louisiana. The lawsuit alleges that HBPA is not receiving the appropriate share of net revenues from video poker devices located at licensed tracks. First Statewide Racing Co., Inc., an affiliate of The Old Evangeline Downs, L.C., was the holder of the video poker license at the time the lawsuit was filed and is the named defendant. HBPA claims that the revenue split from video poker wagering should be calculated before the tracks deduct the franchise tax owed to the State of Louisiana. It is the Company's position that this claim is contrary to the state statutes and to the interpretation applied by the Louisiana State Police Gaming Division in determining net revenues to be shared. However, should HBPA prevail in this lawsuit, each track named in the suit could be facing a judgment of several million dollars plus interest. On March 12, 2001, the 19th Judicial District Court entered a judgment in favor of the HBPA against certain licensed racetracks in the State of Louisiana, including the Company. The judgment granted HBPA's motion for summary judgment as to liability only. The Company's liability was not determined at the time of the grant of summary judgment, but the final judgment could be, based on discussions with legal counsel, in the $3 million to $5 million range. The Company appealed the verdict and the First Circuit Court of Appeal of Louisiana reversed the judgment of the District Court on June 21, 2002. The HBPA subsequently applied for writs to the Louisiana Supreme Court, which were recently granted. The court will now review the case. Although the outcome of litigation is inherently uncertain, management, after consultation with legal counsel, believes the reversal of the District Court verdict will be upheld. On June 21, 2002, PGP filed a complaint with the United States District Court in the Western District of Louisiana (the "Trotter Complaint") alleging breach of contract by WET2LLC for failing to honor its previous agreement to, among other things, enter into a management services agreement with the Company for the management of the existing OED racetrack and the development and management of the Racino Project. However, in connection with the consummation of the Trotter Purchase (as discussed above), the Trotter Complaint was dismissed. Notwithstanding the above mentioned HBPA lawsuit, we are not a party to, and none of our property is the subject of, any other pending legal proceedings other than litigation arising in the normal course of business. We do not believe that adverse determinations in any or all such other litigation (excluding the HBPA lawsuit) would have a material adverse effect on our financial condition, results of operations or cash flows. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. -26- ITEM 5. OTHER INFORMATION Since the Company does not have securities registered under Section 12 of the Securities Exchange Act of 1934 and is not required to file periodic reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company is not an "issuer" as defined in the Sarbanes-Oxley Act of 2002, and therefore the Company is not filing the written certification statement pursuant to Section 906 of such Act. The Company files periodic reports with the Securities and Exchange Commission because it is required to do so by the terms of the indenture governing its notes. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS 10.1 Amendment Number One to Loan and Security Agreement, dated February 15, 2002, by and between Foothill Capital Corporation and Peninsula Gaming Company, LLC. 10.2 Amendment Number Two to Loan and Security Agreement, dated October 16, 2002, by and between Foothill Capital Corporation and Peninsula Gaming Company, LLC. 10.3 Agreement of Sale, dated August 30, 2002, by and among Peninsula Gaming Partners LLC, OED Acquisition, LLC, William E. Trotter II and William E. Trotter II Family, LLC. (b) REPORTS ON FORM 8-K (i) Form 8-K filed March 4, 2002, regarding purchase of The Old Evangeline Downs, L.C. (ii) Form 8-K/A filed May 1, 2002 amending the registrant's report on Form 8-K for the event dated February 15, 2002, as filed on March 4, 2002, to include the historical financial statements and pro forma financial information required by Item 7(a) and (b). -27- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Dubuque, State of Iowa on November 14, 2002. PENINSULA GAMING COMPANY, LLC By: /s/ M. Brent Stevens ------------------------ M. Brent Stevens Chief Executive Officer By: /s/ George T. Papanier ------------------------ George T. Papanier Chief Operating Officer By: /s/ Natalie A. Schramm ------------------------ Natalie A. Schramm Chief Financial Officer PENINSULA GAMING CORP. By: /s/ M. Brent Stevens ------------------------ M. Brent Stevens President and Treasurer (principal financial officer) -28- CERTIFICATION I, M. Brent Stevens, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Peninsula Gaming Company, LLC; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a. all significant deficiencies in the design operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 14, 2002 /s/ M. Brent Stevens ---------------------------- M. Brent Stevens Chief Executive Officer -29- CERTIFICATION I, Natalie A. Schramm, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Peninsula Gaming Company; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 14, 2002 By: /s/ Natalie A. Schramm --------------------------------- Natalie A. Schramm Chief Financial Officer -30- CERTIFICATION I, M. Brent Stevens, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Peninsula Gaming Corp.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 day prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a. all significant deficiencies in the design operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 14, 2002 By: /s/ M. Brent Stevens --------------------------------- M. Brent Stevens President and Treasurer (principal financial officer) -31- EX-99 3 form10q_exh10-1lopez111402.txt EXHIBIT 10.1 -- AMENDMENT NO. 1 EXHIBIT 10.1 AMENDMENT NUMBER ONE TO LOAN AND SECURITY AGREEMENT This AMENDMENT NUMBER ONE TO LOAN AND SECURITY AGREEMENT (this "Amendment") is entered into as of February 15, 2002, by and between FOOTHILL CAPITAL CORPORATION, a California corporation ("LENDER"), and PENINSULA GAMING COMPANY, LLC, a Delaware limited liability company ("BORROWER"), with reference to the following: WHEREAS, Lender and Borrower have entered into that certain Loan and Security Agreement, dated as of February 23, 2001, as amended by that certain letter agreement, dated as of March 8, 2001, and as further amended, restated, supplemented, or otherwise modified from time to time (the "LOAN AGREEMENT"), pursuant to which Lender has agreed to make certain loans and financial accommodations available to Borrower; WHEREAS, Borrower has requested that Lender amend the Loan Agreement to (i) permit Borrower to form and acquire a 100% interest in OED Acquisition, LLC, a Delaware limited liability company; (ii) permit OED Acquisition, LLC to form and acquire a 50% interest in OED Acquisition II, LLC, a Delaware limited liability company, and (iii) increase the Maximum Revolver Amount to $12,500,000. WHEREAS, subject to the terms and conditions set forth herein, Lender is willing to so amend the Loan Agreement. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. DEFINED TERMS. All terms used herein and not otherwise defined shall have the meanings ascribed thereto in the Loan Agreement. 2. AMENDMENTS TO THE LOAN AGREEMENT. (a) SECTION 1.1 of the Loan Agreement hereby is amended by adding the following defined terms thereto in proper alphabetical order: "BORROWER PLEDGE AGREEMENT" means a pledge agreement, in form and substance satisfactory to Lender, executed and delivered by Borrower to Lender with respect to the pledge of the Stock owned by Borrower in OED I. "FIRST AMENDMENT" means that certain Amendment Number One to Loan and Security Agreement, dated as of February 15, 2002, by and between Borrower and Lender. "FIRST AMENDMENT EFFECTIVE DATE" means the date that all of the conditions set forth in SECTION 3 of the First Amendment shall be satisfied (or waived by Lender in writing in its sole discretion). "GUARANTY" means that certain General Continuing Guaranty, dated as of February 15, 2002, executed by OED I in favor of Lender, in form and substance satisfactory to Lender. "GUARANTOR SECURITY AGREEMENT" means that certain Guarantor Security Agreement, dated as of February 15, 2002, executed between OED I and Lender, in form and substance satisfactory to Lender. "OED I" means OED Acquisition, LLC, a Delaware limited liability company. "OED II" means OED Acquisition II, LLC, a Delaware limited liability company. "OED I ASSIGNMENT AGREEMENT" means that certain Assignment Agreement, dated as of October 23, 2001, by and between Gaming Partners and OED I. "OED I OPERATING AGREEMENT" means that certain Limited Liability Company Agreement, dated as of February 15, 2002, of OED I. "OED II OPERATING AGREEMENT" means that certain Operating Agreement, dated as of February 15, 2002, by and among OED I, OED II, and William E. Trotter, II Family L.L.C., a Louisiana limited liability company. "OED I PLEDGE AGREEMENT" means a pledge agreement, in form and substance satisfactory to Lender, executed and delivered by OED I to Lender with respect to the pledge of the Stock owned by OED I in OED II. "OED