** **

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

** **

**FORM 10-K**

** **
| **ý**                                                                                                                                                                                                                    | ** ** | **ANNUAL  REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES  EXCHANGE ACT OF 1934**     |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------|
| ** **                                                                                                                                                                                                                    | ** ** | ** **                                                                                               |
| **For the fiscal year ended  December 31, 2005**                                                                                                                                                                         |
| ** **                                                                                                                                                                                                                    |
| **OR**                                                                                                                                                                                                                        |
| ** **                                                                                                                                                                                                                    |
| **o**                                                                                                                                                                                                                         | ** ** | **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**

** **
| **Diamond  Jo, LLC**                                              | ** ** | **Peninsula  Gaming, LLC**                                        | ** ** | **Peninsula  Gaming Corp.**                                       |
|-------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|-------------------------------------------------------------------|
| (Exact name  of registrants as  specified in their charter)       |       | (Exact name  of registrants as  specified in their charter)       |       | (Exact name  of registrants as  specified in their charter)       |
|                                                              |       |                                                              |       |                                                              |
| **Delaware**                                                      |       | **Delaware**                                                      |       | **Delaware**                                                      |
| (State or  other jurisdiction  of incorporation or  organization) |       | (State or  other jurisdiction  of incorporation or  organization) |       | (State or  other jurisdiction  of incorporation or  organization) |
|                                                              |       |                                                              |       |                                                              |
| **42-1483875**                                                    | ** ** | **20-0800583**                                                    | ** ** | **25-1902805**                                                    |
| (I.R.S.  Employer  Identification No.)                            |       | (I.R.S.  Employer  Identification No.)                            |       | (I.R.S.  Employer  Identification No.)                            |

** **
| **3rd Street Ice Harbor, PO Box 1750**                                                      |
|---------------------------------------------------------------------------------------------|
| **Dubuque, Iowa 52001**                                                                     |
| **(563) 690-2100**                                                                          |
| (Registrant’s  telephone number including area code)                                   |
| ** **                                                                                  |
| **Securities  registered pursuant to Section 12 (g) of the Act:  **None |

 

Indicate by checkmark if the registrant is a well-known seasoned issuer, as defined in Rule 405of the Securities Act. Yes o  No ý

 

Indicate by checkmark if the registrant is not required to file reports pursuant to Section 13or Section 15(d) of the Act. Yes o  No ý

 

Indicate by checkmark whether the registrant (1) has filed all reports required to be filedby Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding twelve months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes ý  No o

 

Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-Kis not contained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes ý  No o

 

Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2of the Act). Yes o  No ý

 

Indicate by check mark if the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No ý

 

All of the common equity interests ofPeninsula Gaming, LLC (the “Company”) are held by Peninsula Gaming Partners,LLC. All of the common equity interests of Diamond Jo, LLC, The Old EvangelineDowns, L.L.C., Diamond Jo Worth Holdings, LLC and Peninsula Gaming Corp. areheld by the Company. All of the common equity interests of Diamond Jo Worth, LLCand Diamond Jo Worth Corp. are held by Diamond Jo Worth Holdings, LLC.

 

 

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**TABLE OFCONTENTS**

 
|          |                                                                                                                    | **Page** |
|---------------|-------------------------------------------------------------------------------------------------------------------------|----------|
|          |                                                                                                                    |     |
| PART I   |                                                                                                                    | 1        |
|          |                                                                                                                    |     |
| ITEM 1.       | BUSINESS                                                                                                                | 1        |
|          |                                                                                                                    |     |
| ITEM 1A.      | RISK  FACTORS                                                                                                           | 10       |
|          |                                                                                                                    |     |
| ITEM 1B       | UNRESOLVED  STAFF COMMENTS                                                                                              | 16       |
|          |                                                                                                                    |     |
| ITEM 2.       | PROPERTIES                                                                                                              | 16       |
|          |                                                                                                                    |     |
| ITEM 3.       | LEGAL  PROCEEDINGS                                                                                                      | 17       |
|          |                                                                                                                    |     |
| ITEM 4.       | SUBMISSION  OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                                    | 18       |
|          |                                                                                                                    |     |
| PART II  |                                                                                                                    | 18       |
|          |                                                                                                                    |     |
| ITEM 5.       | MARKET  FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER  PURCHASES OF EQUITY SECURITIES | 18       |
|          |                                                                                                                    |     |
| ITEM 6.       | SELECTED  FINANCIAL DATA                                                                                                | 18       |
|          |                                                                                                                    |     |
| ITEM 7.       | MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                             | 19       |
|          |                                                                                                                    |     |
| ITEM 7A.      | QUANTITATIVE AND QUALITATIVE  DISCLOSURES ABOUT MARKET RISK                                                             | 30       |
|          |                                                                                                                    |     |
| ITEM 8.       | FINANCIAL STATEMENTS AND SUPPLEMENTARY  DATA                                                                            | 31       |
|          |                                                                                                                    |     |
| ITEM 9.       | CHANGES IN AND DISAGREEMENTS WITH  ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                                   | 31       |
|          |                                                                                                                    |     |
| ITEM 9A.      | CONTROLS AND PROCEDURES                                                                                                 | 31       |
|          |                                                                                                                    |     |
| ITEM 9B.      | OTHER INFORMATION                                                                                                       | 31       |
|          |                                                                                                                    |     |
| PART III |                                                                                                                    | 31       |
|          |                                                                                                                    |     |
| ITEM 10.      | DIRECTORS AND EXECUTIVE OFFICERS OF  REGISTRANT                                                                         | 31       |
|          |                                                                                                                    |     |
| ITEM 11.      | EXECUTIVE COMPENSATION                                                                                                  | 33       |
|          |                                                                                                                    |     |
| ITEM 12.      | SECURITY OWNERSHIP OF CERTAIN  BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS                         | 36       |
|          |                                                                                                                    |     |
| ITEM 13.      | CERTAIN RELATIONSHIPS AND RELATED  TRANSACTIONS                                                                         | 37       |
|          |                                                                                                                    |     |
| ITEM 14.      | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                                                  | 40       |
|          |                                                                                                                    |     |
| PART IV  |                                                                                                                    | 41       |
|          |                                                                                                                    |     |
| ITEM 15.      | EXHIBITS AND FINANCIAL STATEMENT  SCHEDULES                                                                             | 41       |
|          |                                                                                                                    |     |
|          | SIGNATURES                                                                                                              | 45       |

 

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**PART I**

 

**ITEM 1.****                                                   BUSINESS**

 

**General**

 

PeninsulaGaming, LLC, a Delaware limited liability company (“PGL” or the “Company”), isa holding company with no independent operations whose sole assets are itsequity interests in its wholly owned subsidiaries. PGL’s subsidiaries consistof: (i) Diamond Jo, LLC, a Delaware limited liability company (“DJL”), thatowns and operates the Diamond Jo riverboat casino in Dubuque, Iowa; (ii) TheOld Evangeline Downs, L.L.C., a Louisiana limited liability company (“OED”), thatowns and operates the Evangeline Downs Racetrack and Casino, “racino”, in St.Landry Parish, Louisiana, and five off-track betting (“OTB”) parlors inLouisiana; (iii) Diamond Jo Worth Holdings, LLC, a Delaware limited liabilitycompany (“DJWH”); and (iv) Peninsula Gaming Corp., a Delaware limited liabilitycompany (“PGC”) with no assets or operations. The Company is a wholly ownedsubsidiary of Peninsula Gaming Partners, LLC, a Delaware limited liabilitycompany (“PGP”).

 

DJWH is aholding company with no independent operations whose sole assets are its equityinterests in its wholly owned subsidiaries. DJWH’s subsidiaries consist of:(i) Diamond Jo Worth, LLC, a Delaware limited liability company (“DJW”), whichowns a gaming license in the State of Iowa and is currently constructing a newcasino in Worth County, Iowa which is scheduled to open to the public in April2006; and (ii) Diamond Jo Worth Corp., a Delaware limited liabilitycompany (“DJWC”) with no assets or operations.

 

Asused herein, the terms “we”, “us”, “our”, or the “Company” refers to,collectively, PGL, DJL and OED and their respective subsidiaries unless thecontext indicates otherwise.

 

We currently operate three reportable segments: (1) DJLoperations, consisting of the Diamond Jo riverboat casino in Dubuque, Iowa, (2) OEDoperations, consisting of the casino, racetrack and OTBs operated by OED inLouisiana and (3) DJW operations, consisting of start-up gaming operations inNorthwood, Iowa. See Note 13 to the consolidated financial statements forfinancial information about our segments.

 

Our address is3rd Street Ice Harbor, PO Box 1750, Dubuque, Iowa, 52004-1750 and our telephonenumber is (563) 690-2100. Our annual reports on Form 10-K, quarterlyreports on Form 10-Q and current reports on Form 8-K, and amendmentsto these reports, filed by us with the Securities and Exchange Commission (“SEC”),are available on the SEC’s website at http://www.sec.gov.

 

**Business**

** **

*DiamondJo.*The Diamond Jo operates from the Port of Dubuque, a waterfrontdevelopment on the Mississippi River in downtown Dubuque, Iowa and isaccessible from each of the major highways in the area. The Diamond Jo is athree-story, approximately 48,000 square foot riverboat casino, replicating aclassic 19th century paddlewheelriverboat. The Diamond Jo has an approved capacity for 1,394 patrons, featuresa spacious two-story atrium and a 44-seat capacity deli and offers 777 slotmachines and 19 table games on approximately 19,000 square feet of gaming space.Adjacent to the Diamond Jo is a two-story, approximately 36,000 square footdockside pavilion, featuring our 142-seat capacity Lighthouse Grill restaurant,our 140-seat capacity High Steaks restaurant, our 25-seat capacity Club Wildplayers lounge and our 205-seat capacity Harbor View Room, a full servicebanquet facility. Approximately 1,200 convenient parking spaces are availableto our patrons and we offer valet parking. The Diamond Jo is open seven days aweek and functions primarily as a dockside riverboat with continuous boardingand no cruising requirements.

 

*EvangelineDowns.*The Evangeline Downs Racetrack and Casino located inOpelousas, Louisiana. This facility has a Southern Louisiana Cajun roadhousetheme on the exterior, with a complementary regional Acadian atmosphere on theinterior. The racino currently includes a casino with 1,627 slot machines,parking spaces for approximately 2,229 cars, 60 semis and 5 buses, and severaldining options. Our dining options include a 312-seat Cajun Buffet, a 104-seat finedining Blackberry’s restaurant, a 92-seat Lagniappe food court, a 95-seat Café24/7 café and a 202-seat Mojos sports bar with an additional 98-seat screenedpatio, in addition to a raised bar and lounge area with 120 seats, known asZydeco’s, occupying the center of our casino floor. We recently completedconstruction of a one-mile dirt track, stables for 980 horses, a grandstand andclubhouse with seating for 1,295 patrons, and apron and patio space for anadditional 3,000 patrons. OED is open twenty-four hours per day, seven days perweek.

 

*OTBs.* We currently operate five OTBs; one in Port Allen, Louisiana; one in New Iberia;Louisiana, one in

 

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Henderson, Louisiana; one inAlexandria, Louisiana; and one in Eunice, Louisiana which opened on February17, 2006.  Each of these OTBs offers simulcast pari-mutuel wagering sevendays a week and is equipped to serve alcoholic and non-alcoholic beverages and food.The Port Allen OTB is located immediately off Interstate 10, across theMississippi river from Baton Rouge. The two-story Port Allen facility offersoff-track betting, 83 video poker machines, a newly renovated bar, a cafe and aVIP lounge. The New Iberia OTB, located on U.S. Highway 182, approximately 20miles outside Lafayette, Louisiana, offers off-track betting and a limited foodoffering. The Henderson OTB, which opened on May 14, 2005, seats 60 OTBpatrons and features a restaurant and a full service bar. State approval for a40 machine video poker operation at the Henderson facility is pending. The Alexandria facility, which opened on October 1, 2005, seats 120 OTBpatrons in the main room, with over 30 monitors including plasma screens fornationwide OTB capabilities, as well as a restaurant and a full servicebar.  The Alexandria facility also offers a private Platinum Club room,allowing our high end players comfortable surroundings and drink and foodspecials to enhance their OTB experience.  The Eunice facility offers, arestaurant, full service bar and private parking for the patrons and iscurrently awaiting regulatory approval to install and over 60 video pokermachines.  Under Louisiana’s racing and off-track betting laws, we have aright of prior approval with respect to any applicant seeking a permit tooperate an OTB within a 55-mile radius of our Evangeline Downs racetrack whicheffectively gives us the exclusive right, at our option, to operate OTBs withina 55-mile radius of our horse racetrack, provided that such OTB is not also withina 55-mile radius of another horse racetrack.

 

*DiamondJo Worth*. On May 11, 2005, the Iowa Racing and GamingCommission granted us a gaming license to operate an excursion gambling boat inNorthwood, Iowa. Northwood is located in north-central Iowa, near the Minnesotaborder and approximately 30 miles north of Mason City. Our approximately35-acre casino site is located approximately equidistant from Minneapolis,Minnesota and Des Moines, Iowa. We are currently in the process of developingthe casino, which is situated across from the “Top of Iowa” welcome center atthe intersection of Interstate 35 and Highway 105. The exterior design ofDiamond Jo Worth is being constructed to incorporate a regional gristmill andriverboat theme, with a complementary riverside docking facility atmosphere onthe interior. The Diamond Jo Worth casino will have approximately 511 slotmachines, 15 table games and 5 poker tables, parking spaces for approximately600 vehicles, several dining options, including a 150 seat coffee shop and twofast food dining outlets, and a 100-room hotel development adjacent to thecasino. The Diamond Jo Worth is scheduled to open to the public in April 2006and will be open seven days a week.

 

**Competition**

** **

All of our gamingproperties face competition from other gaming operations. The decision to visitone of our properties over that of a competitor is influenced by a number offactors including, but not limited to, customer service, slot machine payouts,slot loyalty programs and convenience. In addition, our competitors may offeramenities that our properties may not have. Our competitors may also have lessdebt than we do, which may allow them to be able to react more quickly than wecan to changes in their gaming market and the gaming industry.

 

*DiamondJo.*The Diamond Jo’s principal competition is the only otherlicensed gaming facility in Dubuque, the Dubuque Greyhound Park (the “DGP”).The DGP is located approximately three miles north of the Port of Dubuque andoffers slot machines, live and simulcast greyhound racing and, on a limitedbasis, simulcast horse racing. In May 2005, DGP expanded its facility toinclude 1,000 slot machines. In March 2006, DGP added 16 table games and 4poker tables and in February replaced 82 slot machines with video poker. Inaddition, a group of private investors opened a hotel adjacent to the DGP inOctober 2005. The DGP is owned and operated by the Dubuque Racing Association,or DRA. As a not-for-profit organization, the DRA distributes a percentage ofits cash flow to the City of Dubuque and local charities.

 

Riverboat gaming licensesin the State of Iowa are granted to not-for-profit “qualified sponsoringorganizations” and can be issued jointly to a not-for-profit qualifiedsponsoring organization and a boat operator. The granting of new licensesrequires regulatoryapproval, which includes, among other things, satisfactory feasibility studies.The DRA is the not-for-profit qualified sponsoring organization that, pursuantto a contract between the parties, holds the excursion riverboat gaming licensetogether with us as the boat operator.

 

The Iowa Racing andGaming Commission recently rescindedits rule limiting riverboat gaming licenses in Iowa and in May 2005granted 4 new gaming licenses (including ours in Worth County). The closest ofthese licensees to the Diamond Jo is one located in Waterloo, Iowa. As thislocation is over 100 miles away from the Diamond Jo, we believe that theopening of this facility, which is scheduled for 2007, will not have a significantimpact on our Dubuque operations. A rule still exists that prohibitsexisting licensees from increasing the number of gaming positions at theirgaming facilities without prior Iowa Racing and Gaming Commission approval.

 

The Dubuque gaming marketborders otherneighboring gaming markets, including:

 

(1)                                  Elgin and Aurora,Illinois to the east;

 

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(2)                                  Marquette, Iowa andNative American gaming in Wisconsin and Minnesota to the north;

 

(3)                                  Des Moines, Iowa andNative American gaming in Tama, Iowa to the west; and

 

(4)                                  Clinton, Iowa and theQuad Cities (Bettendorf and Davenport, Iowa and Moline and Rock Island,Illinois) to the south.

 

We believe that the Diamond Jo competes only indirectlywith gaming facilities in these neighboring markets. Illinois enactedlegislation providing for dockside gaming in 1999. Illinois limits the numberof dockside gaming licenses to ten. Nine of the ten licenses have already beenissued. The tenth license is currently pending.

 

*EvangelineDowns.*The nearest competitor to Evangeline Downs is a NativeAmerican casino located approximately 50 miles to the north of the racino,including several miles off the highway in Marksville, Louisiana. Beyond that,patrons in Lafayette need to drive approximately 50 miles to reach riverboatcasinos in Baton Rouge and approximately 70 miles to reach riverboat casinos inLake Charles and a Native American casino in Kinder. Because our competition inMarksville is situated more than 20 miles off the highway, we believe thatpatrons of the Marksville casino may find the ease of highway access to ourracino more convenient.

 

Louisiana law currentlyplaces limitations on the number and types of gaming facilities that mayoperate in the state. Currently, there are only four horse racetracks inLouisiana with licenses to conduct live racing. Under the Pari-Mutuel Act, eachof the four horse racetracks (including our racino) is permitted to installslot machines at its facilities. The horse racetrack nearest to the racino sitethat is allowed to have gaming operations is located in Vinton, Louisiana, nearLake Charles, which is over 100 miles away from the racino. In addition,current Louisiana law permits only 15 riverboat gaming licenses, all of whichhave currently been awarded. Also, under current Louisiana law, the onlynon-Native American land-based casino permitted to operate in the state is theland-based casino currently operating in New Orleans, over 100 miles fromLafayette. Native American gaming facilities operate pursuant to compacts withthe State of Louisiana. There currently are only four federally-recognizedNative American tribes in Louisiana and only three Native American casinoscurrently operating in Louisiana, the closest being in Marksville, which is approximately50 miles from the racino site. The fourth tribe, which to our knowledgecurrently does not have a compact with the State of Louisiana, has proposed todevelop a casino in DeSoto Parish, over 150 miles from the racino.

 

In August 2005 hurricaneKatrina hit southern Louisiana causing much of the New Orleans and surroundingarea’s population to move north toward Lafayette. In September 2005, hurricaneRita hit southwest Louisiana and caused the closure of many of Evangeline Downs’competitors. This surge in local population, coupled with the temporaryreduction in competition, helped improve operations at Evangeline Downs duringthe fourth quarter of 2005 and gave Evangeline Downs the opportunity togenerate new customers and grow its player database of new customers to whom wecan market.

 

*DiamondJo Worth.*We expect our primary competition at the newDiamond Jo Worth casino, which is scheduled to open in April 2006, to be fromthe Native American gaming operations in Minnesota, the closest beingapproximately 125 miles from the Diamond Jo Worth casino.. In addition, acompetitor is planning to commence operations of a new casino in Emmetsburg,Iowa, approximately 90 miles from the casino. The closest casino facility islocated approximately 80 miles from our casino site.

 

**Employees**

** **

Wemaintain a staff of approximately 325 to 375 full-time equivalent employees atthe Diamond Jo and staff of approximately 600 to 675 full-time equivalentemployees at Evangeline Downs, depending upon the time of the year. Inaddition, we are anticipating maintaining a staff of approximately 275 to 325full-time equivalent employees at DJW. None of our employees are covered by acollective bargaining agreement. We have not experienced any labor problemsresulting in a work stoppage, and believe we maintain good relations with****our****employees.

 

**Regulatory Matters**

** **

We and our subsidiaries are subject to regulationby the State of Iowa, the State of Louisiana, and, to a lesser extent, byfederal law. We and our subsidiaries are subject to regulations that applyspecifically to live racing facilities and the gaming and pari-mutuel industry,in addition to regulations applicable to businesses generally. Our racino issubject to the Pari-Mutuel Act and the Louisiana Horse Racing Act. Laws andregulations applicable to our current racetrack and our racino are administeredby the Louisiana State Gaming Control Board and the Louisiana State RacingCommission. Legislative or

 

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administrative changes inapplicable legal requirements, including legislation to prohibit casino gaming,have been proposed in the past. It is possible that the applicable requirementsto operate an Iowa or Louisiana gaming facility will become more stringent andburdensome, and that taxes, fees and expenses may increase. It is also possiblethat the number of authorized gaming licenses in Iowa or Louisiana mayincrease, which would intensify the competition that we face. Our failure tocomply with detailed regulatory requirements may be grounds for the suspensionor revocation of one or more of our respective licenses which would have amaterial adverse effect on our respective businesses.

 

**Iowa** Riverboat Gaming Regulation

** **

Our Diamond Jo andDiamond Jo Worth operations are subject to Chapter 99F of the Iowa Code and the regulationspromulgated under that Chapter and the licensing and regulatory control of the IowaRacing and Gaming Commission. Our license is subject to annual renewal.

 

Under Iowa law, the legalage for gaming is 21, and wagering on a “gambling game” is legal when conductedby a licensee on an “excursion gambling boat.” An “excursion gambling boat” isan excursion boat or moored barge and a “gambling game” is any game of chanceauthorized by the Iowa Racing and Gaming Commission. Permanent dockside casinogaming was recently authorized by the Iowa Legislature.

 

The legislationpermitting riverboat gaming in Iowa authorizes the granting of licenses to “qualifiedsponsoring organizations.” A “qualified sponsoring organization” is defined asa nonprofit corporation organized under Iowa law, whether or not exempt fromfederal taxation, or a person or association that can show to the satisfactionof the Iowa Racing and Gaming Commission that the person or association iseligible for exemption from federal income taxation under Sections 501(c)(3),(4), (5), (6), (7), (8), (10) or (19) of the Internal Revenue Code.Such nonprofit corporation may operate the riverboat itself, or it may enterinto an agreement with another boat operator to operate the riverboat on itsbehalf. A boat operator must be approved and licensed by the Iowa Racing andGaming Commission. DRA, a not-for-profit corporation organized for the purposeof operating a pari-mutuelgreyhound racing facility in Dubuque, Iowa, first received a riverboat gaminglicense in 1990 and has served as the “qualified sponsoring organization” ofthe Diamond Jo since March 18, 1993. DRA subsequently entered into the DRAOperating Agreement with Greater Dubuque Riverboat Entertainment Company, theprevious owner and operator of the Diamond Jo, authorizing Greater DubuqueRiverboat Entertainment Company to operate riverboat gaming operations inDubuque. The DRA Operating Agreement was approved by the Iowa Racing and GamingCommission on March 18, 1993. The term of the DRA Operating Agreementexpires on December 31, 2018. We assumed the rights and obligations ofGreater Dubuque Riverboat Entertainment Company under the DRA OperatingAgreement.

 

During 2005, DJL entered into an amendment toits operating agreement under the joint gambling license (the “Amended DRA OperatingAgreement”) with the DRA. The Amended DRA Operating Agreement provides for,among other things, the following:

 

•                  The DRA isauthorized to install up to 1,000 slot machines and add up to 20 table games atDGP.

 

•                  Extension of theoperating agreement through December 31, 2018.

 

•                  From the datethat DGP commences operation of table games and continuing until December 31,2008, DRA shall pay to DJL $0.33 for each $1.00 of reduction in DJL’s adjustedgross gaming receipts, subject to a maximum 15% decline and certain paymentdeferral conditions.

 

•                  DJL willcontinue to pay to DRA the sum of $.50 for each patron admitted on the boatthrough 2008. During 2005, 2004 and 2003, these payments approximated $0.5million. Commencing January 1, 2009, DJL shall pay to DRA 3% of DJL’s adjustedgross receipts. If however, DJL elects to move its operations to a bargefacility, upon commencement of operations as a barge facility, DJL will berequired to pay to DRA 4.5% of DJL’s adjusted gross receipts.

 

In a separate agreementwith the City of Dubuque, we extended our leases for real property, includingvarious parking lots around the casino, through December 2018.

 

The Worth CountyDevelopment Authority (“WCDA”), a not-for-profit corporation organized on July14, 2003 for the purpose of serving as a qualified sponsoring organization fora gaming license to be held in Worth County, Iowa. DJW and WCDA entered into anamended and restated operator’s agreement (“WCDA Operating Agreement”) which,among other things, entitles DJW to own and operate an excursion gambling boatin Worth County, Iowa. WCDA as the “qualified

 

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sponsoring organization” forDJW receives 5.76% of DJW’s adjusted gross receipts. The WCDA OperatingAgreement expires on March 31, 2015 which is subject to automatic three yearrenewal periods.

 

Under Iowa law, a licenseto conduct gaming may be issued in a county only if the county electorate hasapproved the gaming. The electorate of Dubuque County, Iowa, which includes theCity of Dubuque, approved gaming on May 17, 1994 by referendum, includinggaming conducted by the Diamond Jo. The electorate of Worth County, Iowa,approved gaming on June 24, 2003 by referendum, including gaming conducted byDiamond Jo Worth, with 75% of the electorate voting in favor. In addition, areferendum must be held every eight years in each of the counties wheregambling games are conducted and the proposition to continue to allow gamblinggames in such counties must be approved by a majority of the county electoratevoting on the proposition. Such a referendum took place for Diamond Jo on November 5, 2002 with 79% of theelectorate voting on the proposition favoring continued gaming on riverboats inDubuque County. The next referendum is scheduled for 2010. If anyreauthorization referendum is defeated, Iowa law provides that any previouslyissued gaming license will remain valid and subject to renewal for a total ofnine years from the date of original issuance of the license, subject toearlier non-renewal or revocation under Iowa law and regulations applicable toall licenses.

 

Proposals to amend orsupplement Iowa’s gaming statutes are frequently introduced in the Iowa statelegislature. In addition, the state legislature sometimes considers proposalsto amend or repeal Iowa law and regulations, which could effectively prohibit riverboat gaming in the State of Iowa,limit the expansion of existing operations or otherwise affect our operations.Although we do not believe that a prohibition of riverboat gaming in Iowa islikely, we can give no assurance that changes in Iowa gaming laws will notoccur or that the changes will not have a material adverse effect on ourbusiness.

 

Substantially all of the DJL’sand DJW’s material transactions are subject to review and approval by the IowaRacing and Gaming Commission. All contracts or business arrangements, verbal or written, withany related party or in which the term exceeds three years or the total valueof the contract exceeds $100,000 are agreements that qualify for submission toand approval by the Iowa Racing and Gaming Commission subject to certainlimited exceptions. The agreement must be submitted within 30 days ofexecution and approval must be obtained prior to implementation unless theagreement contains a written clause stating that the agreement is subject tocommission approval. Additionally, contracts negotiated between the Diamond Jo orDiamond Jo Worth and a related party must be accompanied by economic andqualitative justification.

 

We must submit detailedfinancial, operating and other reports to the Iowa Racing and Gaming Commission.We must file weekly gaming reports indicating adjusted gross receipts receivedfrom gambling games. Additionally, we must file annual financial statementscovering all financial activities related to our operations for each fiscalyear. We must also keep detailed records regarding our equity structure andowners.

 

Iowa has a graduatedwagering tax on riverboat gambling equal to 5% of the first one million dollarsof adjusted gross receipts, 10% on the next two million dollars of adjustedgross receipts and 22% on adjusted gross receipts of more than three milliondollars. In addition, Iowa riverboats share equally in costs of the Iowa Racingand Gaming Commission and related entities to administer gaming in Iowa. Forthe fiscal year ended December 31, 2005, our share of such expenses wasapproximately $604,000. Further, the DJL pays to the City of Dubuque a feeequal to $.50 per passenger.

 

In accordance withlegislation passed in 2004, all excursion gambling boat licensees, includingDJL, were assessed an amount based on the licensee’s adjusted gross receipts tobe deposited into the Rebuild Iowa Infrastructure Fund. DJL’s total assessmentis $2.1 million, which is to be paid in two equal payments of $1.05 million onJune 1, 2005 and June 1, 2006. DJL made its first payment inMay 2005 and recorded the payment as a long term deposit on itsconsolidated balance sheet. Beginning in July 2010, the Company may offsetgaming taxes in an amount equal to 20% of the total assessment in each of thesucceeding five fiscal years thereafter. DJW was not included in this assessmentas they did not have a license at the time of the assessment.

 

In connection withobtaining its gaming license, DJW is required to pay under an executoryagreement a license fee of $5.0 million due in five annual installments of $1.0million. DJW paid the first $1.0 million installment in June 2005 with theremaining installments due in May 2006 and each May thereafterthrough 2009.

 

If the Iowa Racing andGaming Commission decides that a gaming law or regulation has been violated,the Iowa Racing and Gaming Commission has the power to assess fines, revoke orsuspend licenses or to take any other action as may be reasonable orappropriate to enforce the gaming rules and regulations. In addition,renewal is subject to, among other things, continued satisfaction ofsuitability requirements.

 

We are required to notifythe Iowa Racing and Gaming Commission as to the identity of, and may berequired to submit background information regarding, each director, corporateofficer and owner, partner, joint venture, trustee or any other person who hasa beneficial interest of five percent or more, direct or indirect, in DJL orDJW. The Iowa Racing and Gaming Commission may also request that we providethem with a list of persons holding beneficial ownership interests in DJL orDJW of less than five percent. For purposes of these rules, “beneficialinterest” includes all direct and indirect forms

 

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of ownership or control, votingpower or investment power held through any contract, lien, lease, partnership,stockholding, syndication, joint venture, understanding, relationship, presentor reversionary right, title or interest, or otherwise. The Iowa Racing andGaming Commission may limit, make conditional, suspend or revoke the license ofa licensee in which a director, corporate officer or holder of a beneficialinterest is found to be ineligible as a result of want of character, moralfitness, financial responsibility, or professional qualifications or due tofailure to meet other criteria employed by the Iowa Racing and GamingCommission.

 

If any gaming authority,including the Iowa Racing and Gaming Commission, requires any person, includinga holder of record or beneficial owner of securities, to be licensed, qualifiedor found suitable, the person must apply for a license, qualification orfinding of suitability within the time period specified by the gamingauthority. The person would be required to pay all costs of obtaining thelicense, qualification or finding of suitability. If a holder of record orbeneficial owner of any of the Company’s 8 3/4% senior secured notes due 2012(the “Peninsula Gaming Notes”), DJW’s 11% senior secured notes due 2012 (the “DJWNotes”), or any membership interest in PGL, PGP, DJL or DJW is required to belicensed, qualified or found suitable and is not licensed, qualified or foundsuitable by such gaming authority within the applicable time period, thePeninsula Gaming Notes, DJW Notes, or membership interests, as the case may be,would be subject to regulatory redemption procedures.

 

**The Horse Racing Act and The Pari-Mutuel Act**

** **

The Horse Racing Act hasbeen in effect since 1968 and is the basis for the current statutory schemeregulating live and off-track betting for horse racing. The Horse Racing Actstates, among other things, that certain policies of Louisiana with respect tohorse racing are to: (i) encourage the development of the business ofhorse racing with pari-mutuel wagering on a high plane; (ii) encourage thedevelopment of the breeding and ownership of race horses; (iii) regulatethe business of horse racing by licensed horse racing tracks in the state andto provide the orderly conduct of racing; (iv) provide financial assistanceto encourage the business of racing horses; and (iv) provide a program forthe regulation, ownership, possession, licensing, keeping and inoculation ofhorses.

 

The Pari-Mutuel Actbecame effective on July 9, 1997 and provides for numerous controls and supervisionover the operation of slot facilities and requires us to comply with complexand extensive requirements. Failure to adhere to these statutes and regulationswill result in serious disciplinary action against us, including monetary finesand suspension or revocation of our licenses.

 

The Pari-Mutuel Actallows only one facility in each of St. Landry Parish, Bossier Parish,Calcasieu Parish and Orleans Parish to be licensed to operate slot machines ata live horse racing facility. OED is presently the only “eligible facility” inSt. Landry Parish under the Pari-Mutuel Act. The Pari-Mutuel Act requires(among other things) that two conditions be met prior to the opening andoperation of a slot machine casino at a live racing venue. First, a parish-wideelection must approve the operation. In 1997, voters in St. Landry Parish votedto approve the slot machine casino at the racino site. Secondly, thePari-Mutuel Act requires that an appropriate tax be levied on the slot machineoperation. In 2000, an 18.5% license tax was levied upon taxable net slotmachine proceeds. Therefore, we believe that both of the conditions required bythe Pari-Mutuel Act have been met with respect to the racino at our site inOpelousas within St. Landry Parish.

 

The Pari-Mutuel Act alsoprovides that the “designated gaming space” in any eligible facility cannotexceed 15,000 square feet, that the licensee will not allow underage gaming andthat notice of toll-free telephone assistance for compulsive gamblers will beposted at the facility. OED currently complies with these requirements.

 

The Pari-Mutuel Actrequires that licensees supplement horse racing purses and pay certain otherfees from slot machine proceeds. The Pari-Mutuel Act also levies taxes on thenet slot machine proceeds. Licensees must pay 15% of gross slot machineproceeds to supplement purses at their facilities, pay 2% to the LouisianaThoroughbred Breeders Association and also pay 1% to the Louisiana QuarterHorse Breeders Association. In addition to these payments, we will pay 18.5% ofthe net slot machine proceeds (net of the payments described above) as statetaxes and 4% as local taxes. The effective rate of total taxes and fees istherefore approximately 36.5% of our adjusted gross slot revenue. Additionally,we also pay $0.25 for each patron who attends a live race at our horseracetrack, enters the racino during non-racing season, from the hours of noonto midnight, Thursday through Monday, or enters any one of our OTBs.

 

To remain an “eligiblefacility” under the Pari-Mutuel Act, each year we must, among other things,have a minimum of 80 live racing days in a consecutive 20-week period.

 

**The**Louisiana State Gaming Control Board

** **

In 1996, Louisianacreated the Louisiana Gaming Control Board, which was granted all of theregulatory authority, control and jurisdiction to license and monitor gamingfacilities in Louisiana, including our racino. To receive a gaming

 

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license an applicant and itsmanagement must apply to the Louisiana Gaming Control Board and be investigatedby the Louisiana State Police prior to licensing. The Louisiana Gaming ControlBoard and Louisiana State Police must determine that the applicant is suitableto conduct the gaming operations, including that the applicant (and its owners,officers, directors and key employees) is of good character, honesty andintegrity, that its prior activities, reputation and associations pose nothreat to the public interest or to the effective regulation of the industryand that the applicant is capable of conducting the operation of the slotmachine facility. The Louisiana Gaming Control Board must also determine thatthe applicant has adequate financing from a source suitable and acceptable tothe Louisiana Gaming Control Board.

 

The applicant for agaming license, its directors, officers, key personnel, partners, and personsholding a 5% or greater equity or economic interest in the applicant will berequired to be found suitable by the Louisiana Gaming Control Board. To receivea license the applicant must file an extensive application with the LouisianaGaming Control Board, disclosing personal, financial, criminal, business andother information. The applicant is required to pay all costs of investigation.An application for a finding of suitability of a person may be denied for anycause deemed reasonable by the Louisiana Gaming Control Board. Any other personwho is found to have a material relationship to or a material involvement witha gaming company also may be required to be investigated in order to be foundsuitable or be licensed as a business associate of an applicant. Key employees,controlling persons or others who exercise significant influence upon themanagement or affairs of a gaming company may be deemed to have such arelationship or involvement.

 

If the Louisiana GamingControl Board were to find a director, officer or key employee of an applicantunsuitable for licensing purposes or unsuitable to continue having arelationship with an applicant, the applicant would have to dismiss and severall relationships with such person. The applicant would have similarobligations with regard to any person who refuses to file appropriateapplications. Each gaming employee must obtain a gaming employee permit whichmay be revoked upon the occurrence of certain specified events.

 

An applicant must alsodemonstrate that the proposed gaming operation has adequate financial resourcesgenerated from suitable sources and adequate procedures to comply with theoperating controls and requirements imposed by the laws and regulations in theState of Louisiana. Additionally, the applicant must submit plans andspecifications of the gaming premises specifying the layout and design of thegaming space. Proof of tax compliance, both state and federal, is alsorequired. This submission is followed by a thorough investigation by theregulatory authorities of the applicant, its business probity, the premises andother matters. An application for any gaming license, approval or finding ofsuitability may be denied for any cause that the regulatory authorities deemreasonable.

 

We received our gaminglicense to operate slot machines at our racino from the Louisiana GamingControl Board on January 21, 2003. Our license has a term of five yearsand is renewable for succeeding five year periods upon application for suchrenewal. The Louisiana Gaming Control Board retains absolute discretion overthe right to renew our license upon the termination of its initial term.

 

OED’s gaming licenseauthorizes the use of 15,000 square feet of designated gaming space. OEDsubmitted for approval its current layout for the casino, which incorporates1,627 slot machines. OED’s layout was approved based on the type of machines,which were all upright machines. Should OED change the manufacturer, typeand/or design of its slot machines, it must once again seek and obtain approvalof both the Louisiana State Police and go before the Louisiana Gaming ControlBoard to obtain approval for the new machines. Once any new machines areinstalled, they must be inspected by regulators and tested prior to theapproval of their operation. The moving of the machines within the approvedgaming area also requires the approval of the Louisiana State Police with oversightof the Louisiana Gaming Control Board.

 

To maintain our gaminglicense, each year we must remain an “eligible facility” under the Pari-MutuelAct. This means that we must, among other things, have a minimum of 80 liveracing days in a consecutive 20-week period each year of live horse racemeetings at the new horse racetrack and must be a licensed racing association.

 

Although we have obtainedour license to conduct slot machine operations, we continue to be subject toongoing monitoring and compliance requirements by the Louisiana Gaming ControlBoard and the Louisiana State Police. We have obtained from the LouisianaGaming Control Board a video draw poker establishment license and owner devicelicense. The video draw poker establishment license allows us to operate videodraw poker devices at our approved OTB locations but not the racino, and theowner device license allows us to own those machines. Regulations require us tocomply with rigorous accounting and operating procedures, including the submissionof detailed financial and operating reports. Our accounting records mustinclude accurate, complete and permanent records of all transactions pertainingto revenue. Detailed ownership records must be kept on site available forinspection. All records must be retained for a period of five years. Auditedfinancial statements are required to be submitted to the Louisiana StatePolice. Internal controls have been approved and in place beginning the firstday of operation. These controls include handling of cash, tips and gratuities,slot operations, and count room procedures and management information systems.Each licensed facility is required by the Louisiana Gaming Control Board tomaintain cash or cash equivalent amounts on site sufficient to protect patronsagainst defaults in gaming debts owed by the licensee. In addition, licenseesare subject to currency transaction reporting regulations.

 

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We must also strictlycomply with mandated operating procedures and supply detailed reportsdisclosing such compliance. Regulation of a casino’s methods of operations isextensive and will include substantially all aspects of our casino operation.Operating procedures that are subject to regulation include slot machinemaintenance and operation, cash management and cash procedures, cageprocedures, drop procedures, regulation of weapons in the casino, parking,access to the premises and records by regulators, gaming credit andadvertising, surveillance and security standards, safeguards against underagegambling, compulsive gambling programs, physical layout and progressivejackpots.

 

The Louisiana GamingControl Board retains the power to suspend, revoke, condition, limit orrestrict our license to conduct slot machine operations as a sanction forviolating licensing terms or for any cause they deem reasonable. In addition,monetary fines for violations may be levied against us, and our gamingoperation revenues may be forfeited to the state under certain circumstances.Initial enforcement actions against a licensee are brought by the LouisianaState Police and are heard before an administrative law judge to whom theLouisiana Gaming Control Board has delegated decision making power. Eitherparty may appeal the ruling of the administrative law judge before the fullLouisiana Gaming Control Board. Either party may further appeal the ruling ofthe Louisiana Gaming Control Board in state court. The laws, regulations andprocedures pertaining to gaming are subject to the interpretation of theregulatory authorities and may be amended. Any changes in such laws orregulations, or their current interpretations, could have a material adverseeffect on our business, financial condition, results of operations and abilityto meet our payment obligations under the Peninsula Gaming Notes and our otherindebtedness.

 

The Louisiana GamingControl Board has broad regulatory power over securities issuances andincurrence of indebtedness by gaming facilities. Substantially all loans,leases, private sales of securities, extensions of credit, refinancings andsimilar financing transactions entered into by a licensee must be approved bythe Louisiana Gaming Control Board. Pursuant to a letter dated January 31,2003, the Louisiana Gaming Control Board exempted the Peninsula Gaming Notesoffering from any requirement for prior approval by the Louisiana GamingControl Board. However, at any time, any holder of the Peninsula Gaming Notesmay be called before the Louisiana Gaming Control Board to undergo asuitability investigation in the event the Louisiana Gaming Control Boarddetermines that such holder exercises a material influence over us or ouroperations.

 

At any time the LouisianaGaming Control Board may investigate and require the finding of suitability ofany shareholder or beneficial shareholder (and if the shareholder is acorporate or partnership entity, then the shareholders or partners of theentity), officer, partner, member, manager or director of a licensee if theLouisiana Gaming Control Board believes such holder exercises a materialinfluence over the licensee. Furthermore, all holders of more than a 5%interest in the licensee, or proposed purchasers of more than a 5% interest areautomatically investigated and are required to submit to suitabilityrequirements of the Louisiana Gaming Control Board. Any sale or transfer ofmore than a 5% interest in any gaming licensee is subject to the approval ofthe Louisiana Gaming Control Board.

 

If the Louisiana GamingControl Board finds that any security holder or proposed security holder,including a holder of our debt securities or the debt securities of oursubsidiaries, is not qualified pursuant to existing laws, rules andregulations, and if as a result it determines that the licensee is no longerqualified to continue as a licensee, it can propose action necessary to protectthe public interest, including the suspension or revocation of a license orpermit. It may also issue, under penalty of revocation of license, a condition ofdisqualification naming the person and declaring that such person may not (a) receivedividends or interest on securities of the licensee, (b) exercise anyright conferred by securities of the licensee, (c) receive remuneration orany other economic benefit from the licensee or (d) continue in anownership or economic interest in the licensee or remain as a director,partner, officer, or manager of the licensee. A security issued by a licenseemust generally disclose these restrictions.

 

**Louisiana**State Racing Commission

** **

Pari-mutuel betting andthe conducting of live horse race meets in Louisiana are strictly regulated bythe Louisiana State Racing Commission, which was created pursuant to the HorseRacing Act. The Louisiana Racing Commission is comprised of ten members. Inorder to be approved to conduct a live race meet and to operate pari-mutuelwagering (including off-track betting), an applicant must show, among otherthings: (i) racing experience; (ii) financial qualifications; (iii) moraland financial qualifications of applicant and applicant’s partners, officersand officials; (iv) the expected effect on the breeding and horseindustry; and (v) the expected effect on the State’s economy.

