-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FqoudcMSs0H7O493+4Cx8+PA73EYli2zoNwM2Bm2j9YlMbDWwiJ7OQXE4qqwWJzn jdWIYqnbE3cBXMRTh2VVUg== 0000930661-02-001199.txt : 20020416 0000930661-02-001199.hdr.sgml : 20020416 ACCESSION NUMBER: 0000930661-02-001199 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020415 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GREATE BAY CASINO CORP CENTRAL INDEX KEY: 0000030117 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS AMUSEMENT & RECREATION [7990] IRS NUMBER: 751295630 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-00048 FILM NUMBER: 02610906 BUSINESS ADDRESS: STREET 1: C/O ADVANCED CASINO SYSTEMS CORP STREET 2: 200 DECADON DR SUITE 100 CITY: EGG HARBOR TOWNSHIP STATE: NJ ZIP: 08234 BUSINESS PHONE: 6094410704 MAIL ADDRESS: STREET 1: C/O ADVANCED CASINO SYSTEMS CORP STREET 2: 200 DECADON DR SUITE 100 CITY: EGG HARBOR TOWNSHIP STATE: NJ ZIP: 08234 FORMER COMPANY: FORMER CONFORMED NAME: DREW NATIONAL CORP DATE OF NAME CHANGE: 19850620 FORMER COMPANY: FORMER CONFORMED NAME: DREW PROPERTIES CORP DATE OF NAME CHANGE: 19700507 FORMER COMPANY: FORMER CONFORMED NAME: PRATT HOTEL CORP /DE/ DATE OF NAME CHANGE: 19920703 10-K 1 d10k.txt FORM 10-K (Y.E. 12/31/2001) FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2001 ----------------------------------------------------- OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________________ to ________________________ Commission file number 1-6339 ----------------------------- GREATE BAY CASINO CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 75-1295630 - ----------------------------------------------- -------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Two Galleria Tower 13455 Noel Road, Suite 2200 Dallas, Texas 75240 - ----------------------------------------------- -------------------------- (Address of principal executive offices) (Zip Code) (Registrant's telephone number, including area code): (972) 392-7777 -------------------------- Securities registered pursuant to Section 12(b) of the Act: Common Stock, par value $.10 per share - ----------------------------------------- ------------------------------------ Title of each class Name of exchange on which registered Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No___ --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting stock held by non-affiliates of the registrant, based on the closing price of such stock on April 10, 2002, was $111,745. For the purposes of this computation, all officers, directors and 5% beneficial owners of the registrant are deemed to be affiliates. Such determination should not be deemed an admission that such officer, directors and beneficial owners are, in fact, affiliates of the registrant. As of April 10, 2002, 5,186,627 shares of Common Stock, $.10 par value per share, were outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the following documents are incorporated by reference into the indicated part or parts of this report. None 1 PART I ITEM 1. BUSINESS General - ------- Greate Bay Casino Corporation, a Delaware corporation, and its subsidiaries ("Greate Bay" or the "Company") were, prior to March 19, 2002, engaged in the development and sale of casino-related information technology systems. In prior years, Greate Bay was also engaged in casino-related operations consisting of management and consulting contracts with gaming facilities located in Aurora, Illinois (the "Aurora Casino") and Tunica County, Mississippi (the "Tunica Casino") and ownership and operation of the Sands Hotel and Casino in Atlantic City, New Jersey (the "Sands"). Greate Bay's common stock is listed on the OTC Bulletin Board Service under the trading symbol "GEAA". Approximately 35% of Greate Bay's outstanding stock is owned by Jack E. Pratt, Edward T. Pratt, Jr., William D. Pratt, Edward T. Pratt III and by certain general partnerships and trusts controlled by the Pratts and by other family members who own approximately 53% of Hollywood Casino Corporation ("HCC", a Delaware corporation). HCC owns the Aurora Casino and the Tunica Casino. The principal executive offices of Greate Bay are located at Two Galleria Tower, 13455 Noel Road, Suite 2200, Dallas, Texas 75240, telephone (972) 392-7777. During 2001, Greate Bay `s only operating activity was the development, installation and maintenance of casino systems by its wholly owned subsidiary, Advanced Casino Systems Corporation ("ACSC"). At December 31, 2001, Greate Bay and its subsidiaries had debt outstanding to HCC consisting of (1) demand notes and accrued interest thereon totaling $10.1 million and (2) a 14.875% secured promissory note due 2006 plus accrued interest thereon in the amount of $49.2 million. ACSC's operations did not generated sufficient cash flow to provide debt service on the HCC demand notes and, consequently, Greate Bay was and remains insolvent. Additionally, semi-annual interest payments of approximately $3.5 million attributable to the 14.875% secured promissory note became payable commencing in August 2001. On