I PURCHASE AGREEMENT" means that certain Purchase Agreement, dated as of June 27, 2001, by and among BIM3 Investments, The Old Evangeline Downs, L.C., and Gaming Partners. "OED TRANSACTION DOCUMENTS" means the OED I Operating Agreement, the OED II Operating Agreement, the OED I Purchase Agreement, and the OED I Assignment Agreement. "PERMITTED OED ACQUISITION" means the formation of OED I and OED II, the acquisition by Borrower of 100% of the Stock of OED -2- I, the acquisition by OED I of 50% of the Stock of OED II, and all related transactions set forth in the OED Transaction Documents. (b) The following definitions contained in SECTION 1.1 of the Loan Agreement hereby are amended and restated in their entirety to read as follows: "LOAN DOCUMENTS" means this Agreement, the Borrower Pledge Agreement, the Diamond Jo Ship Mortgage, the Fee Letter, the Guaranty, the Guarantor Security Agreement, the Letters of Credit, the Mortgages, the OED I Pledge Agreement, the Officers' Certificate, the Trademark Security Agreement, the Intercreditor Agreement, any note or notes executed by Borrower in connection with this Agreement and payable to Lender, any Guaranty or Guarantor Security Agreement executed or entered into in connection with this Agreement in favor of Lender, and any other agreement entered into, now or in the future, by Borrower and Lender in connection with this Agreement. "RESTRICTED SUBSIDIARY" means OED I and each other Subsidiary of Borrower that is not an Unrestricted Subsidiary. (c) The definition of "MAXIMUM REVOLVER AMOUNT" hereby is amended by deleting the text "$10,000,000" appearing in such definition and inserting the text "$12,500,000" in lieu thereof. (d) The definition of "PERMITTED INVESTMENTS" hereby is amended by (i) deleting "and," appearing at the end of subsection (k), (ii) deleting the period at the end of subsection (l) and replacing it with "; and", and (iii) adding the following new subsection (m) immediately after subsection (l) appearing in such definition: (m) the Permitted OED Acquisition. (e) SECTION 7.6 of the Loan Agreement hereby is amended by (i) deleting "and," appearing at the end of subsection (c), (ii) deleting the period at the end of subsection (d) and replacing it with "; and", and (iii) adding the following new subsection (e) immediately after subsection (d) appearing in such Section: (e) guarantees under the Guaranty. (f) SECTION 7.8 of the Loan Agreement hereby is amended by (i) deleting "and" appearing at the end of subsection (a), (ii) deleting the period at the end of subsection (b) and replacing it with "; and", and (iii) adding the following new subsection (c) immediately after subsection (b) appearing in such Section: (c) Directly or indirectly amend, modify, alter, increase, or change any of the terms or conditions of (i) the OED I Operating Agreement, including, without limitation, Section 13(c) relating to transfers of interest to Lender, Section 17(k) entitled "Article 8 Opt- -3- In", and Section 17(l) entitled "Loan Agreement", (ii) the OED II Operation Agreement, including, without limitation, Section 10.17 entitled "Loan Agreement", Section 15.20 entitled "Article 8 Opt-in", and Section 5(f) relating to amendments and modifications, (iii) the Certificate of Formation of OED I, or (iv) the Certificate of Formation of OED II. (g) SCHEDULE 5.8(C) of the Loan Agreement hereby is removed from the Loan Agreement in its entirety and replaced with SCHEDULE 5.8(C) that is attached to this Amendment, and all references to SCHEDULE 5.8(C) in the Loan Agreement shall mean and be a reference to SCHEDULE 5.8(C) that is attached to this Amendment. 3. CONDITIONS PRECEDENT TO EFFECTIVENESS OF AMENDMENT. The prior or concurrent satisfaction of each of the following shall constitute conditions precedent to the effectiveness of this Amendment: (a) Lender shall have received this Amendment duly executed by the parties hereto, which shall be in full force and effect; (b) Lender shall have received an amendment and consent fee in an amount equal to $25,000, which amount is due and payable in full on the First Amendment Effective Date and shall be charged to the Loan Account; (c) Lender shall have received copies of each of the OED Transaction Documents, the Certificate of Formation of OED I, and the Certification of Formation of OED II, together with a certificate of the Secretary of Borrower certifying each such document as being a true, correct, and complete copy thereof, and each such document shall be satisfactory to Lender in its Permitted Discretion; (d) Lender shall have received evidence satisfactory to Lender that the Permitted OED Acquisition has been consummated pursuant to the terms of the OED Transaction Documents; (e) Lender shall have received the Borrower Pledge Agreement and the OED I Pledge Agreement, together with the delivery of copies of certificates representing such shares of Stock with attached copies of Stock powers endorsed in blank; (f) Lender shall have received the Guaranty and the Guarantor Security Agreement; (g) Lender shall have sent for filing a financing statement against OED I in favor of Lender in the state of Delaware; (h) The representations and warranties in this Amendment, the Loan Agreement, and the other Loan Documents shall be true and correct, in all material respects, on and as of the date hereof, except to the extent such representations and warranties -4- expressly relate to an earlier date, in which case such representations and warranties were, to such extent, true and correct, in all material respects, as of such earlier date; (i) After giving effect to this Amendment, no Event of Default or event which with the giving of notice or passage of time would constitute an Event of Default shall have occurred and be continuing on the date hereof, nor shall result from the consummation of the transactions contemplated herein; and (j) No injunction, writ, restraining order, or other order of any nature prohibiting, directly or indirectly, the consummation of the transactions contemplated herein shall have been issued and remain in force by any Governmental Authority against Borrower or Lender, or any of their Affiliates. 4. CONDITION SUBSEQUENT TO EFFECTIVENESS OF AMENDMENT. The satisfaction of the following shall constitute conditions subsequent to the continued effectiveness of this Amendment (the failure of such condition to be satisfied constituting an Event of Default): (a) By February 19, 2002, Lender shall have received originals of the certificates and Stock powers endorsed in blank referenced in SECTION 3(E) above; and (b) By February 25, 2002, Lender shall have received confirmation that the financing statement filed against OED in favor of Lender has been filed in the state of Delaware. 5. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and warrants to Lender that (a) the execution, delivery, and performance of this Amendment and of the Loan Agreement, as amended by this Amendment, are within Borrower's powers, have been duly authorized by all necessary action, and are not in contravention of any law, rule, or regulation, or any order, judgment, decree, writ, injunction, or award of any arbitrator, court, or Governmental Authority, or of the terms of its Governing Documents, or of any contract or undertaking to which it is a party or by which any of its properties may be bound or affected, (b) this Amendment and the Loan Agreement, as amended by this Amendment, constitute Borrower's legal, valid, and binding obligation, enforceable against Borrower in accordance with its terms, and (c) this Amendment has been duly executed and delivered by Borrower. 6. CHOICE OF LAW. The validity of this Amendment, its construction, interpretation and enforcement, the rights of the parties hereunder, shall be determined under, governed by, and construed in accordance with the laws of the State of California. 7. COUNTERPARTS; TELEFACSIMILE EXECUTION. This Amendment may be executed in any number of counterparts and by different parties and separate counterparts, each of which when so executed and delivered, shall be deemed an original, and all of which, when taken together, shall constitute one and the same agreement. Delivery of an executed counterpart of this Amendment by telefacsimile shall be equally as effective as delivery of an original executed counterpart of this Amendment. Any party delivering an executed counterpart of this Amendment by telefacsimile also shall deliver an original executed counterpart of this -5- Amendment, but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Amendment. 8. EFFECT ON LOAN DOCUMENTS. (a) The Loan Agreement, as amended hereby, and the other Loan Documents shall be and remain in full force and effect in accordance with their respective terms and hereby are ratified and confirmed in all respects. The execution, delivery, and performance of this Amendment shall not operate as a waiver of or, except as expressly set forth herein, as an amendment of, any right, power, or remedy of Lender under the Loan Agreement, as in effect prior to the date hereof. The consents and modifications herein are limited to the specifics hereof, shall not apply with respect to any facts or occurrences other than those on which the same are based, shall not excuse future non-compliance with the Loan Agreement, and shall not operate as a modification or consent to any further or other matter under the Loan Documents. (b) Upon and after the effectiveness of this Amendment, each reference in the Loan Agreement to "this Agreement", "hereunder", "herein", "hereof" or words of like import referring to the Loan Agreement, and each reference in the other Loan Documents to "the Agreement", "thereunder", "therein", "thereof" or words of like import referring to the Loan Agreement, shall mean and be a reference to the Loan Agreement as modified and amended hereby. (c) To the extent that any terms and conditions in any of the Loan Documents shall contradict or be in conflict with any terms or conditions of the Loan Agreement, after giving effect to this Amendment, such terms and conditions are hereby deemed modified or amended accordingly to reflect the terms and conditions of the Loan Agreement as modified or amended hereby. 