 

In 2000, we received fromthe Louisiana State Racing Commission a license to conduct live race meets andto operate pari-mutuel wagering at our prior facility. The initial term of thislicense is ten years subject to renewal in 2010. On December 19, 2002, wereceived approval to transfer our operations under our license from LafayetteParish to St. Landry Parish upon completion of our new horse racetrack. As acondition to the approval of our racing license, we are required to

 

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offer pari-mutuel wagering inthe defined casino gaming space at the time we begin conducting slot machinegaming. Our racino includes monitors and other equipment to facilitate live andsimulcast wagering within the casino area in compliance with this condition.

 

The Louisiana StateRacing Commission promulgates rules, regulations and conditions for theholding, conducting and operating of all racetracks in the state. Failure toadhere to these regulations may result in substantial fines or the suspensionor revocation of our racing license. A revocation or suspension of the racinglicense would, in turn, result in the revocation or suspension of our gaminglicense to conduct slot machine operations. Any alteration in the regulation ofthese activities could have a material adverse effect on our operations.

 

**Federal**Regulation of Slot Machines

** **

We are required to makeannual filings with the United States Attorney General in connection with thesale, distribution or operation of slot machines. We are currently incompliance with such filing requirements.

 

**Potential**Changes in Tax and Regulatory Requirements

** **

In the past, federal andstate legislators and officials have proposed changes in tax law, or in theadministration of the laws, affecting the gaming industry. Regulatorycommissions and state legislatures sometimes consider limitations on theexpansion of gaming in jurisdictions where we operate and other changes ingaming laws and regulations. Proposals at the national level have included afederal gaming tax and limitations on the federal income tax deductibility ofthe cost of furnishing complimentary promotional items to customers, as well asvarious measures which would require withholding on amounts won by customers oron negotiated discounts provided to customers on amounts owed to gamingcompanies. It is not possible to determine with certainty the likelihood ofpossible changes in tax or other laws or in the administration of the laws. Thechanges, if adopted, could have a material adverse effect on our financialresults.

 

**Liquor**Regulations

** **

The sale of alcoholicbeverages by us in Iowa is subject to the licensing, control and regulation byliquor agencies, which include the City of Dubuque, City of Northwood and theAlcohol Beverage Control Division of the Iowa Department of Commerce. Theapplicable Iowa liquor laws allow the sale of liquor during legal hours whichare Monday through Saturday from 6 a.m. to 2 a.m. the next day andSunday from 8 a.m. to 2 a.m. on Monday. Subject to few exceptions,all persons who have a financial interest in us, by ownership, loan orotherwise, must be disclosed in an application filed with, and are subject toinvestigation by, Iowa’s liquor agencies. Persons who have a direct or indirectinterest in any Iowa liquor license, other than hotel or restaurant liquorlicenses, may be prohibited from purchasing or holding our Peninsula Gaming orDJW Notes. All licenses are subject to annual renewal, are revocable and arenot transferable. The liquor agencies have the full power to limit, condition,suspend or revoke any license or to place a liquor licensee on probation withor without conditions. Any disciplinary action could, and revocation would,have a material adverse effect upon the operations of our business. Many of ourowners, officers and managers must be investigated by the liquor agencies inconnection with our liquor permits. Changes in licensed positions must beapproved by the liquor agencies.

 

The sale of alcoholicbeverages by us in Louisiana is subject to the licensing, control andregulation by the State of Louisiana, Department of Revenue, Office of Alcoholand Tobacco Control, as well as the cities of Opelousas, Carencro, Port Allen,New Iberia and the parish of West Baton Rouge. The applicable liquor laws inthe city of Opelousas where the racino is located allow the sale of liquor24 hours a day, 7 days a week.

 

**United States**Coast Guard

** **

The Diamond Jo was previouslyregulated by the United States Coast Guard, whose regulations affected boatdesign and stipulated on-board facilities, equipment and personnel, includingrequirements that each vessel be operated by a minimum complement of licensedpersonnel, in addition to restricting the number of persons who can be aboardthe boat at any one time. Our riverboat was required to hold a Certificate ofInspection (“COI”) and a Certificate of Documentation from the United StatesCoast Guard. Loss of the COI would have precluded our use of the Diamond Jo asan operating riverboat. In addition, the riverboat was subject to United StatesCoast Guard regulations requiring periodic hull inspections.

 

Due to changes in Iowalaw, we may operate a gaming vessel that is not required to cruise without aCOI. We have received our Permanently Moored Vessel (“PMV”) permit from the UnitedStates Army Corp of Engineers and have given up our COI. On November 25, 2005, theUnited States Coast Guard approved our PMV status, which took effect on November28, 2005.

 

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Now that we have transitioned to PMV status, we are regulatedby the Iowa Department of Natural Resources (IDNR). The IDNR has regulatoryoversight over many of the issues previously controlled by the United StatesCoast Guard.

 

The St. Louis MarineSafety Office (“MSO”) will re-evaluate risks to the PMV every two years orsooner if there is, among other factors, a change of traffic or localconditions. In addition, St. Louis MSO personnel will also periodically visitthe site and to ensure that the vessel is being maintained in satisfactorycondition. If during one of these periodic reviews, the vessel is found to bepoorly maintained or to present an unreasonable risk to the safety and/orsecurity of the public, the MSO may reconsider the vessel’s PMV status. Webelieve that the Diamond Jo is currently compliant with MSO regulationsrequired to maintain its PMV status.

 

Due to the change of ourvessel status, our marine employees that were required by the United StatesCoast Guard to be employed by us are no longer employed by DJL.

 

**Other Regulations**

** **

We and our subsidiariesare subject to federal, state and local environmental and safety and healthlaws, regulations and ordinances that apply to non-gaming businesses generally,such as the Clean Air Act, Federal Water Pollution Control Act, OccupationalSafety and Health Act, Resource Conservation Recovery Act, Oil Pollution Act of1990 and Comprehensive Environmental Response, Compensation and Liability Act,each as amended. We have not incurred, and do not expect to incur, materialexpenditures with respect to these laws. There can be no assurances, however,that we will not incur material liability under these laws in the future.

 

**ITEM 1A.****                                          RISKFACTORS**

 

**Future Operating Performance**—**Our futureoperating performance could be adversely affected by disruptions and reducedpatronage of our properties as a result of economic and other business factors.**

 

Our future operating performance could be adverselyaffected by disruptions and reduced patronage of our properties as a result ofeconomic and other business factors. The impact of these factors will be moresignificant to us than it would be to a more diversified gaming company or to agaming company that does not depend on seasonal earnings from racing. Any orall of our properties could be completely or partially closed due to, amongother things, severe weather, casualty, mechanical failure, including thefailure of our slot machines, physical damage or extended or extraordinarymaintenance or inspection. Severe weather may also cause the closure of highwayswhich provide access to our properties and could reduce the number of peoplevisiting these facilities. In addition, to maintain our gaming license for ourracino, we must have a minimum of 80 live racing days in a consecutive 20-weekperiod each year of live horse race meetings at the new racetrack, and poorweather conditions may make it difficult for us to comply with thisrequirement.

 

We are also vulnerable to any adverse changes ingeneral political, financial and economic conditions (including as a result ofinternational conflict) and any negative economic, competitive, demographic orother conditions affecting the States of Iowa and Louisiana, the cities ofDubuque and Northwood, Iowa, and Opelousas, Louisiana and the surrounding areasfrom which we expect to attract patrons. If the economy of any of these areassuffers a downturn or if any of these areas’ larger employers lay off workers,we may be adversely affected by the decline in disposable income of affectedconsumers. Any of the foregoing factors could limit or result in a decrease inthe number of patrons at any of our properties or a decrease in the amount thatpatrons are willing to wager. Although we maintain insurance policies,insurance proceeds may not adequately compensate us for all economicconsequences of any such event.

 

**Restrictive Covenants - The indenturegoverning the Peninsula Gaming and DJW Notes and our senior secured creditfacilities contain covenants that significantly restrict our operations.**

 

The indenture governing the Peninsula Gamingand DJW Notes and the agreements governing our senior secured credit facilitiescontain, and any other future debt agreements may contain, numerous covenantsimposing financial and operating restrictions on our business. Theserestrictions may affect our ability to operate our business, may limit ourability to take advantage of potential business opportunities as they arise andmay adversely affect the conduct of our current business. These covenants placerestrictions on our ability and the ability of our restricted subsidiaries to,among other things:

 

•                  paydividends or make other distributions or restricted payments to PGP and DJW (for so long as DJW is anunrestricted subsidiary);

 

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•                  redeemstock;

 

•                  incurindebtedness or issue preferred membership interests;

 

•                  makecertain investments;

 

•                  createliens;

 

•                  agreeto payment restrictions affecting the subsidiary guarantors;

 

•                  consolidateor merge;

 

•                  sellor otherwise transfer or dispose of assets, including equity interests of ourrestricted subsidiaries;

 

•                  enterinto transactions with our affiliates;

 

•                  designateour subsidiaries as unrestricted subsidiaries; and

 

•                  usethe proceeds of permitted sales of our assets.

 

Our PGL Credit Facility limits our ability topay dividends, make loans and distributions to PGL and also requires us tomeet, among other things, certain minimum EBITDA and maximum capitalexpenditure requirements. Due to the limitations under the PGL Credit Facility onthe payment of dividends, making loans and other distributions, PGL may not, onits own, be able to satisfy its obligations under the Peninsula Gaming Notes,which obligations must therefore be satisfied by DJL, co-issuer of thePeninsula Gaming Notes, and OED, guarantor of the Peninsula Gaming Notes. Non-compliancewith the financial ratios and tests contained in our debt agreements mayadversely affect our ability to incur more debt, adequately finance ouroperations or capital needs in the future or to pursue attractive businessopportunities that may arise in the future. Our ability to meet these ratiosand tests and to comply with other provisions governing our indebtedness may beadversely affected by our operations and by changes in economic or business conditionsor other events beyond our control. Our failure to comply with our debt-relatedobligations could result in an event of default under the notes and our otherindebtedness.

 

**History of Net Losses**—**We havehad net losses in recent years and may continue to experience net losses in thefuture.**

 

We had net losses to common member’s interest in 2005,2004 and 2003 of $3.4 million, $45.1 million and $12.7 million,respectively. Of the $45.1 million net loss in 2004, $37.6 million relatedto loss on early retirement of debt. As we continue to execute our businessstrategy, we may experience net losses in the future, which could have anadverse effect on our business, prospects, financial condition, and results ofoperations.

 

**Licensing**—**If we fail to meet the minimum liveracing day requirements, our gaming license with respect to the racino will becanceled and all slot machine gaming at the racino must cease.**

 

Louisiana gaming regulations and our gaming licenserequire that we, among other things, have a minimum of 80 live racing days in aconsecutive 20-week period each year of live horse race meetings at the horseracetrack. Live racing days typically vary in number from year to year and arebased on a number of factors, many of which are beyond our control, includingthe number of suitable race horses and the occurrence of severe weather. If wefail to have the minimum number of live racing days, our gaming license withrespect to the racino may be canceled, and the casino will be required to ceaseoperations. Any cessation of our operation would have a material adverse affecton our business, prospects, financial condition, and results of operations.

 

**Licensing—Ifwe fail to construct a hotel near the site of the Diamond Jo Worth casinowithin 18 months of the opening of the casino, our gaming license could berevoked.**

** **

As a condition to maintaining our gaming license, weare required to construct, or cause a third party to construct, a hotel with atleast 100 rooms near the site of the Diamond Jo Worth casino within 18 monthsof the opening of the casino. If we fail to do so, our gaming license could berevoked and the casino could be required to cease operations. In September

 

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2005, we entered into a letterof intent with a third party developer to fund, construct, own and operate a100 room hotel. Construction of the hotel by the third party developer will besubject to significant development and construction risks including thefollowing:

 

•                  shortages of energy, material and skilled labor;

 

•                  delays in obtaining or inability to obtain necessarypermits, licenses and approvals;

 

•                  changes in law applicable to gaming projects;

 

•                  changes to the plans or specifications;

 

•                  weather interferences or delays;

 

•                  engineering problems;

 

•                  labor disputes and work stoppages;

 

•                  disputes with contractors;

 

•                  environmental and real property issues;

 

•                  fire, earthquake, tornado and other naturaldisasters;

 

•                  change in political, financial or economicconditions, including as a result of international conflict; and

 

•                  geological, construction, excavation and equipmentproblems.

 

We can give no assurance that we will be able tosatisfy this condition, including obtaining the capital necessary to build thehotel and, accordingly, we can give no assurance that we will successfullymaintain our gaming license. Revocation of our license would have a materialadverse effect on our business, financial condition and results of operations.

 

**Riskof a New Venture—The Diamond Jo Worth casino does not have any operatinghistory or history of earnings.**

** **

We have not completed construction on our Diamond JoWorth casino, and we have no operating history or history of earnings withregard to casino operations in Worth County, Iowa. In light of the difficultiesfrequently encountered by companies in the early stages of substantial realestate development and gaming projects and the risks inherent in theestablishment of a new business enterprise and other factors outside ourcontrol, there can be no assurance that we will be able to successfully operatethe casino, that the casino will be profitable or that we will generatesufficient cash flow to meet our payment obligations under the DJW Notes andour other indebtedness.

 

**Reauthorization of Gaming in Iowa**—**TheDubuque County and Worth County electorate must vote in 2010 and every eightyears thereafter whether to continue to allow riverboat gaming in DubuqueCounty and Worth County, Iowa. If riverboat gaming is discontinued, it isunlikely that DJL or DJW will be able to conduct its gaming operations.**

 

Under Iowalaw, a license to conduct gaming may be issued in a county only if the countyelectorate has approved the gaming, and a reauthorization referendum requiringmajority approval must be held every eight years. On November 5, 2002, theelectorate of Dubuque County, Iowa, which includes the City of Dubuque,approved gaming by approximately 79% of the votes cast. On June 24, 2003, WorthCounty, Iowa approved gaming in the county by approximately 75% of the votescast. If any reauthorization referendum is defeated in either Dubuque or WorthCounty, it is unlikely that DJL or DJW, respectively, would be able to conductgaming operations, and, in that case, we may not be able to continue to serviceour indebtedness, including the Peninsula Gaming and DJW Notes.

 

**Liquor Regulation**—**Revocationof any of our liquor licenses, which are subject to extensive regulation, couldhave a material adverse effect on our gaming operations.**

 

The sale of alcoholic beverages at our properties issubject to licensing, control and regulation by state and local agencies inIowa and Louisiana. Subject to limited exceptions, all persons who have afinancial interest in DJL, OED, PGL, or

 

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DJW by ownership, loan orotherwise, must be disclosed in an application filed with, and are subject toinvestigation by, Iowa and Louisiana liquor agencies. All liquor licenses aresubject to annual renewal, are revocable and are not transferable. The liquoragencies have broad powers to limit, condition, suspend or revoke any liquorlicense. Any disciplinary action with respect to any of our liquor licensescould, and any failure to renew or revocation of our liquor licenses would,have a material adverse effect on our business.

 

**Competition**—**We face intense competition in ourgaming markets and increased competition may have a material adverse effect onour business, financial condition and results of operations.**

 

The gaming industry is intensely competitive. If ourexisting competitors expand and/or upgrade their facilities or operate moreefficiently than we do, or new gaming firms enter the markets in which weoperate, we could lose market share, our gaming markets could become saturatedand new opportunities for expanding our business could become limited. As aresult, increased competition could have a material adverse effect on ourbusiness, financial condition and results of operations.

 

In Iowa, weface competition primarily from the DGP, which possesses several competitivestrengths. The DGP offers some amenities that Diamond Jo does not have,including live and simulcast greyhound racing, and, on a limited basis,simulcast horse racing. As a not-for-profit organization, the DGP has developedstrong relationships with the local community and city officials bydistributing a percentage of its cash-flow, through contributions, to the Cityof Dubuque and local charities. In May 2005, DGP expanded its facility toinclude 1,000 slot machines. In March 2006, DGP added 16 table games and 4poker tables and in February replaced 82 slot machines with video poker. Inaddition, a group of private investors opened a hotel adjacent to the DGP inOctober 2005. The DGP is owned and operated by the Dubuque Racing Association,or DRA. Besides the DGP, we also currently face limited competition from othergaming facilities located approximately 60 to 120 miles from our operations.The Iowa Racing and Gaming Commission recently rescinded its rule limitingriverboat gaming licenses in Iowa and in May 2005 granted 4 new licenses(including ours in Worth County). The closest of these licenses to the DiamondJo is one located in Waterloo, Iowa, approximately 70 miles to the west ofDubuque.

 

We expect our primary competition at the newDiamond Jo Worth casino, which is scheduled to open in April 2006, to be fromthe Native American gaming operations in Minnesota, the closest beingapproximately 125 miles from the Diamond Jo Worth casino.. In addition, acompetitor is planning to commence operations of a new casino in Emmetsburg,Iowa, approximately 90 miles from the casino. Our competitors may offeramenities that the Diamond Jo Worth casino will not have.

 

In Louisiana, the nearest competitor to EvangelineDowns is a Native American casino located approximately 50 miles to the southof Lafayette, including several miles off the highway in Marksville, Louisiana.We also face competition from several other casinos and pari-mutuel gamingfacilities located 50 to 100 miles from our racino, including Native Americancasinos in Kinder, Louisiana, and riverboat casinos in Baton Rouge and LakeCharles, Louisiana. The nearest horse racetrack to our racino that is allowedto have gaming operations is located in Vinton, Louisiana. We also facecompetition from truck stop video poker parlors and OTBs in the areassurrounding Lafayette and Opelousas, Louisiana. We could also face additionalcompetition if Louisiana or any of the states bordering Iowa or Louisiana adoptslaws authorizing new or additional gaming.

 

We also compete to some extent with other forms ofgaming on both a local and national level, including state-sponsored lotteries,charitable gaming, on- and off-track wagering, and other forms of entertainment,including motion pictures, sporting events and other recreational activities.It is possible that these secondary competitors could reduce the number ofvisitors to our facilities or the amount they are willing to wager, which couldhave a material adverse effect on our ability to generate revenue or maintainour profitability.

 

Increased competition may require us to makesubstantial capital expenditures to maintain and enhance the competitivepositions of our properties, including updating slot machines to reflectchanging technology, refurbishing rooms and public service areas periodically,replacing obsolete equipment on an ongoing basis and making other expendituresto increase the attractiveness and add to the appeal of our facilities. Becausewe are highly leveraged, after satisfying our obligations under our outstandingindebtedness, there can be no assurance that we will have sufficient funds toundertake these expenditures or that we will be able to obtain sufficientfinancing to fund such expenditures. If we are unable to make suchexpenditures, our competitive position could be materially adversely affected.

 

13

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**Governmental Regulation**—**Extensivegaming and racing-related regulation continuously impacts our operations andchanges in such laws may have a material adverse effect on our operations by,among other things, prohibiting or limiting gaming in the jurisdictions inwhich we operate.**

 

The ownership, management and operation of ourgaming facilities are subject to extensive laws, regulations and ordinanceswhich are administered by the Iowa Racing and Gaming Commission, the LouisianaState Gaming Control Board, the Louisiana State Racing Commission and variousother federal, state and local government entities and agencies. We are subjectto regulations that apply specifically to the gaming industry and horseracetracks and casinos, in addition to regulations applicable to businessesgenerally. If current laws, regulations or interpretations thereof aremodified, or if additional laws or regulations are adopted, it could have amaterial adverse effect on our business.

 

Legislative or administrative changes in applicablelegal requirements, including legislation to prohibit casino gaming, have beenproposed in the past. For example, in 1996, the State of Louisiana adopted astatute in connection with which votes were held locally where gamingoperations were conducted and which, had the continuation of gaming beenrejected by the voters, might have resulted in the termination of operations atthe end of their current license terms. During the 1996 local gamingreferendums, Lafayette Parish voted to disallow gaming in the Parish, whereasSt. Landry Parish, the site of our racino, voted in favor of gaming. Allparishes where riverboat gaming operations are currently conducted voted tocontinue riverboat gaming, but there can be no guarantee that similar referendamight not produce unfavorable results in the future. Proposals to amend orsupplement the Louisiana Riverboat Economic Development and Gaming Control Actand the Pari-Mutuel Act also are frequently introduced in the Louisiana Statelegislature. In the 2001 session, a representative from Orleans Parishintroduced a proposal to repeal the authority of horse racetracks in CalcasieuParish (i.e., site of Delta Downs) and St. Landry Parish (i.e., site of ourracino) to conduct slot machine gaming at such horse racetracks and to repealthe special taxing districts created for such purposes. If adopted, thisproposal would have effectively prohibited us from operating the casino portionof our racino. In addition, the Louisiana legislature, from time to time,considers proposals to repeal the Pari-Mutuel Act.

 

Similarly, in Iowa, the county electorate mustreauthorize gaming every eight years. See “Reauthorization of Gaming in Iowa.”

 

To date, we have obtained all governmental licenses,findings of suitability, registrations, permits and approvals necessary for theoperation of our properties owned by DJL, OED and DJW. However, we can give noassurance that any additional licenses, permits and approvals that may berequired will be given or that existing ones will be renewed or will not berevoked. Renewal is subject to, among other things, continued satisfaction ofsuitability requirements. Any failure to renew or maintain our licenses or toreceive new licenses when necessary would have a material adverse effect on us.

 

Thelegislation permitting riverboat gaming in Iowa authorizes the granting oflicenses to “qualified sponsoring organizations.” Such “qualified sponsoringorganizations” may operate the riverboat itself, subject to satisfyingnecessary licensing requirements, or it may enter into an agreement with a boatoperator to operate the excursion gambling boat on its behalf. An operator mustbe approved and licensed by the Iowa Racing and Gaming Commission. The DRA, anot-for-profit corporation organized for the purpose of operating a pari-mutuelgreyhound racing facility in Dubuque, Iowa, first received a riverboat gaminglicense in 1990 and, pursuant to the Amended DRA Operating Agreement, hasserved as the “qualified sponsoring organization” of the Diamond Jo sinceMarch 18, 1993. The term of the Amended DRA Operating Agreement expires onDecember 31, 2018. WCDA, pursuant to the WCDA Operating Agreement, willserve as the “qualified sponsoring organization” of Diamond Jo Worth. The termof the WCDA Operating Agreement expires on March 31, 2015 which is subject toautomatic three year renewal periods. If the Amended DRA Operating Agreement orWCDA Operating Agreement were to terminate, or if the DRA or WCDA were tootherwise discontinue acting as our “qualified sponsoring organization” withrespect to our operation of the Diamond Jo and Diamond Jo Worth, respectively,and we were unable to obtain a license from the Iowa Racing and GamingCommission for an alternative “qualified sponsoring organization” to act on ourbehalf, we would no longer be able to continue our Diamond Jo or Diamond JoWorth operations, which would materially and adversely affect our business,results of operations and cash flows.

 

The Iowa Racing and Gaming Commission has issued ourgaming license for the Diamond Jo Worth casino with the contingency that wecomplete the construction of a hotel with no less than 100 rooms in WorthCounty within 18 months of the opening of our casino. If we fail to do so, ourgaming license could be revoked and the casino could be required to ceaseoperations. In September 2005, we entered into a letter of intent with a thirdparty developer to fund, construct, own and operate a 100 room hotel. Constructionof the hotel by the third party developer will be subject to significantdevelopment and construction risks. See “Licensing.”

 

14

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**Environmental Matters**—**We aresubject to environmental laws and potential exposure to environmentalliabilities. This may affect our ability to develop, sell or rent our propertyor to borrow money where such property is required to be used as collateral.**

 

We are subject to various federal, state and localenvironmental laws, ordinances and regulations, including those governingdischarges to air and water, the generation, handling, management and disposalof petroleum products or hazardous substances or wastes, and the health andsafety of our employees. Permits may be required for our operations and thesepermits are subject to renewal, modification and, in some cases, revocation. Inaddition, under environmental laws, ordinances or regulations, a current orprevious owner or operator of property may be liable for the costs of removalor remediation of some kinds of hazardous substances or petroleum products on,under, or in its property, without regard to whether the owner or operator knewof, or caused, the presence of the contaminants, and regardless of whether thepractices that resulted in the contamination were legal at the time theyoccurred. In addition, as part of our business in Worth County, Iowa, weoperate a gas station, which includes a number of underground storage tankscontaining petroleum products. The presence of, or failure to remediateproperly, the substances may adversely affect the ability to sell or rent theproperty or to borrow funds using the property as collateral. Additionally, theowner of a site may be subject to claims by third parties based on damages andcosts resulting from environmental contamination emanating from a site.

 

We have reviewed environmental assessments, in somecases including soil and groundwater testing, relating to our currently ownedand leased properties in Dubuque, Iowa, and other properties we may lease fromthe City of Dubuque or other parties. As a result, we have become aware thatthere is contamination present on some of these properties apparently due topast industrial activities. With respect to parcels we currently own or lease,we believe, based on the types and amount of contamination identified, theanticipated uses of the properties and the potential that the contamination, insome cases, may have migrated onto our properties from nearby properties, thatany cost to clean up these properties will not result in a material adverseeffect on our earnings. We have also reviewed environmental assessments and arenot aware of any environmental liabilities related to our properties at OED andDJW.

 

We do not anticipate any material adverse effect onour earnings or competitive position relating to environmental matters, but itis possible that future developments could lead to material costs ofenvironmental compliance for us and that these costs could have a materialadverse effect on our business and financial condition.

 

**Taxation**—**An increase in the taxes and feesthat we pay could have a material adverse effect on us, and might reduce thecash flow available to service our indebtedness, including under the notes.**

 

We are subject to significant taxes and feesrelating to our gaming operations, which are subject to increase at any time.Currently, in Iowa, we are taxed at an effective rate of approximately 21% ofour adjusted gross receipts by the State of Iowa, we pay the City of Dubuque afee equal to $0.50 per patron and we pay a fee equal to 5.76% of adjusted grossreceipts to the Worth County Development Authority. In addition, there will bean assessment payable by DJL of $1.05 million due on June 1, 2006. Thisassessment will be used against future state gaming taxes paid by the licenseewith a credit for 20% of the assessments paid allowed each year for five consecutiveyears beginning July 1, 2010. In addition, all Iowa riverboats shareequally in costs of the Iowa Racing and Gaming Commission and related entitiesto administer gaming in Iowa, which is currently approximately $600,000 peryear per riverboat. Currently, in Louisiana, we are taxed at an effective rateof approximately 36.5% of our adjusted gross slot revenue and pay to theLouisiana State Racing Commission a fee of $0.25 for each patron who attends alive race at our horse racetrack, enters the racino during non-racing season,from the hours of noon to midnight, Thursday through Monday, or enters any oneof our OTBs. In addition, there have been proposals in the past to tax allgaming establishments, including riverboat casinos, at the federal level. Anymaterial increase in taxes or fees, or in costs of the Iowa Racing and GamingCommission and related entities, would have a material adverse affect on ourbusiness.

 

**Difficulty in Attracting and Retaining QualifiedEmployees**—**If we are unable to attract and retain a sufficientnumber of qualified employees or are required to substantially increase ourlabor costs, our business, results of operations and financial condition willbe materially adversely affected.**

 

The operation of our business requires qualifiedexecutives, managers and skilled employees with gaming industry experience andqualifications to obtain the requisite licenses. We may have difficultyattracting and retaining a sufficient number of qualified employees and may berequired to pay higher levels of compensation than we have estimated in orderto do so. If we are unable to attract and retain a sufficient number ofqualified employees or are required to substantially increase our labor costs,we may not be able to operate our business in a cost effective manner or atall.

 

15

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We are dependent upon the available labor pool ofunskilled and semi-skilled employees. We are also subject to the Fair LaborStandards Act, which governs matters such as minimum wage, overtime and otherworking conditions. In addition, Iowa law effectively requires that we pay Iowaemployees 25% more than the federally mandated minimum wage rates. Changes inapplicable state or federal laws and regulations, particularly those governingminimum wages, could increase labor costs, which could have a material adverseeffect on the cash flow available to service our indebtedness.

 

**Interested Party Matters**—**All of theCompany’s voting equity interests are indirectly beneficially owned in theaggregate by managers and executive officers of PGP and Jefferies and Co.,Inc., the initial purchaser of the Peninsula Gaming and DJW Notes (“InitialPurchaser”), and such ownership may give rise to conflicts of interest.**

 

All of the Company’s voting equity interests areindirectly beneficially owned or controlled in the aggregate byMr. Stevens, Mr. Luzich and Mr. Oliver. Specifically, M. Brent Stevens,our Chief Executive Officer, is also the Chairman of the Board of Managers ofPGP and the Chief Executive Officer of PGP, DJL, OED, PGL and DJW.Mr. Stevens indirectly beneficially owns or controls (through hisbeneficial ownership or control of voting equity interests in PGP)approximately 57.6% of the Company’s equity interests. Michael Luzich, ourPresident and Secretary, is also a Manager of PGP and the President andSecretary of PGP, DJL, OED and PGL. Mr. Luzich indirectly beneficiallyowns (through his ownership of voting equity interests in PGP) approximately31.7% of the Company’s equity interests. Terrance W. Oliver, a Manager of PGP,indirectly beneficially owns (through his direct ownership of interests in TheOliver Family Trust) approximately 1.2% of the Company’s equity interests.Andrew Whittaker, a Manager of PGP, indirectly beneficially owns (through hisindirect ownership of voting equity interests in PGP) approximately 3.2% (whichis included in the calculation of the 57.6% owned or controlled byMr. Stevens) of the Company’s equity interests. In addition,Mr. Stevens has the right to designate three of the five members of PGP’sboard of managers, including one of the two independent managers, andMr. Luzich has the right to designate two of the five members of PGP’sboard of managers, including one of the two independent managers, for so longas Mr. Stevens and Mr. Luzich, respectively, beneficially hold atleast 5% of the voting equity interests of PGP.

 

Because of their controlling interests, theseindividuals have the power to elect a majority of our managers, appoint newmanagement and approve any action requiring the approval of holders of ourequity interests, including adopting amendments to our certificate offormation, approving mergers or sales of substantially all of our assets orchanges to our capital structure.

 

PGP is primarily responsible for managing theDiamond Jo, the racino, the OTBs, as well as supervising the construction ofthe Diamond Jo Worth casino. Neither PGP nor any of its affiliates isrestricted from managing other gaming operations, including new gaming venturesor facilities that may compete with ours, except that certain restrictionsunder the Amended DRA Operating Agreement will terminate if we or any of ouraffiliates operate another facility in Dubuque County or the adjoining countiesof Illinois or Wisconsin. If PGP or any of its affiliates decides to manageother gaming operations, such activities could require a significant amount ofattention from PGP’s officers and managers and require them to devote less timeto managing our operations. While we believe that any new ventures will notdetract from PGP’s ability to manage and operate our business, there can be noassurance that such ventures would not have a material adverse effect on us oron PGP.

 

Mr. Stevens also is an Executive Vice Presidentof the Initial Purchaser, and Mr. Whittaker also is a Vice Chairman of theInitial Purchaser. Certain affiliates, officers and employees of the InitialPurchaser also are members of PGP Investors, LLC, a Delaware limited liabilitycompany, which beneficially owns approximately 31.6% (which is included in thecalculation of the 57.6% owned or controlled by Mr. Stevens) of theCompany’s equity interests.

 

**ITEM 1B.****                                          UNRESOLVEDSTAFF COMMENTS**

 

Not applicable

 

**ITEM 2.****                                                   PROPERTIES**

 

DJL owns thedockside pavilion, adjacent to the Diamond Jo casino, consisting ofapproximately 36,000 square feet, a surface parking lot within close proximityto the dockside pavilion, and a walkway connecting the dockside pavilion to aramp, leading to where the Diamond Jo is moored.

 

16

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We currently haveapproximately 1,200 parking spaces that are in close proximity to the DiamondJo located on properties that we own, lease or to which we are given access atno cost pursuant to a non-exclusive use agreement with a third party. Ourproperty lease currently requires us to pay $25,000 per year as rent throughJune 2009. Beginning in June 2009 through the remaining term of the lease weare required to pay $250,000 per year (increasing each year by Cost Of LivingIndex). All rent payments associated with this lease are reimbursed to us bythe DRA as outlined under the Amended DRA Operating Agreement entered into inJune 2005. In 2005, the terms of the DRA Operating Agreement and our lease withthe City of Dubuque were extended through December 31, 2018.

 

 The OED racino sits on and is bounded byapproximately 649 acres of owned land located in Opelousas, Louisiana that wepurchased in 2002 and 2003. We have constructed a 170,000 square foot buildingand a one mile dirt racetrack on this site. A portion of the purchase price forcertain parcels of such land was financed by the seller of such parcels by OED issuinga $3,850,000 note payable to the seller. The note is payable in seven annualinstallments and bears interest at a rate of 8.75%. The note is collateralizedby a mortgage on the property. Simultaneously with the payment of each annualinstallment, the seller agreed to release from the mortgage one of sevenparcels of land into which the land was equally divided.

 

In addition, OED owns theland, building and improvements of the Port Allen OTB and leases the facilitiesthat comprise the New Iberia, Henderson, Alexandria and Eunice OTBs.

 

The DJW casinois being constructed on approximately 35 acres of owned land in Worth County,Iowa.

 

**ITEM 3.****                                                   LEGALPROCEEDINGS**

 

In October 2003, OEDfiled a Petition for Declaratory Judgment in St. Landry Parish, Louisiana,naming as opposing parties the Secretary of the Department of Revenue and Taxationfor the State of Louisiana, the St. Landry Parish School Board and the City ofOpelousas. OED seeks a judgment declaring that sales taxes are not due to thedefendants on purchases made by OED and its contractors in connection with theconstruction and furnishing of the Evangeline Downs Racetrack and Casino, whichwas constructed in St. Landry Parish in 2003-2004. OED’s action is based onLouisiana statutory law which provides that racetracks are not required to paytaxes and fees other than those provided in the racing statutes, and that taxesand fees provided in the racing statutes are in lieu of, among other things,all state and local sales taxes. While the Louisiana Department of Revenue andTaxation generally agrees with OED’s position, the St. Landry Parish SchoolBoard and the City of Opelousas have questioned the application of the racingstatutes to the construction and furnishing of the new racetrack and casino,thereby leading to the filing of this action.

 

OED filed a motion forsummary judgment, which was scheduled for hearing in July 2005. The defendantsfiled responses, generally arguing that the exemption under the racing statutesshould not extend to the purchase of goods, materials and services which wereunrelated to horse racing. Prior to the hearing, it was discovered by OED thatOED’s contractor (and the contractor’s subcontractors) had paid sales taxes onmany purchases related to the construction of the new racetrack and casino, andthat OED, in its payments to the contractor, had reimbursed the contractor forsuch sales taxes. In light of this discovery, the parties agreed to continueindefinitely the hearing on the motion for summary judgment. In November andDecember 2005, OED filed refund claims totaling $0.6 million. There has not yetbeen a ruling on OED’s refund claims. OED has not recorded the refund claimsdue to uncertainty as to the outcome of the matter.

 

While OED has paidcertain sales taxes on the construction of the new racetrack and casino andrelating to the purchase of slot machines at the casino, it has not paid salestaxes on all purchases associated with the construction and furnishing of thefacility. Accordingly, an adverse ruling on this matter may result in OED beingrequired to pay sales taxes to the defendants in the range of $1.0 to $2.5million and having its refund claims denied. A portion of the sales taxes, ifrequired to be paid, will be capitalized as fixed assets.

 

In October 2005, OEDfiled a claim to arbitrate our claims against the general contractor of theracino alleging that the general contractor improperly constructed the horseracetrack at the racino. We are pursuing a claim for damages of approximately$7.1 million against the general contractor to recoup our track reconstructioncosts and other related damages. The arbitration is currently scheduled to beheld in Lafayette, Louisiana and is expected to take approximately one year. Webelieve it is too early to determine the results of the arbitration and havenot recorded any damage claim.

 

Other than as describedabove, neither we nor our subsidiaries are a party to, and none of our property, nor our subsidiaries’property, is the subject of, any other pending legal proceedings other thanlitigation arising in the normalcourse of business. We do not believe that adverse determinations in any or allsuch other litigation would have a material adverse effect on our financialcondition, results of operations or cash flows.

 

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**ITEM 4.****                                                   SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS**

 

None.

 

**PART II**

 

**ITEM 5.****                                                   MARKETFOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUERPURCHASES OF EQUITY SECURITIES**

 

Thereis no established public trading market for any of PGL’s, DJL’s or PGC’s commonequity securities.

 

Asof March 31, 2006, PGP was the only holder of record of the common equityof PGL. In November 2005 and May 2004, PGP repurchased 35,210 and 147,553units of its convertible preferred membership interests from an unrelated thirdparty for approximately $1.8 million and $4.5 million, respectively. Both ofthese repurchases were funded by a distribution of cash to PGP from the Company.In fiscal years 2005, 2004 and 2003, PGL and/or its subsidiaries paid distributionsof $2.8 million, $2.5 million, and $1.6 million, respectively, to PGP inrespect of (i) PGP development expenses, (ii) board fees and actualout-of-pocket expenses incurred by members of the board of managers of PGP (the“Board of Managers”) in their capacity as board members, and (iii) tax,accounting, legal and administrative costs and expenses of PGP. These amountswere recorded as member distributions.

 

Significantrestrictions exist on our ability to make member distributions. See Note 4 tothe consolidated financial statements for information on such restrictions.

 

**ITEM 6.****                                                   SELECTEDFINANCIAL DATA**

 

The following tablerepresents selected consolidated financial data of PGL for the five years endedDecember 31, 2005.

 

The selected historicalfinancial data for the five years ended December 31, 2005 are derived fromaudited financial statements of the Company and its subsidiaries. The selectedfinancial data set forth below should be read in conjunction with, and isqualified in its entirety by reference to, “Management’s Discussion andAnalysis of Financial Condition and Results of Operations,” and the Company’sfinancial statements and the related notes included elsewhere in this document.

 
| ** **                                                                   | ** ** | **2005**                   | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
|------------------------------------------------------------------------------|------------|----------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
| ** **                                                                   | ** ** | **(Dollars in thousands)** | ** ** |
| **Statement of Operations Data**                                             |       |                       |       |     |       |     |       |     |       |     |       |
| REVENUES:                                                                    |       |                       |       |     |       |     |       |     |       |     |       |
| Casino                                                                       |       | $                          | 146,503    |     | $          | 119,921  |       | $        | 56,795     |     | $          | 48,262 |   | $ | 47,710 |   |
| Racing                                                                       |       | 17,509                     |       | 17,286   |       | 17,051   |       | 15,510   |       |     |       |
| Video Poker                                                                  |       | 2,339                      |       | 2,715    |       | 722      |       |     |       |     |       |
| Food and beverage                                                            |       | 13,511                     |       | 11,464   |       | 4,566    |       | 3,886    |       | 2,745    |       |
| Other                                                                        |       | 2,710                      |       | 1,434    |       | 589      |       | 145      |       | 132      |       |
| Less promotional allowances                                                  |       | (7,005                     | )          | (7,966   | )          | (3,221   | )          | (2,615   | )          | (2,470   | )          |
| Total net revenues                                                           |       | 175,567                    |       | 144,854  |       | 76,502   |       | 65,188   |       | 48,117   |       |
| EXPENSES:                                                                    |       |                       |       |     |       |     |       |     |       |     |       |
| Casino                                                                       |       | 73,651                     |       | 61,272   |       | 24,429   |       | 20,992   |       | 20,812   |       |
| Racing                                                                       |       | 15,267                     |       | 13,916   |       | 13,045   |       | 12,651   |       |     |       |
| Video poker                                                                  |       | 1,767                      |       | 2,034    |       | 654      |       |     |       |     |       |
| Food and beverage                                                            |       | 9,849                      |       | 9,218    |       | 4,282    |       | 3,820    |       | 2,857    |       |
| Boat operations                                                              |       | 2,105                      |       | 2,231    |       | 2,322    |       | 2,296    |       | 2,259    |       |
| Other                                                                        |       | 1,720                      |       | 1,076    |       | 443      |       | 27       |       | 22       |       |
| Selling, general and administrative                                          |       | 26,441                     |       | 22,052   |       | 12,219   |       | 8,303    |       | 6,244    |       |
| Depreciation and amortization                                                |       | 16,249                     |       | 12,356   |       | 3,324    |       | 2,950    |       | 3,963    |       |
| Pre-opening expense                                                          |       | 310                        |       | 367      |       | 3,257    |       |     |       |     |       |
| Development expense                                                          |       | 575                        |       | 242      |       | 102      |       |     |       |     |       |
| Management severance and recruiting                                          |       |                       |       | 593      |       |     |       |     |       |     |       |
| Affiliate management fees                                                    |       | 2,057                      |       | 757      |       | 175      |       |     |       |     |       |
| (Gain) loss on disposal of assets                                            |       | (16                        | )          | (716     | )          | 50       |       | 8        |       | 152      |       |
| Litigation settlement                                                        |       |                       |       |     |       |     |       | 1,600    |       |     |       |
| Referendum                                                                   |       |                       |       |     |       |     |       | 771      |       |     |       |
| State of Wisconsin government relations                                      |       |                       |       |     |       |     |       | 55       |       | 147      |       |
| Total expenses                                                               |       | 149,975                    |       | 125,398  |       | 64,302   |       | 53,473   |       | 36,456   |       |
| Income from operations                                                       |       | 25,592                     |       | 19,456   |       | 12,200   |       | 11,715   |       | 11,661   |       |
| OTHER INCOME (EXPENSE):                                                      |       |                       |       |     |       |     |       |     |       |     |       |
| Interest income                                                              |       | 517                        |       | 170      |       | 490      |       | 46       |       | 184      |       |
| Interest expense, net of amounts  capitalized                                |       | (29,133                    | )          | (26,775  | )          | (25,072  | )          | (11,888  | )          | (9,640   | )          |
| Loss on early retirement of debt                                             |       |                       |       | (37,566  | )          |     |       |     |       |     |       |
| Interest expense related to preferred  members’ interest, redeemable(1) |       | (360                       | )          | (360     | )          | (180     | )          |     |       |     |       |
| Total other expense                                                          |       | (28,976                    | )          | (64,531  | )          | (24,762  | )          | (11,842  | )          | (9,456   | )          |
| Preferred member distributions(1)                                            |       |                       |       |     |       | (180     | )          | (373     | )          | (386     | )          |
| Minority interest                                                            |       |                       |       |     |       |     |       | (232     | )          |     |       |
| Net income (loss) to common member’s  interests                         |       | $                          | (3,384     | )        | $          | (45,075  | )          | $        | (12,742    | )        | $          | (732 | ) | $ | 1,819 |   |
|                                                                         |       |                       |       |     |       |     |       |     |       |     |       |
| Ratio of earnings to fixed charges(2)                                        |       | 0.9                        | x          | 0.3      | X          | 0.5      | x          | 0.9      | x          | 1.2      | x          |
|                                                                         |       |                       |       |     |       |     |       |     |       |     |       |
| **Other Data**                                                               |       |                       |       |     |       |     |       |     |       |     |       |
| Cash flows from/(used in) operating  activities                              |       | $                          | 22,975     |     | $          | (19,793  | )          | $        | 1,518      |     | $          | 11,144 |   | $ | 7,250 |   |
| Cash flows (used in) investing activities                                    |       | (53,590                    | )          | (8,868   | )          | (95,444  | )          | (37,151  | )          | (2,816   | )          |
| Cash flows from/(used in) financing  activities                              |       | 32,889                     |       | 18,007   |       | 104,574  |       | 28,993   |       | (5,273   | )          |
| Distributions to common members                                              |       | 4,624                      |       | 7,031    |       | 1,557    |       | 1,260    |       | 1,761    |       |

 

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| ** **                                      | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
|-------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
| **Balance Sheet Data**                          |       |     |       |     |       |     |       |     |       |     |       |
| Current assets                                  |       | $        | 24,731     |     | $          | 17,418   |       | $        | 40,227     |     | $          | 12,160 |   | $ | 8,034 |   |
| Total assets                                    |       | 287,628  |       | 243,069  |       | 261,519  |       | 126,448  |       | 84,374   |       |
| Current liabilities                             |       | 47,886   |       | 34,270   |       | 46,321   |       | 35,358   |       | 3,964    |       |
| Total debt(1)                                   |       | 321,006  |       | 279,378  |       | 228,825  |       | 102,944  |       | 70,860   |       |
| Preferred members’ interest, redeemable(1) |       |     |       |     |       |     |       | 4,000    |       | 4,000    |       |
| Total members’ (deficit) equity            |       | (70,607  | )          | (62,599  | )          | (10,629  | )          | 3,671    |       | 5,663    |       |
|                                                 |            |          |            |          |            |          |            |          |            |          |            |  |  |  |  |  |

 

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(1)                                  InMay 2003, the Financial Accounting Standards Board issued Statement ofFinancial Accounting Standards No. 150, “Accounting for Certain FinancialInstruments with Characteristics of both Liabilities and Equity” (“SFAS 150”).This statement establishes standards for how an issuer classifies and measurescertain financial instruments with characteristics of both liabilities andequity. It requires the issuer to classify a financial instrument that iswithin the scope of the standard as a liability if such financial instrumentembodies an obligation of the issuer. As a result of the adoption of SFAS No. 150on July 1, 2003, we reclassified our $4 million mandatory redeemablepreferred members’ interest from the mezzanine section of the consolidatedbalance sheet to long-term debt. Further, preferred member distributions paidor accrued subsequent to adoption of SFAS No. 150 are required to bepresented as interest expense separately from interest due to other creditors. TheCompany was not required to record a cumulative effect of a change in anaccounting principle as the redeemable preferred members’ interest was recordedat fair value prior to July 1, 2003. We are precluded from reclassifying priorperiod amounts pursuant to this standard.