December 28, 2001, Greate Bay and three of its wholly owned subsidiaries, PPI Corporation, PPI Funding Corp. and PCPI Funding Corp. (collectively, the "Debtors"), filed voluntary petitions for protection under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the District of Delaware (the "Delaware Bankruptcy Court"). Each company continues to operate in the ordinary course of business, as set forth in the Bankruptcy Code, and each company's executive officers and directors as of the date of the filing remain in office, subject to the jurisdiction of the Delaware Bankruptcy Court. ACSC was not included in the bankruptcy filings and continued to conduct business as usual until sold in March 2002. Concurrent with the bankruptcy filing, the Debtors filed a joint disclosure statement and a joint Chapter 11 Plan (the "Plan") which provided for the pre-confirmation sale of ACSC by Greate Bay. The Plan further provides that the proceeds from the sale and any residual cash, after payment in full of normal trade obligations and administrative claims, are to be distributed to HWCC - Holdings, Inc. ("HWCC", a wholly owned subsidiary of HCC), Greate Bay's sole major third party creditor, in settlement of outstanding obligations. Since the aggregate amount of the sale proceeds and residual cash is substantially less than its existing obligations to HWCC, there will be no cash or other assets remaining available for distribution to the Company's shareholders. The sale of ACSC was approved by the Delaware Bankruptcy Court on March 6, 2002 and completed on March 19, 2002. Although the Company believes that HWCC is its only creditor (except for minor trade obligations which will be paid in full under the Plan), two alleged creditors have filed claims in the Company's 2 bankruptcy proceeding. Las Vegas Sands, Inc. ("LVSI") has filed a claim in the amount of $20.1 million alleging breach of contract of a license agreement dated May 19, 1987 concerning the licensing of the "Sands" name and trademark with respect to a property previously operated by a subsidiary of the Company in San Juan, Puerto Rico which was sold in 1997. LVSI has also filed an objection to the HWCC claims. William D. Pratt, Jr. ("Pratt") has filed a claim in the amount of $3 million purporting to represent amounts owing for "services performed" and "wages, salaries and commissions". The Company believes the LVSI and Pratt claims are without merit and, accordingly, has filed objections to both claims requesting that the Bankruptcy Court disallow such claims in full. A hearing in the Bankruptcy Court has been scheduled for May 2, 2002 to consider (1) the Company's objections to the foregoing claims, (2) LVSI's objections to the HWCC claims and (3) confirmation of the Plan. Subsidiary Chapter 7 Filings - On June 30, 2000, three inactive, wholly owned, indirect subsidiaries of Greate Bay filed for liquidation under Chapter 7 of the Bankruptcy Code in the Delaware Bankruptcy Court. The subsidiaries were originally formed to acquire property and build a second casino/hotel in Atlantic City, New Jersey. These plans were subsequently abandoned; however, the companies remained in existence pending the outcome of certain litigation which was substantially resolved in 1996. The cases were closed by the Trustee in bankruptcy in December 2000 with final liquidation orders received from the Delaware Bankruptcy Court in November 2001. The filings did not have a significant effect on the operations or financial position of Greate Bay. Advanced Casino Systems Corporation - ----------------------------------- As previously discussed, ACSC was sold by Greate Bay on March 19, 2002. ACSC's computer services and information technology included table game and slot machine monitoring systems which enabled casinos to track and rate patron play through the use of a casino player's card. These systems provided casino management with the key characteristics of patron play as slot machines were connected with, and information with respect to table games could be input into its data base monitoring system. When patrons used the casino player's card at slot machines or table games, the information was immediately available to casino management, allowing them to implement marketing programs to recognize and reward patrons during their visits to the casino. Certain of these marketing programs allowed patrons to automatically credit themselves with complimentaries based on their levels of play. Such promotions and complimentaries included free meals, hotel accommodations, retail merchandise, parking and sweepstakes giveaways based on slot machine patrons' gross wagering. ACSC's systems also allowed casino management to monitor, analyze and control the granting of gaming credit, promotional expenses and other marketing costs. ACSC provided its systems to the Sands, the Aurora Casino, the Tunica Casino and the Shreveport Casino. In 1997, ACSC began marketing its casino information technology systems, previously restricted to use by its affiliates, to unaffiliated