9. FURTHER ASSURANCES. Borrower shall execute and deliver all agreements, documents, and instruments, in form and substance reasonably satisfactory to Lender, and take all actions as Lender may reasonably request from time to time, to perfect and maintain the perfection of Lender's security interests in the Collateral and to fully consummate the transactions contemplated under this Amendment and the Loan Agreement. 10. ENTIRE AGREEMENT. This Amendment, together with all other instruments, agreements, and certificates executed by the parties in connection herewith or with reference thereto, embody the entire understanding and agreement between the parties hereto and thereto with respect to the subject matter hereof and thereof and supersede all prior agreements, understandings, and inducements, whether express or implied, oral or written. [Remainder of page intentionally left blank] -6- IN WITNESS WHEREOF, the parties have entered into this Amendment as of the date first above written. PENINSULA GAMING COMPANY, LLC, a Delaware limited liability company By /s/ Natalie A. Schramm ------------------------------------------ Name: Natalie A. Schramm --------------------------------------- Title: Chief Financial Officer -------------------------------------- FOOTHILL CAPITAL CORPORATION, a California corporation By /s/ Kurt R. Marsden ------------------------------------------ Name: Kurt R. Marsden --------------------------------------- Title: S.V.P. -------------------------------------- -7- SCHEDULE 5.8(C) CAPITALIZATION OF BORROWER'S SUBSIDIARIES PENINSULA GAMING CORPORATION - - 100% of Common Stock issued and outstanding are owned by the Borrower OED ACQUISITION, LLC - - 100% of the Interests issued and outstanding are owned by the Borrower -8- EX-99 4 form10q_exh10-2lopez111402.txt EXHBIT 10.2 -- AMENDMENT NO. 2 EXHIBIT 10.2 AMENDMENT NUMBER TWO TO LOAN AND SECURITY AGREEMENT This AMENDMENT NUMBER TWO TO LOAN AND SECURITY AGREEMENT (this "AMENDMENT") is entered into as of October 16, 2002, by and between FOOTHILL CAPITAL CORPORATION, a California corporation ("LENDER"), and PENINSULA GAMING COMPANY, LLC, a Delaware limited liability company ("BORROWER"), with reference to the following: WHEREAS, Lender and Borrower have entered into that certain Loan and Security Agreement, dated as of February 23, 2001, as amended by that certain letter agreement, dated as of March 8, 2001, as further amended by that certain Amendment Number One to Loan and Security Agreement, dated as of February 15, 2002, and as further amended, restated, supplemented, or otherwise modified from time to time (the "LOAN AGREEMENT"), pursuant to which Lender has agreed to make certain loans and financial accommodations available to Borrower; WHEREAS, subject to the terms and conditions set forth herein, Borrower and Lender have decided to amend the Loan Agreement as provided herein. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. DEFINED TERMS. All terms used herein and not otherwise defined shall have the meanings ascribed thereto in the Loan Agreement. 2. AMENDMENTS TO THE LOAN AGREEMENT. (a) SECTION 1.1 of the Loan Agreement hereby is amended by adding the following defined terms thereto in proper alphabetical order: "PERMANENT PAYDOWN AMOUNT" means the amount set forth in the following table for the applicable period set forth opposite thereto: ------------------------------ ---------------------------------------- APPLICABLE AMOUNT APPLICABLE PERIOD ------------------------------ ---------------------------------------- $50,000 October 21, 2002 through November 14, 2002 ------------------------------ ---------------------------------------- $100,000 November 15, 2002 through December 14, 2002 ------------------------------ ---------------------------------------- $150,000 December 15, 2002 through January 14, 2003 ------------------------------ ---------------------------------------- $200,000 January 15, 2003 through February 14, 2003 ------------------------------ ---------------------------------------- $250,000 February 15, 2003 through March 14, 2003 ------------------------------ ---------------------------------------- -1- ------------------------------ ---------------------------------------- $300,000 March 15, 2003 through April 14, 2003 ------------------------------ ---------------------------------------- $350,000 April 15, 2003 through May 14, 2003 ------------------------------ ---------------------------------------- $400,000 May 15, 2003 through June 14, 2003 ------------------------------ ---------------------------------------- $450,000 June 15, 2003 through July 14, 2003 ------------------------------ ---------------------------------------- $500,000 July 15, 2003 through August 14, 2003 ------------------------------ ---------------------------------------- $550,000 August 15, 2003 through September 14, 2003 ------------------------------ ---------------------------------------- $600,000 September 15, 2003 through October 14, 2003 ------------------------------ ---------------------------------------- $650,000 October 15, 2003 through November 14, 2003 ------------------------------ ---------------------------------------- $700,000 November 15, 2003 through December 14, 2003 ------------------------------ ---------------------------------------- $750,000 December 15, 2003 through January 14, 2004 ------------------------------ ---------------------------------------- $800,000 January 15, 2004 through February 14, 2004 ------------------------------ ---------------------------------------- $850,000 February 15, 2004 through March 14, 2004 ------------------------------ ---------------------------------------- $900,000 March 15, 2004 through April 14, 2004 ------------------------------ ---------------------------------------- $950,000 April 15, 2004 through May 14, 2004 ------------------------------ ---------------------------------------- $1,000,000 May 15, 2004 through June 14, 2004 ------------------------------ ---------------------------------------- $1,050,000 June 15, 2004 through July 14, 2004 ------------------------------ ---------------------------------------- $1,100,000 July 15, 2004 through August 14, 2004 ------------------------------ ---------------------------------------- $1,150,000 August 15, 2004 through September 14, 2004 ------------------------------ ---------------------------------------- $1,200,000 September 15, 2004 through October 14, 2004 ------------------------------ ---------------------------------------- $1,250,000 October 15, 2004 through November 14, 2004 ------------------------------ ---------------------------------------- $1,300,000 November 15, 2004 through December 14, 2004 ------------------------------ ---------------------------------------- $1,350,000 December 15, 2004 through January 14, 2005 ------------------------------ ---------------------------------------- -2- ------------------------------ ---------------------------------------- $1,400,000 January 15, 2005 through the February 14, 2005 ------------------------------ ---------------------------------------- $1,450,000 February 15, 2003 through the Maturity Date" ------------------------------ ---------------------------------------- "SECOND AMENDMENT" means that certain Amendment Number Two to Loan and Security Agreement, dated as of October 16, 2002, by and between Borrower and Lender." "SECOND AMENDMENT EFFECTIVE DATE" means the date that all of the conditions set forth in SECTION 3 of the Second Amendment shall be satisfied (or waived by Lender in writing in its sole discretion)." (b) The definition of "MAXIMUM REVOLVER AMOUNT" hereby is amended by deleting the text "$12,500,000" appearing in such definition and inserting the text "$12,500,000 MINUS the Permanent Paydown Amount". 3. CONDITIONS PRECEDENT TO EFFECTIVENESS OF AMENDMENT. The prior or concurrent satisfaction of each of the following shall constitute conditions precedent to the effectiveness of this Amendment: (a) Lender shall have received this Amendment duly executed by the parties hereto, which shall be in full force and effect; (b) Lender shall have received the reaffirmation and consent attached hereto as EXHIBIT "A" duly executed by OED I, which shall be in full force and effect; (c) The representations and warranties in this Amendment, the Loan Agreement, and the other Loan Documents shall be true and correct, in all material respects, on and as of the date hereof, except to the extent such representations and warranties expressly relate to an earlier date, in which case such representations and warranties were, to such extent, true and correct, in all material respects, as of such earlier date; (d) After giving effect to this Amendment, no Event of Default or event which with the giving of notice or passage of time would constitute an Event of Default shall have occurred and be continuing on the date hereof, nor shall result from the consummation of the transactions contemplated herein; and (e) No injunction, writ, restraining order, or other order of any nature prohibiting, directly or indirectly, the consummation of the transactions contemplated herein shall have been issued and remain in force by any Governmental Authority against Borrower or Lender, or any of their Affiliates. 4. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and warrants to Lender that (a) the execution, delivery, and performance of this Amendment and of the Loan Agreement, as amended by this Amendment, are within Borrower's powers, have been duly -3- authorized by all necessary action, and are not in contravention of any law, rule, or regulation, or any order, judgment, decree, writ, injunction, or award of any arbitrator, court, or Governmental Authority, or of the terms of its Governing Documents, or of any contract or undertaking to which it is a party or by which any of its properties may be bound or affected, (b) this Amendment and the Loan Agreement, as amended by this Amendment, constitute Borrower's legal, valid, and binding obligation, enforceable against Borrower in accordance with its terms, and (c) this Amendment has been duly executed and delivered by Borrower. 5. CHOICE OF LAW. The validity of this Amendment, its construction, interpretation and enforcement, the rights of the parties hereunder, shall be determined under, governed by, and construed in accordance with the laws of the State of California. 6. COUNTERPARTS; TELEFACSIMILE EXECUTION. This Amendment may be executed in any number of counterparts and by different parties and separate counterparts, each of which when so executed and delivered, shall be deemed an original, and all of which, when taken together, shall constitute one and the same agreement. Delivery of an executed counterpart of this Amendment by telefacsimile shall be equally as effective as delivery of an original executed counterpart of this Amendment. Any party delivering an executed counterpart of this Amendment by telefacsimile also shall deliver an original executed counterpart of this Amendment, but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Amendment. 7. EFFECT ON LOAN DOCUMENTS. (a) The Loan Agreement, as amended hereby, and the other Loan Documents shall be and remain in full force and effect in accordance with their respective terms and hereby are ratified and confirmed in all respects. The execution, delivery, and performance of this Amendment shall not operate as a waiver of or, except as expressly set forth herein, as an amendment of, any right, power, or remedy of Lender under the Loan Agreement, as in effect prior to the date hereof. The consents and modifications herein are limited to the specifics hereof, shall not apply with respect to any facts or occurrences other than those on which the same are based, shall not excuse future non-compliance with the Loan Agreement, and shall not operate as a modification or consent to any further or other matter under the Loan Documents. (b) Upon and after the effectiveness of this Amendment, each reference in the Loan Agreement to "this Agreement", "hereunder", "herein", "hereof" or words of like import referring to the Loan Agreement, and each reference in the other Loan Documents to "the Agreement", "thereunder", "therein", "thereof" or words of like import referring to the Loan Agreement, shall mean and be a reference to the Loan Agreement as modified and amended hereby. (c) To the extent that any terms and conditions in any of the Loan Documents shall contradict or be in conflict with any terms or conditions of the Loan Agreement, after giving effect to this Amendment, such terms and conditions are hereby -4- deemed modified or amended accordingly to reflect the terms and conditions of the Loan Agreement as modified or amended hereby. 8. FURTHER ASSURANCES. Borrower shall execute and deliver all agreements, documents, and instruments, in form and substance reasonably satisfactory to Lender, and take all actions as Lender may reasonably request from time to time, to perfect and maintain the perfection of Lender's security interests in the Collateral and to fully consummate the transactions contemplated under this Amendment and the Loan Agreement. 9. ENTIRE AGREEMENT. This Amendment, together with all other instruments, agreements, and certificates executed by the parties in connection herewith or with reference thereto, embody the entire understanding and agreement between the parties hereto and thereto with respect to the subject matter hereof and thereof and supersede all prior agreements, understandings, and inducements, whether express or implied, oral or written. [Remainder of page intentionally left blank] -5- IN WITNESS WHEREOF, the parties have entered into this Amendment as of the date first above written. PENINSULA GAMING COMPANY, LLC, a Delaware limited liability company By /s/ Natalie A. Schramm -------------------------------------------- Name: Natalie A. Schramm ----------------------------------------- Title: Chief Financial Officer ---------------------------------------- FOOTHILL CAPITAL CORPORATION, a California corporation By /s/ Kurt R. Marsden -------------------------------------------- Name: Kurt R. Marsden ----------------------------------------- Title: S.V.P. ---------------------------------------- -6- EX-99 5 form10q_exh10-3lopez111402.txt EXHIBIT 10.3 -- AGREEMENT OF SALE EXHIBIT 10.3 AGREEMENT OF SALE by and among PENINSULA GAMING PARTNERS, LLC and OED ACQUISITION, LLC as Purchaser and WILLIAM E. TROTTER II and WILLIAM E. TROTTER, II FAMILY L.L.C. as Seller Dated as of August 30, 2002 RELATING TO THE ACQUISITION OF A MEMBERSHIP INTEREST IN THE OLD EVANGELINE DOWNS, L.C. AGREEMENT OF SALE TABLE OF CONTENTS PAGE ARTICLE 1 THE CLOSING..............................................2 Section 1.1 Sale and Purchase..............................2 Section 1.2 Actions at the Closing.........................2 Section 1.3 Closing Consideration..........................2 Section 1.4 Allocation of Sale Price.......................4 ARTICLE 2 WARRANTIES AND REPRESENTATIONS BY THE TROTTER PARTIES....4 Section 2.1 Organization, Standing, Capacity and Power.....4 Section 2.2 Authority......................................4 Section 2.3 No Conflict....................................4 Section 2.4 No Consents Required...........................4 Section 2.5 Ownership of Assets............................4 Section 2.6 Legal Proceedings..............................5 Section 2.7 No Negotiations................................5 Section 2.8 No Brokers or Finders..........................5 ARTICLE 3 WARRANTIES AND REPRESENTATIONS BY PGP AND NEW OED........5 Section 3.1 Organization, Standing, Capacity and Power.....5 Section 3.2 Authority......................................5 Section 3.3 No Conflict....................................5 Section 3.4 No Consents Required...........................6 Section 3.5 Legal Proceedings..............................6 Section 3.6 No Brokers or Finders..........................6 ARTICLE 4 POST-CLOSING COVENANTS AND AGREEMENTS...................6 Section 4.1 Restructuring of New OED and Old OED...........6 Section 4.2 Required Assignment of Trotter Win Percentage, Trotter Note, and Old OED Note.................6 Section 4.3 Permitted Assignment of Trotter Win Percentage, Trotter Note and Old OED Note......7 Section 4.4 Post-Closing Cooperation and Best Efforts......7 -i- ARTICLE 5 POST-CLOSING INDEMNIFICATION.............................7 Section 5.1 Survival of Warranties, Representations, Covenants, and Other Agreements................7 Section 5.2 Indemnification by the Trotter Parties.........7 Section 5.3 Indemnification by PGP and New OED.............8 Section 5.4 Effect of Investigation........................8 Section 5.5 Notice and Defense of Claims...................8 ARTICLE 6 MISCELLANEOUS............................................9 Section 6.1 Notices........................................9 Section 6.2 Entire Agreement...............................10 Section 6.3 Governing Law..................................10 Section 6.4 Enforcement of Agreement.......................10 Section 6.5 Jury Trial.....................................11 Section 6.6 Waiver of Conflict.............................11 Section 6.7 Expenses.......................................11 Section 6.8 Assignment and Successors and Assigns..........11 Section 6.9 Confidentiality................................11 Section 6.10 No Third-Party Beneficiaries...................12 Section 6.11 Amendments.....................................12 Section 6.12 Waivers........................................12 Section 6.13 Counterparts...................................12 ARTICLE 7 DEFINITIONS..............................................12 -ii- AGREEMENT OF SALE This agreement (the "Agreement"), made as of August 30, 2002, by and among PENINSULA GAMING PARTNERS, LLC, a Delaware limited liability company ("PGP"), OED ACQUISITION, LLC, a Delaware limited liability company ("NEW OED"), as purchaser, WILLIAM