 

(2)                                  Forpurposes of determining the ratio of earnings to fixed charges, earnings aredefined as net income (loss) to common members’ interests plus fixed charges.Fixed charges include interest expense on all indebtedness, including amountscapitalized, amortization of deferred financing costs and debt discount and preferredmember distributions. Earnings were insufficient to cover fixed charges for theyears ended December 31, 2005, 2004, 2003 and 2002 by $3.7 million, $46.3million, $14.9 million and $0.8 million, respectively.

 

**ITEM 7.****                                                   MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

The following discussionand analysis should be read in conjunction with, and is qualified in itsentirety by, our “Selected Financial Data” and the financial statements and therelated notes thereto appearing elsewhere in this report.

 

**ForwardLooking Statements**

** **

Some statements containedin “Management’s Discussion and Analysis of Financial Condition and Results ofOperations” constitute “forward-looking statements” within the meaning of thePrivate Securities Litigation Reform Act of 1995. Forward-looking statementsinclude the words “may,” “will,” “estimate,” “intend,” “continue,” “believe,” “expect,”or “anticipate” and other similar words. These forward-looking statementsgenerally relate to plans and objectives for future operations and are basedupon management’s reasonable estimates of future results or trends. Although webelieve that the plans and objectives reflected in or suggested by suchforward-looking statements are reasonable, such plans or objectives may not beachieved. Actual results may differ from projected results due, but notlimited, to unforeseen developments, including developments relating to thefollowing:

 

•                  the availability and adequacy of our cashflow to satisfy our obligations, including payment of the Peninsula Gaming Notes,the DJW Notes and additional funds required to support capital improvements anddevelopment;

 

•                  economic, competitive, demographic, businessand other conditions in our local and regional markets;

 

•                  changes or developments in the laws,regulations or taxes in the gaming and horse racing industry;

 

•                  actions taken or omitted to be taken by thirdparties, including customers, suppliers, competitors, members and shareholders,as well as legislative, regulatory, judicial and other governmentalauthorities;

 

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•                  changes in business strategy, capitalimprovements, development plans, including those due to environmentalremediation concerns, or changes in personnel or their compensation, includingfederal, state and local minimum wage requirements;

 

•                  the loss of any license or permit, includingthe failure to obtain an unconditional renewal of a required gaming license ona timely basis;

 

•                  the termination of our operating agreementwith the Dubuque Racing Association, Ltd. or the failure of the Dubuque RacingAssociation, Ltd. to continue as our “qualified sponsoring organization;”

 

•                  the loss of our riverboat casino orland-based facilities due to casualty, weather, mechanical failure or anyextended or extraordinary maintenance or inspection that may be required;

 

•                  potential exposure to environmentalliabilities, changes or developments in the laws, regulations or taxes in thegaming or horse racing industry or a decline in the public acceptance of gamingor horse racing and other unforeseen difficulties associated with a newventure;

 

•                  adverse circumstances, changes, developmentsor events relating to or resulting from our ownership and control of OED andDJL and DJW; and

 

•                  other factors discussed in our other filingswith the SEC.

 

**Overview**

 

We own andoperate (i) the Diamond Jo riverboat casino in Dubuque, Iowa with 777 slotmachines and 19 table games, (ii) the Evangeline Downs racino developmentwith 1,627 slot machines and a one-mile dirt horse racetrack in Opelousas,Louisiana and five OTBs located throughout south central Louisiana. We are alsoin the process of constructing an excursion gambling boat casino in WorthCounty, Iowa with approximately 511 slot machines and 20 table games which isscheduled to open to the public in April 2006.

 

**Results** of Operations

** **

Our results of operationsdiscussed below include the consolidated results of operations of the Company, DJLand OED for the years ended December 31, 2005, 2004 and 2003, the resultsof operations of OEDA for the period January 1, 2004 through June 30,2004 (the date which OEDA was spun-off) and the year ended December 31, 2003,and DJW for the year ended December 31, 2005.

 

*Statement of Operations Data*

(in thousands)

 
| ** **                        | ** ** | **Year Ended December 31,** | ** ** |
|-----------------------------------|------------|----------------------------------|------------|
| ** **                        | ** ** | **2005**                         | ** ** | **2004** | ** ** | **2003** | ** ** |
| General corporate                 |       | $                                | (3,967     | ) | $ | (1,276 | ) | — |   |
| Diamond Jo                        |       | 12,580                           |       | 14,225 |   | $ | 15,351 |   |
| Evangeline Downs (including OEDA) |       | 17,297                           |       | 6,507 |   | (3,151 | ) |
| Diamond Jo Worth                  |       | (317                             | )          | — |   | — |   |
| Income from operations            |       | $                                | 25,593     |   | $ | 19,456 |   | $ | 12,200 |   |

 

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| ** **                          | ** ** | **Diamond Jo**                        | ** ** | **Evangeline Downs**                  | ** ** | **Diamond Jo  Worth** | ** ** |
|-------------------------------------|------------|--------------------------------------------|------------|--------------------------------------------|------------|----------------------------|------------|
| ** **                          | ** ** | **Year Ended December 31,** | ** ** | **Year Ended December 31,** | ** ** | **Year Ended**        | ** ** |
| ** **                          | ** ** | **2005**                                   | ** ** | **2004**                                   | ** ** | **2003**                   | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2005** | ** ** |
|                                |       |                                       |       |                                       |       |                       |       |   |   |   |   |   |   |   |   |
| *Revenues:*                         |       |                                       |       |                                       |       |                       |       |   |   |   |   |   |   |   |   |
| Casino                              |       | $                                          | 51,249     |                                       | $          | 50,964                     |       | $ | 53,567 |   | 95,254 |   | $ | 68,957 |   | $ | 3,228 |   |   |   |
| Racing                              |       |                                       |       |                                       |       |                       |       | 17,509 |   | 17,286 |   | 17,051 |   |   |   |
| Video Poker                         |       |                                       |       |                                       |       |                       |       | 2,339 |   | 2,715 |   | 722 |   |   |   |
| Food and beverage                   |       | 2,720                                      |       | 2,897                                      |       | 3,027                      |       | 10,791 |   | 8,567 |   | 1,539 |   |   |   |
| Other                               |       | 310                                        |       | 488                                        |       | 422                        |       | 1,017 |   | 946 |   | 167 |   | $ | 1,383 |   |
| Less promotional allowances         |       | (1,500                                     | )          | (2,634                                     | )          | (3,012                     | )          | (5,505 | ) | (5,332 | ) | (209 | ) |   |   |
| Net revenues                        |       | 52,779                                     |       | 51,715                                     |       | 54,004                     |       | 121,405 |   | 93,139 |   | 22,498 |   | 1,383 |   |
| *Expenses:*                         |       |                                       |       |                                       |       |                       |       |   |   |   |   |   |   |   |   |
| Casino                              |       | 23,688                                     |       | 22,831                                     |       | 22,183                     |       | 49,963 |   | 38,441 |   | 2,246 |   |   |   |
| Racing                              |       |                                       |       |                                       |       |                       |       | 15,266 |   | 13,916 |   | 13,045 |   |   |   |
| Video Poker                         |       |                                       |       |                                       |       |                       |       | 1,767 |   | 2,034 |   | 654 |   |   |   |
| Food and beverage                   |       | 2,517                                      |       | 2,641                                      |       | 2,782                      |       | 7,332 |   | 6,577 |   | 1,500 |   |   |   |
| Boat operations                     |       | 2,105                                      |       | 2,231                                      |       | 2,322                      |       |   |   |   |   |   |   |   |   |
| Other                               |       | 37                                         |       | 390                                        |       | 383                        |       | 305 |   | 686 |   | 60 |   | 1,378 |   |
| Selling, general and administrative |       | 7,566                                      |       | 6,922                                      |       | 8,331                      |       | 15,549 |   | 14,204 |   | 3,888 |   |   |   |
| Depreciation and amortization       |       | 4,136                                      |       | 2,679                                      |       | 2,500                      |       | 12,090 |   | 9,677 |   | 824 |   | 24 |   |
| Pre-opening expense                 |       |                                       |       |                                       |       |                       |       | 171 |   | 367 |   | 3,257 |   | 139 |   |
| Management severance and recruiting |       |                                       |       | 294                                        |       |                       |       |   |   | 191 |   |   |   |   |   |
| Affiliate management fees           |       |                                       |       |                                       |       |                       |       | 1,479 |   | 757 |   | 175 |   | 160 |   |
| Development expense                 |       | 147                                        |       |                                       |       | 102                        |       | 205 |   |   |   |   |   |   |   |
| (Gain) loss on disposal of assets   |       | 3                                          |       | (498                                       | )          | 50                         |       | (19 | ) | (218 | ) |   |   |   |   |
| Total expenses                      |       | 40,199                                     |       | 37,490                                     |       | 38,653                     |       | 104,108 |   | 86,632 |   | 25,649 |   | 1,701 |   |
| Income (loss) from operations       |       | $                                          | 12,580     |                                       | $          | 14,225                     |       | $ | 15,351 |   | $ | 17,297 |   | $ | 6,507 |   | $ | (3,151 | ) | $ | (317 | ) |
|                                     |            |                                            |            |                                            |            |                            |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

*2005 Compared to 2004*

 

Net revenues increased $30.7million, or 21%, to $175.6 million in 2005 from $144.9 million in 2004.The majority of this increase is due to an increase in OED’s casino revenues of$26.3 million to $95.3 million in 2005 from $69.0 million in 2004. Thisincrease is attributed primarily to improvements in our marketing and playerdevelopment programs and promotions as well as an increase in the localpopulation as a result of Hurricane Katrina which hit Southern Louisiana inAugust 2005 and forced many residents from the Gulf Coast to move north toareas closer to the racino. Daily casino win per position at OED was $160 in2005 as compared to $119 in 2004. DJL’s casino revenues increased by $0.3million to $51.3 million in 2005 from $51.0 million in 2004. DJL’s slot revenuedecreased slightly to $44.9 million in 2005 from $45.2 million in 2004. DJL’s tablegame revenue increased by $0.2 million, or 4.0%, in 2005 compared 2004, due toan increase in hold percentage to 19.9% in 2005 compared to 18.6% in 2004.

 

Casino gaming win in theentire Dubuque market increased 10.0% to $103.2 million in 2005 from $93.8 millionin 2004. We believe this increase was primarily attributed to the expansion of thelocal competitor who increased their number of slot positions from 600 to 1,000in May 2005. Our share of the Dubuque market casino gaming win decreased to 49.7%in 2005 from 54.4% in 2004 which management believes is primarily due to theexpansion of the local competitor. Casino revenues at DJL were derived 87.6%from slot machines and 12.4% from table games and poker in 2005 compared to 88.8%from slot machines and 11.2% from table games in 2004. DJL’s casino win pergaming position per day at the DJL decreased slightly to $154 in 2005 from $159in 2004. In 2005, our share of the Dubuque market casino admissions decreasedto 45.0% from 52.2% in 2004. In 2005, our casino win per admission at DJL increasedto $53 from $49 in 2004.

 

Racingrevenues at OED for 2005 were $17.5 million compared to $17.3 millionfor 2004. This increase is primarily due to the opening of two new OTBs in 2005and the running of additional live meets in the first and fourth quarter of2005. These increases were offset by a decrease related to the closure of theracetrack from May 13, 2005 to June 28, 2005 for improvements relatedto the dirt track.  We reopened the racetrack on June 29, 2005. Additionaldeclines can be attributed to an overall decline in industry handle andrelocation of our racetrack operations to Opelousas.

 

Video poker revenues for2005 and 2004 were $2.3 million and $2.7 million, respectively. The decrease invideo poker revenues was attributed to an increase in competition in the videopoker market due to the addition of two new truck stop venues offering videopoker within one mile of our Port Allen OTB.

 

Net food and beveragerevenues, other revenues and promotional allowances increased $4.3 millionduring 2005 to $9.2 million compared to $4.9 million in 2004 due primarily to(i) an increase in food and beverage revenues at OED of $2.2 million dueto an increase in the number of visitors at the racino, (ii) an increase inother revenue at DJW of $1.4 million related to gasoline sales at theconvenience store that was acquired in connection with the purchase of the landon which the new casino is being constructed and (iii) a reduction incomplimentary expenses included in promotional allowances of approximately $1.0million.

 

Casino operating expensesincreased $12.4 million to $73.7 million in 2005 from $61.3 millionin 2004 due primarily to an increase in casino expenses at OED of$11.5 million primarily related to purse supplements and gaming taxes

 

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which are based on net casinorevenues and an increase in direct mail expenses. These increases at OED were partiallyoffset by a decrease in casino payroll and payroll related expenses ofapproximately $1.2 million. Casino expenses at DJL increased $0.8 millionprimarily related to an increase in gaming tax expense due to an increase ingaming revenues and an increase in the gaming tax rate from 20% to 22%effective July 1, 2004 as well as an increase in direct mail expenses. Theseincreases at DJL were partially offset by a decrease in casino payroll andpayroll related expenses of approximately $0.9 million.

 

Racing expenses at OEDincreased $1.4 million to $15.3 million in 2005 from $13.9 million in2004 due primarily to an increase in operating expenses associated with theopening of two new OTBs in 2005 and the running of additional live meets in thefirst and fourth quarter of 2005.

 

Food and beverageexpenses increased $0.6 million to $9.8 million in 2005 from$9.2 million in 2004 due primarily to the increase of food and beveragecost of sales at OED associated with an increase in sales. Boat operationexpenses at the Diamond Jo decreased $0.1 million to $2.1 million in2005 from $2.2 million in 2004 primarily due to a decrease in payroll andrelated expenses associated with DJL’s boat switching to PMV status in November2005. Management believes that switching to PMV will save approximately $0.8million per year in expenses. Other expenses increased $0.6 million dueprimarily to the cost of gasoline sold at DJW’s convenience store as discussedabove.

 

Selling, general andadministrative expenses increased $4.3 million to $26.4 million in 2005from $22.1 million in 2004. This increase was due to an increase ingeneral and administrative expenses at OED of $1.3 million due primarilyto increased payroll and payroll related benefits and operating expensesassociated with cleaning and maintaining a larger facility due to the openingof the new track in late 2004 and the running of more live racing days in 2005than in 2004. General and administrative expenses at DJL increased $0.6 millionprimarily due to increased marketing expenses. General and administrativeexpenses at corporate increased $2.4 million due primarily to additionalstaffing and expense associated with the increase in the fair value of memberunits granted to certain executive officers of the Company in 2005 ofapproximately $1.2 million.

 

Depreciation and amortizationexpenses increased to $16.2 million in 2005 from $12.4 million in2004 due primarily to an increase in depreciation related to the purchase of783 new slot machines by DJL and OED during the fourth quarter of 2004 inaddition to depreciation related to the opening of the second phase of OED’sracino, the dirt horse racetrack and related facilities, which opened to thepublic on November 22, 2004. During the first quarter of 2005, 2004 and2003, we performed our annual impairment test on goodwill and indefinite livedintangible assets and determined that the estimated fair value exceeded their carryingvalue as of that date. Based on that review, management determined that therewas no impairment of goodwill and indefinite lived intangible assets.

 

Pre-opening expenses of $0.3million in 2005 relate to payroll and other expenses incurred by OED withrespect to start-up activities surrounding the opening of its Henderson andAlexandria OTBs and expenses incurred by DJW with respect to start-up activitiessurrounding the new casino development in Worth County, Iowa. Pre-openingexpenses of $0.4 million in 2004 relate to payroll and other expenses incurredby OED with respect to start-up activities surrounding the racino project andopening of the new racetrack and grandstands in November 2004. Developmentexpenses of approximately $0.6 million and $0.2 million in 2005 and 2004,respectively, relate to expenses incurred pursuing potential OTB opportunitiesat OED and expenses incurred under an exclusive agreement with the Worth CountyDevelopment Authority pursuant to which the parties agreed to jointly submit anapplication for a license to operate a gaming facility in Worth County, Iowa. Affiliatemanagement fees increased $1.3 million to $2.1 million in 2005 from $0.8million in 2004 due primarily to management fees payable to a related party inconnection with a management services agreement and consulting fees paidpursuant to a consulting agreement with a related party which are based on OED’soperations.

 

Income from operationsincreased $6.1 million to $25.6 million in 2005 from $19.5 million in 2004. Incomefrom operations increased primarily due to the $14.2 million increase in casinorevenues, net of casino expenses, as discussed above and was partially offsetby a $4.3 million increase in selling, general and administrative expenses anda $3.9 million increase in depreciation as discussed above.

 

Interestincome of approximately $0.5 million in 2005 is primarily related to interestearned on the net proceeds from the offering of the DJW Notes in July 2005which were deposited into interest bearing accounts. Interest expense,including loss on early retirement of debt and interest expense related to DJL’sredeemable preferred member interests, decreased $35.2 million to $29.5 millionin 2005 from $64.7 million in 2004. This decrease is primarily due to the losson early retirement of debt of $37.6 million related to the refinancing of ourlong term debt with lower interest rates during the second quarter of 2004offset by interest on the DJW Notes of approximately $1.8 million. Interestexpense of approximately $0.4 million was capitalized in 2005 as part of DJWcasino development and $1.1 million was capitalized as part of the

 

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racino construction at OED in2004.

 

*2004 Compared to 2003*

 

Net revenues increased $68.4million, or 89.3%, to $144.9 million in 2004 from $76.5 million in 2003.The majority of this increase is due to an increase in OED’s casino revenues of$65.8 million to $69.0 million in 2004 from $3.2 million in 2003 as aresult of the opening of the casino portion of the racino in December 2003.Daily casino win per position at OED was $119 in 2004. Diamond Jo’s casinorevenues decreased $2.6 million, or 4.9%, to $51.0 million in 2004 from $53.6million in 2003. Diamond Jo’s slot revenue decreased $1.7 million, or 3.6%,December 31, 2004 compared to the year ended December 31, 2003,primarily due to a decrease in coin-in of 5.0% over the same period. Diamond Jo’stable game revenue decreased $0.9 million, or 14.0%, December 31, 2004compared to the year ended December 31, 2003, primarily due to a 6.6%decrease in table drop and a decrease in hold percentage to 18.6% December 31,2004 compared to 20.2% December 31, 2003. Management believes that asignificant portion of the decrease in slot and table game revenues can beattributed to the re-opening of a Native American casino approximately 125miles southwest of the Diamond Jo on January 1, 2004. This casino wasclosed from mid May 2003 through December 2003.

 

Casino gaming win in the entireDubuque market decreased 3.6% to $93.8 million in 2004 from $97.2 million in2003. We believe this decrease was primarily attributed to the re-opening of anearby Native American casino as discussed above. Our share of the Dubuquemarket casino gaming win decreased to 54.4% in 2004 from 55.1% in 2003. Casinorevenues at the Diamond Jo were derived 88.8% from slot machines and 11.2% fromtable games in 2004 compared to 87.6% from slot machines and 12.4% from tablegames in 2003. Consistent with a decrease in casino revenue, our casino win pergaming position per day at the Diamond Jo decreased to $159 in 2004 from $171in 2003. For the year ended December 31, 2004, our share of the Dubuquemarket casino admissions increased to 52.2% from 50.7% for the year ended December 31,2003. For the year ended December 31, 2004, our casino win per admission atthe Diamond Jo decreased to $49 from $51 in 2003.

 

Racing revenues at OED in2004 were $17.3 million compared to $17.1 in 2003. Video pokerrevenues at OED in 2004 increased $2.0 million to $2.7 million compared to$0.7 in 2003. The increase in video poker revenues was attributed to changesat OED’s Port Allen OTB facility. During 2003, OED completed a renovation andthe installation of 100 video poker machines at the Port Allen facility. UntilOED received its video poker license, the machines were operated by anindependent third party who shared in a portion of the video poker proceeds. Afterreceiving its video poker license, OED took over operation of the video pokermachines in late 2003 and, as a result, began receiving 100% of the revenues.

 

Net food and beveragerevenues, other revenues and promotional allowances increased $3.0 millionduring the year ended December 31, 2004 compared to the year ended December 31,2003 due primarily to food and beverage revenues generated from OED’s newracino.

 

Casino operating expensesincreased $36.9 million to $61.3 million in 2004 from $24.4 million in2003 due primarily to an increase in casino expenses at OED of $36.2 millionprimarily related to purse supplements and gaming taxes which are based on netcasino revenues and casino related payroll.

 

Racing expenses increased7% to $13.9 million in 2004 from $13.0 million in 2003 due primarilyto an increase in live horse racing expenses of approximately $1.0 million primarilydue to the addition of live quarter horse meets held in September and October of2004. Video poker expenses increased $1.3 million to $2.0 in 2004 from$0.7 million in 2003 due primarily to an increase in operating expenses atOED’s Port Allen OTB related to the addition of 100 new video gaming devices asdiscussed above.

 

Food and beverageexpenses increased $4.9 million to $9.2 million in 2004 from $4.3million in 2003 due primarily to food and beverage expenses at OED relatedto the opening of OED’s new racino. Boat operation expenses at the Diamond Jo decreased$0.1 million to $2.2 million in 2004 from $2.3 million in 2003.Other expenses increased $0.6 million primarily due to costs associatedwith OED’s outdoor entertainment venue.

 

Selling, general andadministrative expenses increased $9.9 million to $22.1 million in 2004from $12.2 million in 2003. This increase was due to an increase ingeneral and administrative expenses at OED of $10.3 million due primarilyto payroll, marketing and other general and administrative expenses associatedwith the new racino offset by a decrease in non-corporate general andadministrative expenses at the Diamond Jo of approximately $0.6 milliondue primarily to a decrease in management compensation at the Diamond Jo of$0.2 million and a decrease of $0.4 million related to a charitablegiving agreement with an Iowa non-for-profit organization which was expensed in2003.

 

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Depreciation andamortization expenses increased to $12.4 million in 2004 from $3.3 million in2003 due primarily to an increase in depreciation of property and equipment atOED of approximately $8.9 million due to the casino opening on December 19,2003. During the first quarter of 2002, 2003 and 2004, we performed our annualimpairment test on goodwill and indefinite lived intangible assets and determinedthat the estimated fair value exceeded its carrying value as of that date.Based on that review, management determined that there was no impairment ofgoodwill and indefinite lived intangible assets .

 

Pre-opening expenses of $0.4million and $3.3 million in 2004 and 2003, respectively, relate to payrolland other expenses incurred by OED with respect to start-up activitiessurrounding the racino project. Development expenses of approximately $0.2million and $0.1 million in 2004 and 2003, respectively, relate toexpenses incurred relative to us entering into an exclusive agreement with theWorth County Development Authority pursuant to which the parties agreed tojointly submit an application for a license to operate a gaming facility inWorth County, Iowa. Management severance and recruiting expenses of $0.6million in 2004 relate to severance costs incurred by the Company in relationto turnover of upper management and various fees and expenses incurred infinding new management personnel. Affiliate management fees of $0.8 million in2004 relate to management fees to related parties primarily related to aconsulting agreement at OED for the racino.

 

Gain on disposal ofassets of $0.7 million in 2004 relates primarily to the disposal of slotmachines during the fourth quarter of 2004.

 

Income from operationsincreased $7.3 million to $19.5 million in 2004 from $12.2 million in 2003. OED’sincome from operations increased by $9.7 million due to the new racinooperation as discussed above offset by lower income from operations of $2.4million at Diamond Jo and corporate due primarily to lower net gaming revenuesas described above.

 

Net interest expense,including loss on early retirement of debt and interest expense related to DJL’sredeemable preferred member interests, increased $39.7 million to $64.5 million in2004 from $24.8 million in 2003. This increase is primarily due to theloss on early retirement of debt of $37.6 million related to our debtrefinancing activities discussed below under “Liquidity and Capital Resources”.The remaining difference is primarily related to the timing the offering by OEDof its 13% Senior Secured Notes due 2010 with Contingent Interest (the “OEDNotes”), which occurred on February 25, 2003, and lower capitalized interestas the racino project was nearing completion. Interest expense of approximately$1.3 million and $2.2 million was capitalized as part of ourconstruction of the racino during the years ended December 31, 2004 and2003, respectively.

 

**Liquidity and**Capital Resources

** **

*Cash Flows from Operating, Investing andFinancing Activities*

 

Our cashbalance increased $2.3 million in 2005 to $12.8 million at December 31, 2005from $10.5 million at December 31, 2004.

 

Cash flowsfrom operating activities were $23.0 million in 2005, an increase of $42.8million when compared to a use of $19.8 million in 2004. The increase isprimarily due to tender and call premiums paid on the early retirement of debtof $23.1 million in 2004, an increase from working capital of $9.7 million dueprimarily to the timing of interest payments as a result of the refinancing ofthe Company’s long term debt during the second quarter of 2004 and a decreasein net loss to common member’s interest (excluding the $37.6 million loss onearly retirement of debt in 2004 and depreciation and amortization noncashexpense) of $8.0 million.

 

Cash flowsused in investing activities in 2005 was $53.6 million consisting of cashoutflows of (i) an increase in restricted cash — interest reserve andrestricted cash — casino construction of $19.1 million related to theinvestment of proceeds from the DJW Notes into interest bearing cashequivalents whose distribution is restricted pursuant to the Cash Collateraland Disbursement Agreement, (ii) payments of approximately $25.9 millionfor construction and other development costs associated with the Worth Countycasino development project and the racino project at OED, (iii) net cashoutflows of approximately $5.8 million used for capital expenditures mainlyrelated to the development of our new OTBs at OED and the acquisition of slotmachines and slot machine conversions and general maintenance capitalexpenditures, (iv) business acquisition and license costs of $1.4 millionprimarily related to a $1.0 million license fee paid by DJW in June 2005in connection with its gaming license granted in May 2005 and (v) adecrease in our restricted cash balance designated for purse settlements of$1.4 million.

 

Cash flowsfrom financing activities in 2005 of $32.9 million reflects (i) proceedsfrom the offering of the DJW Notes of $40.0 million and (ii) net proceedsfrom borrowings under the revolver portion of the PGL Credit Facility of $9.9

 

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million. These proceeds were offsetby (i) aggregate principal payments under the term loan portion of the PGLCredit Facility of $4.0 million, (ii) aggregate principal payments onnotes payable of $5.1 million, (iii) deferred financing fees paid of $3.3million primarily related to the offering of the DJW Notes and (iv) memberdistributions of approximately $4.6 million.

 

*Financing Activities*

 

On March 1, 2006, DJW andDJWC entered into a $2.5 million senior secured revolving credit facility (the“DJW Credit Facility”) with American Trust & Savings Bank (the “Lender”)which permits DJW to request advances and letters of credit up $2.5 million(less amounts outstanding under letters of credit). Advances under the DJWCredit Facility bear an interest rate at DJW’s option of either LIBOR plus amargin 1.85%-2.20% or the Wall Street Journal prime rate less a margin of 1.0%,provided, however, that at no time shall the interest rate be lower than 5.0%.The DJW Credit Facility has a term that expires on March 1, 2010.

 

The DJW Credit Facility contains a number ofrestrictive covenants, including covenants that limit DJW’s ability to, amongother things, incur or guarantee more debt and create liens. In addition, theDJW Credit Facility requires that, on an annual basis, DJW repay all advances (otherthan amounts designated under letters of credit) and such repayment of alladvances must continue for a period of five days, after which, DJW will beallowed to resume requesting advances. The DJW Credit Facility also containscustomary events of default, including nonpayment of principal and interestwhen due, violation of covenants, material inaccuracy of representations andwarranties, bankruptcy events, and material judgments. Certain of the events ofdefault are subject to a grace period.

 

DJW’s and DJWC’s obligationsunder the DJW Credit Facility are secured by a security interest insubstantially all of DJW’s and DJWC’s tangible and intangible assets other thancertain excluded assets, including the disbursement accounts created under theindenture governing the DJW Notes. The DJW Credit Facility is secured bysubstantially the same assets (other than the disbursement accounts) thatsecure the DJW Notes. The DJW Credit Facility is permitted indebtedness underthe indenture governing the DJW Notes. Our chief executive officer agreed tounconditionally guarantee DJW’s payment obligations to the lender under the DJWCredit Facility.

 

Pursuant to an intercreditoragreement, the lien on the collateral securing the DJW Credit Facility iscontractually senior to the lien on the collateral securing the DJW Notes andthe related guarantees. The intercreditor agreement provides that the lienssecuring the DJW Notes and the related guarantees on any collateral that alsosecures the obligations under the DJW Credit Facility is subordinated to theliens securing up to $2.5 million under the DJW Credit Facility and relatedinterest, fees, indemnities, costs and expenses. Under the intercreditoragreement, if the DJW Notes become due and payable prior to the stated maturitythereof for any reason or are not paid in full at the stated maturity thereofat a time during which indebtedness under the DJW Credit Facility has not beenfully paid, the trustee under the DJW Notes indenture, as collateral agentunder the related security documents, will only have the right to forecloseupon any collateral that also secures the obligations under the DJW CreditFacility if the Lender (with or without the Lender taking part in any suchforeclosure) either (i) fails to take steps to exercise remedies with respectto or in connection with such collateral within 180 days following notice tothe Lender of the occurrence of an Event of Default (as defined) under the DJWNotes indenture or (ii) fails to continue to pursue any such exercise ofremedies while such Event of Default is then continuing and no insolvencyproceeding is pending. The intercreditor agreement prevents the trustee underthe DJW Notes indenture, as collateral agent under the related securitydocuments, and the holders of the DJW Notes from pursuing remedies with respectto such collateral in all other instances during which indebtedness under theDJW Credit Facility has not be fully paid, including during any insolvencyproceeding. The intercreditor agreement provides that the net proceeds from anydisposition of the shared collateral will first be applied to repayindebtedness outstanding under the DJW Credit Facility and thereafter to repayall of the obligations of DJW, DJWC, and any subsidiary guarantors thereof underthe DJW Notes.

 

In January 2006, DJW entered into acapital lease agreement with a slot machine manufacturer for the purchase of 50slot machines for a gross purchase price of approximately $0.7 million. Thecapital lease requires equal lease payments for 12 months beginning in April2006. The capital lease contains an option to purchase the machines at the endof the lease for one dollar.

 

In November 2005, DJW entered intoagreements with various slot machine manufacturers to finance the purchase of366 slot machines. The machines were purchased during the first quarter of2006. Of the purchase price for the slot machines, $3.6 million was financedthrough a slot machine vendor with equal principal payments due over thirty-sixmonths with zero percent interest for the first twenty-four months and 7.25%interest for the remaining twelve months with payments to begin in April 2006.The remaining $0.8 million of the purchase price of the slot machines wasfinanced through another slot machine vendor with equal principal payments overtwelve months and zero percent interest with payments to begin in May 2006. Asthere was no stated interest rate for the first twenty-four months on one ofthe notes and no stated interest rate on the other note, DJW used an imputedinterest rate of 7.25% to establish the present value of the notes bydiscounting, at 7.25%, all future interest and principal payments on the notes.DJW considered the rates at which it could obtain financing of a similar naturefrom other sources at the date of the transaction and the stated interestrates, if any, within the slot machine purchase agreements when determining theimputed interest rate.

 

In July 2005, DJW completed a private placementof $40.0 million aggregate principal amount of DJW Notes. In connection withthe offering of the DJW Notes, DJW was designated an “unrestricted subsidiary”by the Company under the indenture governing the Peninsula Gaming Notes, andDJW was released of its obligations under the PGL Credit Facility. The DJWNotes bear interest at a rate of 11% per year, payable semi-annually onApril 15 and October 15 of each year.

 

The DJW Notes are secured by a pledge of theequity of DJW and DJWC and all of DJW’s current and future assets (with theexception of certain excluded assets), including the remaining unused proceedsfrom the offering of the DJW Notes which have been deposited into (i) aconstruction disbursement account, which is being used to help fund theconstruction of the casino and (ii) an interest reserve account, which isbeing used to pay the first two interest payments on the DJW Notes, the firstof which was paid on October 15, 2005. The lien on the collateral that securesthe DJW Notes (other than the construction disbursement and interest reserve accounts)is contractually subordinated to the liens securing up to $2.5 million ofindebtedness under the DJW Credit Facility as defined below. The DJW Notes,which mature on April 15, 2012, are redeemable at the Company’s option, inwhole or in part at any time or from time to time, on and after April 15,2008 at certain specified redemption prices set forth in the indenturegoverning the DJW Notes. The indenture governing the DJW Notes contains anumber of restrictive covenants and agreements, including covenants that limitthe ability of the Company and its subsidiaries to, among other things:(1) pay dividends, redeem stock or make other distributions or restrictedpayments; (2) incur indebtedness or issue preferred shares; (3) makecertain investments; (4) create liens; (5) consolidate or merge;(6) sell or otherwise transfer or dispose of assets; (7) enter intotransactions with affiliates; (8) use proceeds of permitted asset salesand (9) change its line of business. Specifically, DJW is prohibited frommaking any dividends or other distributions to PGL, subject to certain limitedexceptions. DJW is permitted to make dividends or other distributions to PGL topay certain tax obligations. Further, DJW can make dividends and otherdistributions to PGL to pay corporate overhead or

 

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similar allocations orpayments, including, but not limited to, tax preparation, insurance,accounting, licensure, legal and administrative fees and expenses not to exceed$0.5 million in any twelve month period. Finally, DJW can make dividends andother distributions not to exceed $1.0 million. Subject to the foregoingprovisions, all of the net assets of DJW are restricted.

 

**Upon the occurrence and continuance of certain events ofdefault, the trustee or the holders of not less than 25% in aggregate principalamount of outstanding DJW Notes may declare all unpaid principal and accruedinterest on all of the DJW Notes to be immediately due and payable. Upon theoccurrence of a change of control (as defined in the indenture), each holder ofDJW Notes will have the right to require the Company to purchase all or aportion of such holder’s DJW Notes at a purchase price equal to 101% of theprincipal amount thereof plus accrued and unpaid interest, if any, to the dateof repurchase.**

 

On March 9, 2004,OED commenced a tender offer and consent solicitation to repurchase all of itsoutstanding 13% senior secured notes (“OED Notes”) and to solicit consents tocertain proposed amendments to the indenture governing the OED Notes as setforth in OED’s Offer to Purchase and Consent Solicitation Statement, dated March 9,2004. On March 19, 2004, the expiration date of the consent solicitation,OED received the requisite consents and tenders from holders of a majority ofthe aggregate principal amount of the outstanding OED Notes. The tender offerexpired on April 5, 2004, and OED redeemed approximately $116.3 millionprincipal amount of the OED Notes. At December 31, 2004, $6.9 million principalamount of OED Notes were outstanding. OED is the sole obligor under the OEDNotes.

 

On April 16, 2004, DJL and PGC completed a privateplacement of $233 million principal amount of 8 3⁄4% senior secured notes due2012 (the “Peninsula Gaming Notes”). The Peninsula Gaming Notes were issued ata discount of approximately $3.3 million. Interest on the Peninsula GamingNotes is payable semi-annually on April 15 and October 15 of each year,beginning on October 15, 2004. Upon a corporate restructuring, the Company alsobecame a co-issuer of the Peninsula Gaming Notes.

 

The Company used the netproceeds from the sale of the Peninsula Gaming Notes as follows (all paymentsbased on outstanding balances as of April 16, 2004): (1) to irrevocably depositfunds into an escrow account to redeem all of DJL’s outstanding 12 1⁄4% seniorsecured notes (“DJL Notes”) in an amount (including call premium and accruedinterest) of approximately $79.9 million; (2) to repurchase approximately$116.3 million principal amount of OED’s outstanding 13% senior secured notesfor an aggregate amount (including tender premium, accrued interest andcontingent interest) of approximately $134.6 million; (3) to pay accrueddistributions on DJL’s outstanding preferred membership interests-redeemable ofapproximately $1.1 million; (4) to pay related fees and expenses ofapproximately $13.4 million; and (5) for general corporate purposes. As aresult of the issuance of the Peninsula Gaming Notes, DJL incurred a loss ofapproximately $8.7 million consisting of the write-off of deferred financingfees of approximately $2.0 million, the payment of a call premium on the DJLNotes of approximately $5.7 million, interest on the DJL Notes of approximately$0.7 million and write-off of bond discount of approximately $0.3 million. Inconnection therewith, OED also incurred a loss of approximately $27.9 millionconsisting of the write-off of deferred financing fees of approximately $8.4million, the payment of a tender premium on the OED Notes of approximately$16.3 million, write-off of bond discount of approximately $2.1 million andconsent fees of approximately $1.1 million. In addition, OED and DJL wrote off$0.9 million of deferred financing fees related to the refinancing of thecredit facilities discussed below.

 

The indenture governing the Peninsula Gaming Noteslimits the Company’s ability to, among other things:

 

•                  incurmore debt;

 

•                  paydividends or make other distributions to PGP and DJW (for so long as DJW is anunrestricted subsidiary);

 

•                  redeemstock;

 

•                  makeinvestments;

 

•                  createliens;

 

•                  enterinto transactions with affiliates;

 

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•                  mergeor consolidate; and

 

•                  transferor sell assets.

 

The Peninsula Gaming Notes are full andunconditional obligations of DJL as a co-issuer. PGL and PGC, also co-issuers,have no independent assets (other than PGL’s investment in its subsidiaries) oroperations. The Peninsula Gaming Notes are also guaranteed, subject to theprior lien of the Company’s credit facility discussed below, by OED. Further,OED and DJL have pledged their equity interests as collateral. All of DJL’s andOED’s net assets are restricted except for $8.3 million at December 31, 2005 underthe Peninsula Gaming Notes The Peninsula Gaming Notes do not limit DJL’s or OED’sability to transfer net assets to the Company. Proceeds received from theissuance of the Peninsula Gaming Notes were allocated between DJL and OED,based on each company’s respective amount of senior debt refinanced and theirrespective shares of financing related fees and expenses. DJL was allocatedapproximately $86.7 million of debt, net of $1.3 million discount and OED wasallocated approximately $143 million, net of $2.0 million discount.

 

On June 16, 2004, DJL and OED jointly entered into aloan and security agreement with Wells Fargo Foothill, Inc. as the arranger andagent which was later amended in November 2004 and July 2005 (as amended the “PGLCredit Facility”). The PGL Credit Facility consists of a revolving creditfacility which permits DJL and OED to request advances and letters of credit upto the lesser of the maximum revolver amount of $50 million (less amountsoutstanding under letters of credit) and a specified borrowing base (the “BorrowingBase”). The Borrowing Base is the lesser of the combined EBITDA (as defined inthe PGL Credit Facility) of OED and DJL for the twelve months immediatelypreceding the current month end multiplied by 150% and the combined EBITDA ofOED and DJL for the most recent quarterly period annualized multiplied by 150%.At December 31, 2005, the maximum revolver amount was $50.0 million. Theavailable borrowing amount at December 31, 2005, after reductions for amountsborrowed and letters of credit outstanding at DJL and OED, was $25.5 million. Asof December 31, 2005, DJL had $6.7 million outstanding advances under the revolverportion of the PGL Credit Facility and outstanding letters of credit ofapproximately $0.5 million. As of December 31, 2005, OED had $17.1 millionoutstanding under the revolver portion of the PGL Credit Facility andoutstanding letters of credit of approximately $0.2 million.

 

The PGL Credit Facility also contains a term loan inthe amount of $8.7 million at December 31, 2005. The term loan is secured bycertain assets of the Company and requires monthly payments of $0.3 millionstarting July 1, 2004 until the full balance is paid, with a maturity no laterthan June 16, 2008. The term loan has an interest rate equal to the Wells Fargoprime rate plus 2.5% (current rate of 9.75%); however, at no time shall theinterest rate be lower than 6.0%.

 

DJL and OED are jointly and severally liable underthe PGL Credit Facility and such borrowings are collateralized by substantiallyall assets of OED and DJL. Borrowings under the PGL Credit Facility areguaranteed by PGL and PGC.

 

The PGL Credit Facility contains a number ofrestrictive covenants, including covenants that limit DJL’s and OED’s abilityto, among other things: (1) incur more debt; (2) create liens; (3) enter intoany merger, consolidation, reorganization, or recapitalization, or reclassifyits capital stock; (4) dispose of certain assets; (5) guarantee the debt ofothers; (6) pay dividends or make other distributions; (7) make investments;and (8) enter into transactions with affiliates. The PGL Credit Facility alsocontains financial covenants including a minimum combined EBITDA (as defined bythe PGL Credit Facility) of DJL and OED and limitations on capital expendituresat DJL and OED.