gaming companies. Prior to its sale by Greate Bay, ACSC completed system installations or was in the process of installing such systems in twenty unaffiliated casinos and was negotiating to obtain additional contracts. ACSC's computer service revenues were derived primarily from system installation contracts and from sales to affiliates. System installation contracts generally required an extended period of time to complete and represented significant, but nonrecurring revenue earned from a given customer. Upon completion of an installation, ACSC would continue to recognize service or maintenance revenues from the customer at a much reduced amount. Accordingly, in order to maintain its level of revenues, ACSC had to continue to obtain installation contracts. For the years ended December 31, 2001, 2000 and 1999, 3 respectively, installation contracts accounted for approximately 75.6%, 60.9% and 61.3% of ACSC's revenues and affiliate sales accounted for approximately 4.7%, 22.9% and 22.8% of ACSC's revenues. Competition - ----------- ACSC competed with other providers of casino software in marketing its casino information technology systems. Due to the limited number of customers in the gaming industry, competition was intense. There were three significant competitors to ACSC which had greater resources for both marketing and implementation. Regulation - ---------- General - Because the casino industry is highly regulated at the state level, ACSC was required to be licensed in order to provide services to casino operators in most jurisdictions. Generally, licensing required that ACSC and its officers, including officers of Greate Bay, be investigated and found suitable by state authorities. In addition, ACSC was required to meet periodic reporting requirements and provide other information to state authorities as requested. The suspension or revocation of a license could have materially impacted ACSC's ability to carry on its business activities. Nevada - The manufacture and distribution in Nevada of gaming devices, cashless wagering systems, and computer software used in such devices and systems are subject to the Nevada Gaming Control Act and the related regulations and various local regulations. ACSC's manufacturing and distributing businesses were subject to the licensing and regulatory control of the Nevada Gaming Commission (the "Nevada Commission"), the Nevada State Gaming Control Board (the "Nevada Board") and various local regulatory authorities. The laws, regulations and supervisory procedures of the Nevada gaming authorities are based upon declarations of public policy which are concerned with, among other things: 1. the prevention of unsavory or unsuitable persons from having a direct or indirect involvement with gaming at any time or in any capacity; 2. the establishment and maintenance of responsible accounting practices and procedures; 3. the maintenance of effective controls over the financial practices of licensees, including the establishment of minimum procedures for internal fiscal affairs and the safeguarding of assets and revenues, providing reliable record keeping and requiring the filing of periodic reports with the Nevada gaming authorities; 4. the prevention of cheating and fraudulent practices; and 5. providing a source of state and local revenues through taxation and licensing fees. Any change in such laws, regulations and procedures could have had an adverse effect on ACSC's operations. ACSC was required to be licensed by the Nevada gaming authorities as a manufacturer and distributor. Greate Bay was registered by the Nevada Commission as a publicly traded corporation and, 4 as such, it was required periodically to submit detailed financial and operating reports to the Nevada Commission and to furnish any other information which the Nevada Commission might have required. No person could have become a stockholder of, or received any percentage of profits from, ACSC without first obtaining licenses and approvals from the Nevada gaming authorities. The Company and ACSC obtained from the Nevada gaming authorities the various registrations, approvals, permits and licenses required in order to engage in manufacturing and distributing activities in Nevada. The Nevada gaming authorities could have investigated any individual who had a material relationship to, or material involvement with, the Company or ACSC in order to determine whether such individual was suitable or should have been licensed as a business associate of a gaming licensee. Officers, directors and certain key employees of ACSC had to file applications with the Nevada gaming authorities and were required to be licensed or found suitable by the Nevada gaming authorities. Officers, directors and key employees of the Company who were actively and directly involved in the manufacturing or distributing activities of ACSC were required to be licensed or found suitable by the Nevada gaming authorities. The Nevada gaming authorities could have denied any application for licensing for any cause which they