E. TROTTER, II FAMILY L.L.C., a Louisiana limited liability company ("WETLLC"), as seller, and WILLIAM E. TROTTER II individually ("TROTTER" and, collectively with WETLLC, the "TROTTER Parties"), WITNESSETH THAT: WHEREAS, Trotter owns 99% of the membership interest in WETLLC and Deidre Fay Trotter Trust for Everard Thomas Marks owns 1% of the membership interest in WETLLC; and WHEREAS, WETLLC and PGP executed an agreement dated December 11, 2001 (the "12/11/01 AGREEMENT") according to which they agreed, subject to certain conditions, to execute four draft documents (the "GOING FORWARD DOCUMENTS") attached as exhibits to the 12/11/01 Agreement; and WHEREAS, The Going Forward Documents would, if they had been executed, have created a 50-50 joint venture between PGP and WETLLC that would have owned indirectly a 100% interest in (a) the existing Evangeline Downs Racetrack in Lafayette, Louisiana, and (b) a proposed new Old Evangeline Downs Casino and Thoroughbred Racetrack facility to be constructed on a 550-acre site on the north side of Route 31, southeast of the intersection of Highway 190 and Interstate 49 in the town of Opelousas, Louisiana (the "RACINO PROJECT"); and WHEREAS, a dispute arose between the Trotter Parties and PGP as to (a) the interpretation of the 12/11/01 Agreement, and (b) whether the 12/11/01 Agreement was abrogated by subsequent negotiations between the Trotter Parties and PGP relating to the Racino Project; and WHEREAS, Trotter thereafter participated in unconsummated negotiations to sell his 100% membership interest in WETLLC to persons unaffiliated with either the Trotter Parties or PGP; and WHEREAS, on June 21, 2002, PGP filed a suit entitled PENINSULA GAMING PARTNERS, L.L.C. V. WILLIAM E. TROTTER, II FAMILY, L.L.C. AND WILLIAM E. TROTTER, Civil Action No. 02-CV-1325 of the docket of the United States District Court for the Western District of Louisiana, Lafayette-Opelousas Division (the "LAWSUIT") seeking specific performance of the 12/11/01 Agreement; and WHEREAS, on June 25, 2002, the Trotter Parties and PGP executed a document entitled Agreement Reached at Meeting Held June 25, 2002 (the "6/25/02 AGREEMENT"), a copy of which is attached hereto as Exhibit A; and WHEREAS, the parties desire to implement the terms of the 6/25/02 Agreement; and WHEREAS, PGP owns indirectly 100% of the membership interest in New OED; and WHEREAS, PGP is prepared to cause New OED to undertake the Racino Project; and WHEREAS, certain capitalized terms used in this Agreement, if not defined in these recital clauses, are defined in Article 7 of this Agreement; NOW, THEREFORE, the parties hereto hereby agree as follows: ARTICLE 1 THE CLOSING Section 1.1 SALE AND PURCHASE. On the terms and subject to the conditions set forth in this Agreement, in consideration of the Closing Consideration, the Trotter Parties hereby bargain, sell, assign, transfer, convey, set over, abandon, and deliver to New OED, with full warranty of title and with full substitution and subrogation in and to all claims and actions of warranty against all preceding vendors (a) a 50% undivided interest (the "NOTE SHARE") owned by Trotter in the Notes Receivable, and (b) WETLLC's 50% membership interest (the "MEMBERSHIP INTEREST") in The Old Evangeline Downs, L.C., a Louisiana limited liability company ("OLD OED"), to have and to hold, to New OED and its assigns forever, and New OED accepts, receives, and receipts for the Note Share and the Membership Interest, and PGP acknowledges that such sale and delivery to New OED fulfills the obligation of the Trotter Parties to sell and deliver to PGP. The sale and purchase described in this Section 1.1 is referred to as the "Closing". Section 1.2 ACTIONS AT THE CLOSING. (a) At the Closing, the Trotter Parties have delivered to New OED (i) unconditional assignments to New OED, with full recourse, of the Note Share and the Membership Interest (which is not evidenced or represented by a membership certificate), free and clear of all liens and encumbrances other than those set forth in the presently existing articles of organization and operating agreement of Old OED, and (ii) a copy of the release in the form attached hereto as Exhibit B (the "RELEASE") executed by the Trotter Parties. (b) New OED has delivered to the Trotter Parties (i) the Closing Consideration, and (ii) a copy of the Release executed by PGP and New OED. (c) Effective with the Closing (i) the Trotter Parties ratify, confirm, approve, and consent and waive any objection under the articles of organization and operating agreement of Old OED or otherwise to, (A) the purchase by PGP on February 15, 2002 of a 50% membership interest in Old OED from BIM3 Investments, and (B) the execution and delivery by Michael S. Luzich on behalf of Old OED of the Trotter Note and the Old OED Note, and (ii) PGP and New OED waive compliance by WETLLC with any provisions of the articles of organization and operating agreement of Old OED that restrict the transfer by WETLLC of the Membership Interest to New OED pursuant to the terms of this Agreement. Section 1.3 CLOSING CONSIDERATION. The Closing Consideration consists of: 2 (a) $44,834.84 of interest accrued through June 30, 2002 on the Note Interest, which was paid by Old OED to Trotter on July 1, 2002, the receipt of which is hereby acknowledged by the Trotter Parties, and $96,155.84 of interest accrued from July 1 through September 2, 2002 (including $930.51 accrued interest as of July 1, 2002 but not previously paid), which has been paid in cash at the Closing to Trotter by wire transfer to Bank Account No. 8703825199 at the Lafayette, Louisiana branch of Bank One (the "Trotter Account"). (b) $200,000 as reimbursement of reasonable and legitimate legal, travel, lodging, and similar expenses actually incurred by WETLLC prior to the date of this Agreement in pursuance of the Racino Project (the "TROTTER EXPENSES"), which has been paid in cash at the Closing to WETLLC by wire transfer to Bank Account No. 1596409860 at the Lafayette, Louisiana branch of Bank One (the "WETLLC Account"). (c) $3,500,000, which has been paid in cash at the Closing to the Trotter Parties by wire transfer of (i) $2,563,758 to the WETLLC Account and (ii) $936,242 to the Trotter Account. (d) An unsecured subordinated promissory note dated the date of this Agreement issued by PGP in the face principal amount of $7,325,000, payable to the order of WETLLC in the form of Exhibit C attached hereto (the "TROTTER NOTE"), which has been delivered to WETLLC at the Closing, the receipt of which is acknowledged by the Trotter Parties. (e) An unsecured subordinated promissory note dated the date of this Agreement issued by Old OED and PGP in the face principal amount of $4,500,000, payable to the order of Trotter in the form of Exhibit D attached hereto (the "OLD OED NOTE"), which has been delivered to Trotter at the Closing, the receipt of which is acknowledged by the Trotter Parties. (f) A contingent right of WETLLC to receive from Old OED, but only (i) if required by the Louisiana Gaming Authorities, then as, if, and when the Trotter Parties shall have received all necessary suitability approvals from the Louisiana Gaming Authorities, and (ii) commencing on the date of opening the Racino Project to the public and terminating on the tenth anniversary of that date, one-half of one percent (0.5%) (the "TROTTER WIN PERCENTAGE") of the Net Win from slots at the Racino Project, payable monthly in arrears. "NET WIN" is defined as the excess of slot wins over slot losses before any tax imposed by the Louisiana Gaming Authorities (A) plus or minus, as appropriate, deposits or accruals made in respect of progressive slot machines and other similar games, (B) net of any license or manufacturers' revenue participation fees paid on either a fixed or percentage basis associated with any participation slot machine games, and (C) minus complimentaries. Notwithstanding any other provisions of this Section 1.3(f), however, no payment shall be made by Old OED on account of the Trotter Win Percentage to any person who has not received all necessary suitability approvals from the Louisiana Gaming Authorities that may be required under the Louisiana Gaming Control Law. (g) A motion to dismiss the Lawsuit with prejudice, each party to bear its own costs, executed by counsel of record for PGP, the receipt of which is acknowledged by the Trotter Parties. 