 

Specifically, DJL and OED are prohibited from makingany dividends or other distributions to PGL or any of PGL’s unrestrictedsubsidiaries, subject to certain limited exceptions. DJL and OED are permittedto make dividends or other distributions to PGL to pay certain tax obligations.Further, DJL and OED can make dividends and other distributions to PGL to paycosts related to certain tax preparation, accounting, legal and administrativefees and expenses. Additionally, DJL and OED may make dividends and otherdistributions to PGL in respect of certain payments under management agreementsand to pay reasonable directors’ or managers’ fees and expenses, so long as anypayments with respect to any management agreement or certain employee,consulting or similar agreements do not, in the aggregate, in any fiscal yearexceed the lesser of (a) 4.0% of DJL and OED’s combined EBITDA (as defined inthe PGL Credit Facility) and (b) $4.0 million. DJL and OED may also makedividends or other distributions to PGL so that PGL, subject to certainlimitations, can repurchase, redeem or otherwise acquire equity interests inPGL or its restricted subsidiaries (as defined in the PGL Credit Facility) fromits respective employees, members or managers.

 

In September 2004, the Company entered intoagreements with various slot machine manufacturers to finance the purchase ofslot machines, for a total purchase price of approximately $8.0 million whichwas financed through a slot machine vendor with equal principal payments dueover thirty-six months with zero percent interest for the first

 

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twenty-four months and 7.4%interest for the remaining twelve months. As there was no stated interest ratefor the first twenty-four months on the note, the Company used an imputedinterest rate of 7.4% to establish the present value of the notes bydiscounting, at 7.4%, all future interest and principal payments on the notes. TheCompany considered the rates at which the Company could obtain financing of asimilar nature from other sources at the date of the transaction and the statedinterest rates, if any, within the slot machine purchase agreements whendetermining the imputed interest rate.

 

*General*

 

In addition to our cashon hand, we currently have the following sources of funds for our business:(i) cash flows from OED’s casino and racetrack operations, (ii) cashflows from DJL’s casino operations (iii) available borrowings under the PGLCredit Facility and (iv) remaining net proceeds from the offering of theDJW Notes ($16.9 million at December 31, 2005). The available borrowing amountat December 31, 2005, after reductions for amounts borrowed and letters ofcredit outstanding at OED and DJL was $25.5 million.

 

We expect our capitalexpenditures in 2006, excluding any amounts related to the OTB projects and theremaining development of the new gaming property in Worth County, Iowa to beapproximately $5.4 million. Remaining capital expenditures in 2006 related tothe development of our new gaming property in Worth County, Iowa and OTB’s inLouisiana are expected to be approximately $21.4 million and $1.5 million,respectively. Our debt maturities are expected to be approximately $11.2million and our payment for DJW’s gaming license will be $1.0 million in 2006. Basedon our cash on hand, expected cash flows from operations and our availablesources of financing, we believe we will have adequate liquidity to satisfy ouroperating needs and service our outstanding indebtedness for the next twelvemonths.

 

Our level of indebtednesswill have several important effects on our future operations including, but notlimited to, the following: (i) a significant portion of our cash flow fromoperations will be required to pay interest on our indebtedness and theindebtedness of our subsidiaries; (ii) the financial covenants containedin certain of the agreements governing such indebtedness will require us and/orour subsidiaries to meet certain financial tests and may limit our respectiveabilities to borrow additional funds or to transfer or dispose of assets; (iii) ourability to obtain additional financing in the future for working capital,capital expenditures, acquisitions or general corporate purposes may beimpaired; and (iv) our ability to adapt to changes in the gaming industrywhich affect the markets in which we operate could be limited.

 

**Contractual** Obligations and Commitments and Contingent Liabilities

** **

Our future contractualobligations and commitments at December 31, 2005 were as follows (inmillions of dollars):

 
| ** **                         | ** ** | **Payments due by Period** | ** ** |
|------------------------------------|------------|----------------------------|------------|
| **Contractual Obligations**        | ** ** | **Total**                  | ** ** | **Less Than  1 Year** | ** ** | **1 - 3 Years** | ** ** | **4 - 5 Years** | ** ** | **Thereafter** | ** ** |
|                               |       |                       |       |   |   |   |   |   |   |   |   |
| Long-Term Debt                     |       | $                          | 324.1      |   | $ | 11.2 |   | $ | 31.9 |   | $ | 8.0 |   | $ | 273.0 |   |
| Interest on Long-Term Debt         |       | 166.2                      |       | 28.7 |   | 54.7 |   | 50.8 |   | 32.0 |   |
| Operating Leases                   |       | 3.1                        |       | 0.9 |   | 1.0 |   | 0.4 |   | 0.8 |   |
| Purchase Commitments               |       | 8.9                        |       | 2.7 |   | 4.7 |   | 1.5 |   | — |   |
| Gaming License                     |       | 4.0                        |       | 1.0 |   | 2.0 |   | 1.0 |   | — |   |
| Litigation Settlement and Other    |       | 1.7                        |       | 1.5 |   | 0.1 |   | 0.1 |   | — |   |
| Total Contractual Cash Obligations |       | $                          | 508.0      |   | $ | 46.0 |   | $ | 94.4 |   | $ | 61.8 |   | $ | 305.8 |   |

 

The following shows ourcontingent obligations at December 31, 2005 based on expiration dates (inmillions):

 
| ** **                 | ** ** | **Less Than  1 Year** | ** ** | **1 - 3 Years** | ** ** | **4 - 5 Years** | ** ** | **Thereafter** | ** ** |
|----------------------------|------------|-----------------------|------------|-----------------|------------|-----------------|------------|----------------|------------|
|                       |       |                  |       |            |       |            |       |           |       |
| Standby  letters of credit |       | $                     | 0.7        |            | —     |            | —     |           | —     |   |
|                            |            |                       |            |                 |            |                 |            |                |            |  |

 

**Off-Balance Sheet Transactions**

** **

Other than as disclosedabove, we do not maintain any off-balance sheet transactions, arrangements,obligations or other relationships with unconsolidated entities or others thatare reasonably likely to have a material current or future effect on ourfinancial condition, cash flows, revenues or expenses, results of operations,liquidity, capital expenditures or capital resources.

 

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**Seasonality** and Inflation

** **

Our operations aresubject to seasonal fluctuations. Our Iowa operations are typically weaker fromNovember through February as a result of adverse weather conditions,and are typically stronger from March through October. Our Louisianaoperations are also subject to seasonal fluctuations. Our horse racingoperations are usually stronger during live racing season which generally runsfrom February through October. In general, our payroll and general andadministrative expenses are affected by inflation. Although inflation has nothad a material effect on our business to date, we could experience moresignificant effects of inflation in future periods.

 

**Recent** Accounting Pronouncements

** **

In December 2004,the Financial Accounting Standards Board (“FASB”) issued Statement of FinancialAccounting Standards No. 153, “Exchanges of Nonmonetary Assets—anamendment of Accounting Principles Board Opinion No. 29”. This statement isbased on the principle that exchanges of nonmonetary assets should be measuredbased on the fair value of the assets exchanged. This statement amendsAccounting Principles Board Opinion 29 to eliminate the exception for recordinggains and losses for nonmonetary exchanges of similar productive assets. Thisstatement will apply to all nonmonetary exchanges of similar productive assetsbeginning January 1, 2006 and will result in gains and losses being recordedfor such exchanges.

 

In December 2004, theFASB issued SFAS No. 123 (Revised 2004) “Shared-Based Payment” (“SFAS No. 123R”)that addresses the accounting for share-based payment transactions in which aCompany receives employee services in exchange for (a) equity instruments ofthe Company or (b) liabilities that are based on the fair value of the Company’sequity instruments or that may be settled by the issuance of such equityinstruments. SFAS No. 123R addresses all forms of share-based payment awards,including shares issued under employee stock purchase plans, stock options,restricted stock and stock appreciation rights. SFAS No. 123R eliminates theability to account for share-based compensation transactions using theintrinsic value method that was provided in Statement 123 as originally issued.Under SFAS No. 123R companies are required to record compensation expense forall share based payment award transactions measured at fair value. Thisstatement is effective for the Company beginning on January 1, 2006. Based onhistorical patterns of grants, the Company does not believe the impact ofapplying the various provisions of SFAS No. 123R will be material.

 

**Critical** Accounting Policies

** **

Thepreparation of financial statements in accordance with accounting principlesgenerally accepted in the United States of America requires management to makeestimates and assumptions that affect the reported amount of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues and expensesduring the reporting periods. We periodically evaluate our policies and theestimates and assumptions related to these policies. All of our subsidiarycompanies operate in a highly regulated industry. In our Iowa and Louisianaoperations, we are subject to regulations that describe and regulate operatingand internal control procedures. The majority of our casino revenue is in theform of cash, personal checks or credit cards, which by their nature do not requirecomplex estimates. We estimate the useful lives for our depreciable assets. We alsoestimate certain liabilities including our slot club and coupon liabilities andself-insured medical and workers compensation liabilities. We believe thatthese estimates are reasonable based on our past experience with the businessand based upon our assumptions related to possible outcomes in the future. Futureactual results will likely differ from these estimates.

 

Understandingour critical accounting policies and related risks is important in evaluatingour financial conditions and results of operations. The critical accountingpolicies used in preparation of the Company’s financial statements involve asignificant use of management judgment on matters that are inherently uncertain.If actual results differ significantly from management’s estimates, there couldbe a material effect on our financial condition, results of operations and cashflows. Management regularly discusses the identification and development ofthese critical accounting policies with the Audit Committee of the Board ofManagers. There have been no significant changes to the Company’s criticalaccounting policies during 2005.

 

*Goodwill,Intangible and Other Long-Lived Assets.*We evaluate our goodwill,intangible and other long-lived assets for impairment on a periodic basis. Forgoodwill and intangible assets with indefinite lives, we compare the carryingvalues to fair values on an annual basis or sooner if an indication ofimpairment exists. Other long-lived assets are reviewed for impairment whenmanagement plans to dispose of assets or when events or circumstances indicatea possible impairment. For assets to be disposed of, we recognize the asset atthe lower of carrying value or fair market value less costs of disposal,

 

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as estimated based oncomparable asset sales, solicited offers, or a discounted cash flow model. Forassets to be held and used, we review for impairment whenever indicators ofimpairment exist. We then compare the estimated future cash flows of the asset,on an undiscounted basis, to the carrying value of the asset. If theundiscounted cash flows exceed the carrying value, no impairment is indicated.If the undiscounted cash flows do not exceed the carrying value, then animpairment loss is recorded based on the fair value of the asset, typicallymeasured using a discounted cash flow model. All recognized impairment losses,whether for assets to be disposed of or assets to be held and used, arerecorded as operating expenses.

 

Our intangible assetsconsist of our tradename and our slot machine and electronic video game andhorse racing licenses related to our operations at OED and our gaming licenseat DJW. We intend to use the OED tradename for the foreseeable future and our OEDand DJW licenses are renewable subject to our compliance with state gaming andracing regulations. Our intangible assets, therefore, have been determined tohave indefinite lives and are not amortized. Should these assets in the futurebe determined to have finite lives because of our decision to discontinue theuse of the OED tradename or our inability to renew our licenses at OED or DJW,the intangible assets could become impaired and require an impairment chargeand any unimpaired amounts would be amortized over their remaining usefullives.

 

There are severalestimates, assumptions and decisions in measuring impairments of long-livedassets. First, management must determine the usage of the asset. To the extentmanagement decides that an asset will be sold, it is more likely that animpairment may be recognized. Assets must be tested at the lowest level forwhich identifiable cash flows exist. This means that some assets must begrouped, and management has some discretion in the grouping of assets. Futurecash flow estimates are, by their nature, subjective and actual results maydiffer materially from our estimates. Our estimates of cash flows are based onthe current regulatory, social and economic climates, recent operatinginformation and budgets of the various properties where we conduct operations.These estimates could be negatively impacted by changes in federal, state orlocal regulations, economic downturns, or other events affecting various formsof travel and access to our properties.

 

Goodwill and intangibleassets are subject to impairment by, among other factors, significant changesin gaming tax rates, competition and regulatory requirements; lack of licenserenewals; lack of voter reapproval in Iowa; and changes in the way we use ourOED tradename. During the first quarter of 2005, 2004 and 2003, we completedthe impairment testing of all of our goodwill and intangible assets withindefinite lives and no impairments were indicated. We are required to performan analysis of our goodwill and intangible assets at least on an annual basis.If our ongoing estimates of future cash flows are not met, we may have torecord impairment charges in future accounting periods.

 

*Litigation.*An estimated loss from a loss contingency is recorded wheninformation available prior to issuance of the financial statements indicatesthat it is probable that a liability has been incurred at the date of thefinancial statements and the amount of the loss can be reasonably estimated.Accounting for contingencies such as legal matters requires the use of judgmentas to the probability of the outcome and the amount. Many legal contingenciescan take years to be resolved. An adverse outcome could have a material impact onour financial condition, operating results and cash flows.

 

**ITEM 7A.**                                            QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

** **

We are exposedto certain market risks which are inherent in our financial instruments whicharise from transactions entered into in the normal course of business. Marketrisk is the risk of loss from adverse changes in market prices and interestrates. We do not currently utilize derivative financial instruments to hedgemarket risk. We also do not hold or issue derivative financial instruments fortrading purposes.

 

We are exposedto interest rate risk due to changes in interest rates with respect to ourlong-term variable interest rate debt borrowing under the PGL Credit Facility. Asof December 31, 2005, the Company had $32.5 million in outstanding borrowingsunder the PGL Credit Facility, including borrowings under the term loan portionof such facility that have variable interest rates. We have estimated ourmarket risk exposure using sensitivity analysis. We have defined our marketrisk exposure as the potential loss in future earnings and cash flow withrespect to interest rate exposure of our market risk sensitive instrumentsassuming a hypothetical increase in market rates of interest of 100 basispoints. Assuming we borrow the maximum amount allowed under the PGL CreditFacility (currently an aggregate amount of $58.7 million) and if market ratesof interest on our variable rate debt increased by 100 basis points, theestimated additional annual interest expense would be approximately $0.6million.

 

We are alsoexposed to fair value risk due to changes in interest rates with respect to ourlong-term fixed interest rate debt borrowings. Our fixed rate debt instrumentsare not generally affected by a change in the market rates of interest, andtherefore, such changes generally do not have an impact on future earnings. However,future earnings and cash flows may be impacted by changes in interest ratesrelated to indebtedness incurred to fund repayments as such fixed rate debtmatures. The following table contains information relating to our fixed andvariable rate debt borrowings as of December 31, 2005

 

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(dollars in millions):

 
| **Description**                                           | ** ** | **Maturity**           | ** ** | **Interest  Rate** | ** ** | **Carrying  Value** | ** ** | **Fair  Value** | ** ** |
|-----------------------------------------------------------|------------|------------------------|------------|--------------------|------------|---------------------|------------|-----------------|------------|
|                                                      |       |                   |       |               |       |                |       |            |       |
| 8 3⁄4% senior secured notes                            |       | April 15,  2012   |       | 8 3⁄4           | %          | $                   | 230.3      |            | $          | 229.5 | * |
| 13% senior secured notes with contingent  interest of OED |       | March 1,  2010    |       | 13                 | %          | 6.8                 |       | 6.9             |       |
| 11% senior secured notes                                  |       | May 11, 2012           |       | 11                 | %          | 40.0                |       | 40.0            |       |
| Revolving line of credit                                  |       | June 16,  2008    |       | 7 3⁄4           | %          | 23.8                |       | 23.8            |       |
| Term loan                                                 |       | June 16,  2008    |       | 9 3⁄4           | %          | 8.7                 |       | 8.7             |       |
| Note payable                                              |       | October 1,  2010  |       | 8 3⁄4           | %          | 2.8                 |       | 2.8             |       |
| Note payable                                              |       | October 1,  2007  |       | 0                  | %          | 2.3                 |       | 2.4             |       |
| Note payable                                              |       | October 1,  2007  |       | 0                  | %          | 2.4                 |       | 2.5             |       |
| Preferred members’ interest, redeemable              |       | October 13,  2006 |       | 9                  | %          | 4.0                 |       | 4.0             |       |
|                                                           |            |                        |            |                    |            |                     |            |                 |            |  |  |

 

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*                 Represents fairvalue as of December 31, 2005 based on information provided by anindependent investment banking firm.

 

**ITEM 8.****                                                   FINANCIALSTATEMENTS AND SUPPLEMENTARY DATA**

 

The report of independentregistered public accounting firm, financial statements and the notes theretoand the financial statement schedule are included beginning on page F-1.

 

**ITEM 9.****                                                     CHANGESIN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE**

 

None.

 

**ITEM 9A.               CONTROLS AND PROCEDURES**

 

***Evaluation of disclosure controlsand procedures.***The Company’s Chief Executive Officer and Chief FinancialOfficer, after evaluating the effectiveness of the design and operation of theCompany’s disclosure controls and procedures (as defined in Exchange Act) as ofDecember 31, 2005, have concluded that as of such date the Company’sdisclosure controls and procedures were adequate and effective and designed toensure that material information relating to the Company and its subsidiarieswould be made knownto such officers on atimely basis.

** **

*Changes in internal controls*. There have been no significant changes(including corrective actions with regard to significant deficiencies ormaterial weaknesses) in our internal controls over financial reporting that hasmaterially affected or is reasonably likely to materially affect our internalcontrols over financial reporting during our fourth quarter.

 

**ITEM 9B.**                                            OTHERINFORMATION

** **

None.

 

**PART III**

 

**ITEM 10.****                                            DIRECTORSAND EXECUTIVE OFFICERS OF REGISTRANT**

 

**Executive Officers**and Managers

** **

PGP is the Company’s solemanaging member. The following table sets forth the names and ages of theexecutive officers of the Company, DJL and PGC and of the managers of PGP.

 

31

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| **Name**           | ** ** | **Age** | ** ** | **Position**                                                                         |
|--------------------|------------|---------|------------|--------------------------------------------------------------------------------------|
|               |       |    |       |                                                                                 |
| M. Brent Stevens   |       | 45      |       | Chief Executive Officer of the Company and  Chairman of the Board of Managers of PGP |
| Michael S. Luzich  |       | 51      |       | President and Secretary of the Company, DJL  and PGC and Manager of PGP              |
| Jonathan C. Swain  |       | 40      |       | Chief Operating Officer of the Company, DJL  and PGC                                 |
| Natalie A. Schramm |       | 35      |       | Chief Financial Officer of the Company, DJL  and PGC                                 |
| Marcia S. Seligman |       | 52      |       | Corporate Legal Counsel of the Company, DJL  and PGC                                 |
| Terrance W. Oliver |       | 56      |       | Manager of PGP                                                                       |
| Andrew Whittaker   |       | 44      |       | Manager of PGP                                                                       |

 

**Management Profiles**

** **

Following is a briefdescription of the business experience of each of the individuals listed in thepreceding table. Presently, PGP’s board of managers is comprised of fivemanagers; however, the fifth manager has not been appointed.

 

***M.Brent Stevens.***Mr. Stevens is our ChiefExecutive Officer and is the Chairman of the Board of Managers of PGP, whichoffices he has held since 1999. Mr. Stevens also serves as Chief ExecutiveOfficer of DJL and OED. Since 1990, Mr. Stevens has been employed byJefferies & Company, Inc., and presently is an Executive VicePresident in the Investment Banking department.

 

***MichaelS. Luzich.***Mr. Luzich is our President andSecretary and has been a manager of PGP since 1999. Mr. Luzich also servesas President and Secretary of DJL and OED, which offices he has held since1999. Mr. Luzich is the founder and President of the Cambridge InvestmentGroup, LLC, an investment and development company located in Las Vegas, Nevada.Prior to October 1995, Mr. Luzich was a founding partner and directorof Fitzgeralds New York, Inc. and Fitzgeralds ArizonaManagement, Inc., which are development companies responsible for theTurning Stone Casino near Syracuse, New York for the Oneida Tribe and the CliffCastle Casino near Sedona, Arizona for the Yavapai-Apachi Tribe, respectively.

 

***JonathanC. Swain.***Mr. Swain was hired as ChiefOperating Officer of PGL in July 2004. Mr. Swain served from 2000through July 2004 as Vice President and General Manager of three StationCasinos properties including, Palace Station, Santa Fe Station and SunsetStation, the largest property of Station Casinos Inc., a hotel and gamingcompany headquartered in Las Vegas, Nevada. In 1999 and 2000, Mr. Swainserved as Vice President and General Manager of the Hard Rock Hotel and Casinoin Las Vegas. From 1995 through 1999, Mr. Swain worked for the AztarResorts Inc., serving as the Corporate Vice President of Marketing andPresident of the Las Vegas Tropicana. Aztar Resorts, Inc. is a hotel andgaming company headquartered in Phoenix Arizona. From 1993 to 1995,Mr. Swain served as Vice President of Marketing and as Executive Directorof International Marketing with the Trump Taj Mahal in Atlantic City, NewJersey.

 

***NatalieA. Schramm.***Ms. Schramm is our ChiefFinancial Officer, which office she has held since 1999. Ms. Schramm alsoserves as Chief Financial Officer of DJL and OED. Ms. Schramm served asAssistant General Manager of DJL from April 1, 2000 to December 31,2002. On January 1, 2003, Ms. Schramm was appointed General Managerof DJL. Ms. Schramm joined our predecessor, Greater Dubuque RiverboatEntertainment Company, L.C., in November 1996 and was formerly employed byAerie Hotels and Resorts in Oak Brook, Illinois as Corporate Accounting Managersince 1992. She was responsible for the corporate accounting functions of theSilver Eagle, the Eagle Ridge Inn and Resorts, located in Galena, Illinois andthe Essex Hotel, located in Chicago, Illinois. She served as Internal AuditManager for the Silver Eagle and was a member of a development team thatsuccessfully pursued a riverboat gaming license in Indiana.

 

***MarciaS. Seligman.***  Ms. Seligman was our VicePresident and Corporate Counsel, which office she held sinceOctober 2004.  Ms. Seligman was formerly in private practice with anemphasis in corporate and real estate law from 1997 to 2004.  Prior to1997, Ms. Seligman was Vice President and General Counsel of Grand Casinos,Inc., a publicly held company that owned casinos in Mississippi and managedNative American casinos in Louisiana, Minnesota and Mississippi.  Previousto her experience at Grand Casinos, Inc., Ms. Seligman served as Director ofLegal Services of General Growth Management, Inc., a shopping center owner anddeveloper based in Chicago, Illinois. Ms. Seligman resigned from the Companyeffective February 28, 2006.

 

***TerranceW. Oliver.***Mr. Oliver is a manager of PGP,which office he has held since 1999. Since 1993, Mr. Oliver has served asa director of and consultant to Mikohn Gaming Corporation, a gaming equipmentmanufacturer headquartered in Las Vegas. From 1988 until 1993, Mr. Oliverserved as Chairman of the Board to the predecessor company of Mikohn. From 1984until 1996, Mr. Oliver was a founding shareholder, board member andexecutive officer of Fitzgeralds Gaming Corporation. Mr. Oliver retired asthe Chief Operating Officer of Fitzgeralds Gaming Corporation in 1996.

 

***AndrewWhittaker.***Mr. Whittaker is a manager of PGP,which office he has held since 1999. Since 1990 Mr. Whittaker has beenemployed by Jefferies & Company, Inc., where he is presently aVice Chairman.

 

32

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**Audit**Committee

** **

Terrance W. Oliver andAndrew Whittaker serve on the Company’s audit committee. The board of directorsof the Company has determined that each of Messrs. Oliver and Whittaker is an “auditcommittee financial expert” as that term is used in Item 401(h)(2) ofRegulation S-K adopted by the SEC. Although the Company is not a “listed issuer”within the meaning of Rule 10A-3 under the Exchange Act, the board of directorsof the Company has determined that Mr. Oliver would be considered an “independent”director within the meaning of the rules of the New York Stock Exchange forlisted companies and within the meaning of Rule 10A-3 under the Exchange Act.

 

**Code of Ethics**

** **

The Company has adopted acode of ethics that applies to our chief executive officer, chief financialofficer, controller or persons performing a similar function. A copy of ourcode of ethics may be obtained, free of charge, upon written request to ourprincipal place of business.

 

**ITEM 11.****                                            EXECUTIVECOMPENSATION**

 

**Summary**Compensation Table

** **

The following table setsforth information for the years indicated concerning the compensation paid toour Chief Executive Officer, all other executive officers and certain otherhighly paid key employees, for services rendered in all capacities to PGL, DJLand OED, as applicable, during such periods.

 
| ** **                                                    | ** ** | ** **       | ** ** | **Annual  Compensation** | ** ** | ** **         | ** ** | ** **                           | ** ** |
|---------------------------------------------------------------|------------|------------------|------------|--------------------------|------------|--------------------|------------|--------------------------------------|------------|
| **Name and Principal  Position**                              | ** ** | **Fiscal  Year** | ** ** | **Salary  ($)**          | ** ** | **Bonus  ($) (1)** | ** ** | **Other  Annual  Compensation  ($)** | ** ** | **Long-term  Compensation** | ** ** | **All  other  Compensation ($)** | ** ** |
|                                                          |       |             |       |                     |       |               |       |                                 |       |   |   |   |   |
| M. Brent Stevens                                              |       | 2005             |       | $                        | —     |               | $          | —                               |       | $ | — |   | $ | — |   | $ | — | (2) |
| *Chief  Executive Officer*                                    |       | 2004             |       | —                   |       | —             |       | —                               |       | — |   | — | (2) |
|                                                          |       | 2003             |       | —                   |       | —             |       | —                               |       | — |   |   | (2) |
|                                                          |       |             |       |                     |       |               |       |                                 |       |   |   |   |   |
| Michael S. Luzich                                             |       | 2005             |       | —                   |       | —             |       | —                               |       | — |   |   | (2), (3) |
| *President  and Secretary*                                    |       | 2004             |       | —                   |       | —             |       | —                               |       | — |   |   | (2), (3) |
|                                                          |       | 2003             |       | —                   |       | —             |       | —                               |       | — |   |   | (2), (3) |
|                                                          |       |             |       |                     |       |               |       |                                 |       |   |   |   |   |
| Jonathan C. Swain                                             |       | 2005             |       | 400,000                  |       | 300,000            |       | 10,167                               | (4)        | — |   | 31,808 | (6) |
| *Chief  Operating Officer*                                    |       | 2004             |       | 169,231                  |       | 210,000            |       | 4,069                                | (4)        | — |   | — |   |
|                                                          |       |             |       |                     |       |               |       |                                 |       |   |   |   |   |
| George T.  Papanier                                           |       | 2005             |       |                     |       |               |       |                                 |       | — |   |   |   |
| *Chief  Operating Officer*                                    |       | 2004             |       | 206,044                  |       |               |       | 1,307                                | (5)        | — |   | 6,000 | (6) |
|                                                          |       | 2003             |       | 375,000                  |       | 200,000            |       | 9,350                                | (5)        | — |   | 6,000 | (6) |
|                                                          |       |             |       |                     |       |               |       |                                 |       |   |   |   |   |
| Natalie A.  Schramm                                           |       | 2005             |       | 230,000                  |       | 145,000            |       | 10,167                               | (4)        | — |   | 27,457 | (7) |
| *Chief  Financial Officer*                                    |       | 2004             |       | 187,923                  |       | 115,000            |       | 2,066                                | (4)        | — |   | 9,360 | (7) |
|                                                          |       | 2003             |       | 149,531                  |       | 80,000             |       |                                 |       | — |   | 9,360 | (7) |
|                                                          |       |             |       |                     |       |               |       |                                 |       |   |   |   |   |
| Marcia S.  Seligman                                           |       | 2005             |       | 141,997                  |       | 20,000             |       | —                               |       | — |   | 10,259 | (6) |
| *Corporate  Legal Counsel*                                    |       | 2004             |       | 29,231                   |       | 5,000              |       | —                               |       | — |   | — |   |
|                                                          |       |             |       |                     |       |               |       |                                 |       |   |   |   |   |
| Michael Howard                                                |       | 2005             |       | 230,359                  |       | 112,500            |       | —                               |       | — |   | 12,993 | (8) |
| *General  Manager of Evangeline Downs Racetrack & Casino* |       | 2004             |       | 82,036                   | (9)        | 7,500              |       | —                               |       | — |   | — |   |
|                                                               |            |                  |            |                          |            |                    |            |                                      |            |  |  |  |  |  |  |  |  |  |

 

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(1)                                  Bonusamounts reflect compensation in the fiscal year earned regardless of the yearin which paid. See “Executive Compensation—Compensation of Managers.”

(2)                                  Mr. Stevensand Mr. Luzich receive board of manager fees for their services as managers onthe board of managers of PGP. See “Executive Compensation — Compensation ofManagers.”

(3)                                  Mr.Luzich receives compensation pursuant to a consulting agreement with PGP andOED. See “Executive Compensation — Employment and Consulting Agreements.”

 

33

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(4)                                  Representsautomobile allowances and premiums paid on life insurance.

(5)                                  Representsautomobile allowances.

(6)                                  Representsmatching contributions made by the Company to our 401(k) plan and/or deferredcompensation plan.

(7)                                  Representsmatching contributions made by the Company to our 401(k) plan, deferred compensationplan and club membership fees.

(8)                                  Representsmatching contributions made by OED to our 401(k) and deferred compensation plans.

(9)                                  Mr.Howard began employment with OED in September 2004.

 

**Employmentand Consulting Agreements**

** **

**MichaelS. Luzich-President and Secretary**

** **

Mr. Luzich is partyto a consulting agreement with PGP and OED pursuant to which he is entitled toreceive compensation in an aggregate annual amount equal to (a) 2% of DJL’sunconsolidated earnings before interest, taxes, depreciation, amortization andother non-recurring charges, plus (b) 2.5% of OED’s earnings beforeinterest, taxes, depreciation, amortization and other non-recurring chargesplus (c) 2.5% of earnings before interest, taxes, depreciation, amortizationand other non-recurring charges of any future gaming operations acquired,directly or indirectly, by PGP. The consulting agreement has a one-year termand, subject to the occurrence of various termination events, is renewableautomatically for successive one-year terms. Under this agreement,Mr. Luzich is also entitled to reimbursement of reasonable businessexpenses as approved by the board of managers of PGP. For the years ended 2005,2004 and 2003, Mr. Luzich received $328,705, $439,524 and $289,153,respectively, from PGP and $425,000 and $625,000 from OED during the yearsended December 31, 2005 and 2004, respectively, under his consultingagreements. In addition, at December 31, 2005, OED accrued $127,505 related to Mr.Luzich’s 2005 consulting fee which was paid in February 2006.

 

**George T. Papanier-Former**Chief Operating Officer

** **

In July 2000,Mr. Papanier commenced employment with DJL. Under the terms of hisemployment, Mr. Papanier was entitled to receive a base annual salary inan amount determined by the Board of Managers of PGP each year.Mr. Papanier’s base annual salary for the 2003 fiscal year was $375,000.In addition to his base salary, Mr. Papanier was entitled to receive anannual cash bonus based on specified performance criteria with respect to theprior fiscal year and determined by the Board of Managers of PGP.Mr. Papanier was paid a bonus of $200,000 in February 2004 in respectof performance in the 2003 fiscal year. Mr. Papanier was not a party to awritten employment agreement with us. Mr. Papanier resigned from theCompany effective June 20, 2004, and he received a pro rata portion of hisannual base salary for 2004 from the beginning of 2004 through June 20,2004.

 

**Jonathan C. Swain-Chief**Operating Officer

** **

In July 2004,Mr. Swain entered into an employment agreement with PGL to serve as ChiefOperating Officer. Under the terms of his employment agreement, Mr. Swainis entitled to receive from PGL a base annual salary of $400,000 during hisfirst twelve months of employment, plus a cash bonus of $30,000 upon commencinghis employment, an additional $30,000 in October 2004 and an additional$180,000 of which 25% vested upon signing of his employment agreement and theremaining 75% vests equally over a three year period. In addition to the basesalary, Mr. Swain is entitled to receive an annual cash bonus ranging from$100,000 to $300,000 payable by PGL based on his performance during theprevious fiscal year, which shall be consistent with the bonus plan in placefor similarly situated executive officers of PGL. Mr. Swain was paid a bonus of$300,000 in February 2006 for his performance in the 2005 fiscal year and $150,000in February 2005 for his performance in the 2004 fiscal year.Mr. Swain has also been granted 6% of PGP’s profits interests under PGP’s2004 Amended and Restated Incentive Unit Plan (“IUP”). These interests willvest over the term of his employment agreement and upon the achievement ofcertain financial targets of the Company. Upon any termination of Mr. Swain’semployment, Mr. Swain is entitled at his option to cause the Company to redeemall vested membership interests granted to him under the IUP for cash at theirfair market value at the time of termination of employment****See“Executive Compensation—PGP Incentive Unit Plan”. Mr. Swain’s employmentagreement has an initial term of three years.

 

**Natalie A. Schramm-**Chief Financial Officer

** **

In July 2004,Ms. Schramm entered into an employment agreement with PGL. Under the termsof her employment agreement, Ms. Schramm is entitled to receive from PGL abase annual salary of $230,000 in the twelve months beginning July 1,2004, which will be adjusted upward annually by not less than 5% of the prioryear’s compensation. In addition to the base salary, Ms. Schramm isentitled to receive an annual cash bonus payable by PGL based on herperformance during the previous fiscal year, which shall be consistent with thebonus plan in place for similarly situated executive officers of PGL.

 

34

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Ms. Schramm has also beengranted 1.5% of PGP’s profits interests under PGP’s IUP. These interests willvest over the term of her employment agreement and upon the achievement ofcertain financial targets of the Company. Upon any termination of Ms. Schramm’semployment, Ms. Schramm is entitled at her option to cause the Company toredeem all vested membership interests granted to her under the IUP for cash attheir fair market value at the time of termination of employment****See “Executive Compensation—PGP Incentive Unit Plan”. Ms.Schramm’s employment agreement has an initial term of three years.

 

**Marcia S.Seligman-Former Corporate Legal Counsel**

 

In October 2004,Ms. Seligman entered into an employment agreement with PGL. Under theterms of her employment agreement, Ms. Seligman was entitled to receivefrom PGL a base annual salary of $140,000 in the twelve months beginningOctober 1, 2004. In addition to the base salary, Ms. Seligman was entitledto receive an annual cash bonus payable by PGL based on her performance duringthe previous fiscal year. Ms. Seligman resigned from the Company effectiveFebruary 28, 2006, and she received a pro rata portion of her annual basesalary for the 2006 fiscal year from the beginning of the 2006 fiscal yearthrough February 28, 2006.

 

**MichaelHoward-General Manager of Evangeline Downs Racetrack and Casino**

 

In September 2004,Mr. Howard entered into an employment agreement with OED. Under the terms ofhis employment agreement, Mr. Howard is entitled to receive from OED a baseannual salary of $225,000 in the twelve months beginning September 5,2004. In addition to the base salary, Mr. Howard is entitled to receive anannual cash bonus payable by OED of up to $10,000 for services performed in2004 and based on his performance during the previous fiscal year and rangingfrom $25,000 to $112,500 for services performed 2005 and thereafter.

 

**Compensation** of Managers

** **

All managers serving onthe Board of Managers are reimbursed for their travel and out-of-pocketexpenses related to their attendance at Board of Managers meetings and receiveannual payments of $25,000 (other than Mr. Stevens who receives $175,000annually per gaming property). Mr. Stevens received Board of Managers fees of $525,000,$350,000 and $350,000 in 2005, 2004 and 2003, respectively. During 2005 theCompany expensed $0.4 million, as an affiliate management fee, related to othercompensation and board fees payable to board members of PGP representingservices provided to PGL.

 

**PGP Incentive**Unit Plan

** **

PGP has adopted an incentiveunit plan (as amended and restated, the “Plan”) to provide for the grant ofprofits interests to existing and future executive officers, managers,employees, and members of PGP and its subsidiaries. Generally, profitsinterests granted under the Plan will be subject to terms and conditionscustomary for such plans, which may include vesting requirements, transferrestrictions, satisfaction of budget related performance criteria and similarconditions and qualifications, in each case, as approved by PGP’s board ofmanagers or a subcommittee thereof. Holders of profits interests issued underthe Plan will be entitled to receive distributions from operating profits on apro rata basis with holders of common units of PGP (but only to the extent ofprofits allocated to holders of profits interests after the date of grant), anddistributions on liquidation only to the extent of their pro rata share of anyundistributed operating profits allocated to holders of profits interests andany further appreciation in the fair market value of PGP after the date ofgrant. Under the terms of the IUP, PGP may grant profits interests from time totime representing up to 15.5% of its outstanding capital interests on a fullydiluted basis.

 

At a meeting of the boardof managers of PGP held on February 25, 2005, PGP approved grants ofprofits interests under the Plan to certain executive officers of PGP and/orits subsidiaries aggregating 10.50% of the outstanding membership units of PGPon a fully diluted basis, of which 4% was awarded to Mr. Stevens, 4% wasawarded to Mr. Luzich, 2% was awarded to Mr. Swain and 0.5% was awarded to Ms.Schramm. The terms of the awards include specified vesting schedules,acceleration of vesting upon the occurrence of certain events, anti-dilutionprotection, transfer restrictions and other customary terms and provisions. Atsuch meeting, the board of managers of PGP also approved the grant of profitsinterests outside of the Plan (on terms substantially similar to those awardedunder the Plan) to each of Messrs. Stevens and Luzich representing 1.5% of theoutstanding membership units of PGP on a fully diluted basis.

 

At a meeting of the boardof managers of PGP held on September 12, 2005, PGP approved awards of profitsinterests under the Plan to certain executive officers of PGP and/or itssubsidiaries aggregating 5.0% of the outstanding membership units of PGP on afully diluted basis, of which 4% was awarded to Mr. Swain and 1.0% was awardedto

 

35

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Ms. Schramm.  The terms ofthe awards include specified vesting schedules based on the achievement by PGPof certain financial performance targets, acceleration of vesting upon theoccurrence of certain events, anti-dilution protection, transfer restrictionsand other customary terms and provisions.

 

**Compensation Committee Interlocks and Insider Participation**

** **

We have no standingcompensation committees. All compensation decisions are made by the executivecommittee of the Board of Managers.

 

**ITEM 12.****                                            SECURITYOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERS**

 

PGP currently owns all ofthe Company’s outstanding common membership interests and is the sole managingmember of the Company.

 

Greater Dubuque RiverboatEntertainment Company holds 100% of DJL’s issued and outstanding preferredmembership interests, which, subject to limited exceptions, have no votingrights, except as required by applicable law. On July 15, 1999, PGP issued499,982 convertible preferred membership interests, each of which is initiallyconvertible into one PGP non-voting common membership interest, representing inthe aggregate 33.33% of the fully diluted common membership interests of PGP onsuch date. In November 2005 and May 2004, PGP repurchased 35,210 and 147,553units, respectively, of its convertible preferred membership interests from anunrelated third party. PGP does not have outstanding any of its non-votingcommon membership interests.

 

Unless otherwiseindicated, the address of each manager or executive officer of PGP is c/oDiamond Jo, LLC, 400 East Third Street, P.O. Box 1750, Dubuque, Iowa,52001-1750.

 

The table below setsforth, as of December 31, 2005, information regarding the beneficialownership of the voting common membership interests of PGP by:

 

(a)                                  eachperson or entity known by us to own beneficially 5% or more of the commonmembership interests of PGP;

 

(b)                                 eachmanager and executive officer of PGP; and

 

(c)                                  allmanagers and executive officers of PGP as a group.

 

The following informationis helpful to an understanding of, and qualifies the beneficial ownership datacontained in, the table set forth below. Mr. Stevens holds 358,905 PGPcommon membership interests directly and 413,333 PGP common membershipinterests indirectly through PGP Investors, LLC, a Delaware limited liabilitycompany. Mr. Stevens is the sole managing member of PGP Investors, LLC andexercises voting and investment power over the PGP common membership interestsowned by PGP Investors, LLC. Mr. Stevens and Mr. Whittaker, managersof PGP, are an Executive Vice President and a Vice Chairman, respectively, of Jefferies& Company, Inc., the initial purchaser of the Peninsula Gaming and DJWNotes (“Initial Purchaser”). In addition, the Initial Purchaser and some of itsaffiliates, officers and employees are members of PGP Investors, LLC.Mr. Whittaker holds an economic interest in approximately 41,667 PGPcommon membership interests indirectly through his membership in PGP Investors,LLC, but does not exercise voting or investment power with respect to these PGPcommon membership interests. Mr. Oliver holds his interest through TheOliver Family Trust. The total holdings of all managers and executive officersas a group includes the 413,333 PGP common membership interests held by PGPInvestors, LLC, over which Mr. Stevens exercises voting and investmentpower.

 

36

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| **Name and Address of Beneficial Owner**                                                             | ** ** | **Voting Common Membership  Interests Beneficially Owned** | ** ** | **Percent of Class** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------|------------|----------------------|------------|
|                                                                                                 |       |                                                       |       |                 |       |
| M. Brent  Stevens  c/o Diamond Jo, LLC  3rd Street Ice Harbor  P.O. Box 1750  Dubuque, Iowa 52004    |       | 752,915                                                    |       | 57.61                | %          |
|                                                                                                 |       |                                                       |       |                 |       |
| PGP  Investors, LLC(1)  11100 Santa Monica, 10th Floor  Los Angeles, CA 90071                        |       | 413,333                                                    |       | 31.63                | %          |
|                                                                                                 |       |                                                       |       |                 |       |
| Michael S.  Luzich  c/o Diamond Jo, LLC  3rd Street Ice Harbor  P.O. Box 1750  Dubuque, Iowa 52004   |       | 414,581                                                    |       | 31.72                | %          |
|                                                                                                 |       |                                                       |       |                 |       |
| Terrance  Oliver  c/o Diamond Jo, LLC  3rd Street Ice Harbor  P.O. Box 1750  Dubuque, Iowa 52004     |       | 15,000                                                     |       | 1.15                 | %          |
|                                                                                                 |       |                                                       |       |                 |       |
| Andrew  Whittaker(1)  c/o Diamond Jo, LLC  3rd Street Ice Harbor  P.O. Box 1750  Dubuque, Iowa 52004 |       | 41,667                                                     |       | 3.19                 | %          |
|                                                                                                 |       |                                                       |       |                 |       |
| Jonathan  Swain  c/o Diamond Jo, LLC  3rd Street Ice Harbor  P.O. Box 1750  Dubuque, Iowa 52004      |       | 99,543                                                     |       | 7.62                 | %          |
|                                                                                                 |       |                                                       |       |                 |       |
| Natalie  Schramm  c/o Diamond Jo, LLC  3rd Street Ice Harbor  P.O. Box 1750  Dubuque, Iowa 52004     |       | 24,886                                                     |       | 1.90                 | %          |
|                                                                                                 |       |                                                       |       |                 |       |
| All managers  and executive officers as a group  (7 persons)                                    |       | 1,000,000                                                  |       | 100.00               | %          |

 

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(1)                                  Theseinterests are attributable to Mr. Stevens and are included in thecalculation of his beneficial ownership and percentage of ownership data.