3 Section 1.4 ALLOCATION OF SALE PRICE. Of the Closing Consideration, an amount equal to the outstanding principal balance of the Note Share shall be paid for the Note Share out of cash received at the Closing. The balance of the Closing Consideration shall be allocated to the Membership Interest. ARTICLE 2 WARRANTIES AND REPRESENTATIONS BY THE TROTTER PARTIES The Trotter Parties jointly and severally warrant and represent as follows to PGP and New OED, as an inducement to the latter to execute and perform this Agreement: Section 2.1 ORGANIZATION, STANDING, CAPACITY AND POWER. Trotter is a natural person of the full age of majority. WETLLC is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Louisiana, and has all necessary capacity and power to execute, deliver and perform this Agreement. Attached as Exhibit E is a true, correct, and complete copy of the articles of organization, operating agreement, and membership register of WETLLC. No certificates evidencing the ownership of membership interests in WETLLC have ever been issued. Section 2.2 AUTHORITY. The execution, delivery, and performance of this Agreement by WETLLC have been duly and validly authorized by all necessary action on the part of its member(s) and manager(s) (if any) and is a legal, valid, and binding obligation of WETLLC enforceable in accordance with its terms. Section 2.3 NO CONFLICT. Neither the execution and delivery of this Agreement nor the consummation by the Trotter Parties of the transactions contemplated hereby will (a) conflict with or result in a breach of any provision of the articles of organization or operating agreement of WETLLC, or (b) constitute or result in a default under, violation of, or conflict with, any statute, rule, regulation, order, agreement (whether written or oral, express or implied), instrument, or fiduciary duty to which either of the Trotter Parties is a party or is subject, or by which any of the assets of either are bound, or create, or result in any lien on any property (including the Note Interest and the Membership Interest) of either Trotter Party, or (c) contravene, conflict with or result in a violation of any of the terms or requirements of, or give any governmental body or regulatory authority the right to withdraw, suspend, cancel, terminate, or modify any license, permit, or authorization held by either Trotter Party or by Old OED. Section 2.4 NO CONSENTS REQUIRED. Neither the execution and delivery of this Agreement nor the performance by the Trotter Parties of the transactions contemplated hereby requires the consent or authorization of any other person or governmental body or regulatory authority or court pursuant to any statute, regulation, rule, order, judgment, decree, agreement, instrument, license, permit, or authorization to which either Trotter Party or Old OED is a party or is subject. Section 2.5 OWNERSHIP OF ASSETS. Trotter owns 99% of the membership interest and Deidre Faye Trotter Trust for Everard Thomas Marks owns 1% of the membership interest in WETLLC, Trotter owns the Note Share, and WETLLC owns the Membership Interest in full 4 ownership, in each case free and clear of all liens and encumbrances; WETLLC has the absolute and unconditional right to transfer the Note Share and the Membership Interest to New OED in accordance with the terms of this Agreement; and, by virtue of the Closing, New OED has acquired full record and beneficial ownership of the Note Share and the Membership Interest free and clear of all liens and encumbrances and subject to no limitations as to voting or otherwise. Section 2.6 LEGAL PROCEEDINGS. Except for the Lawsuit, there is no suit, action, arbitration, audit, hearing, investigation, or other proceeding (collectively "LITIGATION") pending or, to the knowledge of Trotter, threatened against either of the Trotter Parties or Old OED that challenges or that, if decided adversely, could have the effect of preventing or interfering with the Closing and the consummation of this Agreement. Section 2.7 NO NEGOTIATIONS. Neither WETLLC nor Trotter is presently engaged in any negotiations with any person other than PGP and New OED for the sale, transfer, or encumbrance of any part or all of either (a) Trotter's membership interest in WETLLC or the Note Share or (b)WETLLC's ownership interest in the Membership Interest. Section 2.8 NO BROKERS OR FINDERS. No agent, broker, investment banker, investment or financial advisor, real estate agent, finder, or other intermediary or person acting on behalf of the Trotter Parties or under their authority is entitled to any commission or broker's or finder's fee from any party to this Agreement or from Old OED in connection with any of the transactions contemplated by this Agreement. ARTICLE 3 WARRANTIES AND REPRESENTATIONS BY PGP AND NEW OED PGP and New OED jointly and severally warrant and represent as follows to the Trotter Parties, as an inducement to the latter to execute and perform this Agreement: Section 3.1 ORGANIZATION, STANDING, CAPACITY AND POWER. PGP and New OED are limited liability companies duly organized, validly existing and in good standing under the laws of the State of Delaware, and have all necessary capacity and power to execute, deliver and perform this Agreement. Section 3.2 AUTHORITY. The execution, delivery, and performance of this Agreement by PGP and New OED have been duly and validly authorized by all necessary action on the part of their respective member(s) and manager(s) (if any) and is a legal, valid, and binding obligation of PGP and New OED enforceable in accordance with its terms. Section 3.3 NO CONFLICT. Neither the execution and delivery of this Agreement nor the consummation by PGP and New OED of the transactions contemplated hereby will (a) conflict with or result in a breach of any provision of the articles of organization or operating agreements of PGP or New OED, or (b) constitute or result in a default under, violation of, or conflict with, any statute, rule, regulation, order, agreement (whether written or oral, express or implied), instrument, or fiduciary duty to which either of them is a party or is subject, or by which any of the assets of either are bound, or create, or result in any lien on any property of either, or (c) 5 contravene, conflict with, or result in a violation of any of the terms or requirements of, or give any governmental body or regulatory authority the right to withdraw, suspend, cancel, terminate, or modify any license, permit, or authorization held by either. Section 3.4 NO CONSENTS REQUIRED. Neither the execution and delivery of this Agreement nor the performance by PGP and New OED of the transactions contemplated hereby requires the consent or authorization of any other person or governmental body or regulatory authority or court pursuant to any statute, regulation, rule, order, judgment, decree, agreement, instrument, license, permit, or authorization to which either is a party or is subject. Section 3.5 LEGAL PROCEEDINGS. Except for the Lawsuit, there is no Litigation pending or, to the knowledge of PGP or New OED, threatened against either that challenges or that, if decided adversely, could have the effect of preventing or interfering with the Closing and the consummation of this Agreement. Section 3.6 NO BROKERS OR FINDERS. No agent, broker, investment banker, investment or financial advisor, real estate agent, finder, or other intermediary or person acting without the acquiescence and knowledge of the Trotter Parties is entitled to any commission or broker's or finder's fee from any party to this Agreement or from Old OED in connection with any of the transactions contemplated by this Agreement. ARTICLE 4 POST-CLOSING COVENANTS AND AGREEMENTS Section 4.1 RESTRUCTURING OF NEW OED AND OLD OED. Simultaneously with, or as soon as practicable after the Closing, PGP and New OED will take all necessary action so that (a) PGP will own 100% of the membership interest in Peninsula Gaming Company LLC ("PGC"), (b) PGC will own 100% of the membership interest in New OED, (c) New OED will own 100% of the membership interest in Old OED, and (d) New OED will have contributed to the capital of Old OED 100% of the Notes Receivable, which will be cancelled. Section 4.2 REQUIRED ASSIGNMENT OF TROTTER WIN PERCENTAGE, TROTTER NOTE, AND OLD OED NOTE. In the event that either (a) the Louisiana Gaming Authorities decline to issue a license under the Louisiana Gaming Control Law for the Racino Project to Old OED because of their finding that the Trotter Parties are unsuitable, or (b) the Louisiana Gaming Authorities (i) issue a license for the Racino Project to Old OED based in part on a finding that the Trotter Parties are suitable, but (ii) at any time thereafter, either (A) the Trotter Parties (or their respective heirs, successors, or assigns, as the case may be) are found by the Louisiana Gaming Authorities not to be suitable, or (B) the Louisiana Gaming Authorities instruct, order, or otherwise notify Old OED that the holding of the Trotter Win Percentage, the Trotter Note, or the Old OED Note by the Trotter Parties (or their respective heirs, successors, or assigns, as the case may be) is prohibited or not allowed under the Louisiana Gaming Control Law, then in the case of either clause (a) or clause (b) of this Section 4.2, the holder of the Trotter Win Percentage, the Trotter Note, or the Old OED Note, as the case may be, shall assign the interest in question, after due notification to and approval by the Louisiana Gaming Authorities as provided in Section 4.3, to a person(s) who is found suitable by the Louisiana Gaming 6 Authorities, provided, however, that during the pendency of any appeal by such holder of an adverse decision by the Louisiana Gaming Authorities as to his, her, or its suitability, such holder shall not be required by this Section 4.2 to assign the interest in question if, but only if, the Louisiana Gaming Authorities expressly determine that the pendency of the appeal will not adversely affect or condition Old OED's right to continue to operate the Racino Project under its license. Section 4.3 PERMITTED ASSIGNMENT OF TROTTER WIN PERCENTAGE, TROTTER NOTE AND OLD OED NOTE. Notwithstanding any other provision of this Agreement, WETLLC shall have no right to pledge, mortgage, hypothecate, transfer, assign, donate, exchange, or otherwise dispose of the Trotter Win Percentage, the Trotter Note, or the Old OED Note except as specifically prescribed under the Louisiana Gaming Control Law and the related regulations promulgated thereunder in LAC 42:1705 and -2501 ET SEQ. after prior notification to and approval by the Louisiana Gaming Authorities. Section 4.4 POST-CLOSING COOPERATION AND BEST EFFORTS. From and after the Closing, PGP and New OED agree to use their commercially reasonable best efforts in good faith to complete the Racino Project, and the Trotter Parties agree not to take any action that would delay or interfere with the efforts of PGP and New OED to complete the Racino Project. ARTICLE 5 POST-CLOSING INDEMNIFICATION Section 5.1 SURVIVAL OF WARRANTIES, REPRESENTATIONS, COVENANTS, AND OTHER AGREEMENTS. The warranties and representations contained in Sections 2.6 and 2.7 and the post-closing covenants and other agreements contained in Sections 4.1 and 4.4 of this Agreement shall survive the Closing until the expiration of the first anniversary of the date of the Closing. The provisions of Articles 1, 3, 5, 6 and 7 and Sections 2.1, 2.2, 2.3, 2.4, 2.5, 2.8, 4.2 and 4.3 shall survive indefinitely. Section 5.2 INDEMNIFICATION BY THE TROTTER PARTIES. Subject to Sections 5.1 and 5.4, the Trotter Parties shall jointly and severally indemnify, defend, and hold harmless PGP and New OED, and any member, parent, subsidiary, or affiliate thereof and any member, manager, employee, or agent of them (each of the foregoing, a "BUYER INDEMNIFIED PARTY"), from and against any and all losses, claims, demands, damages, awards, liabilities, suits, penalties, forfeitures, costs, or expenses (including attorneys', consultants' and other professional fees and disbursements), including those incurred in enforcing the terms of this Agreement (collectively, "LOSSES") incurred by any Buyer Indemnified Party arising out of or resulting from: (a) any inaccuracy or any breach of any warranty or representation by the Trotter Parties contained in this Agreement or the exhibits to this Agreement or any certificate delivered to PGP or New OED hereunder, and (b) any breach of any covenant or agreement of the Trotter Parties contained in this Agreement or any exhibit to this Agreement. 7 Section 5.3 INDEMNIFICATION BY PGP AND NEW OED. Subject to Sections 5.1 and 5.4, PGP and New OED shall jointly and severally indemnify, defend, and hold harmless the Trotter Parties, and any member, parent, subsidiary, or affiliate thereof, and any member, manager, employee, or agent of them and any heir or legal representative of Trotter (each of the foregoing, a "SELLER INDEMNIFIED PARTY") from and against any and all Losses incurred by any Seller Indemnified Party arising out of our resulting from: (a) any inaccuracy or any breach of any warranty or representation by PGP or New OED contained in this Agreement or the exhibits to this Agreement or any certificate delivered to the Trotter Parties hereunder, and (b) any breach of any covenant or agreement of PGP or New OED contained in this Agreement or any exhibit to this Agreement. Section 5.4 EFFECT OF INVESTIGATION. The rights of a party to indemnification shall not be limited or affected by any investigation by such party after the Closing. Section 5.5 NOTICE AND DEFENSE OF CLAIMS. (a) A person seeking indemnification under this Article 5 (the "INDEMNIFIED PERSON") shall give prompt written notice to the indemnifying person or persons, or successors thereto (the "INDEMNIFYING PERSON"), of any matter with respect to which the Indemnified Person seeks to be indemnified (the "INDEMNITY CLAIM"). Such notice shall state the nature of the Indemnity Claim and, if known, the amount of the Loss. If the Indemnity Claim arises from a claim of a third party, the Indemnified Person shall give such notice within a reasonable time after the Indemnified Person has actual notice of such claim, and in the event that a suit or other proceeding is commenced, within 20 days after receipt by the Indemnified Person of written notice thereof. Notwithstanding anything in this paragraph to the contrary, the failure of an Indemnified Person to give timely notice of an Indemnity Claim shall not bar such Indemnity Claim except and to the extent that the failure to give timely notice has impaired materially the ability of the Indemnifying Person to defend the Indemnity Claim. (b) If the Indemnity Claim arises from the claim or demand of a third party, the Indemnifying Person shall assume its defense, including the hiring of counsel and the payment of all fees and expenses. The Indemnified Person shall have the right to employ separate counsel and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of the Indemnified Person unless both the Indemnified Person and the Indemnifying Person are named as parties and the Indemnified Person shall in good faith determine that representation by the same counsel is inappropriate. In the event that the Indemnifying Person, within ten days after notice of any such action or claim, fails to assume the defense thereof, the Indemnified Person shall have the right to undertake the defense, compromise or settlement of such action, claim or proceeding for the account of the Indemnifying Person, subject to the right of the Indemnifying Person to assume the defense of such action, claim or proceeding at any time prior to the settlement, compromise or final determination thereof. Anything in this Section 5.5 to the contrary notwithstanding, the Indemnifying Person shall not, without the Indemnified Person's prior consent, settle or compromise any action or claim or consent to the entry of any judgment with respect to any 8 action, claim or proceeding for anything other than money damages paid by the Indemnifying Person. The Indemnifying Person may, without the Indemnified Person's prior consent, settle or compromise any such action, claim or proceeding or consent to entry of any judgment with respect to any such action or claim that requires solely the payment of money damages by the Indemnifying Person and that includes as an unconditional term thereof the release by the claimant or the plaintiff of the Indemnified Person from all liability in respect of such action, claim or proceeding. (c) If the Indemnity Claim does not arise from the claim or demand of a third party, the Indemnifying Person shall have 30 days after receipt of written notice of such Indemnity Claim to object to such claim by giving written notice to the Indemnified Person specifying the reasons for such objection or objections. If the Indemnifying Person has not so objected to the Indemnity Claim as of the close of business on such 30th day, the total amount of the Indemnity Claim shall thereupon become chargeable to and payable by the Indemnifying Person in accordance with the terms and conditions of this section. If the Indemnifying Person objects to the Indemnity Claim, the parties shall attempt to resolve the challenge through negotiation in good faith. If the parties are unable to settle any such dispute within ten days after notice of the Indemnifying Person's objection is received by the Indemnified Person, either party may institute suit on the claim in a court of law. ARTICLE 6 MISCELLANEOUS Section 6.1 NOTICES. All notices or other communications required or permitted to be given under this Agreement shall be in writing in the English language and shall be deemed to have been given on the date delivered by messenger, overnight courier, or facsimile transmission to the parties at the following addresses, or at such other addresses as may hereafter be provided to the other parties by means of such notice: (a) if to either or both of PGP or New OED, then to: Peninsula Gaming Partners, LLC 11100 Santa Monica Boulevard, 10th floor Los Angeles, CA 90025 Attention: M. Brent Stevens Facsimile: 310-914-6476 with copies to: Peninsula Gaming Partners, LLC 7137 Mission Hills Drive Las Vegas, NV 81113 Attention: Michael S. Luzich Facsimile: 702-247-6822 9 and Ronald S. Brody Mayer Brown Rowe & Maw 1675 Broadway New York, NY 10019-5820 Facsimile: 212-849-5600 and (b) if to either or both of the Trotter Parties, then to: William E. Trotter II 600 Jefferson Street, Suite 1030 Lafayette, LA 70501 Facsimile: 337-266-2167 with a copy to: Rodolfo J. Aguilar Jr. McGlinchey Stafford, PLLC One American Place, 9th floor Baton Rouge, LA 70825 Facsimile: 225-343-3076 Section 6.2 ENTIRE AGREEMENT. Except as otherwise expressly provided herein, this Agreement (including the exhibits, documents, and instruments referred to herein delivered at the Closing or otherwise) constitutes the entire agreement between and among the parties with respect to the transactions contemplated hereby and supersedes all prior negotiations, agreements, understandings, or arrangements, oral or written (including the 6/25/02 Agreement, which is hereby merged into and abrogated by this Agreement). Section 6.3 GOVERNING LAW. This Agreement shall be governed by and interpreted under the law of Louisiana as in the case of a contract executed and to be performed entirely in Louisiana. Section 6.4 ENFORCEMENT OF AGREEMENT. The parties agree that irreparable damage would occur in the event this Agreement is not performed in accordance with its terms. The parties accordingly agree that any party shall be entitled to injunctive relief without the necessity of posting any bond, which is hereby waived, and to enforce specifically the provisions hereof in any court of the United States or of any state having jurisdiction thereof. 