 

**ITEM 13.****                                            CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS**

 

**Relationship with Dubuque**Racing Association

** **

The DRA is a not-for-profit corporation organized for the purpose ofoperating DGP, a pari-mutuel greyhound racing facility in Dubuque, Iowa. During2005, DJL entered into an amendment to its operating agreement under the jointgambling license (the “Amended Operating Agreement”) with the DRA. The AmendedOperating Agreement provides for, among other things, the following:

 

•                  The DRA isauthorized to install up to 1,000 slot machines and add up to 20 table games atDGP;

 

•                  Extension of theoperating agreement through December 31, 2018;

 

•                  From the datethat DGP commences operation of table games and continuing until December 31,2008, DRA shall pay to DJL $0.33 for each $1.00 of reduction in DJL’s adjustedgross gaming receipts, subject to a maximum 15% decline and certain paymentdeferral conditions; and

 

37

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•                  DJL willcontinue to pay to DRA the sum of $.50 for each patron admitted on the boatthrough 2008. During 2005, 2004 and 2003, these payments approximated $0.5million. Commencing January 1, 2009, DJL shall pay to DRA 3% of DJL’s adjustedgross receipts. If however, DJL elects to move its operations to a bargefacility, upon commencement of operations as a barge facility, DJL will berequired to pay to DRA 4.5% of DJL’s adjusted gross receipts.

 

**Relationship with the City of Dubuque, Iowa**

** **

**During 2005, DJL entered into an agreement with the City ofDubuque, Iowa which provides for, among other things, the following:**

** **

•                  The extension ofthe lease of real property around the Diamond Jo through 2018. The currentlease calls for lease payments of $25,000 annually through 2008. EffectiveJanuary 1, 2009, the lease payments increase to $250,000 annually. If at anytime DJL elects to move its operations to a barge facility, the lease paymentsincrease to $500,000 annually. However, under DJL’s operating agreement withthe DRA, the DRA is required to reimburse DJL for all lease payments paid tothe city as described in this paragraph; and

 

•                  The option forDJL to build a barge facility within the Port of Dubuque (which is where theDiamond Jo is currently docked).

 

**Relationshipwith Worth County Development Authority**

** **

**Worth CountyDevelopment Authority (“WCDA”), a not-for-profit corporation organized for thepurpose of serving as a qualified sponsoring organization first received agaming license in 2005 and serves as the “qualified sponsoring organization” ofDJW. Under the terms of an Operator’s Agreement between DJW and WCDA (the “WCDAAgreement”), DJW will develop, own and operate a new casino in Worth County,Iowa. In addition, DJW shall be required to make advancements to WCDA of $5,000per month beginning in November 2003 until commencement of operations at thenew casino. Upon commencement of operations at the new casino, DJW shall payWCDA 5.76% of the casino’s adjusted gross receipts. Such payments shall beoffset by amounts advanced under the WCDA Agreement to WCDA prior tocommencement of operations.**

** **

**Relationshipwith Initial Purchaser**

** **

**Andrew Whittaker, a Vice Chairman of the InitialPurchaser, is a manager of PGP. M. Brent Stevens, our Chief Executive Officerand an Executive Vice President of the Initial Purchaser, is also a manager ofPGP and Chairman of the Board of Managers of PGP. Due to these relationships,those individuals may receive money from us or our affiliates for managementfees and other amounts paid by us to PGP. In addition, the Initial Purchaserreceived fees and expenses from the Company in connection with the offering ofthe Peninsula Gaming Notes, DJW Notes and OED Notes.**

** **

**DJW Credit Facility Guarantee**

 

In connection with enteringinto the DJW Credit Facility, our chief executive officer agreed tounconditionally guarantee DJW’s payment obligations to the lenderthereunder.  For more information regarding the DJW Credit Facility, referto “Management’s Discussion and Analysis of Financial Condition and Results ofOperations - Liquidity and Capital Resources”.

 

**ManagingMember Indemnification**

** **

Under our operatingagreement and the operating agreement of PGP, we and PGP have agreed, subjectto few exceptions, to indemnify and hold harmless PGP and the members of PGP,as the case may be, from liabilities incurred as a result of their positions asour sole manager and as members of PGP.

 

**Operating**Agreement of PGP

** **

In accordance with PGP’soperating agreement, the Board of Managers is composed of five individuals, twoof whom must be independent managers. At any time that M. Brent Stevens,together with any entity controlled by Mr. Stevens, beneficially holds atleast 5% of the voting common membership interests of PGP, Mr. Stevens isentitled to designate three of PGP’s managers, including one of the twoindependent managers. The two independent managers are required to serve asmembers of the independent committee. Under PGP’s operating agreement, PGPAdvisors, LLC, a Delaware limited liability company, of which Mr. Stevensis the sole managing member, may render financial advisory and consultingservices to PGP

 

38

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and is entitled to receivecommercially reasonable fees for the services consistent with industrypractices. To date, PGP has not entered into any such arrangements withMr. Stevens. At any time that Michael Luzich, together with any entitycontrolled by Mr. Luzich, beneficially holds at least 5% of the voting commonmembership interests of PGP, Mr. Luzich is entitled to designate two ofPGP’s managers, including the other independent manager. In consideration fortheir execution of personal guarantees to provide credit support for OED’scredit facilities, each of Messrs. Luzich and Stevens were granted profitsinterests of 1.5% of PGP’s fully diluted membership interests by PGP’s board ofmanagers. Messrs. Stevens and Luzich are entitled to receive distributionson liquidation in respect of such profits interests only to the extent of anyappreciation in the fair market value of PGP interests since the date of grantof such profits interests.

 

Presently, the Board of Managersis composed of four managers. If not appointed earlier, a fifth manager may beappointed by Mr. Stevens at a future meeting of managers. A manager mayresign at any time, and the member who designates a manager may remove orreplace that manager from the Board of Managers at any time.

 

OnMay 21, 2003, PGP’s operating agreement was amended to create an executivecommittee consisting of Messrs. Luzich and Stevens. Under the amendment, theexecutive committee manages our business and affairs. The executive committeemeets weekly or as otherwise agreed upon between Messrs. Luzich and Stevens.Other than with respect to any officers whose responsibilities include anyproject or real estate development, all executive officers of PGP and OED shallreport to the Chief Executive Officer of PGP. The executive committee shall,subject to the approval of the Board of Managers, unanimously approve theengagement of all of our executive officers (whose compensation exceeds $100,000 annually), attorneys and accountants. Inthe event that the executive committee is unable to reach a unanimousdetermination as to any such engagement within a reasonable period of time, theexecutive committee shall submit the prospective engagement to the independentmanagers the Board of Managers board, whose determination shall be final.

 

At a meeting of the Boardof Managers held on February 25, 2005, PGP approved certain amendments toits operating agreement to permit certain amendments to PGP’s 2004 IncentiveUnit Plan, including increasing the percentage of profits interests issuableunder such plan from 10% to 12% of PGP’s outstanding membership interests on afully diluted basis. The Board of Managers approved an additional amendment toits operating agreement on September 12, 2005 to increase the percentage ofprofits interests issuable under the 2004 Incentive Unit Plan to 15.5% of PGP’soutstanding membership interests on a fully diluted basis

 

**Management Services**Agreement — DJL, OEDA and OED

** **

DJL and OEDA (together,the “Operators”) manage and operate OED’s racino near Lafayette, Louisiana andOED’s OTBs pursuant to a management services agreement. Although the Operatorsmay obtain services from affiliates to the extent necessary to perform theirobligations, the Operators are fully responsible for all obligations under theagreement. Fees under the management services agreement are shared between DJLand OEDA, with DJL receiving 75% and OEDA receiving 25% of such fees.

 

Pursuant to the terms ofthe management services agreement, the Operators are entitled to receivepre-opening service fees equal to $40,000 per month, commencing June 27,2001. The Operators are also entitled to be reimbursed for all reasonable anddocumented out-of-pocket expenses permitted to be incurred under the managementservices agreement, including, but not limited to, tax preparation, accounting,legal and administrative fees and expenses. The Operators are also entitled toreceive in the aggregate a basic management fee equal to 1.75% of net revenue(less net food and beverage revenue) and an incentive fee equal to:

 

•                                          3.0%of the first $25.0 million of EBITDA (as defined below);

 

•                                          4.0%of the amount in excess of $25.0 million but less than $30.0 millionof EBITDA; and

 

•                                          5.0%of the amount in excess of $30.0 million of EBITDA.

 

Under the managementservices agreement, “EBITDA” is defined as earnings before interest, incometaxes, depreciation and amortization. In calculating earnings, the basicmanagement fee, the incentive fee and reimbursables payable under themanagement services agreement are excluded.

 

39

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**ManagementServices Agreement — DJW and PGP**

** **

In 2005, DJWentered into a management services agreement (“MSA”) with PGP. Pursuant to theterms of that agreement, PGP will design, develop, construct, manage andoperate the new casino in Worth County, Iowa and provide certain pre-openingservices in connection therewith. Under the management services agreement, PGPis entitled to receive a pre-opening service fee equal to $40,000 per monthcommencing in September 2005 and ending upon opening of the new casino to thepublic. Upon commencement of operations at the new casino, PGP will alsoreceive a basic management fee equal to 1.75% of net revenue (less net food andbeverage revenue) and an incentive fee equal to:

 

•3.0% of the first $25.0 million of EBITDA (as defined below);

 

• 4.0%of EBITDA in excess of $25.0 million but less than $30.0 million of EBITDA; and

 

• 5.0%of EBITDA in excess of $30.0 million.

 

“EBITDA” is defined in the managementservices agreement as earnings before interest, income taxes, depreciation andamortization; provided, however, that in calculating earnings, the basicmanagement fee, the incentive fee payable under the management servicesagreement shall not be deducted. The management services agreement willterminate on the later of (i) April 2014 or (ii) the date of sale by PGP of itsbeneficial ownership of the DJW’s membership interests. During 2005 the Companyexpensed management fees of $0.2 million.

 

**ITEM 14.****                                            PRINCIPALACCOUNTANT FEES AND SERVICES**

 
| **(in thousands):** | ** ** | **2005** | ** ** | **2004** | ** ** |
|---------------------|------------|----------|------------|----------|------------|
| Audit fees          |       | $        | 341        |     | $          | 602 |   |
| Audit-related  fees |       | 104      |       | 90       |       |
| Tax fees            |       | 31       |       | 33       |       |
| All other  fees     |       | 3        |       | —   |       |
|                     |            |          |            |          |            |  |  |

 

In accordance with ourinternal policies, all fees related to audit services rendered by ourindependent accountants are required to be pre-approved by our audit committee.In addition, all of the audit services described above in this Item 14 for theyear ended December 31, 2005 have been approved by our audit committee.

 

40

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**PART IV**

 

**ITEM 15.****                                            EXHIBITSAND FINANCIAL STATEMENT SCHEDULES**

 

**(a)**                                  The following documents are filedas a part of this report:

** **

(1)                                  FinancialStatements—see Index to Consolidated Financial Statements and Schedule appearingon page F-1.

 

(2)                                  FinancialStatement Schedules—see Index to Consolidated Financial Statements and Scheduleappearing onpage F-1.

 

(3)                                  Exhibits:

 

**INDEX TO EXHIBITS**

 
| **Exhibit  Number** | ** ** | **Description of Exhibit***                                                                                                                                                                                                                                                                                                                                                                                                                                                    | ** ** |
|---------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| 3.1                 |       | Certificate  of Formation of Peninsula Gaming Company, LLC—incorporated herein by  reference to Exhibit 3.1A of Peninsula Gaming Company, LLC’s Form S-4 filed  October 12, 1999. (With regard to applicable cross-references in this  Form 10-K, Peninsula Gaming Company, LLC’s Form S-4, Current, Quarterly and  Annual Reports were filed with the SEC under File No. 333-88829.                                                                       |       |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |       |
| 3.2                 |       | Amendment to  Certificate of Formation of Peninsula Gaming Company, LLC—incorporated by  reference to Exhibit 3.1B of Peninsula Gaming Company, LLC’s Form S-4 filed  October 12, 1999.                                                                                                                                                                                                                                                                         |       |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |       |
| 3.3                 |       | Certificate  of Amendment to the Certificate of Formation of Peninsula Gaming Company,  LLC, dated March 10, 2004—incorporated herein by reference to Peninsula  Gaming Company, LLC’s Quarterly Report on Form 10-Q filed May 14, 2004.                                                                                                                                                                                                                   |       |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |       |
| 3.4                 |       | Amended and  Restated Operating Agreement of Peninsula Gaming Company, LLC—incorporated  herein by reference to Exhibit 3.2 of Peninsula Gaming Company, LLC’s Form  S-4 filed on October 12, 1999.                                                                                                                                                                                                                                                             |       |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |       |
| 3.5                 |       | Certificate  of Formation of Peninsula Casinos, LLC, dated February 27,  2004—incorporated by reference to Exhibit 3.3A of Peninsula Gaming, LLC’s  Form S-4 filed July 30, 2004.                                                                                                                                                                                                                                                                               |       |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |       |
| 3.6                 |       | Certificate  of Amendment to the Certificate of Formation of Peninsula Casinos, LLC, dated  March 9, 2004—incorporated by reference to Exhibit 3.3B of Peninsula  Gaming, LLC’s Form S-4 filed July 30, 2004                                                                                                                                                                                                                                                    |       |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |       |
| 3.7                 |       | Operating  Agreement of Peninsula Gaming, LLC (formerly known as Peninsula Casinos, LLC,  dated June 14, 2004—incorporated by reference to Exhibit 3.4 of  Peninsula Gaming, LLC’s Form S-4 filed July 30, 2004.                                                                                                                                                                                                                                                |       |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |       |
| 3.8                 |       | Certificate  of Incorporation of The Old Evangeline Downs Capital Corp., dated  January 20, 2003—incorporated herein by reference to Exhibit 3.4 of The  Old Evangeline Downs Capital Corp.’s Form S-4 filed May 28, 2003. (With  regard to applicable cross-references in this registration statement, The Old  Evangeline Downs Capital Corp.’s Form S-4, Current, Quarterly and Annual  Reports were filed with the SEC under File No. 333-105587. |       |

 

41

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| 3.9    |   | Certificate  of Amendment to the Certificate of Incorporation of The Old Evangeline Downs  Capital Corp., dated June 17, 2004—incorporated by reference to Exhibit  3.5B of Peninsula Gaming, LLC’s Form S-4 filed July 30, 2004.                                                                                                                            |   |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                        |   |
| 3.10   |   | By-laws of  The Old Evangeline Downs Capital Corp.—incorporated herein by reference to  Exhibit 3.5 of The Old Evangeline Downs Capital Corp.’s Form S-4 filed  May 28, 2003.                                                                                                                                                                                |   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                        |   |
| 4.1    |   | Specimen  Certificate of Common Stock of Peninsula Gaming Corp. (formerly known as The  Old Evangeline Downs Capital Corp.)—incorporated by reference to Exhibit 4.1  of Peninsula Gaming, LLC’s Form S-4 filed July 30, 2004.                                                                                                                                    |   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                        |   |
| 4.2    |   | Indenture,  dated February 25, 2003, by and among The Old Evangeline Downs, L.L.C.,  The Old Evangeline Downs Capital Corp. and U.S. Bank National  Association—incorporated herein by reference to Exhibit 4.1 of The Old  Evangeline Downs, L.L.C.’s Form S-4 filed May 28, 2003.                                                                     |   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                        |   |
| 4.3    |   | Supplemental  Indenture, dated as of March 25, 2004, by and among The Old Evangeline  Downs, L.L.C., The Old Evangeline Downs Capital Corp. and U.S. Bank National  Association—incorporated by reference to Exhibit 4.3B of Peninsula Gaming,  LLC’s Form S-4 filed July 30, 2004.                                                                          |   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                        |   |
| 4.4    |   | Indenture,  dated as of April 16, 2004, by and among Diamond Jo, LLC (formerly known  as Peninsula Gaming Company, LLC, The Old Evangeline Downs Capital Corp., the  Subsidiary Guarantors named therein and U.S. Bank National  Association—incorporated by reference to Exhibit 4.4A of Peninsula Gaming,  LLC’s Form S-4 filed July 30, 2004.             |   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                        |   |
| 4.5    |   | Supplemental  Indenture among Peninsula Gaming, LLC, Diamond Jo, LLC (formerly known as  Peninsula Gaming Company, LLC, The Old Evangeline Downs Capital Corp. and  U.S. Bank National Association, dated as of June 16, 2004—incorporated  by reference to Exhibit 4.4B of Peninsula Gaming, LLC’s Form S-4 filed July  30, 2004.                           |   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                        |   |
| 4.6    |   | Registration  Rights Agreement, dated April 16, 2004, by and among Diamond Jo, LLC  (formerly known as Peninsula Gaming Company, LLC, The Old Evangeline Downs  Capital Corp., the Guarantors named therein and Jefferies & Company,   Inc.—incorporated by reference to Exhibit 4.5A of Peninsula Gaming, LLC’s  Form S-4 filed July 30, 2004 |   |

 

42

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| 4.7    |   | Joinder of  Peninsula Gaming, LLC, dated June 16, 2004, to the Registration Rights  Agreement, dated April 16, 2004, by and among Diamond Jo, LLC (formerly  known as Peninsula Gaming Company, LLC, The Old Evangeline Downs Capital  Corp., the Guarantors named therein and Jefferies &  Company, Inc.—incorporated by reference to Exhibit 4.5B of Peninsula  Gaming, LLC’s Form S-4 filed July 30, 2004 |   |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |
| 4.8    |   | Pledge and  Security Agreement, dated as of April 16, 2004, among Diamond Jo, LLC  (formerly known as Peninsula Gaming Company, LLC, The Old Evangeline Downs  Capital Corp., OED Acquisition, LLC, Peninsula Gaming Corporation, The Old  Evangeline Downs, L.L.C. and U.S. Bank National Association—incorporated by  reference to Exhibit 4.6A of Peninsula Gaming, LLC’s Form S-4 filed July 30,  2004.                     |   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |
| 4.9    |   | Supplement  to Security Agreement by Peninsula Gaming, LLC, dated June 16,  2004—incorporated by reference to Exhibit 4.6B of Peninsula Gaming, LLC’s  Form S-4 filed July 30, 2004.                                                                                                                                                                                                                                            |   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |
| 4.10   |   | Trademark  Security Agreement, dated April 16, 2004, by Diamond Jo, LLC in favor of  U.S. Bank National Association—incorporated by reference to Exhibit 4.7 of  Peninsula Gaming, LLC’s Form S-4 filed July 30, 2004.                                                                                                                                                                                                          |   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |
| 4.11   |   | Form of 83/4  Senior Secured Notes due 2012—incorporated by reference to Exhibit 4.8 of  Peninsula Gaming, LLC’s Form S-4 filed July 30, 2004.                                                                                                                                                                                                                                                                                       |   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |
| 4.12   |   | Intercreditor  Agreement between U.S. Bank National Association and Wells Fargo  Foothill, Inc., dated April 16, 2004—incorporated by reference to  Exhibit 4.9A of Peninsula Gaming, LLC’s Form S-4 filed July 30, 2004.                                                                                                                                                                                                  |   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |
| 4.13   |   | Acknowledgement  of Peninsula Gaming, LLC, dated June 16, 2004, to the Intercreditor  Agreement between U.S. Bank National Association and Wells Fargo  Foothill, Inc., dated April 16, 2004—incorporated by reference to  Exhibit 4.9B of Peninsula Gaming, LLC’s Form S-4 filed July 30, 2004.                                                                                                                      |   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |
| 4.14   |   | Supplement to Security  Agreement by Peninsula Gaming, LLC, dated June 30, 2005—incorporated  herein by reference to Exhibit 4.1 of Peninsula Gaming, LLC’s Quarterly Report on Form 10-Q filed  November 14, 2005.                                                                                                                                                                                                                  |   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |
| 4.15   |   | Supplement to Security  Agreement by Diamond Jo Worth Corp., dated June 30, 2005—incorporated  herein by reference to Exhibit 4.2 of Peninsula Gaming, LLC’s Quarterly Report on Form 10-Q filed  November 14, 2005.                                                                                                                                                                                                                 |   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |
| 4.16   |   | Supplemental  Indenture among Diamond Jo Worth Corp., Peninsula Gaming, LLC, Diamond Jo,  LLC, Peninsula Gaming Corp. and U.S. Bank National Association, dated as of  June 30, 2005—incorporated herein by reference to Exhibit 4.3 of Peninsula  Gaming, LLC’s Quarterly Report  on Form 10-Q filed November 14, 2005.                                                                                                             |   |

 

43

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| 4.17   |   | Acknowledgement  of Diamond Jo Worth Corp., dated June 30, 2005, to the Intercreditor  Agreement between U.S. Bank National Association and Wells Fargo Foothill,  Inc., dated April 16, 2004—incorporated herein by reference to Exhibit  4.4 of Peninsula Gaming, LLC’s Quarterly Report on Form 10-Q filed November 14, 2005.         |   |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|   |   |                                                                                                                                                                                                                                                                                                                                               |   |
| 4.18   |   | Supplement to Security  Agreement by Diamond Jo Worth Holdings, LLC, dated June 30, 2005—incorporated  herein by reference to Exhibit 4.5 of Peninsula Gaming, LLC’s Quarterly Report on Form 10-Q filed  November 14, 2005.                                                                                                             |   |
|   |   |                                                                                                                                                                                                                                                                                                                                               |   |
| 4.19   |   | Supplemental  Indenture among Diamond Jo Worth Holdings, LLC, Peninsula Gaming, LLC,  Diamond Jo, LLC, Peninsula Gaming Corp. and U.S. Bank National Association,  dated as of June 30, 2005—incorporated herein by reference to Exhibit  4.6 of Peninsula Gaming, LLC’s Quarterly Report on Form 10-Q filed November 14, 2005.          |   |
|   |   |                                                                                                                                                                                                                                                                                                                                               |   |
| 4.20   |   | Acknowledgement  of Diamond Jo Worth Holdings, LLC, dated June 30, 2005, to the Intercreditor  Agreement between U.S. Bank National Association and Wells Fargo Foothill,  Inc., dated April 16, 2004—incorporated herein by reference to Exhibit  4.7 of Peninsula Gaming, LLC’s Quarterly Report on Form 10-Q filed November 14, 2005. |   |
|   |   |                                                                                                                                                                                                                                                                                                                                               |   |
| 4.21   |   | Indenture  among Diamond Jo Worth, LLC, Diamond Jo. Worth Corp. and U.S. Bank National  Association, as Trustee, dated as of July 19, 2005—incorporated  herein by reference to Exhibit 10.2 of Peninsula Gaming, LLC’s Quarterly Report on Form 10-Q filed  August 16, 2005.                                                            |   |
|   |   |                                                                                                                                                                                                                                                                                                                                               |   |
| 4.22   |   | Pledge and  Security Agreement, dated as of July 19, 2005, among Diamond Jo Worth, LLC,  Diamond Jo Worth Corp., Diamond Jo Worth Holdings, LLC and U.S. Bank National  Association, as Trustee—incorporated herein by reference to  Exhibit 10.4 of Peninsula Gaming, LLC’s Form 10-Q filed August 16, 2005.                            |   |
|   |   |                                                                                                                                                                                                                                                                                                                                               |   |
| 10.1   |   | Operating  Agreement, dated February 22, 1993, by and among Dubuque Racing  Association, Ltd. and Greater Dubuque Riverboat Entertainment Company,  L.C.—incorporated herein by reference to Exhibit 10.9A of Peninsula Gaming  Company, LLC’s Form S-4 filed October 12, 1999.                                                |   |
|   |   |                                                                                                                                                                                                                                                                                                                                               |   |
| 10.2   |   | Amendment to  Operating Agreement, dated February 22, 1993, by and among Dubuque  Racing Association, Ltd. and Greater Dubuque Riverboat Entertainment Company,  L.C.—incorporated herein by reference to Exhibit 10.9B of Peninsula Gaming  Company, LLC’s Form S-4 filed October 12, 1999.                                   |   |

 

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| 10.3   |   | Amendment to  Operating Agreement, dated March 4, 1993, by and among Dubuque Racing  Association, Ltd. and Greater Dubuque Riverboat Entertainment Company,  L.C.—incorporated herein by reference to Exhibit 10.9C of Peninsula Gaming  Company, LLC’s Form S-4 filed October 12, 1999.           |   |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|   |   |                                                                                                                                                                                                                                                                                                                   |   |
| 10.4   |   | Third  Amendment to Operating Agreement, dated March 11, 1993, by and among  Dubuque Racing Association, Ltd. and Greater Dubuque Riverboat Entertainment  Company, L.C.—incorporated herein by reference to Exhibit 10.9D of Peninsula  Gaming Company, LLC’s Form S-4 filed October 12, 1999.    |   |
|   |   |                                                                                                                                                                                                                                                                                                                   |   |
| 10.5   |   | Fourth  Amendment to Operating Agreement, dated March 11, 1993, by and among  Dubuque Racing Association, Ltd. and Greater Dubuque Riverboat Entertainment  Company, L.C.—incorporated herein by reference to Exhibit 10.9E of Peninsula  Gaming Company, LLC’s Form S-4 filed October 12, 1999.   |   |
|   |   |                                                                                                                                                                                                                                                                                                                   |   |
| 10.6   |   | Fifth  Amendment to Operating Agreement, dated April 9, 1993, by and among  Dubuque Racing Association, Ltd. and Greater Dubuque Riverboat Entertainment  Company, L.C.—incorporated herein by reference to Exhibit 10.9F of Peninsula  Gaming Company, LLC’s Form S-4 filed October 12, 1999.     |   |
|   |   |                                                                                                                                                                                                                                                                                                                   |   |
| 10.7   |   | Sixth  Amendment to Operating Agreement, dated November 29, 1993, by and among  Dubuque Racing Association, Ltd. and Greater Dubuque Riverboat Entertainment  Company, L.C.—incorporated herein by reference to Exhibit 10.9G of Peninsula  Gaming Company, LLC’s Form S-4 filed October 12, 1999. |   |
|   |   |                                                                                                                                                                                                                                                                                                                   |   |
| 10.8   |   | Seventh  Amendment to Operating Agreement, dated April 6, 1994, by and among  Dubuque Racing Association, Ltd. and Greater Dubuque Riverboat Entertainment  Company, L.C.—incorporated herein by reference to Exhibit 10.9H of Peninsula  Gaming Company, LLC’s Form S-4 filed October 12, 1999.   |   |
|   |   |                                                                                                                                                                                                                                                                                                                   |   |
| 10.9   |   | Eighth  Amendment to Operating Agreement, dated April 29, 1994, by and among  Dubuque Racing Association, Ltd. and Greater Dubuque Riverboat Entertainment  Company, L.C.—incorporated herein by reference to Exhibit 10.9I of Peninsula  Gaming Company, LLC’s Form S-4 filed October 12, 1999.   |   |
|   |   |                                                                                                                                                                                                                                                                                                                   |   |
| 10.10  |   | Ninth  Amendment to Operating Agreement, dated July 11, 1995, by and among  Dubuque Racing Association, Ltd. and Greater Dubuque Riverboat Entertainment  Company, L.C.—incorporated herein by reference to Exhibit 10.9J of Peninsula  Gaming Company, LLC’s Form S-4 filed October 12, 1999.     |   |
|   |   |                                                                                                                                                                                                                                                                                                                   |   |
| 10.11  |   | Tenth  Amendment to Operating Agreement, dated July 15, 1999, by and among  Dubuque Racing Association, Ltd. and Greater Dubuque Riverboat Entertainment  Company, L.C.—incorporated herein by reference to Exhibit 10.9K of Peninsula  Gaming Company, LLC’s Form S-4 filed October 12, 1999.     |   |

 

45

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| 10.12  |   | Operating  Agreement Assignment, dated July 15, 1999, by and among Greater Dubuque  Riverboat Entertainment Company, L.C. and Peninsula Gaming Company,  LLC—incorporated herein by reference to Exhibit 10.10 of Peninsula Gaming  Company, LLC’s Form S-4 filed October 12, 1999.                           |   |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|   |   |                                                                                                                                                                                                                                                                                                                              |   |
| 10.13  |   | Ice Harbor  Parking Agreement Assignment dated July 15, 1999, by and among Greater  Dubuque Riverboat Entertainment Company, L.C. and Peninsula Gaming Company,  LLC—incorporated herein by reference to Exhibit 10.13 of Peninsula Gaming  Company, LLC’s Form S-4 filed October 12, 1999.                   |   |
|   |   |                                                                                                                                                                                                                                                                                                                              |   |
| 10.14  |   | First  Amendment to Sublease Agreement, dated July 15, 1999, by and among  Dubuque Racing Association, Ltd. and Greater Dubuque Riverboat Entertainment  Company, L.C.—incorporated herein by reference to Exhibit 10.14 of Peninsula  Gaming Company, LLC’s Form S-4 filed October 12, 1999.                 |   |
|   |   |                                                                                                                                                                                                                                                                                                                              |   |
| 10.15  |   | Sublease  Assignment, dated July 15, 1999, by and among Greater Dubuque  Entertainment Company, L.C. and Peninsula Gaming Company, LLC—incorporated  herein by reference to Exhibit 10.15 of Peninsula Gaming Company, LLC’s Form  S-4 filed October 12, 1999.                                                |   |
|   |   |                                                                                                                                                                                                                                                                                                                              |   |
| 10.16  |   | Iowa Racing  and Gaming Commission Gaming License, dated July 15, 1999—incorporated  herein by reference to Exhibit 10.16 of Peninsula Gaming Company, LLC’s Form  S-4 filed October 12, 1999.                                                                                                                |   |
|   |   |                                                                                                                                                                                                                                                                                                                              |   |
| 10.17  |   | Assignment  of Iowa IGT Declaration and Agreement of Trust, dated July 15, 1999 by  and among Greater Dubuque Riverboat Entertainment Company, L.C. and Peninsula  Gaming Company, LLC—incorporated herein by reference to Exhibit 10.17 of  Peninsula Gaming Company, LLC’s Form S-4 filed October 12, 1999. |   |

 

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| 10.18  |   | Amended and  Restated Management Services Agreement, dated as of February 25, 2003,  by and among The Old Evangeline Downs, L.L.C., OED Acquisition, LLC and  Peninsula Gaming Company, LLC—incorporated herein by reference to Exhibit  10.15 of Peninsula Gaming Company, LLC’s Form 10-Q Quarterly Report for the  quarter ended September 30, 2003.                                    |   |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                           |   |
| 10.19  |   | Loan and  Security Agreement, dated as of June 16, 2004, by and among Diamond Jo,  LLC (formerly known as Peninsula Gaming Company, LLC, The Old Evangeline  Downs, L.L.C. and Wells Fargo Foothill, Inc—incorporated by reference to  Exhibit 10.19 of Peninsula Gaming, LLC’s Form S-4 filed July 30, 2004.                                                                              |   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                           |   |
| 10.20  |   | Guarantor  Security Agreement, dated as of June 16, 2004, by and among Peninsula  Gaming, LLC, The Old Evangeline Downs Capital Corp. and Wells Fargo  Foothill, Inc—incorporated by reference to Exhibit 10.20 of Peninsula  Gaming, LLC’s Form S-4 filed July 30, 2004.                                                                                                                  |   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                           |   |
| 10.21  |   | Intercompany  Subordination Agreement, dated as of June 16, 2004, by and among The Old  Evangeline Downs, L.L.C., Diamond Jo, LLC (formerly known as Peninsula Gaming  Company, LLC, The Old Evangeline Downs Capital Corp., Peninsula Gaming, LLC  and Wells Fargo Foothill, Inc—incorporated by reference to Exhibit 10.21  of Peninsula Gaming, LLC’s Form S-4 filed July 30, 2004.     |   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                           |   |
| 10.22  |   | Management  Fees Subordination Agreement, dated as of June 16, 2004, by and among  The Old Evangeline Downs, L.L.C., The Old Evangeline Downs Capital Corp.,  Diamond Jo, LLC (formerly known as Peninsula Gaming Company, LLC, OED  Acquisition, LLC and Wells Fargo Foothill, Inc.—incorporated by  reference to Exhibit 10.22 of Peninsula Gaming, LLC’s Form S-4 filed July 30,  2004. |   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                           |   |
| 10.23  |   | Post Closing  Letter, dated June 16, 2004, from Wells Fargo Foothill, Inc. to The  Old Evangeline Downs, L.L.C. and Diamond Jo, LLC (formerly known as Peninsula  Gaming Company, LLC—incorporated by reference to Exhibit 10.23 of Peninsula  Gaming, LLC’s Form S-4 filed July 30, 2004.                                                                                                 |   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                           |   |
| 10.24  |   | Employment  Agreement, dated July 14, 2004, by and between Jonathan Swain and  Peninsula Gaming, LLC—incorporated by reference to Exhibit 10.1B of Peninsula  Gaming, LLC’s Form S-4 filed July 30, 2004                                                                                                                                                                                        |   |

 

47

----

 
| 10.25  |   | Form of  Employment Agreement by and between Natalie A. Schramm and Peninsula Gaming,  LLC.—incorporated by reference to Exhibit 10.01A of Peninsula Gaming, LLC’s  Form S-4 filed July 30, 2004.                                                                                                                                                                                                                    |   |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                           |   |
| 10.26  |   | Guaranty by  The Old Evangeline Downs Capital Corp. in favor of Wells Fargo  Foothill, Inc., dated June 16, 2004—incorporated by reference to  Exhibit 10.25 of Peninsula Gaming, LLC’s Form S-4 filed July 30, 2004                                                                                                                                                                                       |   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                           |   |
| 10.27  |   | Purchase  Agreement among Diamond Jo Worth, LLC, Diamond Jo Worth Corp., Diamond Jo  Worth Holdings, LLC, Diamond Jo, LLC and Jefferies & Company, Inc.—incorporated  herein by reference to Exhibit 10.3 of Peninsula Gaming, LLC’s Quarterly Report on Form 10-Q filed  August 16, 2005.                                                                                                                       |   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                           |   |
| 10.28  |   | Borrower Supplement No. 1  by Diamond Jo Worth, LLC, dated as of May 13, 2005—incorporated herein  by reference to Exhibit 10.2 of Peninsula  Gaming, LLC’s Quarterly Report on Form 10-Q filed November 14, 2005.                                                                                                                                                                                                   |   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                           |   |
| 10.29  |   | Second  Amendment to Loan and Security Agreement, dated as of July 12, 2005, by and  among Diamond Jo, LLC, The Old Evangeline Downs, L.L.C., Diamond Jo Worth,  LLC and Wells Fargo Foothill, Inc.—incorporated herein by  reference to Exhibit 10.6 of Peninsula Gaming, LLC’s Quarterly Report on Form 10-Q filed  August 16, 2005.                                                                               |   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                           |   |
| 10.30  |   | Stock Pledge Agreement  Supplement by Peninsula Gaming, LLC, dated as of May 13, 2005—incorporated  herein by reference to Exhibit 10.4 of Peninsula Gaming, LLC’s Quarterly Report on Form 10-Q filed  November 14, 2005.                                                                                                                                                                                           |   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                           |   |
| 10.31  |   | Acknowledgement and  Agreement by Diamond Jo Worth, LLC, dated July 12, 2005—incorporated  herein by reference to Exhibit 10.5 of Peninsula Gaming, LLC’s Quarterly Report on Form 10-Q filed  November 14, 2005.                                                                                                                                                                                                    |   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                           |   |
| 10.32  |   | Acknowledgment of Diamond  Jo Worth, LLC, dated May 13, 2005—incorporated herein by reference to  Exhibit 10.6 of Peninsula  Gaming, LLC’s Quarterly Report on Form 10-Q filed November 14, 2005.                                                                                                                                                                                                                    |   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                           |   |
| 10.33  |   | First  Amendment to Intercompany Subordination Agreement, dated as of May 13, 2005,  by and among The Old Evangeline Downs, L.L.C., Diamond Jo Worth, LLC, Diamond  Jo, LLC, Peninsula Gaming Corp., Peninsula Gaming, LLC, OED Acquisition, LLC  and Wells Fargo Foothill, Inc.—incorporated herein by reference to  Exhibit 10.7 of Peninsula Gaming, LLC’s Quarterly Report on Form 10-Q filed November 14, 2005. |   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                           |   |
| 10.34  |   | Act of  Second Amendment of Multiple Obligations Mortgage, dated as of July 12, 2005,  between The Old Evangeline Downs, L.L.C. and Wells Fargo Foothill, Inc.—incorporated  herein by reference to Exhibit 10.8of Peninsula Gaming, LLC’s Quarterly Report on Form 10-Q filed  November 14, 2005.                                                                                                                   |   |

 

48

----

 
| 10.35       |   | Second  Amendment to Iowa Shore Mortgage, dated as of July 12, 2005, between Diamond  Jo, LLC and Wells Fargo Foothill, Inc.—incorporated herein by  reference to Exhibit 10.9 of Peninsula Gaming, LLC’s Quarterly Report on Form 10-Q filed  November 14, 2005.                                                                                |   |
|-------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|        |   |                                                                                                                                                                                                                                                                                                                                                       |   |
| 10.36       |   | Subordination  Agreement, dated as of July 12, 2005, between Diamond Jo, LLC and U.S. Bank  National Association, as Trustee—incorporated herein by reference to  Exhibit 10.10 of Peninsula Gaming, LLC’s Quarterly Report on Form 10-Q filed November 14, 2005.                                                                                |   |
|        |   |                                                                                                                                                                                                                                                                                                                                                       |   |
| 10.37       |   | Mortgage,  Assignment of Rents, Security Agreement and Fixture Financing Statement,  dated May 13, 2005, between Diamond Jo Worth, LLC and Well Fargo Foothill,  Inc., as Agent —incorporated herein by reference to Exhibit 10.11 of Peninsula  Gaming, LLC’s Quarterly Report  on Form 10-Q filed November 14, 2005.                           |   |
|        |   |                                                                                                                                                                                                                                                                                                                                                       |   |
| 10.38       |   | Second  Amendment to First Preferred Ship Mortgage, dated as of July 12, 2005,  between Diamond Jo, LLC and Wells Fargo Foothill, Inc.—incorporated  herein by reference to Exhibit 10.12 of Peninsula Gaming, LLC’s Quarterly Report on Form 10-Q filed  November 14, 2005.                                                                     |   |
|        |   |                                                                                                                                                                                                                                                                                                                                                       |   |
| 10.39       |   | Amended and  Restated Mortgage, Assignment of Rents, Security Agreement and Fixture  Financing Statement, dated July 19, 2005, between Diamond Jo Worth, LLC and  Well Fargo Foothill, Inc., as Agent—incorporated herein by  reference to Exhibit 10.5 of Peninsula Gaming, LLC’s Quarterly Report on Form 10-Q filed  August 16, 2005.         |   |
|        |   |                                                                                                                                                                                                                                                                                                                                                       |   |
| 10.40       |   | Assignment  of Mortgage, Assignment of Rents, Security Agreement and Fixture Financing  Statement by U.S. Bank National Association, dated July 19, 2005—incorporated  herein by reference to Exhibit 10.9 of Peninsula Gaming, LLC’s Quarterly Report on Form 10-Q filed  November 14, 2005.                                                    |   |
|        |   |                                                                                                                                                                                                                                                                                                                                                       |   |
| 10.41† |   | Release of  Real Estate Mortgage by Wells Fargo Foothill, Inc., dated July 19, 2005.                                                                                                                                                                                                                                                                       |   |
|        |   |                                                                                                                                                                                                                                                                                                                                                       |   |
| 10.42       |   | Cash  Collateral and Disbursement Agreement, dated as of July 19, 2005, by and  among Diamond Jo Worth, LLC, Diamond Jo Worth Corp. and U.S. Bank National  Association, as Trustee and Disbursement Agent—incorporated herein by  reference to Exhibit 10.14 of Peninsula Gaming, LLC’s Quarterly Report on Form 10-Q filed  November 14, 2005. |   |
|        |   |                                                                                                                                                                                                                                                                                                                                                       |   |
| 10.43† |   | Multi-Party  Blocked Account Agreement, dated as of July 19, 2005, by and among Diamond Jo  Worth, LLC, U.S. Bank National Association, as trustee, and U.S. Bank  National Association, as securities intermediary.                                                                                                                                       |   |
|        |   |                                                                                                                                                                                                                                                                                                                                                       |   |
| 10.44† |   | Multi-Party  Blocked Account Agreement, dated as of July 19, 2005, by and among Diamond Jo  Worth, LLC, U.S. Bank National Association, as trustee, and U.S. Bank  National Association, as securities intermediary.                                                                                                                                       |   |
|        |   |                                                                                                                                                                                                                                                                                                                                                       |   |
| 10.45† |   | Multi-Party  Blocked Account Agreement, dated as of July 19, 2005, by and among Diamond Jo  Worth, LLC, U.S. Bank National Association, as trustee, and American Trust  and Savings Bank, as depositary.                                                                                                                                                   |   |

 

49

----

 
| 10.46† |   | Multi-Party  Blocked Account Agreement, dated as of July 19, 2005, by and among Diamond Jo  Worth, LLC, U.S. Bank National Association, as trustee, and American Trust  and Savings Bank, as depositary.                                                                                                   |   |
|-------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|        |   |                                                                                                                                                                                                                                                                                                       |   |
| 10.47       |   | Management  Services Agreement, dated July 19, 2005, between Diamond Jo Worth, LLC and  Peninsula Gaming Partners—incorporated herein by reference to  Exhibit 10.1 of Peninsula Gaming, LLC’s Quarterly Report on Form 10-Q filed August 16, 2005.                                              |   |
|        |   |                                                                                                                                                                                                                                                                                                       |   |
| 10.48       |   | Eleventh  Amendment to Operating Agreement, dated as of May 31, 2005, by and between  Dubuque Racing Association, Ltd. And Diamond Jo, LLC—incorporated  herein by reference to Exhibit 10.16 of Peninsula Gaming, LLC’s Quarterly Report on Form 10-Q filed  November 14, 2005.                 |   |
|        |   |                                                                                                                                                                                                                                                                                                       |   |
| 10.49       |   | Standard  Form of Agreement between Owner and Architect, dated March 1, 2005,  between Diamond Jo Worth, LLC and KGA Architecture—incorporated herein by reference to Exhibit  10.7 of Peninsula Gaming, LLC’s Quarterly Report on Form 10-Q filed August 16, 2005.                    |   |
|        |   |                                                                                                                                                                                                                                                                                                       |   |
| 10.50       |   | General  Conditions of Standard Form of Agreement between Owner and Architect, dated  March 1, 2005, between Diamond Jo Worth, LLC and KGA Architecture—incorporated herein by reference to Exhibit  10.8 of Peninsula Gaming, LLC’s Quarterly Report on Form 10-Q filed August 16, 2005.   |   |
|        |   |                                                                                                                                                                                                                                                                                                       |   |
| 10.51       |   | Standard  Form of Agreement between Owner and Contractor, dated as of June 6,  2005, between Diamond Jo Worth, LLC and Henkel Construction Company—incorporated herein by reference to Exhibit  10.9 of Peninsula Gaming, LLC’s Quarterly  Report on Form 10-Q filed  August 16, 2005. |   |
|        |   |                                                                                                                                                                                                                                                                                                       |   |
| 10.52† |   | Second  Amendment to Employment Agreement of Jonathan Swain, dated as of September  12, 2005.                                                                                                                                                                                                              |   |
|        |   |                                                                                                                                                                                                                                                                                                       |   |
| 10.53† |   | Employment  Agreement of Michael Howard, dated September 5, 2004.                                                                                                                                                                                                                                          |   |
|        |   |                                                                                                                                                                                                                                                                                                       |   |
| 12.1†  |   | Computation  of ratio of earnings to fixed charges.                                                                                                                                                                                                                                                        |   |
|        |   |                                                                                                                                                                                                                                                                                                       |   |
| 21.1†  |   | Subsidiaries  of the Registrants                                                                                                                                                                                                                                                                           |   |
|        |   |                                                                                                                                                                                                                                                                                                       |   |
| 31.1†  |   | Certification  of M. Brent Stevens, Chief Executive Officer.                                                                                                                                                                                                                                               |   |
|        |   |                                                                                                                                                                                                                                                                                                       |   |
| 31.2†  |   | Certification  of Natalie A. Schramm, Chief Financial Officer.                                                                                                                                                                                                                                             |   |
|        |   |                                                                                                                                                                                                                                                                                                       |   |

----

*              Unless otherwisenoted, exhibits have been previously filed and are incorporated by reference.