10 Section 6.5 JURY TRIAL. ALL PARTIES HEREBY WAIVE TRIAL BY JURY OF ANY ACTION BROUGHT UNDER OR TO ENFORCE THIS AGREEMENT. Section 6.6 WAIVER OF CONFLICT. The parties recognize and acknowledge that the law firm of McGlinchey Stafford, PLLC, has acted as legal counsel for (a) the Trotter Parties in negotiating the terms of this Agreement, (b) PGP and New OED in filing applications with the Louisiana Gaming Authorities for approval of the Racino Project pursuant to the Louisiana Gaming Control Law, and (c) all parties to this Agreement in documenting the acquisition by Old OED of certain real estate. All parties have waived any objections and consented to such multiple representation and, accordingly, each party waives any right to assert the invalidity of this Agreement by reason of such multiple representation. Section 6.7 EXPENSES. Except as otherwise specifically provided herein, each party agrees to bear its own expenses in connection with the negotiation and performance of this Agreement. Section 6.8 ASSIGNMENT AND SUCCESSORS AND ASSIGNS. Neither this Agreement nor any rights, interests, or obligations hereunder may be assigned by any party without the prior written consent of the other parties, except (a) by operation of law, (b) the Trotter Note, the Old OED Note, and the Trotter Win Percentage are assignable to the extent expressly provided in this Agreement, (c) PGP or New OED or both may (i) assign their rights hereunder to any entity that is under common control with the assignor(s), provided the assignor remains liable for its obligations under the Agreement, or (ii) assign, pledge, hypothecate, or grant security interests in their rights under this Agreement (including the right upon foreclosure to succeed to all of the right, title and interest of PGP and New OED hereunder) as collateral to any lender that provides financing for the Racino Project, and (d) if and as required by the Louisiana Gaming Authorities in order to satisfy requirements of the Louisiana Gaming Control Law. Subject to the preceding sentence, this Agreement shall be binding upon and inure to the benefit of, and be enforceable by the parties and their respective heirs, executors, administrators, successors, and assigns. Section 6.9 CONFIDENTIALITY. (a) The existence of this Agreement and its contents, and the transactions contemplated hereby, are intended to be confidential indefinitely and shall not be disclosed by any party without the written consent of the other parties, except as follows: (i) a party may disclose the existence and contents of this Agreement to its agents, consultants, lenders, or advisers to the extent necessary to consummate the transactions contemplated hereby, provided that any such disclosee shall agree to treat such information confidentially, and (ii) a party may disclose the existence and contents of this Agreement (A) to the extent deemed necessary by such party to enforce any provision or obligation of this Agreement, to defend any action brought by one party against another party or as required, necessary or permitted by judicial process or by any governmental agency or authority, or (B) to the Louisiana Gaming Authorities in order to obtain regulatory approval and all necessary and 11 unconditional licenses for the Racino Project from the Louisiana Gaming Authorities, provided that any disclosure to the Louisiana Gaming Authorities shall be made subject to a request for confidential treatment by such authorities, or (C) as required or advisable in order to comply with the disclosure requirements of the federal securities laws, in connection with the placement of the Bond Issue or PGP's periodic reporting obligations under the Securities Exchange Act of 1934. (b) The Trotter Parties shall keep confidential all information relating to Old OED and its business (other than information available to the public on the date of this Agreement) indefinitely. (c) No public announcement or press release concerning the transactions contemplated hereby shall be made except by PGP or New OED. Section 6.10 NO THIRD-PARTY BENEFICIARIES. This Agreement is for the sole benefit of the parties hereto, their subsidiaries and affiliates, and their permitted assigns. Nothing expressed or implied herein shall give, or be construed to give, any other person any legal or equitable rights. Section 6.11 AMENDMENTS. This Agreement may not be amended except by a writing signed by all parties, which may be in counterparts no one of which need be signed by all parties. Section 6.12 WAIVERS. No waiver by a party of any right under this Agreement shall be valid unless in writing signed by the waiving party. Subject to the preceding sentence, any party may waive any right conferred on it under this Agreement or the performance of any obligation by another party that is a condition to the waiving party's own performance of an obligation. No waiver by a party of any right under this Agreement shall operate as a waiver of any other right under this Agreement. Section 6.13 COUNTERPARTS. This Agreement may be executed in multiple counterparts, no one of which need be signed by all parties. ARTICLE 7 DEFINITIONS "6/25/02 AGREEMENT" has the meaning set forth in the seventh Whereas clause. "12/11/01 AGREEMENT" has the meaning set forth in the second Whereas clause. "AGREEMENT" means this Agreement of Sale, dated as of August 30, 2002. "BOND ISSUE" means the sale by Old OED of its high-yield Senior Secured Notes to provide financing for the Racino Project. "BUYER INDEMNIFIED PARTY" has the meaning set forth in Section 5.2. "CLOSING" has the meaning set forth in Section 1.1. 12 "CLOSING CONSIDERATION" has the meaning set forth in Section 1.3. "EXHIBIT A" has the meaning set forth in the seventh Whereas clause. "EXHIBIT B" has the meaning set forth in Section 1.2(a). "EXHIBIT C" has the meaning set forth in Section 1.3(d). "EXHIBIT D" has the meaning set forth in Section 1.3(e). "EXHIBIT E" has the meaning set forth in Section 2.1. "GOING FORWARD DOCUMENTS" has the meaning set forth in the second Whereas clause. "INDEMNIFIED PERSON" has the meaning set forth in Section 5.5(a). "INDEMNIFYING PERSON" has the meaning set forth in Section 5.5(a). "INDEMNITY CLAIM" has the meaning set forth in Section 5.5(a). "LAC" means Louisiana Administrative Code. "LAWSUIT" has the meaning set forth in the sixth Whereas clause. "LITIGATION" has the meaning set forth in Section 2.6. "LOSSES" has the meaning set forth in Section 5.2. "LOUISIANA GAMING AUTHORITIES" means any agency, authority, board, bureau, commission, department, office, or instrumentality of the State of Louisiana, whether now or hereafter existing, or any officer or official thereof, including, without limitation the Louisiana State Racing Commission and the Louisiana Gaming Control Board, with authority to regulate any gaming operation or activity (or proposed gaming operation or activity) owned, managed or operated by PGP, New OED, or Old OED. "LOUISIANA GAMING CONTROL LAW" means Title 27 of the Louisiana Revised Statutes. "MEMBERSHIP INTEREST" has the meaning set forth in Section 1.1. "NET WIN" has the meaning set forth in Section 1.3(f). "NEW OED" means OED Acquisition, LLC, a Delaware limited liability company. "NOTE SHARE" has the meaning set forth in Section 1.1. "NOTES RECEIVABLE" means each of the following described promissory notes: 13 (a) note in the original principal amount of $12,293,722.60 dated August 31, 1988, executed by Racetrack at Evangeline Downs, Inc., payable to the order of Louisiana Savings Association, Inc., and (b) note in the original principal amount of $1,313,485.30 dated August 31, 1988, executed by Racetrack at Evangeline Downs, Inc. payable to the order of Louisiana Savings Association, Inc. "OLD OED" means The Old Evangeline Downs, L.C., a Louisiana limited liability company. "OLD OED NOTE" has the meaning set forth in Section 1.3(e). "PENINSULA GAMING COMPANY, LLC" has the meaning set forth in Section 4.1. "PGP" means Peninsula Gaming Partners, LLC, a Delaware limited liability company. "RACINO PROJECT" has the meaning set forth in the third Whereas clause. "RELEASE" has the meaning set forth in Section 1.2(a). "SELLER INDEMNIFIED PARTY" has the meaning set forth in Section 5.3. "TROTTER" means William E. Trotter II, individually. "TROTTER ACCOUNT" has the meaning set forth in Section 1.3(a). "TROTTER EXPENSES" has the meaning set forth in Section 1.3(b). "TROTTER NOTE" has the meaning set forth in Section 1.3(d). "TROTTER PARTIES" means WETLLC and Trotter, collectively. "TROTTER WIN PERCENTAGE" has the meaning set forth in Section 1.3(f). "WETLLC" means William E. Trotter, II Family L.L.C., a Louisiana limited liability company. "WETLLC ACCOUNT" has the meaning set forth in Section 1.3(b). In witness whereof, the parties have set their hands as of the day, month, and year first above written. PENINSULA GAMING PARTNERS LLC By: /s/ Michael S. Luzich ------------------------------------------- Michael S. Luzich 14 OED ACQUISITION, LLC By: /s/ Michael S. Luzich ------------------------------------------- Michael S. Luzich WILLIAM E. TROTTER, II FAMILY, L.L.C. By: /s/ William E. Trotter ------------------------------------------- William E. Trotter II /s/ William E. Trotter ------------------------------------------- William E. Trotter, Individually 15 -----END PRIVACY-ENHANCED MESSAGE-----