†              Filed herewith.

 

50

----

 

**SIGNATURES**

 

Pursuantto the requirements of Section 13 or 15(d) of the Securities Exchange Actof 1934, each of the registrants has duly caused this report to be signed onits behalf by the undersigned, thereunto duly authorized, on March 31,2006.

 
|     | PENINSULA GAMING, LLC  |
|----------|------------------------|
|     |                   |   |   |
|     | By:                    | /s/ M. Brent Stevens |   |
|     |                   | M. Brent Stevens |   |
| * * | * *               | *Chief  Executive Officer* |   |
|     |                   |
|     | PENINSULA GAMING CORP. |
|     |                   |   |   |
|     | By:                    | /s/ M. Brent Stevens |   |
|     |                   | M. Brent Stevens |   |
| * * | * *               | *Chief  Executive Officer* |   |
|     |                   |   |   |
|     | DIAMOND JO, LLC        |
|     |                   |   |   |
|     | By:                    | /s/ M. Brent Stevens |   |
|     |                   | M. Brent Stevens |   |
| * * | * *               | *Chief  Executive Officer* |   |

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, this report has been signed below by the followingpersons on behalf of each of the registrants and in the capacities indicated onMarch 31, 2006.

 
|     | PENINSULA GAMING, LLC |
|----------|-----------------------|
|     |                  |   |   |
|     | By:                   | /s/ M. Brent Stevens |   |
|     |                  | M. Brent Stevens |   |
| * * | * *              | *Chief  Executive Officer and Manager* |
| * * | * *              | *(principal  executive officer)* |
|     |                  |   |   |
|     | By:                   | /s/ Natalie A. Schramm |   |
|     |                  | Natalie A. Schramm |   |
| * * | * *              | *Chief  Financial Officer* |   |
| * * | * *              | *(principal  financial and principal accounting officer)* |
|     |                  |   |   |
|     | By:                   | /s/ Michael S. Luzich |   |
|     |                  | Michael S. Luzich |   |
| * * | * *              | *President,  Secretary and Manager* |
|     |                  |   |   |
|     | By:                   | /s/ Terrance W. Oliver |   |
|     |                  | Terrance W. Oliver |   |
| * * | * *              | *Manager* |   |
|     |                  |   |   |
|     | By:                   | /s/ Andrew Whittaker |   |
|     |                  | Andrew Whittaker |   |
| * * | * *              | *Manager* |   |

 

51

----

 
|     | PENINSULA GAMING CORP. |
|----------|------------------------|
|     |                   |   |   |
|     | By:                    | /s/ M. Brent Stevens |   |
|     |                   | M. Brent Stevens |   |
| * * | * *               | *Chief  Executive Officer and Manager* |
| * * | * *               | *(principal  executive officer)* |
|     |                   |   |   |
|     | By:                    | /s/ Natalie A. Schramm |   |
|     |                   | Natalie A. Schramm |   |
| * * | * *               | *Chief  Financial Officer* |
| * * | * *               | *(principal  financial and principal accounting officer)* |
|     |                   |   |   |
|     | By:                    | /s/ Michael S. Luzich |   |
|     |                   | Michael S. Luzich |   |
| * * | * *               | *President,  Secretary and Manager* |
|     |                   |   |   |
|     | By:                    | /s/ Terrance W. Oliver |   |
|     |                   | Terrance W. Oliver |   |
| * * | * *               | *Manager* |   |
|     |                   |   |   |
|     | By:                    | /s/ Andrew Whittaker |   |
|     |                   | Andrew Whittaker |   |
| * * | * *               | *Manager* |   |
|     |                   |   |   |
|     |                   |   |   |
|     | DIAMOND JO, LLC        |
|     |                   |   |   |
|     | By:                    | /s/ M. Brent Stevens |   |
|     |                   | M. Brent Stevens |   |
| * * | * *               | *Chief  Executive Officer and Manager* |
| * * | * *               | *(principal  executive officer)* |
|     |                   |   |   |
|     | By:                    | /s/ Natalie A. Schramm |   |
|     |                   | Natalie A. Schramm |   |
| * * | * *               | *Chief  Financial Officer* |
| * * | * *               | *(principal  financial and principal accounting officer)* |
|     |                   |   |   |
|     | By:                    | /s/ Michael S. Luzich |   |
|     |                   | Michael S. Luzich |   |
| * * | * *               | *President,  Secretary and Manager* |
|     |                   |   |   |
|     | By:                    | /s/ Terrance W. Oliver |   |
|     |                   | Terrance W. Oliver |   |
| * * | * *               | *Manager* |   |
|     |                   |   |   |
|     | By:                    | /s/ Andrew Whittaker |   |
|     |                   | Andrew Whittaker |   |
| * * | * *               | *Manager* |   |

 

52

----

 

**INDEX TO CONSOLIDATED FINANCIAL STATEMENTSAND SCHEDULE**

 
| **Consolidated Financial Statements and Schedule of Peninsula Gaming,  LLC:**                                                         |   |
|---------------------------------------------------------------------------------------------------------------------------------------|--------|
| Report of Independent Registered Public  Accounting Firm                                                                              | F-2    |
| Consolidated Balance Sheets –  December 31, 2005 and 2004                                                                   | F-3    |
| Consolidated Statements of Operations –  Years Ended December 31, 2005, 2004 and 2003                                       | F-4    |
| Consolidated Statements of Changes in  Member’s Equity (Deficit) – Years Ended December 31, 2005, 2004 and 2003        | F-5    |
| Consolidated Statements of Cash Flows –  Years Ended December 31, 2005, 2004 and 2003                                       | F-6    |
| Notes to Consolidated Financial Statements                                                                                            | F-7    |
| Financial Statement Schedule –  Valuation and Qualifying Accounts – Years Ended December 31, 2005, 2004  and 2003 | S-1    |

 

F-1

----

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

Peninsula Gaming, LLC

Dubuque, Iowa

 

We have audited the accompanying consolidatedbalance sheets of Peninsula Gaming, LLC and subsidiaries (the “Company”) as ofDecember 31, 2005 and 2004, and the related consolidated statements ofoperations, changes in member’s equity (deficit), and cash flows for each ofthe three years in the period ended December 31, 2005. Our audits alsoincluded the financial statement schedule listed in the Index to ConsolidatedFinancial Statements and Schedule. These financial statements and financialstatement schedule are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these financial statements andfinancial statement schedule based on our audits.

 

We conducted our audits in accordance withstandards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. The Company is not required to have, nor were we engaged toperform, an audit of its internal control over financial reporting. Our auditsincluded consideration of internal control over financial reporting as a basisfor designing audit procedures that are appropriate in the circumstances butnot for the purpose of expressing an opinion on the effectiveness of theCompany’s internal control over financial reporting. Accordingly, we express nosuch opinion. An audit also includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements, assessingthe accounting principles used and significant estimates made by management, aswell as evaluating the overall financial statement presentation. We believethat our audits provide a reasonable basis for our opinion.

 

In our opinion, such financial statementspresent fairly, in all material respects, the financial position of PeninsulaGaming, LLC and subsidiaries as of December 31, 2005 and 2004, and theresults of their operations and their cash flows for each of the three years inthe period ended December 31, 2005 in conformity with accountingprinciples generally accepted in the United States of America. Also, in ouropinion, such financial statement schedule, when considered in relation to thebasic financial statements taken as a whole, presents fairly in all materialrespects the information set forth therein.

 

 
| /s/ DELOITTE & TOUCHE LLP |   |
|------------------------------------|--------|
|                               |
| Cedar Rapids, Iowa                 |
| March 29, 2006                |

 

F-2

----

 

PENINSULA GAMING, LLC

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2005 AND 2004

(in thousands)

 
| ** **                                                                              | ** ** | **2005** | ** ** | **2004** | ** ** |
|-----------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| **ASSETS**                                                                              |       |     |       |     |       |
| CURRENT ASSETS:                                                                         |       |     |       |     |       |
| Cash and cash equivalents                                                               |       | $        | 12,778     |     | $          | 10,504 |   |
| Restricted cash-purse settlements                                                       |       | 5,119    |       | 3,671    |       |
| Restricted cash – interest reserve                                                 |       | 2,281    |       |     |       |
| Accounts receivable, less allowance for  doubtful accounts of $73 and $47, respectively |       | 2,801    |       | 816      |       |
| Inventories                                                                             |       | 493      |       | 243      |       |
| Prepaid expenses                                                                        |       | 1,259    |       | 2,184    |       |
| Total current assets                                                                    |       | 24,731   |       | 17,418   |       |
| RESTRICTED CASH-WORTH PROJECT                                                           |       | 16,848   |       |     |       |
| PROPERTY AND EQUIPMENT, NET                                                             |       | 143,393  |       | 126,163  |       |
| OTHER ASSETS:                                                                           |       |     |       |     |       |
| Deferred financing costs, net of  amortization of $3,863 and $1,438, respectively       |       | 14,263   |       | 13,312   |       |
| Goodwill                                                                                |       | 53,083   |       | 53,083   |       |
| Licenses and other intangibles                                                          |       | 34,003   |       | 32,562   |       |
| Deposits and other assets                                                               |       | 1,307    |       | 531      |       |
| Total other assets                                                                      |       | 102,656  |       | 99,488   |       |
| TOTAL                                                                                   |       | $        | 287,628    |     | $          | 243,069 |   |
| **LIABILITIES AND MEMBER’S DEFICIT**                                               |       |     |       |     |       |
| CURRENT LIABILITIES:                                                                    |       |     |       |     |       |
| Accounts payable                                                                        |       | $        | 4,742      |     | $          | 3,801 |   |
| Construction payable                                                                    |       | 6,117    |       | 4,712    |       |
| Purse settlement payable                                                                |       | 7,320    |       | 5,040    |       |
| Accrued payroll and payroll taxes                                                       |       | 4,267    |       | 2,616    |       |
| Accrued interest                                                                        |       | 5,864    |       | 4,974    |       |
| Other accrued expenses                                                                  |       | 7,605    |       | 4,396    |       |
| Payable to affiliate                                                                    |       | 969      |       | 101      |       |
| Current maturities of long-term debt                                                    |       | 11,002   |       | 8,630    |       |
| Total current liabilities                                                               |       | 47,886   |       | 34,270   |       |
| LONG-TERM LIABILITIES:                                                                  |       |     |       |     |       |
| 8 3/4% senior secured  notes, net of discount                                           |       | 230,259  |       | 229,946  |       |
| 11% senior secured notes                                                                |       | 40,000   |       |     |       |
| 13% senior secured notes, net of discount                                               |       | 6,813    |       | 6,797    |       |
| Senior secured credit facilities                                                        |       | 23,800   |       | 13,888   |       |
| Term loan                                                                               |       | 4,667    |       | 8,666    |       |
| Notes payable                                                                           |       | 4,465    |       | 7,451    |       |
| Other accrued expenses                                                                  |       | 345      |       | 650      |       |
| Preferred members’ interest, redeemable                                            |       |     |       | 4,000    |       |
| Total long-term liabilities                                                             |       | 310,349  |       | 271,398  |       |
| Total liabilities                                                                       |       | 358,235  |       | 305,668  |       |
| COMMITMENTS AND CONTINGENCIES                                                           |       |     |       |     |       |
| MEMBER’S DEFICIT:                                                                  |       |     |       |     |       |
| Common member’s interest                                                           |       | 9,000    |       | 9,000    |       |
| Accumulated deficit                                                                     |       | (79,607  | )          | (71,599  | )          |
| Total member’s deficit                                                             |       | (70,607  | )          | (62,599  | )          |
| TOTAL                                                                                   |       | $        | 287,628    |     | $          | 243,069 |   |

 

See notes to consolidatedfinancial statements.

 

F-3

----

 

PENINSULA GAMING, LLC

CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003

(in thousands)

 
| ** **                                                                | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|---------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                                                      |       |     |       |     |       |     |       |
| REVENUES:                                                                 |       |     |       |     |       |     |       |
| Casino                                                                    |       | $        | 146,503    |     | $          | 119,921  |       | $ | 56,795 |   |
| Racing                                                                    |       | 17,509   |       | 17,286   |       | 17,051   |       |
| Video Poker                                                               |       | 2,339    |       | 2,715    |       | 722      |       |
| Food and beverage                                                         |       | 13,511   |       | 11,464   |       | 4,566    |       |
| Other                                                                     |       | 2,710    |       | 1,434    |       | 589      |       |
| Less promotional allowances                                               |       | (7,005   | )          | (7,966   | )          | (3,221   | )          |
| Total net revenues                                                        |       | 175,567  |       | 144,854  |       | 76,502   |       |
| EXPENSES:                                                                 |       |     |       |     |       |     |       |
| Casino                                                                    |       | 73,651   |       | 61,272   |       | 24,429   |       |
| Racing                                                                    |       | 15,266   |       | 13,916   |       | 13,045   |       |
| Video Poker                                                               |       | 1,767    |       | 2,034    |       | 654      |       |
| Food and beverage                                                         |       | 9,849    |       | 9,218    |       | 4,282    |       |
| Boat operations                                                           |       | 2,105    |       | 2,231    |       | 2,322    |       |
| Other                                                                     |       | 1,720    |       | 1,076    |       | 443      |       |
| Selling, general and administrative                                       |       | 26,441   |       | 22,052   |       | 12,219   |       |
| Depreciation and amortization                                             |       | 16,249   |       | 12,356   |       | 3,324    |       |
| Pre-opening expense                                                       |       | 310      |       | 367      |       | 3,257    |       |
| Development expense                                                       |       | 575      |       | 242      |       | 102      |       |
| Affiliate management fees                                                 |       | 2,057    |       | 757      |       | 175      |       |
| (Gain) loss on disposal of assets                                         |       | (16      | )          | (716     | )          | 50       |       |
| Management severance and recruiting                                       |       |     |       | 593      |       |     |       |
| Total expenses                                                            |       | 149,974  |       | 125,398  |       | 64,302   |       |
| INCOME FROM OPERATIONS                                                    |       | 25,593   |       | 19,456   |       | 12,200   |       |
| OTHER INCOME (EXPENSE):                                                   |       |     |       |     |       |     |       |
| Interest income                                                           |       | 516      |       | 170      |       | 490      |       |
| Interest expense, net of amounts  capitalized                             |       | (29,133  | )          | (26,775  | )          | (25,072  | )          |
| Loss on early retirement of debt                                          |       |     |       | (37,566  | )          |     |       |
| Interest expense related to preferred  members’ interest, redeemable |       | (360     | )          | (360     | )          | (180     | )          |
| Total other expense                                                       |       | (28,977  | )          | (64,531  | )          | (24,762  | )          |
| NET LOSS BEFORE PREFERRED MEMBER  DISTRIBUTIONS                           |       | (3,384   | )          | (45,075  | )          | (12,562  | )          |
| LESS PREFERRED MEMBER DISTRIBUTIONS                                       |       |     |       |     |       | (180     | )          |
| NET LOSS TO COMMON MEMBER’S INTEREST                                 |       | $        | (3,384     | )        | $          | (45,075  | )          | $ | (12,742 | ) |

 

See notes to consolidatedfinancial statements.

 

F-4

----

 

PENINSULA GAMING, LLC

CONSOLIDATED STATEMENTS OF CHANGES IN MEMBER’S EQUITY (DEFICIT)

YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003

(in thousands)

 
| ** **                                | ** ** | **COMMON  MEMBER’S  INTEREST** | ** ** | **ACCUMULATED  DEFICIT** | ** ** | **TOTAL  MEMBER’S EQUITY  (DEFICIT)** | ** ** |
|-------------------------------------------|------------|-------------------------------------|------------|--------------------------|------------|--------------------------------------------|------------|
|                                      |       |                                |       |                     |       |                                       |       |
| BALANCE, JANUARY 1, 2003             |       | $                                   | 9,000      |                     | $          | (5,329                                     | )          | $ | 3,671 |   |
| Net loss to common member’s interest |       |                                |       | (12,742                  | )          | (12,742                                    | )          |
| Member distributions                      |       |                                |       | (1,557                   | )          | (1,557                                     | )          |
| BALANCE, DECEMBER 31, 2003           |       | 9,000                               |       | (19,629                  | )          | (10,629                                    | )          |
| Net loss to common member’s interest |       |                                |       | (45,075                  | )          | (45,075                                    | )          |
| Member distributions                      |       |                                |       | (7,031                   | )          | (7,031                                     | )          |
| Spin off of OED Acquisition, LLC          |       |                                |       | 135                      |       | 135                                        |       |
| BALANCE, DECEMBER 31, 2004           |       | 9,000                               |       | (71,599                  | )          | (62,599                                    | )          |
| Net loss to common member’s interest |       |                                |       | (3,384                   | )          | (3,384                                     | )          |
| Member distributions                      |       |                                |       | (4,624                   | )          | (4,624                                     | )          |
| BALANCE, DECEMBER 31, 2005           |       | $                                   | 9,000      |                     | $          | (79,607                                    | )          | $ | (70,607 | ) |

 

See notes to consolidatedfinancial statements.

 

F-5

----

 

PENINSULA GAMING, LLC

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003

(in thousands)

 
| ** **                                                                            | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|---------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                                                                  |       |     |       |     |       |     |       |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                                 |       |     |       |     |       |     |       |
| Net loss                                                                              |       | $        | (3,384     | )        | $          | (45,075  | )          | $ | (12,742 | ) |
| Adjustments to reconcile net loss to net  cash flows from operating activities:       |       |     |       |     |       |     |       |
| Depreciation and amortization                                                         |       | 16,249   |       | 12,356   |       | 3,324    |       |
| Provision for doubtful accounts                                                       |       | 136      |       | 106      |       | 149      |       |
| Amortization of deferred financing costs  and bond discount                           |       | 3,140    |       | 2,623    |       | 3,161    |       |
| Write-off of deferred financing and bond  discount                                    |       |     |       | 13,786   |       |     |       |
| (Gain) loss on disposal of assets                                                     |       | (16      | )          | (716     | )          | 50       |       |
| Changes in operating assets and  liabilities:                                         |       |     |       |     |       |     |       |
| Receivables                                                                           |       | (1,934   | )          | (440     | )          | (356     | )          |
| Payable to affiliate                                                                  |       | 868      |       | 236      |       |     |       |
| Inventories                                                                           |       | (250     | )          | 160      |       | (265     | )          |
| Prepaid expenses and other assets                                                     |       | 149      |       | (1,141   | )          | (1,071   | )          |
| Accounts payable                                                                      |       | 2,791    |       | 4,280    |       | 2,183    |       |
| Accrued expenses                                                                      |       | 5,226    |       | (5,968   | )          | 7,085    |       |
| Net cash flows from operating activities                                              |       | 22,975   |       | (19,793  | )          | 1,518    |       |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                                 |       |     |       |     |       |     |       |
| Restricted cash – purse settlements, net                                         |       | (1,448   | )          | (2,082   | )          | (749     | )          |
| Business acquisition and licensing costs                                              |       | (1,441   | )          | (304     | )          | (1,782   | )          |
| Construction project development costs                                                |       | (25,949  | )          | (38,227  | )          | (55,303  | )          |
| Proceeds from (deposits to) restricted  cash, net                                     |       | (19,129  | )          | 20,013   |       | (20,013  | )          |
| Purchase of restricted investments                                                    |       |     |       |     |       | (23,923  | )          |
| Maturity and sale of restricted investments                                           |       |     |       | 15,779   |       | 8,144    |       |
| Purchase of property and equipment                                                    |       | (5,776   | )          | (5,148   | )          | (2,206   | )          |
| Proceeds from sale of property and  equipment                                         |       | 153      |       | 1,101    |       | 388      |       |
| Net cash flows from investing activities                                              |       | (53,590  | )          | (8,868   | )          | (95,444  | )          |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                                 |       |     |       |     |       |     |       |
| Deferred financing costs                                                              |       | (3,283   | )          | (14,159  | )          | (11,516  | )          |
| Principal payments on debt                                                            |       | (9,116   | )          | (206,200 | )          | (20,125  | )          |
| Proceeds from senior secured notes                                                    |       | 40,000   |       | 229,728  |       | 120,736  |       |
| Proceeds from senior credit facilities                                                |       | 23,033   |       | 19,888   |       | 5,104    |       |
| Payments on senior credit facilities                                                  |       | (13,121  | )          | (22,354  | )          | (600     | )          |
| Proceeds from FF&E credit facility                                                |       |     |       | 3,468    |       | 12,532   |       |
| Proceeds from term loan                                                               |       |     |       | 14,667   |       |     |       |
| Member distributions                                                                  |       | (4,624   | )          | (7,031   | )          | (1,557   | )          |
| Net cash flows from financing activities                                              |       | 32,889   |       | 18,007   |       | 104,574  |       |
| NET INCREASE (DECREASE) IN CASH AND CASH  EQUIVALENTS                                 |       | 2,274    |       | (10,654  | )          | 10,648   |       |
| CASH AND CASH EQUIVALENTS AT BEGINNING OF  YEAR                                       |       | 10,504   |       | 21,158   |       | 10,510   |       |
| CASH AND CASH EQUIVALENTS AT END OF YEAR                                              |       | $        | 12,778     |     | $          | 10,504   |       | $ | 21,158 |   |
|                                                                                  |       |     |       |     |       |     |       |
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW  INFORMATION:                                   |       |     |       |     |       |     |       |
| Cash paid during the year for interest                                                |       | $        | 25,418     |     | $          | 30,693   |       | $ | 18,332 |   |
| SUPPLEMENTAL SCHEDULE OF NON-CASH  INVESTING AND FINANCING ACTIVITIES:           |       |     |       |     |       |     |       |
| Property additions acquired by construction  payable which were accrued, but not paid |       | $        | 5,046      |     | $          | 4,712    |       | $ | 19,681 |   |
| Property and equipment purchased in  exchange for indebtedness                        |       | 22       |       | 8,496    |       | 4,399    |       |
| Property and equipment returned for a  reduction in construction payable              |       | 162      |       |     |       |     |       |
| Exchange of private OED notes for  registered OED notes                               |       |     |       |     |       | 123,200  |       |
| Exchange of private PGL notes for  registered PGL notes                               |       |     |       | 233,000  |       |     |       |
| Spin-off of OED Acquisition, LLC                                                      |       |     |       | 135      |       |     |       |

 

See notes to consolidatedfinancial statements

 

F-6

----

 

PENINSULA GAMING, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

**1. ORGANIZATION AND BUSINESS PURPOSE**

 

PeninsulaGaming, LLC (“PGL” or the “Company”), a Delaware limited liability company, isa holding company with no independent operations whose sole assets are itsequity interests in its subsidiaries. PGL’s subsidiaries consist of:(i) Diamond Jo, LLC, a Delaware limited liability company (“DJL”), thatowns and operates the Diamond Jo riverboat casino in Dubuque, Iowa;(ii) The Old Evangeline Downs, L.L.C., a Louisiana limited liabilitycompany (“OED”), that owns and operates the Evangeline Downs Racetrack andCasino, or racino, in St. Landry Parish, Louisiana and five off-track betting (“OTB”)parlors in Louisiana; (iii) Diamond Jo Worth Holdings, LLC, a Delawarelimited liability company (“DJWH”), and (iv) Peninsula Gaming Corp. (“PGC”),a Delaware limited liability company with no assets or operations formed solelyto facilitate the offering of the Company’s 8 3/4% senior secured notes due2012 (the “Peninsula Gaming Notes”) in March 2004. DJWH is a holdingcompany with no independent operations whose sole assets are its equityinterests in its subsidiaries. DJWH’s subsidiaries consist of: (i) DiamondJo Worth, LLC, a Delaware limited liability company (“DJW”), formed inOctober 2004 for the purpose of obtaining a gaming license in WorthCounty, Iowa and (ii) DJW Corp. (“DJWC”), a Delaware limited liabilitycompany with no assets or operations formed solely to facilitate the offeringby DJW of its 11% senior secured notes due 2012 (the “DJW Notes”) inJuly 2005. The Company is a wholly owned subsidiary of Peninsula GamingPartners, LLC (“PGP”), a Delaware limited liability company.

 

OnMay 11, 2005, DJW, in connection with its exclusive agreement with theWorth County Development Authority, was granted a gaming license by the IowaRacing and Gaming Commission to operate an excursion gambling boat in WorthCounty, Iowa. DJW began construction of the casino in June 2005. Currentplans for the casino include:

 

•                  a casino with approximately 511 slotmachines, 15 table games and 5 poker tables;

 

•                  parking spaces for approximately 600vehicles; and

 

•                  several dining options, including a150 seat coffee shop and two fast food dining outlets.

 

**2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

 

***Consolidation—***The consolidatedfinancial statements include the financial information of the Company and itswholly owned subsidiaries DJL, OED, PGC and DJWH. All significant intercompany balancesand transactions have been eliminated.

 

***Cash and Cash Equivalents—***The Companyconsiders all certificates of deposit and other highly liquid debt instrumentspurchased with original maturities of three months or less to be cashequivalents.

 

***Restricted Cash-Purse Settlements—***Restrictedcash represents amounts restricted by regulation for purses to be paid duringthe live meet racing season at OED. Additionally, restricted cash includesentrance fees for a special futurity race during the racing season, plus anyinterest earnings. These funds will be used to pay the purse for the race. Aseparate interest bearing bank account is required for these funds.

 

***Restricted Cash - Interest Reserve —***Restrictedcash represents a portion of the unused proceeds from the DJW Notes, the useand disbursement of which are restricted to the payment of interest on the DJWNotes in accordance with the terms of a Cash Collateral and DisbursementAgreement, dated July 19, 2005, among DJW, DJWC and US Bank (as trustee anddisbursement agent) (the “Cash Collateral and Disbursement Agreement”).

 

***Allowance for Doubtful Accounts—***Theallowance for doubtful accounts is maintained at a level considered adequate toprovide for probable future losses.

 

***Inventories—***Inventories consistingprincipally of food, beverage, retail items, and operating supplies are statedat the lower of first-in, first-out cost or market.

 

***Restricted Cash - Worth Project —***Restricted cashrepresents the remaining unused proceeds from the DJW Notes, the use anddisbursement of which are restricted to the design, development, construction,equipping and opening of the casino in Worth County, Iowa in accordance withthe terms of the Cash Collateral and Disbursement Agreement.

 

F-7

----

 

***Property and Equipment—***Property andequipment are recorded at cost. Major renewals and improvements arecapitalized, while maintenance and repairs are expensed as incurred.Depreciation and amortization are computed on a straight-line basis over thefollowing estimated useful lives:

 
| Land improvements                   |   | 20 - 40 years |   |
|-------------------------------------|--------|---------------|--------|
| Buildings and building improvements |   | 9 - 40 years  |   |
| Riverboat and improvements          |   | 5 - 20 years  |   |
| Furniture, fixtures and equipment   |   | 3 - 10 years  |   |
| Computer equipment                  |   | 3 - 5 years   |   |
| Vehicles                            |   | 5 years       |   |

 

***Impairment of Long-Lived Assets—***Long-livedassets are reviewed for impairment when management plans to dispose of assetsor when events or circumstances indicate that the carrying amount of along-lived asset may not be recoverable. Assets held for disposal are reportedat the lower of the carrying amount or fair value less cost to sell. Managementdetermines fair value using a discounted future cash flow analysis or otheraccepted valuation techniques. Long-lived assets held for use are reviewed forimpairment by comparing the carrying amount of an asset to the undiscountedfuture cash flows expected to be generated by the asset over its remaininguseful life. If an asset is considered to be impaired, the impairment to berecognized is measured as the amount by which the carrying amount of the assetexceeds its fair value.

 

***Capitalized Interest—*** The Companycapitalizes interest costs associated with debt incurred in connection withconstruction projects. When debt is incurred in connection with the developmentof the construction project, the Company capitalizes interest on amountsexpended on the projects at the Company’s average cost of borrowed money.Capitalization of interest ceases when the project is substantially complete.The amount capitalized during 2005, 2004 and 2003 was $0.4 million, $1.3million and $2.2 million, respectively.

 

***Deferred Financing Costs—*** Costsassociated with the issuance of debt have been deferred and are being amortizedover the life of the related indenture/agreement using the effective interestmethod. These amortization costs are included in interest expense on thestatements of operations.

 

***Goodwilland Licenses and Other Intangible Assets—*** Goodwill represents the excess of thepurchase price over the fair value of the net identifiable assets acquired inconnection with the acquisition of the Diamond Jo riverboat casino operations.Goodwill is not amortized but is reviewed at least annually for impairment andwritten down and charged to income when its recorded value exceeds itsestimated fair value. During the first quarter of 2005, 2004 and 2003, DJLperformed its annual impairment test on goodwill and determined that theestimated fair value of the DJL reporting unit exceeded its carrying value asof that date. Goodwill is subject to impairment by, among other things,significant changes in the gaming tax rates in Iowa, significant newcompetition which could substantially reduce profitability, non-renewal of DJL’sgaming license due to regulatory matters or lack of approval of gaming by thecounty electorate at scheduled referendums, and regulatory changes that couldadversely affect DJL’s business.

 

Licenses and other intangibles as of December 31,2005 and 2004 consist of the acquired licenses and tradename associated withthe purchase of OED and the initial payment in June 2005 for DJW’s gaminglicense under an executory agreement with the State of Iowa. The licenses andtradename have indefinite lives as the Company has determined that there are nolegal, regulatory, contractual, economic or other factors that would limittheir useful lives and the Company intends to renew and operate the licensesand use the tradename indefinitely. In addition, other key factors in theCompany’s assessment that these licenses have an indefinite life include: (1)the Company’s license renewal experience confirms that the renewal process isperfunctory and renewals would not be withheld except under extraordinarycircumstances; (2) the renewals related to these licenses confirms the Company’sbelief that the renewal process could be completed without substantial cost andwithout material modification of the licenses; (3) the economic performance ofthe operations related to the licenses support the Company’s intention ofoperating the licenses indefinitely; and (4) the continued limitation of gaminglicenses in the States of Louisiana and Iowa limits competition in thejurisdictions where these licenses are maintained. Indefinite lived intangibleassets are not amortized but are reviewed at least annually for impairment andwritten down and charged to income when their recorded value exceeds theirestimated fair value. Licenses and other intangibles at December 31 are summarizedas follows (in thousands):

 
| ** **                                       | ** ** | **2005** | ** ** | **2004** | ** ** |
|--------------------------------------------------|------------|----------|------------|----------|------------|
|                                             |       |     |       |     |       |
| Slot machine and electronic video game  licenses |       | $        | 29,240     |     | $          | 28,799 |   |
| Tradename                                        |       | 2,455    |       | 2,455    |       |
| Horse racing licenses                            |       | 1,308    |       | 1,308    |       |
| DJW gaming license                               |       | 1,000    |       | —   |       |
|                                             |       |     |       |     |       |
| Total                                            |       | $        | 34,003     |     | $          | 32,562 |   |

 

F-8

----

 

Each of OED’s identifiedintangible assets were valued separately by an independent valuation specialistwhen the Company was purchased. The valuations were updated by management inthe first quarter of 2005, 2004 and 2003 indicating no impairment. Theseintangible assets are subject to impairment by, among other things, significantchanges in the gaming tax rates in Louisiana, significant new competition whichcould substantially reduce profitability, non-renewal of OED’s racing or gaminglicenses due to regulatory matters, changes to OED’s trade name or the way OED’strade name is used in connection with its business and regulatory changes thatcould adversely affect the Company’s business by, for example, limiting orreducing the number of slot machines or video poker machines that OED ispermitted to operate.

 

In connection with PGL’s acquisition of OED from athird party, OED is required to pay a contingent fee of one half of one percent(0.5%) of the net slot revenues generated by OED’s racino located in St. LandryParish, Louisiana, for a period of ten years commencing on December 19, 2003,the date the racino’s casino opened to the general public. This contingent feeis payable monthly in arrears and has been recorded as an adjustment to thepurchase price allocated to slot machine and video game licenses of $0.4million and $0.3 million for the years ended December 31, 2005 and 2004,respectively.

 

***Debt Discount—***Debt discount associatedwith the issuance of debt is netted with the related debt obligations on thebalance sheets and is amortized over the life of the debt using the effectiveinterest method. The amortization of such discount is included in interestexpense on the statements of operations.

 

***Revenue Recognition—***In accordance withindustry practice, casino revenue is the net win from gaming activities, whichis the difference between gaming wins and losses, conducted at the DJL casinoand the casino portion of OED’s racino. Racing revenues include OED’s share ofpari-mutuel wagering on live races after payment of amounts returned as winningwagers, and OED’s share of wagering from import and export simulcasting as wellas OED’s share of wagering from its off-track betting parlors.

 

***Promotional Allowances—***Food, beverage,and other items furnished without charge to customers are included in grossrevenues at a value which approximates retail and then deducted as promotionalallowances to arrive at net revenues. The cost of such complimentary serviceshave been included in casino and video poker expenses on the accompanyingstatements of operations. Such estimated costs of providing complimentaryservices allocated from the food and beverage and other operating departmentsto the casino and video poker departments were $2.4 million and $0.2 millionfor food and beverage and other in 2005, $1.6 million and $0.4 million in 2004 and$0.7 million and less than $0.1 million in 2003, respectively.

 

***Slot Club Awards—***The Company providesslot patrons with incentives based on the dollar amount of play on slotmachines. A liability has been established based on an estimate of the value ofthese outstanding incentives, utilizing the age and prior history ofredemptions.

 

***Stock Based Compensation—***TheCompany accounts for employee stock-based compensation using the intrinsicvalue method in accordance with Accounting Principles Board OpinionNo. 25, Accounting for Stock Issued to Employees.

 

The fair valuemethod is an alternative method of accounting for stock-based compensation thatis permitted by Statement of Financial Accounting Standards No. 123, *Accounting for Stock-Based Compensation* (“SFAS 123”). Underthe fair value method compensation expense is recorded over the vesting periodsbased on the estimated fair value of the stock-based compensation. Thefollowing table illustrates the effect on net loss to common member’s interestif the Company had accounted for its employee stock-based compensation planusing the fair value method (in thousands):

 
| ** **                                                                        | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|-----------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Net loss to common member’s interest, as  reported                           |       | $        | (3,384     | )        | $          | (45,075  | )          | $ | (12,742 | ) |
| Stock-based employee compensation expenses  included in reported net loss         |       | 1,208    |       | —   |       | —   |       |
| Stock-based employee compensation expense  determined under the fair value method |       | (1,208   | )          | —   |       | —   |       |
| SFAS 123 pro forma net loss to common  member’s interest                     |       | $        | (3,384     | )        | $          | (45,075  | )          | $ | (12,742 | ) |

 

Units granted by PGP toCompany employees contain a put option exercisable by the employee andare recorded at

 

F-9

----

 

their fair market value (basedon a market multiple of total segment operating earnings) with a correspondingexpense recorded within the statement of operations based on the percentagevested.

 

***Selling, General and Administrative—***InOctober 2002, DJL entered into a charitable giving agreement with an Iowanon-for-profit organization in which DJL agreed, subject to certaincontingencies, to give such organization a total contribution of $450,000. Theagreement called for a payment of $50,000 upon the signing of the agreement and$50,000 on March 1 of each of the next seven years beginning onMarch 1, 2003. The first two payments were made and expensed by DJL inOctober 2002 and March 2003, respectively. As all significantcontingencies surrounding the agreement were met during the third quarter of2003, DJL expensed the remaining unpaid contribution of $350,000. Such expenseis included in selling, general and administrative expenses in the consolidatedstatement of operations.

 

***Advertising—***All costs associated withadvertising are expensed as incurred. Advertising expense was approximately $2.4million in 2005, $2.7 million in 2004 and approximately $1.5 million in 2003.

 

***Pre-Opening Expense—***Costs associatedwith start-up activities are expensed as incurred.

 

***Development Expense—***During 2003, theCompany entered into an exclusive agreement with the Worth County DevelopmentAuthority pursuant to which the parties agreed to jointly submit an applicationfor a license to operate a gaming facility in Worth County, Iowa. During 2005, 2004and 2003, the Company incurred expenses of $0.2 million, $0.2 million and $0.1million,respectively related to this application submitted to the Iowa Racing andGaming Commission. The license was granted in May 2005. In addition, during2005 DJL and OED incurred other costs surrounding potential real propertydevelopment of approximately $0.4 million which are included in developmentexpense.

 

F-10

----

*** ***

***Income Taxes—*** The Company is a limitedliability company. In lieu of corporate income taxes, the members of a limitedliability company are taxed on their proportionate share of the Company’staxable income. Therefore, no provision or liability for income taxes has beenincluded in the financial statements.

 

***Useof Estimates—***Thepreparation of financial statements in conformity with accounting principlesgenerally accepted in the United States of America requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues and expensesduring the reporting periods. Actual results could differ from those estimates.Significant estimates involve the periodic review of the carrying value ofassets for impairment, the estimated useful lives for depreciable assets andthe estimated liability for slot club awards.

 

In addition, an estimated loss from a losscontingency is recorded when information available prior to issuance of thefinancial statements indicates that it is probable that a liability has beenincurred at the date of the financial statements and the amount of the loss canbe reasonably estimated. Accounting for contingencies such as legal mattersrequires the use of judgment. Many of these legal contingencies can take yearsto be resolved. An adverse outcome could have a material impact on financialcondition, operating results, and cash flows.

 

***Concentrations of Risk—***The Company’scustomer base is concentrated in eastern Iowa and southwest Louisiana.

 

The Company maintains deposit accounts at fourbanks. At December 31, 2005 and 2004, and various times during the yearsthen ended, the balance at the banks exceeded the maximum amount insured by theFederal Deposit Insurance Corporation. Credit risk is managed by monitoring thecredit quality of the banks.

 

***Reclassifications***— Certain prior yearamounts have been reclassified to conform with the current year presentation.These reclasses did not have any effect on the Company’s financial position ornet loss to common member’s interest in 2005, 2004 and 2003. In the consolidatedstatement of cash flows for the year ended December 31, 2005, the Company classifiedchanges in restricted cash balances as an investing activity. The Company previouslypresented such changes as an operating activity. In the consolidated statementsof cash flows for the years ended 2004 and 2003, the Company reclassifiedchanges in restricted cash balances of $2.1 million and $0.7 million,respectively, from operating to investing to be consistent with our 2005presentation.

 

***Recently Issued Accounting Standards—*** In December 2004, the FinancialAccounting Standards Board “FASB”) issued Statement of Financial AccountingStandards No. 153, “Exchanges of Nonmonetary Assets—an amendment ofAccounting Principles Board Opinion No. 29”. This statement is based on theprinciple that exchanges of nonmonetary assets should be measured based on thefair value of the assets exchanged. This statement amends Accounting PrinciplesBoard Opinion 29 to eliminate the exception for recording gains and losses fornonmonetary exchanges of similar productive assets. This statement will applyto all nonmonetary exchanges of similar productive assets beginning January 1,2006 and will result in gains and losses being recorded for such exchanges.

 

In December 2004, theFASB issued SFAS No. 123 (Revised 2004) “Shared-Based Payment” (“SFAS No. 123R”)that addresses the accounting for share-based payment transactions in which aCompany receives employee services in exchange for (a) equity instruments ofthe Company or (b) liabilities that are based on the fair value of the Company’sequity instruments or that may be settled by the issuance of such equityinstruments. SFAS No. 123R addresses all forms of share-based payment awards,including shares issued under employee stock purchase plans, stock options,restricted stock and stock appreciation rights. SFAS No. 123R eliminates theability to account for share-based compensation transactions using theintrinsic value method that was provided in Statement 123 as originally issued.Under SFAS No. 123R companies are required to record compensation expense forall share based payment award transactions measured at fair value. Thisstatement is effective for the Company beginning on January 1, 2006. Based onhistorical patterns of grants, the Company does not believe the impact ofapplying the various provisions of SFAS No. 123R will be material.

 

F-11

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**3. PROPERTY AND EQUIPMENT**

 

Property andequipment at December 31 is summarized as follows (in thousands):

 
| ** **                        | ** ** | **2005** | ** ** | **2004** | ** ** |
|-----------------------------------|------------|----------|------------|----------|------------|
|                              |       |     |       |     |       |
| Land and land improvements        |       | $        | 15,381     |     | $          | 13,639 |   |
| Buildings and improvements        |       | 84,138   |       | 78,477   |       |
| Riverboat and improvements        |       | 8,387    |       | 8,308    |       |
| Furniture, fixtures and equipment |       | 43,112   |       | 39,107   |       |
| Computer equipment                |       | 6,095    |       | 5,817    |       |
| Vehicles                          |       | 209      |       | 176      |       |
| Construction in progress          |       | 21,020   |       | 881      |       |
| Subtotal                          |       | 178,342  |       | 146,405  |       |
| Accumulated depreciation          |       | (34,949  | )          | (20,242  | )          |
| Property and equipment, net       |       | $        | 143,393    |     | $          | 126,163 |   |

 

Depreciation expense forthe years ended December 31, 2005, 2004 and 2003 was $16.2 million, $12.4million, and $3.3 million, respectively.

 

**4. DEBT**

 

Long-term debtat December 31 consists of the following (in thousands):

 
| ** **                                                                                                                                                                                                                                                                                                                                                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
|                                                                                                                                                                                                                                                                                                                                                                         |       |     |       |     |       |
| 8 3/4% senior secured  notes due April 15, 2012, net of discount of $2,741 and $3,054,  respectively, secured by assets and stock of DJL and OED                                                                                                                                                                                                                        |       | $        | 230,259    |     | $          | 229,946 |   |
| 11% senior secured notes of DJW due  April 15, 2012, secured by substantially all the assets of DJW and a pledge  of equity of DJW and DJWC                                                                                                                                                                                                                             |       | 40,000   |       |     |       |
| 13% senior secured notes of OED due  March 1, 2010 with contingent interest, net of discount of $97 and $113,  respectively, secured by certain assets of OED                                                                                                                                                                                                           |       | 6,813    |       | 6,797    |       |
| $50,000 revolving line of credit under a  loan and security agreement of DJL and OED with Wells Fargo Foothill, Inc.,  interest rate at prime plus a margin of 0.5 - 1.0% (current rate of 7.75% at  December 31, 2005), maturing June 16, 2008, secured by substantially all  assets of DJL and OED.                                                                        |       | 23,800   |       | 13,888   |       |
| Term loan under a loan and security  agreement of DJL and OED with Wells Fargo Foothill, Inc., interest rate at  prime plus 2.5% (current rate of 9.75% at December 31, 2005), due in equal  monthly installments of $333 beginning July 1, 2004, maturing June 16, 2008,  secured by certain assets of DJL and OED                                                          |       | 8,667    |       | 12,666   |       |
| Promissory note payable to third party,  interest rate at 8.75% payable monthly in arrears, annual principal payments  of $1,100 in 2005 and $550 each year thereafter, secured by certain real  property of OED.                                                                                                                                                            |       | 2,750    |       | 3,850    |       |
| Note payable to third party, interest rate  at 9.5%, monthly payments of principal and interest of $31, repaid in 2005.                                                                                                                                                                                                                                                      |       | —   |       | 185      |       |
| Notes payable to third party, net of  discount of $234 and $673, respectively, interest rate at 0% (discounted at  7.4%) for the first 24 months and 7.4% thereafter, monthly payments of  principal of $229 through October 2006 followed by monthly payments of  principal and interest of $233 through October 2007, secured by certain  assets of DJL and OED. |       | 4,697    |       | 6,952    |       |
| Note payable to third party, net of  discount of $1, interest rate at 0% (discounted at 4.9%), monthly payments of  principal of $1, through August 2008.                                                                                                                                                                                                                    |       | 20       |       | —   |       |
| Notes payable to third party, net of  discount of $41, interest rate at 0% (discounted at 7.4%), monthly payments  of principal of $103, through November 2005, secured by certain assets  of DJL and OED.                                                                                                                                                              |       |     |       | 1,094    |       |
| Preferred membership interests–redeemable,  interest at 9%, due October 13, 2006                                                                                                                                                                                                                                                                                   |       | 4,000    |       | 4,000    |       |
| Total debt                                                                                                                                                                                                                                                                                                                                                                   |       | 321,006  |       | 279,378  |       |
| Less current portion                                                                                                                                                                                                                                                                                                                                                         |       | (11,002  | )          | (8,630   | )          |
| Total long term debt                                                                                                                                                                                                                                                                                                                                                         |       | $        | 310,004    |     | $          | 270,748 |   |

 

F-12

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Principal maturities ofdebt (excluding discount) for each of the years ended December 31 aresummarized as follows (dollars in thousands):

 
| 2006       |   | $       | 11,234  |   |
|------------|--------|---------|---------|--------|
| 2007       |   | 6,813   |    |
| 2008       |   | 25,022  |    |
| 2009       |   | 550     |    |
| 2010       |   | 7,460   |    |
| Thereafter |   | 273,000 |    |
|       |   | $       | 324,079 |   |

 

The weighted average interest rate on theCompany’s short-term borrowings consisting of its line of credit outstanding asof December 31, 2005 and 2004 was 7.75% and 6.25% respectively.

 

In July 2005, DJW completed a private placementof $40.0 million aggregate principal amount of DJW Notes. In connection withthe offering of the DJW Notes, DJW was designated an “unrestricted subsidiary”by the Company under the indenture governing the Peninsula Gaming Notes, and DJWwas released of its obligations under the PGL Credit Facility.

 

**The DJW Notes are secured by a pledge of the equity of DJWand DJWC and substantially all of DJW’s assets, including the remaining unusedproceeds from the offering of the DJW Notes which have been deposited into(i) a construction disbursement account, which will be used to help fundthe construction of the casino and (ii) an interest reserve account, whichwill be used to pay the first two interest payments on the DJW Notes. The lienon the collateral that secures the DJW Notes (other than the constructiondisbursement and interest reserve accounts) is contractually subordinated tothe liens securing up to $2.5 million of indebtedness under DJW’s seniorsecured credit facility (see Note 12). The DJW Notes, which mature onApril 15, 2012, are redeemable at the Company’s option, in whole or inpart at any time or from time to time, on and after April 15, 2008 atcertain**specified redemption prices setforth in the indenture governing the DJW Notes.

** **

The indenture governing the DJW Notescontains a number of restrictive covenants and agreements, including covenantsthat limit the ability of DJW to, among other things: (1) pay dividends,redeem stock or make other distributions or restricted payments; (2) incurindebtedness or issue preferred shares; (3) make certain investments;(4) create liens; (5) consolidate or merge; (6) sell orotherwise transfer or dispose of assets; (7) enter into transactions withaffiliates; (8) use proceeds of permitted asset sales and (9) change itsline of business. Specifically, DJW is prohibited from making any dividends orother distributions to PGL, subject to certain limited exceptions. DJW ispermitted to make dividends or other distributions to PGL to pay certain taxobligations. Further, DJW can make dividends and other distributions to PGL topay corporate overhead or similar allocations or payments, including, but notlimited to, tax preparation, insurance, accounting, licensure, legal andadministrative fees and expenses not to exceed $0.5 million in any twelve monthperiod. Finally, DJW can make dividends and other distributions not to exceed$1.0 million. Subject to the foregoing provisions, all of the net assets of DJWare restricted.

 

**Upon the occurrence and continuance of certain events ofdefault, the trustee or the holders of not less than 25% in aggregate principalamount of outstanding DJW Notes may declare all unpaid principal and accruedinterest on all of the DJW Notes to be immediately due and payable. Upon theoccurrence of a change of control (as defined in the indenture), each holder ofDJW Notes will have the right to require the Company to purchase all or aportion of such holder’s DJW Notes at a purchase price equal to 101% of theprincipal amount thereof plus accrued and unpaid interest, if any, to the dateof repurchase.**

** **

On March 9, 2004, OED commenced a tenderoffer and consent solicitation to repurchase all of its outstanding 13% seniorsecured notes (the “OED Notes”) and to solicit consents to certain proposedamendments to the indenture governing the OED Notes as set forth in OED’s Offerto Purchase and Consent Solicitation Statement, dated March 9, 2004. OnMarch 19, 2004, the expiration date of the consent solicitation, OEDreceived the requisite consents and tenders from holders of a majority of theaggregate principal amount of the outstanding OED Notes. The tender offerexpired on April 5, 2004, and OED redeemed approximately $116.3 millionprincipal amount of the OED Notes.

 

Contingent interest accrues on the remainingoutstanding OED Notes. The amount of contingent interest is equal to 0.3% ofOED’s cash flow for the year, subject to certain limitations. OED may deferpaying a portion of the contingent

 

F-13

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interest under certaincircumstances set forth in the indenture governing the OED Notes. OED is thesole obligor under the OED Notes.

 

On April 16, 2004, DJL and PGC completeda private placement of $233 million principal amount of 83⁄4% senior securednotes due 2012 (the “Peninsula Gaming Notes”). The Peninsula Gaming Notes wereissued at a discount of approximately $3.3 million. Interest on the PeninsulaGaming Notes is payable semi-annually on April 15 and October 15 ofeach year, beginning on October 15, 2004. Upon a corporate restructuring, theCompany also became a co-issuer of the Peninsula Gaming Notes.

 

The Company used the net proceeds from thesale of the Peninsula Gaming Notes as follows (all payments based onoutstanding balances as of April 16, 2004): (1) to irrevocably depositfunds into an escrow account to redeem all of DJL’s 12 1⁄4% senior secured notes (the“DJL Notes”) in an amount (including call premium and accrued interest) ofapproximately $79.9 million; (2) to repurchase approximately $116.3 millionprincipal amount of the OED Notes for an aggregate amount (including tenderpremium, accrued interest and contingent interest) of approximately $134.6million; (3) to pay accrued distributions on DJL’s outstanding preferredmembership interests-redeemable of approximately $1.1 million; (4) to payrelated fees and expenses of approximately $13.4 million; and (5) for generalcorporate purposes. As a result of the issuance of the Peninsula Gaming Notes,the Company incurred a loss of approximately $36.7 million consisting of thewrite-off of deferred financing fees of approximately $10.5 million, thepayment of a call and tender premiums and consent fees on the DJL and OED Notesof approximately $23.1 million, interest on the DJL Notes of approximately $0.7million and write-off of bond discount of approximately $2.4 million. Inaddition, OED and DJL wrote off $0.9 million of deferred financing fees relatedto the refinancing of the credit facilities discussed below.

 

The indenture governing the Peninsula GamingNotes limits the Company’s ability and the ability of its restrictedsubsidiaries (currently DJL and OED) to, among other things:

 

•                  incurmore debt;

 

•                  paydividends or make other distributions to PGP and DJW (for so long as DJW is anunrestricted subsidiary);

 

•                  redeemstock;

 

•                  issuestock of restricted subsidiaries;

 

•                  makeinvestments;

 

•                  createliens;

 

•                  enterinto transactions with affiliates;

 

•                  mergeor consolidate; and

 

•                  transferor sell assets.

 

The PeninsulaGaming Notes are full and unconditional obligations of DJL as a co-issuer. PGLand PGC, also co-issuers, have no independent assets (other than PGL’sinvestment in its subsidiaries) or operations. The Peninsula Gaming Notes arealso guaranteed, subject to the prior lien of the Company’s credit facilitydiscussed below, by OED. Further, PGL has pledged its equity interests in OEDand DJL as collateral security obligations under the Peninsula Gaming Notes.All of DJL’s and OED’s net assets are restricted except for $8.3 million atDecember 31, 2005 under the Peninsula Gaming Notes. The Peninsula Gaming Notesdo not limit DJL’s or OED’s ability to transfer net assets to PGL.

 

On June 16,2004, DJL and OED jointly entered into a loan and security agreement with WellsFargo Foothill, Inc. as the arranger and agent which was later amended inNovember 2004 and July 2005 (as amended the “PGL Credit Facility”). The PGLCredit Facility consists of a revolving credit facility which permits DJL andOED to request advances and letters of credit up to the lesser of the maximumrevolver amount of $50.0 million (less amounts outstanding under letters ofcredit) and a specified borrowing base (the “Borrowing Base”). The BorrowingBase is the lesser of the combined EBITDA (as defined in the PGL CreditFacility) of DJL and OED for the twelve months immediately preceding thecurrent month end multiplied by 150% and the combined EBITDA of DJL and OED forthe most recent quarterly period annualized multiplied by 150%. At

 

 

F-14

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December 31, 2005, the maximumrevolver amount was $50.0 million. The available borrowing amount at December31, 2005, after reductions for amounts borrowed and letters of creditoutstanding at DJL and OED was $25.5 million. The Company also hasapproximately $0.7 million of letters of credit outstanding atDecember 31, 2005. Advances under the PGL Credit Facility bear an interestrate based on the borrower’s option of LIBOR plus a margin 3.0% -3.5% or WellsFargo prime rate plus a margin of 0.5% -1.0%, however, at no time shall theinterest rate be lower than 4.0%.

 

The PGL Credit Facility also contains theterm loan in the amount of $8.7 million at December 31, 2005. The term loan issecured by certain assets of DJL and OED. The term loan has an interest rateequal to the Wells Fargo prime rate plus 2.5%, however, at no time shall theinterest rate be lower than 6.0%. Borrowings under the PGL Credit Facility arealso guaranteed by PGL.

 

The PGL Credit Facility contains a number ofrestrictive covenants, including covenants that limit DJL’s and OED’s abilityto, among other things: (1) incur more debt; (2) create liens; (3) enter intoany merger, consolidation, reorganization, or recapitalization, or reclassifyits capital stock; (4) dispose of certain assets; (5) guarantee the debt ofothers; (6) pay dividends or make other distributions; (7) make investments;and (8) enter into transactions with affiliates. The PGL Credit Facility alsocontains financial covenants including a minimum combined EBITDA (as defined bythe PGL Credit Facility) of OED and DJL and limitations on capital expenditureamounts.

 

Specifically, DJL and OED are prohibited frommaking any dividends or other distributions to PGL or any of PGL’s unrestrictedsubsidiaries, subject to certain limited exceptions. DJL and OED are permittedto make dividends or other distributions to PGL to pay certain tax obligations.Further, DJL and OED can make dividends and other distributions to PGL to paycosts related to certain tax preparation, accounting, legal and administrativefees and expenses. Additionally, DJL and OED may make dividends and otherdistributions to PGL in respect of certain payments under management agreementsand to pay reasonable directors’ or managers’ fees and expenses, so long as anypayments with respect to any management agreement or employee, consulting orsimilar agreement do not, in the aggregate, in any fiscal year exceed thelesser of (a) 4.0% of DJL and OED’s combined EBITDA (as defined in the PGLCredit Facility) and (b) $4.0 million. DJL and OED may also make dividends orother distributions to PGL so that PGP, subject to certain limitations, canrepurchase, redeem or otherwise acquire equity interests in PGL or itsrestricted subsidiaries from its respective employees, members or managers.

 

The Company was in compliance with all debtcovenants as of December 31, 2005.

 

The holders of all of DJL’s preferredmembership interests are entitled to receive cumulative preferred distributionspayable semiannually at an annual rate of 9% of the original face amountthereof. Other than certain limited consent rights and as required by law,holders of DJL’s preferred membership interests have no voting rights. Thepreferred membership interests must be redeemed by DJL on October 13, 2006at a redemption price of $4.0 million, plus any accrued and unpaidpreferred interest through the date of redemption.

 

**5. LITIGATION SETTLEMENT**

 

On November 8, 1997, the Louisiana Horsemen’sBenevolent and Protective Assocation 1993, Inc (“LHBPA”) filed a lawsuitagainst all licensed horse racetracks in the State of Louisiana. The lawsuitalleged that LHBPA did not receive the appropriate share of net revenues fromvideo poker devices located at licensed horse racetracks. In February 2003, OEDentered into a settlement agreement with LHBPA for $1.6 million. The terms ofthe settlement agreement requires the Company to make payments of $400,000annually beginning in March 2003, with additional $400,000 payments due inMarch 2004 through 2006. The final payment was made in March 2006.

 

**6. EMPLOYEE BENEFIT PLANS**

 

DJL and OED each have a qualified definedcontribution plan under section 401(k) of the Internal Revenue Code forrespective employees. Under the plans, eligible employees may elect to defer upto 60% of their salary, subject to Internal Revenue Service limits. The Companymay make a matching contribution to each participant based upon a percentageset by the Company, prior to the end of each plan year. Company matchingcontributions to the plans at the Diamond Jo and Evangeline Downs were $0.3million, $0.3 million, and $0.2 million in 2005, 2004 and 2003, respectively.

 

In January 2005, the Company created anon-qualified deferred compensation plan. Under the plan, certain eligible keyemployees of the Company may elect to defer a portion of their compensation. TheCompany makes a matching contribution to each participant based upon apercentage set by the Company. These matching contributions vest over a three

 

F-15

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year period of service. Companymatching contributions were less than $0.1 million in 2005.

 

**7. LEASING ARRANGEMENTS**

 

***Pari-MutuelProcessing Equipment—***The Company entered into anew five-year lease agreement commencing on February 1, 2006 forcomputerized pari-mutuel central processing equipment, terminals and certainassociated equipment. Additionally, the lease agreement provides the Companywith pari-mutuel services whereby the leased equipment automatically registersand totals the amounts wagered on the races held at the race track or simulcastto it and to its respective off-track wagering parlors, and displays the winpool odds, payoffs, and other pertinent horse racing information needed tooperate live meet horse racing and off-track betting. For all of the aboveequipment and services, the Company pays 0.4% of the handle for both live meetracing days and off-track betting racing days. There are no minimum feesassociated with the lease. The Company expensed $0.5 million during each of2005 and 2004 and $0.4 million in 2003 related to the prior pari-mutuelprocessing equipment lease.

 

***Other—***TheCompany leases four of its OTB facilities and other equipment undernoncancelable operating leases. The leases require fixed monthly payments andcertain gaming machine leases require contingent monthly rental payments basedon usage of the equipment. The leases expire on various dates through 2026.Rent expense was $3.1 million, $3.5 million and $1.2 million during the yearsended 2005, 2004 and 2003, respectively.

 

The future minimum rental payments requiredunder these leases at December 31, 2005 for the years ended December 31are summarized as follows (in thousands):

 
| 2006       |   | $   | 873    |   |
|------------|--------|-----|--------|--------|
| 2007       |   | 562 |   |
| 2008       |   | 476 |   |
| 2009       |   | 260 |   |
| 2010       |   | 131 |   |
| Thereafter |   | 777 |   |
| Total      |   | $   | 3,079  |   |

 

**8. COMMITMENTS AND CONTINGENCIES**

 

Under theCompany’s and PGP’s operating agreements, the Company and PGP have agreed,subject to a few exceptions, to indemnify and hold harmless PGP and PGP’smembers from liabilities incurred as a result of their positions as solemanager of the Company and as members of PGP, respectively.

 

In October 2003, OEDfiled a Petition for Declaratory Judgment in St. Landry Parish, Louisiana,naming as opposing parties the Secretary of the Department of Revenue andTaxation for the State of Louisiana, the St. Landry Parish School Board and theCity of Opelousas. OED seeks a judgment declaring that sales taxes are not dueto the defendants on purchases made by OED and its contractors in connectionwith the construction and furnishing of the Evangeline Downs Racetrack andCasino, which was constructed in St. Landry Parish in 2003-2004. OED’s actionis based on Louisiana statutory law which provides that racetracks are notrequired to pay taxes and fees other than those provided in the racingstatutes, and that taxes and fees provided in the racing statutes are in lieuof, among other things, all state and local sales taxes. While the LouisianaDepartment of Revenue and Taxation generally agrees with OED’s position, theSt. Landry Parish School Board and the City of Opelousas have questioned theapplication of the racing statutes to the construction and furnishing of thenew racetrack and casino, thereby leading to the filing of this action.

 

OED filed a motion forsummary judgment, which was scheduled for hearing in July 2005. The defendantsfiled responses, generally arguing that the exemption under the racing statutesshould not extend to the purchase of goods, materials and services which wereunrelated to horse racing. Prior to the hearing, it was discovered by OED thatOED’s contractor (and the contractor’s subcontractors) had paid sales taxes onmany purchases related to the construction of the new racetrack and casino, andthat OED, in its payments to the contractor, had reimbursed the contractor forsuch sales taxes. In light of this discovery, the parties agreed to continueindefinitely the hearing on the motion for summary judgment. In November andDecember 2005, OED filed refund claims totaling $0.6 million. There has not yetbeen a ruling on OED’s refund claims. OED has not recorded the refund claimsdue to uncertainty as to the outcome of the matter.

 

F-16

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While OED has paidcertain sales taxes on the construction of the new racetrack and casino andrelating to the purchase of slot machines at the casino, it has not paid salestaxes on all purchases associated with the construction and furnishing of the facility.Accordingly, an adverse ruling on this matter may result in OED being requiredto pay sales taxes to the defendants in the range of $1.0 to $2.5 million andhaving its refund claims denied. A portion of the sales tax, if required to bepaid, will be capitalized in fixed assets.

 

InOctober 2005, the Company filed a claim to arbitrate its claims againstthe general contractor of the racino alleging that the general contractorimproperly constructed the horse racetrack at the racino. The Company is pursuinga claim for damages of approximately $7.1 million against the generalcontractor to recoup its track reconstruction costs and other related damages.The arbitration is currently scheduled to be held in Lafayette, Louisiana andis expected to take approximately one year. The Company believes it is tooearly to determine the results of the arbitration and has not recorded anydamage claim.

 

Other than as described above, the Company isnot a party to, and none of the Company’s property is the subject of, anypending legal proceedings other than litigation arising in the normal course ofbusiness. Management does not believe that adverse determinations in any or allsuch other litigation would have a material adverse effect on the Company’sfinancial condition, results of operations or cash flows.

 

In accordancewith legislation passed in Iowa in 2004, all excursion gambling boat licensees,including DJL, were assessed an amount based on the licensee’s adjusted grossreceipts to be deposited into the Rebuild Iowa Infrastructure Fund. DJL’s totalassessment is $2.1 million, which is to be paid in two equal payments of $1.1million on June 1, 2005 and June 1, 2006. DJL made its first paymentin May 2005 and recorded the payment as a long term deposit on itsconsolidated balance sheet. Beginning in July 2010, DJL may offset gamingtaxes in an amount equal to 20% of the total assessment in each of thesucceeding five fiscal years thereafter. DJW was not included in thisassessment as they did not have a license at the time of the assessment.

 

In connectionwith obtaining its gaming license, DJW is required to pay under an executoryagreement a license fee of $5.0 million due in five annual installments of $1.0million. DJW paid the first $1.0 million installment in June 2005 with theremaining installments due in May 2006 and each May thereafterthrough 2009. Also, DJW is required to pay its qualified sponsoringorganization, who holds the joint gaming license with DJW, 5.76% of the casino’sadjusted gross receipts on an ongoing basis and to construct, or cause a thirdparty to construct, a 100 room hotel near the casino within 18 months ofopening the casino to maintain its gaming license.

 

Our future contractual obligations related topurchase commitments at December 31, 2005, including purchase commitmentsrelated to the opening of the new DJW casino, are summarized as follows (inthousands):

 
| 2006       |   | $      | 2,690  |   |
|------------|--------|--------|--------|--------|
| 2007       |   | 2,474  |   |
| 2008       |   | 2,174  |   |
| 2009       |   | 1,128  |   |
| 2010       |   | 405    |   |
| Thereafter |   | — |   |
| Total      |   | $      | 8,871  |   |

** **

**9. MEMBER’S EQUITY**

 

On July 15, 1999, PGL authorized andissued $9.0 million of common membership units. PGP, as the holder of allof the Company’s issued and outstanding common membership interests, isentitled to vote on all matters to be voted on by holders of common membershipinterests of the Company and, subject to certain limitations contained in theCompany’s operating agreement, the indentures governing the Peninsula GamingNotes and the DJW Notes and the PGL Credit Facility, is entitled to dividendsand other distributions if, as and when declared by the Company’s managers outof funds legally available therefore.

 

F-17

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**10. DUBUQUE RACING ASSOCIATION, LTD.CONTRACT**

 

Dubuque Racing Association, Ltd. (the “DRA”),a qualified sponsoring organization, holds a joint license with DJL to conductgambling games under Iowa statutes. The DRA owns Dubuque Greyhound Park (“DGP”),a traditional greyhound racetrack with 1,000 slot machines and amenitiesincluding a gift shop, restaurant and clubhouse. During 2005, DJL entered intoan amendment to its operating agreement under the joint gambling license (the “AmendedOperating Agreement”) with the DRA. The Amended Operating Agreement providesfor, among other things, the following:

 

•                  The DRA isauthorized to install up to 1,000 slot machines and add up to 20 table games atDGP.

 

•                  Extension of theoperating agreement and related leases of real property through December 31,2018.

 

•                  From the datethat DGP commences operation of table games and continuing until December 31,2008, DRA shall pay to DJL $0.33 for each $1.00 of reduction in DJL’s adjustedgross gaming receipts, subject to a maximum 15% decline and certain paymentdeferral conditions.

 

•                  DJL willcontinue to pay the DRA the sum of $.50 for each patron admitted on the boat.During 2005, 2004 and 2003, these payments approximated $0.5 million each year.Commencing January 1, 2009, DJL will be required to pay the DRA three percent(3%) of DJL’s adjusted gross receipts.

 

**11. TRANSACTIONS WITH RELATED PARTIES**

 

In November 2005, PGP repurchased 35,210units of its convertible preferred membership interest from an unrelated partyfor approximately $1.8 million. In May 2004, PGP repurchased 147,553 units ofits convertible preferred membership interests from an unrelated party forapproximately $4.5 million. Both repurchases were funded by a distribution ofcash to PGP from the Company.

 

During 2005, 2004 and 2003, the Company distributed$2.8 million, $2.5 million, and $1.6 million, respectively, to PGP primarilyfor (i) certain consulting and financial advisory services related to PGPdevelopment expenses, (ii) board fees and actual out-of-pocket expensesincurred by members of the board of managers of PGP in their capacity as aboard member and (iii) tax, accounting, legal and administrative costs andexpenses related to PGP. These amounts were recorded as member distributions. Inaddition, during 2005 the Company expensed $0.4 million, as an affiliatemanagement fee, related to other compensation and board fees payable to boardmembers of PGP representing services provided to PGL.

 

In accordance with a management servicesagreement between OED Acquisition LLC (“OEDA”), a wholly owned subsidiary ofPGP, and OED, under which OED pays to OEDA a base management fee of 0.44% ofnet revenue (less net food and beverage revenue) plus an incentive fee based onearnings before interest, taxes, depreciation, amortization and othernon-recurring charges, OED expensed $0.7 million and $0.2 million in affiliatemanagement fees payable to OEDA in 2005 and for the period from July 1,2004 through December 31, 2004 (the period subsequent to the spin-off ofOEDA).

 

In 2005, DJWentered into a management services agreement with PGP. Pursuant to the terms ofthat agreement, PGP will design, develop, construct, manage and operate the newcasino in Worth County, Iowa and provide certain pre-opening services inconnection therewith. Under the management services agreement, PGP is entitledto receive a pre-opening service fee equal to $40,000 per month commencing inSeptember 2005 and ending upon opening of the new casino to the public. Uponcommencement of operations at the new casino, PGP will also receive a basemanagement fee equal to 1.75% of net revenue (less net food and beveragerevenue) and an incentive fee equal to:

 

• 3.0%of the first $25.0 million of EBITDA (as defined below);

 

•4.0% of EBITDA in excess of $25.0 million but less than $30.0 million ofEBITDA; and

 

•5.0% of EBITDA in excess of $30.0 million.

 

“EBITDA” is defined in the managementservices agreement as earnings before interest, income taxes, depreciation andamortization; provided, however, that in calculating earnings, the basemanagement fee and the incentive fee payable under the management servicesagreement shall not be deducted. The management services agreement willterminate on the later of (i) April 2014 or (ii) the date of sale by PGP of itsbeneficial ownership of the DJW’s membership interests. During 2005 the Companyexpensed management fees of $0.2 million.

 

F-18

----

 

OED is a party to a consulting agreement witha board member of PGP. Under the consulting agreement, OED must pay to theboard member a fee equal to 2.5% of OED’s earnings before interest, taxes,depreciation, amortization and other non-recurring charges during the precedingcalendar year commencing on January 1, 2004. Under the consultingagreement, the board member is also entitled to reimbursement of reasonablebusiness expenses as approved by the board of managers of PGP. OED expensed $0.8million and $0.5 million of affiliate management fees in 2005 and 2004 relatedto this agreement.

 

A board member of PGP was entitled to receivefrom OEDA board fees of $0.2 million per year for services performed in hiscapacity as an OEDA board member. For 2004 and 2003, the Company expensed $0.1million and $0.2 million, respectively, related to these board fees (for theperiod prior to the spin-off of OEDA).

 

During 2005, 2004 and 2003, the Company paid fees and expenses to itsinvestment banking firm, which employs the Company’s Chief Executive Officer,in connection with the offering of the DJW Notes, the Peninsula Gaming Notesand the OED Notes, respectively.

 

At a meetingof the board of managers of PGP held on February 25, 2005, PGP approvedgrants of profits interests under PGP’s Amended and Restated 2004 IncentiveUnit Plan (the “IUP”) to two executive officers of PGL aggregating 2.50% of theoutstanding membership units of PGP on a fully diluted basis. In addition, at ameeting of the board of managers of PGP held on September 12, 2005, PGPapproved additional grants under the IUP to the executive officers of PGLaggregating 5% of the outstanding membership units of PGP on a fully dilutedbasis. The terms of the awards include specified vesting schedules,acceleration of vesting upon the occurrence of certain events, anti-dilutionprotection, transfer restrictions and other customary terms and provisions. Theprofits interests awarded under the IUP entitle the holders thereof to receivedistributions from operating profits on a pro rata basis with holders of commonunits of PGP (but only to the extent of profits allocated to holders of profitsinterests after the date of grant) and distributions on liquidation (but onlyto the extent of their pro rata share of any undistributed operating profitsallocated to holders of profits interests and any further appreciation in thefair market value of PGP after the date of grant). Upon any termination oftheir employment, the respective officers are entitled at their option to causethe Company to redeem all such vested profits interests granted to them forcash at their fair market value at the time of termination of employment. Quarterly,the Company estimates the fair value of the units and compares that value tothe value of the units at the date of grant. Any appreciation in the value ofthe units and based on the percentage of the grant vested is expensed. TheCompany expensed $1.2 million in 2005 with respect to these units.

 

**12. SUBSEQUENT EVENTS**

 

On March 1, 2006, DJW entered into arevolving credit loan agreement with a bank (the “DJW Credit Facility”). TheDJW Credit Facility consists of a revolving credit facility which permits DJWto request advances and letters of credit up $2.5 million (less amountsoutstanding under letters of credit). Advances under the DJW Credit Facilitybear an interest rate based on the borrower’s option of LIBOR plus a margin of1.85% -2.20% or the Wall Street Journal prime rate less a margin of 1.0%;however, at no time shall the interest rate be lower than 5.0%. Borrowingsunder the DJW Credit Facility are collateralized by substantially all assets ofDJW and are guaranteed by the Company’s Chief Executive Officer. The DJW CreditFacility matures on March 1, 2010.

 

The DJW Credit Facility contains a number ofrestrictive covenants, including covenants that limit DJW’s ability to, amongother things, incur more debt, create liens and guarantee the debt of others. Inaddition, the DJW Credit Facility requires that, on an annual basis, DJW repayall advances (other than amounts designated under letters of credit) and suchrepayment of all advances must continue for a period of five days, after which,DJW will be allowed to resume making advances.

 

In November 2005, DJW entered intoagreements with various slot machine manufacturers to finance the purchase of366 slot machines. The machines were purchased during the first quarter of 2006.Of the purchase price for the slot machines, $3.6 million was financed througha slot machine vendor with equal principal payments due over thirty-six monthswith zero percent interest for the first twenty-four months and 7.25% interestfor the remaining twelve months with payments to begin in April 2006. Theremaining $0.8 million of the purchase price of the slot machines was financedthrough another slot machine vendor with equal principal payments over twelvemonths and zero percent interest with payments to begin in May 2006. As therewas no stated interest rate for the first twenty-four months on one of thenotes and no stated interest rate on the other note, DJW used an imputedinterest rate of 7.25% to establish the present value of the notes bydiscounting, at 7.25%, all future interest and principal payments on the notes.DJW considered the rates at which it could obtain financing of a similar naturefrom other sources at the date of the transaction and the stated interestrates, if any,

 

F-19

----

 

within the slot machinepurchase agreements when determining the imputed interest rate.

 

In January 2006, DJW entered into acapital lease agreement with a slot machine manufacturer for the purchase of 50slot machines for a gross purchase price of approximately $0.7 million. Thecapital lease requires equal lease payments for 12 months beginning in April2006. The capital lease contains an option to purchase the machines at the endof the lease for one dollar.

 

**13. SEGMENT INFORMATION**

 

The Company is organized around geographicalareas and operates three reportable segments: (1) Diamond Jo operations,which comprise the Diamond Jo riverboat casino in Dubuque, Iowa, (2) EvangelineDowns operations, which comprise the casino, racetrack and OTBs operated by OEDin Louisiana and (3) Diamond Jo Worth operations, which comprise the Diamond JoWorth start-up casino operations in Northwood, Iowa.

 

The accounting policies for each segment arethe same as those described in Note 2 above. The Company evaluates performanceand allocates resources based upon, among other considerations, segmentoperating earnings (as defined below).

 

The tables below present information aboutreported segments as of and for the years ended (in thousands):

 
| ** **       | ** ** | **Net Revenues** | ** ** |
|------------------|------------|------------------|------------|
| ** **       | ** ** | **2005**         | ** ** | **2004** | ** ** | **2003** | ** ** |
|             |       |             |       |   |   |   |   |
| Diamond Jo       |       | $                | 52,779     |   | $ | 51,715 |   | $ | 54,004 |   |
| Diamond Jo Worth |       | 1,383            |       |   |   |   |   |
| Evangeline Downs |       | 121,405          |       | 93,139 |   | 22,498 |   |
| Total            |       | $                | 175,567    |   | $ | 144,854 |   | $ | 76,502 |   |

 

F-20

----

 
| ** **                                | ** ** | **Segment Operating  Earnings(1)** | ** ** |
|-------------------------------------------|------------|------------------------------------|------------|
| ** **                                | ** ** | **2005**                           | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                      |       |                               |       |   |   |   |   |
| General corporate                         |       | $                                  | (3,326     | ) | $ | (927 | ) |   |   |
| Diamond Jo                                |       | 16,866                             |       | 16,700 |   | $ | 18,003 |   |
| Evangeline Downs                          |       | 31,223                             |       | 17,282 |   | 1,105 |   |
| Diamond Jo Worth                          |       | 5                                  |       |   |   |   |   |
| Total Segment Operating Earnings(1)       |       | 44,768                             |       | 33,055 |   | 19,108 |   |
| General Corporate:                        |       |                               |       |   |   |   |   |
| Management severance and recruiting       |       |                               |       | (108 | ) |   |   |
| Development expense                       |       | (223                               | )          | (242 | ) |   |   |
| Affiliate management fees                 |       | (418                               | )          |   |   |   |   |
| Diamond Jo:                               |       |                               |       |   |   |   |   |
| Depreciation and amortization             |       | (4,136                             | )          | (2,678 | ) | (2,500 | ) |
| Development expense                       |       | (147                               | )          |   |   | (102 | ) |
| Management severance and recruiting       |       |                               |       | (294 | ) |   |   |
| (Loss) gain on disposal of assets         |       | (3                                 | )          | 498 |   | (50 | ) |
| Interest expense, net                     |       | (9,744                             | )          | (19,089 | ) | (11,051 | ) |
| Preferred member distributions            |       |                               |       |   |   | (180 | ) |
| Evangeline Downs:                         |       |                               |       |   |   |   |   |
| Depreciation and amortization             |       | (12,089                            | )          | (9,677 | ) | (824 | ) |
| Pre-opening expense                       |       | (171                               | )          | (367 | ) | (3,257 | ) |
| Management severance and recruiting       |       |                               |       | (191 | ) |   |   |
| Development expense                       |       | (205                               | )          |   |   |   |   |
| Affiliate management fees                 |       | (1,479                             | )          | (757 | ) | (175 | ) |
| Gain on disposal of assets                |       | 19                                 |       | 218 |   |   |   |
| Interest expense, net                     |       | (17,833                            | )          | (45,443 | ) | (13,711 | ) |
| Diamond Jo Worth:                         |       |                               |       |   |   |   |   |
| Depreciation and amortization             |       | (24                                | )          |   |   |   |   |
| Pre-opening expense                       |       | (139                               | )          |   |   |   |   |
| Affiliate management fees                 |       | (160                               | )          |   |   |   |   |
| Interest expense, net                     |       | (1,400                             | )          |   |   |   |   |
| Net loss to common member’s interest |       | $                                  | (3,384     | ) | $ | (45,075 | ) | $ | (12,742 | ) |

 

----

(1)                                  Segmentoperating earnings is defined as net loss to common member’s interest plusdepreciation and amortization, pre-opening expense, development expense,management severance and recruiting, affiliate management fees, loss ondisposal of assets, interest expense (net) (including loss on early retirementof debt) and preferred member distributions less gain on disposal of assets.

 
| ** **       | ** ** | **Total Assets** | ** ** |
|------------------|------------|------------------|------------|
| ** **       | ** ** | **2005**         | ** ** | **2004** | ** ** |
|             |       |             |       |   |   |
| Diamond Jo       |       | $                | 79,267     |   | $ | 82,257 |   |
| Evangeline Downs |       | 162,899          |       | 160,812 |   |
| Diamond Jo Worth |       | 45,462           |       |   |   |
| Total            |       | $                | 287,628    |   | $ | 243,069 |   |

 
| ** **       | ** ** | **Cash Expenditures for Additions to  Long-Lived Assets** | ** ** |
|------------------|------------|-----------------------------------------------------------|------------|
| ** **       | ** ** | **2005**                                                  | ** ** | **2004** | ** ** | **2003** | ** ** |
|             |       |                                                      |       |   |   |   |   |
| Diamond Jo       |       | $                                                         | 1,754      |   | $ | 2,576 |   | $ | 1,495 |   |
| Evangeline Downs |       | 12,231                                                    |       | 41,103 |   | 57,796 |   |
| Diamond Jo Worth |       | 19,181                                                    |       |   |   |   |   |
| Total            |       | $                                                         | 33,166     |   | $ | 43,679 |   | $ | 59,291 |   |

 

F-21

----

 

**14. FAIR VALUE OF FINANCIAL INSTRUMENTS**

 

The fairvalue of the Company’s financial instruments consisting of cash and cashequivalents, restricted cash, receivables, and payables approximate theirrecorded amounts due to the short term nature of the instruments. The fairvalue and recorded amounts for the Company’s debt instruments atDecember 31, 2005 and 2004 are as follows:

 

(in thousands)

 
| ** **                                   | ** ** | **December 31, 2005** | ** ** | **December 31, 2004** | ** ** |
|----------------------------------------------|------------|----------------------------|------------|----------------------------|------------|
| ** **                                   | ** ** | **Fair Value**             | ** ** | **Recorded Amount**        | ** ** | **Fair Value** | ** ** | **Recorded Amount** | ** ** |
| 83⁄4% senior secured notes                |       | $                          | 229,505    |                       | $          | 230,259 |   | $ | 228,340 |   | $ | 229,946 |   |
| 11% senior secured notes                     |       | 40,000                     |       | 40,000                     |       |   |   |   |   |
| 13% senior secured notes                     |       | 6,910                      |       | 6,813                      |       | 6,910 |   | 6,797 |   |
| Senior secured credit facilities             |       | 23,800                     |       | 23,800                     |       | 13,888 |   | 13,888 |   |
| Term loan                                    |       | 8,667                      |       | 8,667                      |       | 12,667 |   | 12,667 |   |
| Notes payable                                |       | 7,702                      |       | 7,467                      |       | 12,795 |   | 12,081 |   |
| Preferred members’ interest, redeemable |       | 4,000                      |       | 4,000                      |       | 4,000 |   | 4,000 |   |
|                                              |            |                            |            |                            |            |  |  |  |  |  |  |  |  |

 

Fair valueinformation is based on current market interest rates and estimates of marketconditions for instruments with similar terms, maturities, and degrees of risk.

 

**15. QUARTERLY RESULTS OF OPERATIONS(UNAUDITED)**

 
| ** **                                          | ** ** | **2005 Quarters Ended**    | ** ** |
|-----------------------------------------------------|------------|----------------------------|------------|
| ** **                                          | ** ** | **March 31**          | ** ** | **June 30 (1)** | ** ** | **September 30** | ** ** | **December 31** | ** ** |
| ** **                                          | ** ** | **(Dollars in Thousands)** | ** ** |
|                                                |       |                       |       |   |   |   |   |   |   |
| Net revenues                                        |       | $                          | 41,204     |   | $ | 40,143 |   | $ | 43,684 |   | $ | 50,536 |   |
| Income from operations                              |       | 6,580                      |       | 4,521 |   | 6,425 |   | 8,067 |   |
| Net (loss) income to common member’s  interest |       | (182                       | )          | (2,320 | ) | (1,184 | ) | 302 |   |
|                                                     |            |                            |            |  |  |  |  |  |  |  |  |  |  |

 

----

(1)          Includes the impact attributed to the closure of theracetrack from May 13, 2005 to June 28, 2005 for improvements relatedto the dirt track.  We reopened the racetrack on June 29, 2005.

 
| ** **                                | ** ** | **2004 Quarters Ended**    | ** ** |
|-------------------------------------------|------------|----------------------------|------------|
| ** **                                | ** ** | **March 31**          | ** ** | **June 30(1)** | ** ** | **September 30** | ** ** | **December 31** | ** ** |
| ** **                                | ** ** | **(Dollars in Thousands)** | ** ** |
|                                      |       |                       |       |   |   |   |   |   |   |
| Net revenues                              |       | $                          | 35,565     |   | $ | 36,566 |   | $ | 37,291 |   | $ | 35,432 |   |
| Income from operations                    |       | 5,105                      |       | 4,407 |   | 4,993 |   | 4,951 |   |
| Net loss to common member’s interest |       | (2,621                     | )          | (39,685 | ) | (1,182 | ) | (1,587 | ) |
|                                           |            |                            |            |  |  |  |  |  |  |  |  |  |  |

 

----

(1)          Includes a loss on early retirement of debt ofapproximately $37.6 million related to the Company’s debt refinancingsdiscussed in Note 4.

 

F-22

----

 

**16. CONSOLIDATING FINANCIAL STATEMENTS**

 

The Company,DJL and PGC (which has no assets or operations) are co-issuers of the PeninsulaGaming Notes which are registered with the U.S. Securities and ExchangeCommission. OED is a guarantor of the Peninsula Gaming Notes, and the equity ofDJL and OED is pledged as collateral securing obligations under the PeninsulaGaming Notes. In July 2005, in connection with the offering of the DJWNotes, DJW was designated as an “unrestricted subsidiary” under the indenturegoverning the Peninsula Gaming Notes and the liens on the assets and capitalstock of DJW under the Peninsula Gaming Notes were released.

 

CONSOLIDATING BALANCE SHEETS

(in thousands)

 
| ** **                                          | ** ** | **At  December 31, 2005** | ** ** |
|-----------------------------------------------------|------------|--------------------------------|------------|
| ** **                                          | ** ** | **Parent  Co-Issuer -  PGL**   | ** ** | **Subsidiary  Co-Issuer -  DJL** | ** ** | **Subsidiary  Guarantor -  OED** | ** ** | **Subsidiary  Non-Guarantor -  DJW** | ** ** | **Consolidating  Adjustments** | ** ** | **Consolidated** | ** ** |
|                                                |       |                           |       |   |   |   |   |   |   |   |   |   |   |
| **ASSETS**                                          |       |                           |       |   |   |   |   |   |   |   |   |   |   |
| CURRENT ASSETS:                                     |       |                           |       |   |   |   |   |   |   |   |   |   |   |
| Cash and cash  equivalents                          |       | $                              | (52        | ) | $ | 3,253 |   | $ | 9,011 |   | $ | 566 |   |   |   | $ | 12,778 |   |
| Restricted  cash-purse settlements                  |       |                           |       |   |   | 5,119 |   |   |   |   |   | 5,119 |   |
| Restricted  cash-interest reserve                   |       |                           |       |   |   |   |   | 2,281 |   |   |   | 2,281 |   |
| Accounts  receivable                                |       |                           |       | 168 |   | 2,495 |   | 138 |   |   |   | 2,801 |   |
| Receivables from  affiliates                        |       |                           |       | 6,651 |   |   |   |   |   | $ | (6,651 | ) |   |   |
| Inventories                                         |       |                           |       | 114 |   | 258 |   | 121 |   |   |   | 493 |   |
| Prepaid expenses                                    |       | 38                             |       | 461 |   | 617 |   | 143 |   |   |   | 1,259 |   |
| Total current  assets                               |       | (14                            | )          | 10,647 |   | 17,500 |   | 3,249 |   | (6,651 | ) | 24,731 |   |
| RESTRICTED CASH –  WORTH PROJECT               |       |                           |       |   |   |   |   | 16,848 |   |   |   | 16,848 |   |
| PROPERTY AND  EQUIPMENT, NET                        |       |                           |       | 16,503 |   | 104,900 |   | 21,990 |   |   |   | 143,393 |   |
| OTHER ASSETS:                                       |       |                           |       |   |   |   |   |   |   |   |   |   |   |
| Investment in  subsidiaries                         |       | (68,521                        | )          |   |   |   |   |   |   | 68,521 |   |   |   |
| Deferred  financing costs                           |       |                           |       | 4,536 |   | 7,362 |   | 2,365 |   |   |   | 14,263 |   |
| Goodwill                                            |       |                           |       | 53,083 |   |   |   |   |   |   |   | 53,083 |   |
| Licenses and  other intangibles                     |       |                           |       |   |   | 33,003 |   | 1,000 |   |   |   | 34,003 |   |
| Deposits and  other assets                          |       | 3                              |       | 1,160 |   | 134 |   | 10 |   |   |   | 1,307 |   |
| Total other  assets                                 |       | (68,518                        | )          | 58,779 |   | 40,499 |   | 3,375 |   | 68,521 |   | 102,656 |   |
| TOTAL                                               |       | $                              | (68,532    | ) | $ | 85,929 |   | $ | 162,899 |   | $ | 45,462 |   | $ | 61,870 |   | $ | 287,628 |   |
|                                                |       |                           |       |   |   |   |   |   |   |   |   |   |   |
| **LIABILITIES  AND MEMBER’S EQUITY (DEFICIT)** |       |                           |       |   |   |   |   |   |   |   |   |   |   |
| CURRENT  LIABILITIES:                               |       |                           |       |   |   |   |   |   |   |   |   |   |   |
| Accounts payable                                    |       | $                              | 11         |   | $ | 1,087 |   | $ | 3,500 |   | $ | 144 |   |   |   | $ | 4,742 |   |
| Construction  payable                               |       |                           |       |   |   | 2,500 |   | 3,617 |   |   |   | 6,117 |   |
| Purse settlement  payable                           |       |                           |       |   |   | 7,320 |   |   |   |   |   | 7,320 |   |
| Accrued payroll  and payroll taxes                  |       | 1,753                          |       | 1,175 |   | 1,331 |   | 8 |   |   |   | 4,267 |   |
| Accrued interest                                    |       |                           |       | 1,672 |   | 3,251 |   | 941 |   |   |   | 5,864 |   |
| Other accrued  expenses                             |       | 13                             |       | 1,524 |   | 5,979 |   | 89 |   |   |   | 7,605 |   |
| Payable to  affiliate                               |       | 298                            |       |   |   | 7,158 |   | 164 |   | $ | (6,651 | ) | 969 |   |
| Current maturity  of long-term debt                 |       |                           |       | 5,197 |   | 5,805 |   |   |   |   |   | 11,002 |   |
| Total current  liabilities                          |       | 2,075                          |       | 10,655 |   | 36,844 |   | 4,963 |   | (6,651 | ) | 47,886 |   |
| LONG-TERM  LIABILITIES:                             |       |                           |       |   |   |   |   |   |   |   |   |   |   |
| 8 3⁄4% senior  secured notes, net of discount    |       |                           |       | 86,858 |   | 143,401 |   |   |   |   |   | 230,259 |   |
| 11% senior  secured notes                           |       |                           |       |   |   |   |   | 40,000 |   |   |   | 40,000 |   |
| 13% senior  secured notes, net of discount          |       |                           |       |   |   | 6,813 |   |   |   |   |   | 6,813 |   |
| Senior secured  credit facilities                   |       |                           |       | 6,700 |   | 17,100 |   |   |   |   |   | 23,800 |   |
| Term loan                                           |       |                           |       |   |   | 4,667 |   |   |   |   |   | 4,667 |   |
| Notes payable                                       |       |                           |       | 1,107 |   | 3,358 |   |   |   |   |   | 4,465 |   |
| Other accrued expenses                              |       |                           |       | 199 |   |   |   | 146 |   |   |   | 345 |   |
| Total long-term  liabilities                        |       |                           |       | 94,864 |   | 175,339 |   | 40,146 |   |   |   | 310,349 |   |
| Total liabilities                                   |       | 2,075                          |       | 105,519 |   | 212,183 |   | 45,109 |   | (6,651 | ) | 358,235 |   |
|                                                |       |                           |       |   |   |   |   |   |   |   |   |   |   |
| MEMBER’S  (DEFICIT) EQUITY                     |       | (70,607                        | )          | (19,590 | ) | (49,284 | ) | 353 |   | 68,521 |   | (70,607 | ) |
| TOTAL                                               |       | $                              | (68,532    | ) | $ | 85,929 |   | $ | 162,899 |   | $ | 45,462 |   | $ | 61,870 |   | $ | 287,628 |   |

 

F-23

----

 

(in thousands)

 
| ** **                                      | ** ** | **At December 31, 2004** | ** ** |
|-------------------------------------------------|------------|-------------------------------|------------|
| ** **                                      | ** ** | **Parent  Co-Issuer -  PGL**  | ** ** | **Subsidiary  Co-Issuer -  DJL** | ** ** | **Subsidiary  Guarantor -  OED** | ** ** | **Other** | ** ** | **Consolidating  Adjustments** | ** ** | **Consolidated** | ** ** |
|                                            |       |                          |       |   |   |   |   |   |   |   |   |   |   |
| **ASSETS**                                      |       |                          |       |   |   |   |   |   |   |   |   |   |   |
| CURRENT ASSETS:                                 |       |                          |       |   |   |   |   |   |   |   |   |   |   |
| Cash and cash equivalents                       |       | $                             | (1         | ) | $ | 3,434 |   | $ | 7,071 |   |   |   |   |   | $ | 10,504 |   |
| Restricted cash-purse settlements               |       |                          |       |   |   | 3,671 |   |   |   |   |   | 3,671 |   |
| Accounts receivable                             |       |                          |       | 81 |   | 735 |   |   |   |   |   | 816 |   |
| Receivables from affiliates                     |       |                          |       | 6,673 |   |   |   |   |   | $ | (6,673 | ) |   |   |
| Inventories                                     |       |                          |       | 106 |   | 137 |   |   |   |   |   | 243 |   |
| Prepaid expenses                                |       |                          |       | 1,064 |   | 1,120 |   |   |   |   |   | 2,184 |   |
| Total current assets                            |       | (1                            | )          | 11,358 |   | 12,734 |   |   |   | (6,673 | ) | 17,418 |   |
| PROPERTY AND EQUIPMENT, NET                     |       |                          |       | 18,543 |   | 107,620 |   |   |   |   |   | 126,163 |   |
| OTHER ASSETS:                                   |       |                          |       |   |   |   |   |   |   |   |   |   |   |
| Investment in subsidiaries                      |       | (62,215                       | )          |   |   |   |   |   |   | 62,215 |   |   |   |
| Deferred financing costs                        |       |                          |       | 5,584 |   | 7,728 |   |   |   |   |   | 13,312 |   |
| Goodwill                                        |       |                          |       | 53,083 |   |   |   |   |   |   |   | 53,083 |   |
| Licenses and other intangibles                  |       |                          |       |   |   | 32,562 |   |   |   |   |   | 32,562 |   |
| Deposits and other assets                       |       |                          |       | 363 |   | 168 |   |   |   |   |   | 531 |   |
| Total other assets                              |       | (62,215                       | )          | 59,030 |   | 40,458 |   |   |   | 62,215 |   | 99,488 |   |
| TOTAL                                           |       | $                             | (62,216    | ) | $ | 88,931 |   | $ | 160,812 |   |   |   | $ | 55,542 |   | $ | 243,069 |   |
|                                            |       |                          |       |   |   |   |   |   |   |   |   |   |   |
| **LIABILITIES AND MEMBER’S DEFICIT**       |       |                          |       |   |   |   |   |   |   |   |   |   |   |
| CURRENT LIABILITIES:                            |       |                          |       |   |   |   |   |   |   |   |   |   |   |
| Accounts payable                                |       | $                             | 36         |   | $ | 690 |   | $ | 3,075 |   |   |   |   |   | $ | 3,801 |   |
| Construction payable                            |       |                          |       |   |   | 4,712 |   |   |   |   |   | 4,712 |   |
| Purse settlement payable                        |       |                          |       |   |   | 5,040 |   |   |   |   |   | 5,040 |   |
| Accrued payroll and payroll taxes               |       | 341                           |       | 1,088 |   | 1,187 |   |   |   |   |   | 2,616 |   |
| Accrued interest                                |       |                          |       | 1,708 |   | 3,266 |   |   |   |   |   | 4,974 |   |
| Other accrued expenses                          |       | 6                             |       | 1,555 |   | 2,835 |   |   |   |   |   | 4,396 |   |
| Payable to affiliate                            |       |                          |       |   |   | 6,774 |   |   |   | $ | (6,673 | ) | 101 |   |
| Current maturity of long-term debt              |       |                          |       | 1,204 |   | 7,426 |   |   |   |   |   | 8,630 |   |
| Total current liabilities                       |       | 383                           |       | 6,245 |   | 34,315 |   |   |   | (6,673 | ) | 34,270 |   |
| LONG-TERM LIABILITIES:                          |       |                          |       |   |   |   |   |   |   |   |   |   |   |
| 8 3⁄4% senior secured notes, net of discount |       |                          |       | 86,740 |   | 143,206 |   |   |   |   |   | 229,946 |   |
| 13% senior secured notes, net of discount       |       |                          |       |   |   | 6,797 |   |   |   |   |   | 6,797 |   |
| Senior secured credit facilities                |       |                          |       | 6,118 |   | 7,770 |   |   |   |   |   | 13,888 |   |
| Term loan                                       |       |                          |       |   |   | 8,666 |   |   |   |   |   | 8,666 |   |
| Notes payable                                   |       |                          |       | 2,284 |   | 5,167 |   |   |   |   |   | 7,451 |   |
| Other accrued expenses                          |       |                          |       | 250 |   | 400 |   |   |   |   |   | 650 |   |
| Preferred members’ interest, redeemable    |       |                          |       | 4,000 |   |   |   |   |   |   |   | 4,000 |   |
| Total long-term liabilities                     |       |                          |       | 99,392 |   | 172,006 |   |   |   |   |   | 271,398 |   |
| Total liabilities                               |       | 383                           |       | 105,637 |   | 206,321 |   |   |   | (6,673 | ) | 305,668 |   |
|                                            |       |                          |       |   |   |   |   |   |   |   |   |   |   |
| MEMBER’S DEFICIT                           |       | (62,599                       | )          | (16,706 | ) | (45,509 | ) |   |   | 62,215 |   | (62,599 | ) |
| TOTAL                                           |       | $                             | (62,216    | ) | $ | 88,931 |   | $ | 160,812 |   |   |   | $ | 55,542 |   | $ | 243,069 |   |

 

F-24

----

 

CONSOLIDATING STATEMENTS OF OPERATIONS

(in thousands)

 
| ** **                                          | ** ** | **Year  Ended December 31, 2005** | ** ** |
|-----------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                          | ** ** | **Parent  Co-Issuer –  PGL** | ** ** | **Subsidiary  Co-Issuer –  DJL** | ** ** | **Subsidiary  Guarantor –  OED** | ** ** | **Subsidiary  Non-Guarantor –  DJW** | ** ** | **Consolidating  Adjustments** | ** ** | **Consolidated** | ** ** |
|                                                |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| REVENUES:                                           |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| Casino                                              |       |                              |       | $ | 51,249 |   | $ | 95,254 |   |   |   |   |   | $ | 146,503 |   |
| Racing                                              |       |                              |       |   |   | 17,509 |   |   |   |   |   | 17,509 |   |
| Video Poker                                         |       |                              |       |   |   | 2,339 |   |   |   |   |   | 2,339 |   |
| Food and beverage                                   |       |                              |       | 2,720 |   | 10,791 |   |   |   |   |   | 13,511 |   |
| Affiliate  management fee income                    |       |                              |       | 2,097 |   |   |   |   |   | $ | (2,097 | ) |   |   |
| Other                                               |       |                              |       | 310 |   | 1,017 |   | $ | 1,383 |   |   |   | 2,710 |   |
| Less promotional  allowances                        |       |                              |       | (1,500 | ) | (5,505 | ) |   |   |   |   | (7,005 | ) |
| Total net  revenues                                 |       |                              |       | 54,876 |   | 121,405 |   | 1,383 |   | (2,097 | ) | 175,567 |   |
|                                                |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| EXPENSES:                                           |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| Casino                                              |       |                              |       | 23,688 |   | 49,963 |   |   |   |   |   | 73,651 |   |
| Racing                                              |       |                              |       |   |   | 15,266 |   |   |   |   |   | 15,266 |   |
| Video Poker                                         |       |                              |       |   |   | 1,767 |   |   |   |   |   | 1,767 |   |
| Food and beverage                                   |       |                              |       | 2,517 |   | 7,332 |   |   |   |   |   | 9,849 |   |
| Boat operations                                     |       |                              |       | 2,105 |   |   |   |   |   |   |   | 2,105 |   |
| Other                                               |       |                              |       | 37 |   | 305 |   | 1,378 |   |   |   | 1,720 |   |
| Selling, general  and administrative                |       | $                                 | 1,420      |   | 7,566 |   | 15,549 |   |   |   | 1,906 |   | 26,441 |   |
| Depreciation and  amortization                      |       |                              |       | 4,136 |   | 12,090 |   | 23 |   |   |   | 16,249 |   |
| Pre-opening  expense                                |       |                              |       |   |   | 171 |   | 139 |   |   |   | 310 |   |
| Development costs                                   |       | 223                               |       | 147 |   | 205 |   |   |   |   |   | 575 |   |
| Affiliate  management fees                          |       | 418                               |       |   |   | 3,576 |   | 160 |   | (2,097 | ) | 2,057 |   |
| Loss (gain) on  sale of assets                      |       |                              |       | 3 |   | (19 | ) |   |   |   |   | (16 | ) |
| Corporate expense  allocation                       |       |                              |       | 1,034 |   | 872 |   |   |   | (1,906 | ) |   |   |
| Total expenses                                      |       | 2,061                             |       | 41,233 |   | 107,077 |   | 1,700 |   | (2,097 | ) | 149,974 |   |
|                                                |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| INCOME (LOSS)  FROM OPERATIONS                      |       | (2,061                            | )          | 13,643 |   | 14,328 |   | (317 | ) |   |   | 25,593 |   |
|                                                |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| OTHER INCOME  (EXPENSE):                            |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| Interest income                                     |       |                              |       | 23 |   | 70 |   | 423 |   |   |   | 516 |   |
| Interest expense                                    |       |                              |       | (9,406 | ) | (17,904 | ) | (1,823 | ) |   |   | (29,133 | ) |
| Interest expense –  preferred member interest  |       |                              |       | (360 | ) |   |   |   |   |   |   | (360 | ) |
| Loss from equity  investment in subsidiaries        |       | (1,323                            | )          |   |   |   |   |   |   | 1,323 |   |   |   |
| Total other  expense                                |       | (1,323                            | )          | (9,743 | ) | (17,834 | ) | (1,400 | ) | 1,323 |   | (28,977 | ) |
|                                                |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| NET INCOME (LOSS)  TO COMMON MEMBER’S INTEREST |       | $                                 | (3,384     | ) | $ | 3,900 |   | $ | (3,506 | ) | $ | (1,717 | ) | $ | 1,323 |   | $ | (3,384 | ) |

 

F-25

----

 

(in thousands)

 
| ** **                                                                | ** ** | **Year Ended December 31, 2004**  | ** ** |
|---------------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                                | ** ** | **Parent  Co-Issuer –  PGL** | ** ** | **Subsidiary  Co-Issuer –  DJL** | ** ** | **Subsidiary  Guarantor –  OED** | ** ** | **Other** | ** ** | **Consolidating  Adjustments** | ** ** | **Consolidated** | ** ** |
|                                                                      |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| REVENUES:                                                                 |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| Casino                                                                    |       |                              |       | $ | 50,964 |   | $ | 68,957 |   |   |   |   |   | $ | 119,921 |   |
| Racing                                                                    |       |                              |       |   |   | 17,286 |   |   |   |   |   | 17,286 |   |
| Video poker                                                               |       |                              |       |   |   | 2,715 |   |   |   |   |   | 2,715 |   |
| Food and beverage                                                         |       |                              |       | 2,897 |   | 8,567 |   |   |   |   |   | 11,464 |   |
| Affiliate management fee income                                           |       |                              |       | 1,445 |   |   |   | $ | 245 |   | $ | (1,690 | ) |   |   |
| Other                                                                     |       |                              |       | 488 |   | 946 |   |   |   |   |   | 1,434 |   |
| Less promotional allowances                                               |       |                              |       | (2,634 | ) | (5,332 | ) |   |   |   |   | (7,966 | ) |
| Total net revenues                                                        |       |                              |       | 53,160 |   | 93,139 |   | 245 |   | (1,690 | ) | 144,854 |   |
|                                                                      |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| EXPENSES:                                                                 |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| Casino                                                                    |       |                              |       | 22,831 |   | 38,441 |   |   |   |   |   | 61,272 |   |
| Racing                                                                    |       |                              |       |   |   | 13,916 |   |   |   |   |   | 13,916 |   |
| Video poker                                                               |       |                              |       |   |   | 2,034 |   |   |   |   |   | 2,034 |   |
| Food and beverage                                                         |       |                              |       | 2,641 |   | 6,577 |   |   |   |   |   | 9,218 |   |
| Boat operations                                                           |       |                              |       | 2,231 |   |   |   |   |   |   |   | 2,231 |   |
| Other                                                                     |       |                              |       | 390 |   | 686 |   |   |   |   |   | 1,076 |   |
| Selling, general and administrative                                       |       | $                                 | 375        |   | 6,922 |   | 14,204 |   |   |   | 551 |   | 22,052 |   |
| Depreciation and amortization                                             |       |                              |       | 2,679 |   | 9,677 |   |   |   |   |   | 12,356 |   |
| Pre-opening expense                                                       |       |                              |       |   |   | 367 |   |   |   |   |   | 367 |   |
| Development expense                                                       |       | 242                               |       |   |   |   |   |   |   |   |   | 242 |   |
| Management severance and recruiting                                       |       | 36                                |       | 294 |   | 191 |   |   |   | 72 |   | 593 |   |
| Affiliate management fees                                                 |       |                              |       |   |   | 2,360 |   | 87 |   | (1,690 | ) | 757 |   |
| Gain on disposal of assets                                                |       |                              |       | (498 | ) | (218 | ) |   |   |   |   | (716 | ) |
| Corporate expense allocation                                              |       |                              |       | 343 |   | 280 |   |   |   | (623 | ) |   |   |
| Total  expenses                                                           |       | 653                               |       | 37,833 |   | 88,515 |   | 87 |   | (1,690 | ) | 125,398 |   |
|                                                                      |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| INCOME (LOSS) FROM OPERATIONS                                             |       | (653                              | )          | 15,327 |   | 4,624 |   | 158 |   |   |   | 19,456 |   |
|                                                                      |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| OTHER INCOME (EXPENSE):                                                   |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| Interest income                                                           |       |                              |       | 40 |   | 130 |   |   |   |   |   | 170 |   |
| Interest expense, net of amounts  capitalized                             |       |                              |       | (9,930 | ) | (16,845 | ) |   |   |   |   | (26,775 | ) |
| Loss on early retirement of debt                                          |       |                              |       | (8,840 | ) | (28,726 | ) |   |   |   |   | (37,566 | ) |
| Interest expense related to preferred  members’ interest, redeemable |       |                              |       | (360 | ) |   |   |   |   |   |   | (360 | ) |
| Loss from equity investment in subsidiaries                               |       | (44,422                           | )          |   |   |   |   |   |   | 44,422 |   |   |   |
| Total other expense                                                       |       | (44,422                           | )          | (19,090 | ) | (45,441 | ) |   |   | 44,422 |   | (64,531 | ) |
| NET INCOME (LOSS) TO COMMON MEMBER’S  INTEREST                       |       | $                                 | (45,075    | ) | $ | (3,763 | ) | $ | (40,817 | ) | $ | 158 |   | $ | 44,422 |   | $ | (45,075 | ) |

 

F-26

----

 

(in thousands)

 
| ** **                                                                | ** ** | **Year Ended December 31, 2003**  | ** ** |
|---------------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                                | ** ** | **Parent  Co-Issuer –  PGL** | ** ** | **Subsidiary  Co-Issuer –  DJL** | ** ** | **Subsidiary  Guarantor –  OED** | ** ** | **Other** | ** ** | **Consolidating  Adjustments** | ** ** | **Consolidated** | ** ** |
|                                                                      |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| REVENUES:                                                                 |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| Casino                                                                    |       |                              |       | $ | 53,567 |   | $ | 3,228 |   |   |   |   |   | $ | 56,795 |   |
| Racing                                                                    |       |                              |       |   |   | 17,051 |   |   |   |   |   | 17,051 |   |
| Video poker                                                               |       |                              |       |   |   | 722 |   |   |   |   |   | 722 |   |
| Food and beverage                                                         |       |                              |       | 3,027 |   | 1,539 |   |   |   |   |   | 4,566 |   |
| Affiliate management fee income                                           |       |                              |       | 360 |   |   |   | $ | 120 |   | $ | (480 | ) |   |   |
| Other                                                                     |       |                              |       | 422 |   | 167 |   |   |   |   |   | 589 |   |
| Less promotional allowances                                               |       |                              |       | (3,012 | ) | (209 | ) |   |   |   |   | (3,221 | ) |
| Total net revenues                                                        |       |                              |       | 54,364 |   | 22,498 |   | 120 |   | (480 | ) | 76,502 |   |
|                                                                      |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| EXPENSES:                                                                 |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| Casino                                                                    |       |                              |       | 22,183 |   | 2,246 |   |   |   |   |   | 24,429 |   |
| Racing                                                                    |       |                              |       |   |   | 13,045 |   |   |   |   |   | 13,045 |   |
| Video poker                                                               |       |                              |       |   |   | 654 |   |   |   |   |   | 654 |   |
| Food and beverage                                                         |       |                              |       | 2,782 |   | 1,500 |   |   |   |   |   | 4,282 |   |
| Boat operations                                                           |       |                              |       | 2,322 |   |   |   |   |   |   |   | 2,322 |   |
| Other                                                                     |       |                              |       | 383 |   | 60 |   |   |   |   |   | 443 |   |
| Selling, general and administrative                                       |       |                              |       | 8,331 |   | 3,888 |   |   |   |   |   | 12,219 |   |
| Depreciation and amortization                                             |       |                              |       | 2,500 |   | 824 |   |   |   |   |   | 3,324 |   |
| Pre-opening expense                                                       |       |                              |       |   |   | 3,257 |   |   |   |   |   | 3,257 |   |
| Development expense                                                       |       |                              |       | 102 |   |   |   |   |   |   |   | 102 |   |
| Loss on disposal of assets                                                |       |                              |       | 50 |   |   |   |   |   |   |   | 50 |   |
| Litigation settlement                                                     |       |                              |       |   |   | 1,600 |   |   |   | (1,600 | ) |   |   |
| Affiliate management fees                                                 |       |                              |       |   |   | 480 |   | 175 |   | (480 | ) | 175 |   |
| Total  expenses                                                           |       |                              |       | 38,653 |   | 27,554 |   | 175 |   | (2,080 | ) | 64,302 |   |
|                                                                      |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| INCOME (LOSS) FROM OPERATIONS                                             |       |                              |       | 15,711 |   | (5,056 | ) | (55 | ) | 1,600 |   | 12,200 |   |
|                                                                      |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| OTHER INCOME (EXPENSE):                                                   |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| Interest income                                                           |       |                              |       | 50 |   | 440 |   |   |   |   |   | 490 |   |
| Interest expense, net of amounts  capitalized                             |       |                              |       | (10,921 | ) | (14,151 | ) |   |   |   |   | (25,072 | ) |
| Interest expense related to preferred  members’ interest, redeemable |       |                              |       | (180 | ) |   |   |   |   |   |   | (180 | ) |
| Loss from equity investment in subsidiaries                               |       | $                                 | (12,742    | ) |   |   |   |   |   |   | 12,742 |   |   |   |
| Total other expense                                                       |       | (12,742                           | )          | (11,051 | ) | (13,711 | ) |   |   | 12,742 |   | (24,762 | ) |
| NET INCOME (LOSS) BEFORE PREFERRED MEMBER  DISTRIBUTIONS                  |       | (12,742                           | )          | 4,660 |   | (18,767 | ) | (55 | ) | 14,342 |   | (12,562 | ) |
| LESS PREFERRED MEMBER DISTRIBUTIONS                                       |       |                              |       | (180 | ) |   |   |   |   |   |   | (180 | ) |
| NET INCOME (LOSS) TO COMMON MEMBER’S  INTEREST                       |       | $                                 | (12,742    | ) | $ | 4,480 |   | $ | (18,767 | ) | $ | (55 | ) | $ | 14,342 |   | $ | (12,742 | ) |

 

F-27

----

 

CONSOLIDATING STATEMENTS OF CASH FLOWS

(in thousands)

 
| ** **                                                                               | ** ** | **Year  Ended December 31, 2005** | ** ** |
|------------------------------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                                               | ** ** | **Parent  Co-Issuer –  PGL** | ** ** | **Subsidiary  Co-Issuer –  DJL** | ** ** | **Subsidiary  Guarantor –  OED** | ** ** | **Subsidiary  Non-Guarantor –  DJW** | ** ** | **Consolidating  Adjustments** | ** ** | **Consolidated** | ** ** |
|                                                                                     |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| CASH FLOWS FROM  OPERATING ACTIVITIES:                                                   |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| Net income (loss)                                                                        |       | $                                 | (3,384     | ) | $ | 3,900 |   | $ | (3,506 | ) | $ | (1,717 | ) | $ | 1,323 |   | $ | (3,384 | ) |
| Adjustments to  reconcile net income (loss) to net cash flows from operating activities: |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| Depreciation and  amortization                                                           |       |                              |       | 4,136 |   | 12,089 |   | 24 |   |   |   | 16,249 |   |
| Provision for  doubtful accounts                                                         |       |                              |       | 136 |   |   |   |   |   |   |   | 136 |   |
| Amortization of  deferred financing costs and bond discount                              |       |                              |       | 1,147 |   | 1,818 |   | 175 |   |   |   | 3,140 |   |
| Loss (gain) on  disposal of assets                                                       |       |                              |       | 3 |   | (19 | ) |   |   |   |   | (16 | ) |
| Loss from equity  investment in subsidiaries                                             |       | 1,323                             |       |   |   |   |   |   |   | (1,323 | ) |   |   |
| Changes in  operating assets and liabilities:                                            |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| Receivables                                                                              |       |                              |       | (223 | ) | (1,573 | ) | (138 | ) |   |   | (1,934 | ) |
| Receivables from  affiliates                                                             |       |                              |       | 627 |   |   |   |   |   | (627 | ) |   |   |
| Payable to  affiliates                                                                   |       | 298                               |       |   |   | (221 | ) | 164 |   | 627 |   | 868 |   |
| Inventories                                                                              |       |                              |       | (8 | ) | (121 | ) | (121 | ) |   |   | (250 | ) |
| Prepaid expenses  and other assets                                                       |       | (40                               | )          | (194 | ) | 536 |   | (153 | ) |   |   | 149 |   |
| Accounts payable                                                                         |       | (25                               | )          | (24 | ) | 2,697 |   | 143 |   |   |   | 2,791 |   |
| Accrued expenses                                                                         |       | 1,418                             |       | (30 | ) | 2,873 |   | 965 |   |   |   | 5,226 |   |
| Net cash flows  from operating activities                                                |       | (410                              | )          | 9,470 |   | 14,573 |   | (658 | ) |   |   | 22,975 |   |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                                                   |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| Restricted cash–purse  settlements                                                  |       |                              |       |   |   | (1,448 | ) |   |   |   |   | (1,448 | ) |
| Business  acquisition and licensing costs                                                |       |                              |       |   |   | (441 | ) | (1,000 | ) |   |   | (1,441 | ) |
| Deposits to  restricted cash                                                             |       |                              |       |   |   |   |   | (19,129 | ) |   |   | (19,129 | ) |
| Construction  project development costs                                                  |       |                              |       |   |   | (7,768 | ) | (18,181 | ) |   |   | (25,949 | ) |
| Purchase of  property and equipment                                                      |       |                              |       | (1,754 | ) | (4,022 | ) |   |   |   |   | (5,776 | ) |
| Proceeds from  sale of property and equipment                                            |       |                              |       | 96 |   | 53 |   | 4 |   |   |   | 153 |   |
| Net cash flows  from investing activities                                                |       |                              |       | (1,658 | ) | (13,626 | ) | (38,306 | ) |   |   | (53,590 | ) |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                                   |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| Deferred  financing costs                                                                |       |                              |       | (368 | ) | (375 | ) | (2,540 | ) |   |   | (3,283 | ) |
| Principal  payments on notes payable                                                     |       |                              |       | (1,423 | ) | (7,693 | ) |   |   |   |   | (9,116 | ) |
| Proceeds from  senior secured notes                                                      |       |                              |       |   |   |   |   | 40,000 |   |   |   | 40,000 |   |
| Proceeds from  senior credit facilities                                                  |       |                              |       | 8,500 |   | 13,333 |   | 1,200 |   |   |   | 23,033 |   |
| Payments on  senior credit facilities                                                    |       |                              |       | (9,118 | ) | (4,003 | ) |   |   |   |   | (13,121 | ) |
| Member  distributions                                                                    |       | 359                               |       | (5,584 | ) | (269 | ) | 870 |   |   |   | (4,624 | ) |
| Net cash flows  from financing activities                                                |       | 359                               |       | (7,993 | ) | 993 |   | 39,530 |   |   |   | 32,889 |   |
|                                                                                     |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| NET INCREASE  (DECREASE) IN CASH AND CASH EQUIVALENTS                                    |       | (51                               | )          | (181 | ) | 1,940 |   | 566 |   |   |   | 2,274 |   |
| CASH AND CASH  EQUIVALENTS AT BEGINNING OF YEAR                                          |       | (1                                | )          | 3,434 |   | 7,071 |   | — |   |   |   | 10,504 |   |
| CASH AND CASH  EQUIVALENTS AT END OF YEAR                                                |       | $                                 | (52        | ) | $ | 3,253 |   | $ | 9,011 |   | $ | 566 |   | $ | — |   | $ | 12,778 |   |

 

F-28

----

 

(in thousands)

 
| ** **                                                                               | ** ** | **Year Ended December 31, 2004**  | ** ** |
|------------------------------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                                               | ** ** | **Parent  Co-Issuer –  PGL** | ** ** | **Subsidiary  Co-Issuer –  DJL** | ** ** | **Subsidiary  Guarantor –  OED** | ** ** | **Other** | ** ** | **Consolidating  Adjustments** | ** ** | **Consolidated** | ** ** |
|                                                                                     |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                                    |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| Net income (loss)                                                                        |       | $                                 | (45,075    | ) | $ | (3,763 | ) | $ | (40,817 | ) | $ | 158 |   | $ | 44,422 |   | $ | (45,075 | ) |
| Adjustments to reconcile net income (loss)  to net cash flows from operating activities: |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| Depreciation and amortization                                                            |       |                              |       | 2,679 |   | 9,677 |   |   |   |   |   | 12,356 |   |
| Provision for doubtful accounts                                                          |       |                              |       | 106 |   |   |   |   |   |   |   | 106 |   |
| Amortization of deferred financing costs  and bond discount                              |       |                              |       | 1,057 |   | 1,566 |   |   |   |   |   | 2,623 |   |
| Write-off of deferred financing costs and  bond discount                                 |       |                              |       | 2,503 |   | 11,283 |   |   |   |   |   | 13,786 |   |
| Gain on disposal of assets                                                               |       |                              |       | (498 | ) | (218 | ) |   |   |   |   | (716 | ) |
| Loss from equity investment in subsidiaries                                              |       | 44,422                            |       |   |   |   |   |   |   | (44,422 | ) |   |   |
| Changes in operating assets and  liabilities:                                            |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| Receivables                                                                              |       |                              |       | (107 | ) | (333 | ) |   |   |   |   | (440 | ) |
| Receivables from affiliates                                                              |       |                              |       | (1,612 | ) |   |   | (70 | ) | 1,682 |   |   |   |
| Payable to affiliates                                                                    |       |                              |       |   |   | 1,918 |   |   |   | (1,682 | ) | 236 |   |
| Inventories                                                                              |       |                              |       | 8 |   | 152 |   |   |   |   |   | 160 |   |
| Prepaid expenses and other assets                                                        |       |                              |       | (187 | ) | (954 | ) |   |   |   |   | (1,141 | ) |
| Accounts payable                                                                         |       | 36                                |       | (115 | ) | 4,359 |   |   |   |   |   | 4,280 |   |
| Accrued expenses                                                                         |       | 347                               |       | (4,269 | ) | (1,871 | ) | (175 | ) |   |   | (5,968 | ) |
| Net cash flows from operating activities                                                 |       | (270                              | )          | (4,198 | ) | (15,238 | ) | (87 | ) |   |   | (19,793 | ) |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                                    |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| Restricted cash–purse settlements                                                   |       |                              |       |   |   | (2,082 | ) |   |   |   |   | (2,082 | ) |
| Business acquisition and licensing costs                                                 |       |                              |       |   |   | (304 | ) |   |   |   |   | (304 | ) |
| Racino project development costs                                                         |       |                              |       |   |   | (38,227 | ) |   |   |   |   | (38,227 | ) |
| Proceeds from restricted cash, net                                                       |       |                              |       |   |   | 20,013 |   |   |   |   |   | 20,013 |   |
| Maturity and sale of restricted investments                                              |       |                              |       |   |   | 15,779 |   |   |   |   |   | 15,779 |   |
| Purchase of property and equipment                                                       |       |                              |       | (2,576 | ) | (2,572 | ) |   |   |   |   | (5,148 | ) |
| Proceeds from sale of property and  equipment                                            |       |                              |       | 539 |   | 562 |   |   |   |   |   | 1,101 |   |
| Net cash flows from investing activities                                                 |       |                              |       | (2,037 | ) | (6,831 | ) |   |   |   |   | (8,868 | ) |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                                    |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| Deferred financing costs                                                                 |       |                              |       | (6,117 | ) | (8,042 | ) |   |   |   |   | (14,159 | ) |
| Principal payments on debt                                                               |       |                              |       | (71,229 | ) | (134,971 | ) |   |   |   |   | (206,200 | ) |
| Proceeds from senior secured notes                                                       |       |                              |       | 86,658 |   | 143,070 |   |   |   |   |   | 229,728 |   |
| Proceeds from senior credit facilities                                                   |       |                              |       | 11,618 |   | 8,270 |   |   |   |   |   | 19,888 |   |
| Payments on senior credit facilities                                                     |       |                              |       | (16,750 | ) | (5,604 | ) |   |   |   |   | (22,354 | ) |
| Proceeds from FF&E credit facility                                                   |       |                              |       |   |   | 3,468 |   |   |   |   |   | 3,468 |   |
| Proceeds from term loan                                                                  |       |                              |       |   |   | 14,667 |   |   |   |   |   | 14,667 |   |
| Member distributions                                                                     |       | 269                               |       | (7,167 | ) | (220 | ) | 87 |   |   |   | (7,031 | ) |
| Net cash flows from financing activities                                                 |       | 269                               |       | (2,987 | ) | 20,638 |   | 87 |   |   |   | 18,007 |   |
| NET DECREASE IN CASH AND CASH EQUIVALENTS                                                |       | (1                                | )          | (9,222 | ) | (1,431 | ) |   |   |   |   | (10,654 | ) |
| CASH AND CASH EQUIVALENTS AT BEGINNING OF  YEAR                                          |       |                              |       | 12,656 |   | 8,502 |   |   |   |   |   | 21,158 |   |
| CASH AND CASH EQUIVALENTS AT END OF YEAR                                                 |       | $                                 | (1         | ) | $ | 3,434 |   | $ | 7,071 |   | $ | — |   | $ | — |   | $ | 10,504 |   |

 

F-29

----

 

(in thousands)

 
| ** **                                                                      | ** ** | **Year Ended December 31, 2003**  | ** ** |
|---------------------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                                      | ** ** | **Parent  Co-Issuer –  PGL** | ** ** | **Subsidiary  Co-Issuer –  DJL** | ** ** | **Subsidiary  Guarantor –  OED** | ** ** | **Other** | ** ** | **Consolidating  Adjustments** | ** ** | **Consolidated** | ** ** |
|                                                                            |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                           |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| Net loss                                                                        |       | $                                 | (12,742    | ) | $ | (12,742 | ) | $ | (18,768 | ) | $ | (17,222 | ) | $ | 48,732 |   | $ | (12,742 | ) |
| Adjustments to reconcile net loss to net  cash flows from operating activities: |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| Depreciation and amortization                                                   |       |                              |       | 2,500 |   | 824 |   |   |   |   |   | 3,324 |   |
| Provision for doubtful accounts                                                 |       |                              |       | 149 |   |   |   |   |   |   |   | 149 |   |
| Amortization of deferred financing costs  and bond discount                     |       |                              |       | 1,186 |   | 1,975 |   |   |   |   |   | 3,161 |   |
| Loss on disposal of assets                                                      |       |                              |       | 50 |   |   |   |   |   |   |   | 50 |   |
| Loss from equity investment in subsidiaries                                     |       | 12,742                            |       | 17,223 |   |   |   | 17,167 |   | (47,132 | ) |   |   |
| Changes in operating assets and  liabilities:                                   |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| Receivables                                                                     |       |                              |       | (130 | ) | (226 | ) |   |   |   |   | (356 | ) |
| Receivables from affiliates                                                     |       |                              |       | (1,521 | ) |   |   | (120 | ) | 1,641 |   |   |   |
| Payables to affiliates                                                          |       |                              |       |   |   | 1,641 |   |   |   | (1,641 | ) |   |   |
| Inventories                                                                     |       |                              |       | (5 | ) | (260 | ) |   |   |   |   | (265 | ) |
| Prepaid expenses and other assets                                               |       |                              |       | (861 | ) | (210 | ) |   |   |   |   | (1,071 | ) |
| Accounts payable                                                                |       |                              |       | 59 |   | 2,124 |   |   |   |   |   | 2,183 |   |
| Accrued expenses                                                                |       |                              |       | 466 |   | 8,044 |   | 175 |   | (1,600 | ) | 7,085 |   |
| Net cash flows from operating activities                                        |       |                              |       | 6,374 |   | (4,856 | ) |   |   |   |   | 1,518 |   |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                           |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| Restricted cash–purse settlements                                          |       |                              |       |   |   | (749 | ) |   |   |   |   | (749 | ) |
| Business acquisition and licensing costs                                        |       |                              |       |   |   | (1,782 | ) |   |   |   |   | (1,782 | ) |
| Racino project development costs                                                |       |                              |       |   |   | (55,303 | ) |   |   |   |   | (55,303 | ) |
| Deposits to restricted cash, net                                                |       |                              |       |   |   | (20,013 | ) |   |   |   |   | (20,013 | ) |
| Purchase of restricted investments                                              |       |                              |       |   |   | (23,923 | ) |   |   |   |   | (23,923 | ) |
| Maturity and sale of restricted investments                                     |       |                              |       |   |   | 8,144 |   |   |   |   |   | 8,144 |   |
| Purchase of property and equipment                                              |       |                              |       | (1,495 | ) | (711 | ) |   |   |   |   | (2,206 | ) |
| Proceeds from sale of property and  equipment                                   |       |                              |       | 388 |   |   |   |   |   |   |   | 388 |   |
| Net cash flows from investing activities                                        |       |                              |       | (1,107 | ) | (94,337 | ) |   |   |   |   | (95,444 | ) |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                           |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| Deferred financing costs                                                        |       |                              |       |   |   | (11,516 | ) |   |   |   |   | (11,516 | ) |
| Principal payments on debt                                                      |       |                              |       |   |   | (20,125 | ) |   |   |   |   | (20,125 | ) |
| Proceeds from senior secured notes                                              |       |                              |       |   |   | 120,736 |   |   |   |   |   | 120,736 |   |
| Proceeds from senior credit facilities                                          |       |                              |       |   |   | 5,104 |   |   |   |   |   | 5,104 |   |
| Payments on senior credit facilities                                            |       |                              |       | (600 | ) |   |   |   |   |   |   | (600 | ) |
| Proceeds from FF&E credit facility                                          |       |                              |       |   |   | 12,532 |   |   |   |   |   | 12,532 |   |
| Proceeds from affiliate note receivable                                         |       |                              |       |   |   |   |   | 7,325 |   | (7,325 | ) |   |   |
| Principal payments on affiliate notes  payable                                  |       |                              |       |   |   |   |   | (7,325 | ) | 7,325 |   |   |   |
| Member distributions                                                            |       |                              |       | (1,557 | ) |   |   |   |   |   |   | (1,557 | ) |
| Net cash flows from financing activities                                        |       |                              |       | (2,157 | ) | 106,731 |   |   |   |   |   | 104,574 |   |
|                                                                            |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| NET INCREASE IN CASH AND CASH EQUIVALENTS                                       |       |                              |       | 3,108 |   | 7,540 |   |   |   |   |   | 10,648 |   |
| CASH AND CASH EQUIVALENTS AT BEGINNING OF  YEAR                                 |       |                              |       | 9,548 |   | 962 |   |   |   |   |   | 10,510 |   |
| CASH AND CASH EQUIVALENTS AT END OF YEAR                                        |       | $                                 | —     |   | $ | 12,656 |   | $ | 8,502 |   | $ | — |   | $ | — |   | $ | 21,158 |   |

 

F-30

----

 

**FINANCIAL STATEMENT SCHEDULE**

 

**PENINSULAGAMING, LLC**

**VALUATIONAND QUALIFYING ACCOUNTS**

**Forthe Years Ended December 31, 2005, 2004 and 2003**

**(inthousands)**

 
| **Description**                 | ** ** | **Balance at  Beginning  of Year** | ** ** | **Charged to  Costs and  Expenses** | ** ** | **Deductions(1)** | ** ** | **Balance at  End of Year** | ** ** |
|---------------------------------|------------|------------------------------------|------------|-------------------------------------|------------|-------------------|------------|-----------------------------|------------|
|                            |       |                               |       |                                |       |              |       |                        |       |
| Year ended December 31, 2005:   |       |                               |       |                                |       |              |       |                        |       |
| Allowance for doubtful accounts |       | $                                  | 47         |                                | $          | 136               |       | $                           | (110       | ) | $ | 73 |   |
| Year ended December 31, 2004:   |       |                               |       |                                |       |              |       |                        |       |
| Allowance for doubtful accounts |       | $                                  | 62         |                                | $          | 106               |       | $                           | (121       | ) | $ | 47 |   |
| Year ended December 31, 2003:   |       |                               |       |                                |       |              |       |                        |       |
| Allowance for doubtful accounts |       | $                                  | 46         |                                | $          | 149               |       | $                           | (133       | ) | $ | 62 |   |

 

----

(1)                                  Amountswritten off.

 

S-1

----