deemed reasonable. A finding of suitability is comparable to licensing, and both require submission of detailed personal and financial information followed by a thorough investigation. The applicant for licensing or a finding of suitability must pay all costs of the investigation. Changes in licensed positions must be reported to the Nevada gaming authorities and, in addition to their authority to deny an application for a finding of suitability or licensure, the Nevada gaming authorities have jurisdiction to disapprove a change in corporate position. If the Nevada gaming authorities were to have found an officer, director or key employee unsuitable for licensure or unsuitable to continue having a relationship with the Company or ACSC, the companies involved would have had to sever all relationships with such person. In addition, the Nevada Commission might have required the Company or ACSC to terminate the employment of any person who refused to file appropriate applications. Determinations of suitability or of questions pertaining to licensing are not subject to judicial review in Nevada. The Company and ACSC were required to submit detailed financial and operating reports to the Nevada Commission. Substantially all material loans, leases, sales of securities and similar financing transactions by ACSC were required to be reported to, or approved by, the Nevada Commission. If it had been determined that the Nevada gaming laws were violated by ACSC, the licenses it held could have been limited, conditioned, suspended or revoked, subject to compliance with certain statutory and regulatory procedures. In addition, ACSC, the Company, and the persons involved could have been subject to substantial fines for each separate violation of the Nevada gaming laws at the discretion of the Nevada Commission. Limitation, conditioning or suspension of any license could (and revocation of any license would) have materially adversely affected ACSC's manufacturing and distributing operations in the State of Nevada. Any beneficial holder of the Company's voting securities, regardless of the number of shares owned, might have been required to file an application, be investigated, and have his suitability as a beneficial holder of the Company's voting securities determined if the Nevada Commission had reason to believe that such ownership would otherwise have been inconsistent with the declared policies of the State of Nevada. The applicant would have had to pay all costs of investigation incurred by the Nevada gaming authorities in conducting any such investigation. The Nevada gaming laws require any person who acquired more than 5% of the Company's voting securities to report the acquisition to the Nevada Commission. The Nevada gaming laws require that beneficial owners of more than 10% of the Company's voting securities apply to the Nevada Commission for a finding of suitability within thirty days after the Chairman of the Nevada Board mailed the written 5 notice requiring such filing. Under certain circumstances, an "institutional investor," as defined in the Nevada gaming laws, which acquired more than 10%, but not more than 15%, of the Company's voting securities might have applied to the Nevada Commission for a waiver of such finding of suitability if such institutional investor held the voting securities for investment purposes only. An institutional investor was not deemed to hold voting securities for investment purposes unless the voting securities were acquired and were held in the ordinary course of business as an institutional investor and not for the purpose of causing, directly or indirectly, the election of a majority of the members of the board of directors of the Company, any change in the Company's corporate charter, bylaws, management, policies or operations of the Company, or any of its gaming affiliates, or any other action which the Nevada Commission found to be inconsistent with holding the Company's voting securities for investment purposes only. Activities which were not deemed to be inconsistent with holding voting securities for investment purposes only include: 1. voting on all matters voted on by stockholders; 2. making financial and other inquiries of management of the type normally made by securities analysts for informational purposes and not to cause a change in management, policies or operations; and 3. such other activities as the Nevada Commission may determine to be consistent with such investment. If the beneficial holder of voting securities who was required to be found suitable was a corporation, partnership, limited partnership, limited liability company or trust, it was required to submit detailed business and financial information including a list of beneficial owners. The applicant was required to pay all costs of investigation. Any person who failed or refused to apply for a finding of suitability or a license within thirty days after being ordered to do so by the Nevada Commission or the Chairman of the Nevada Board, might have been found unsuitable. The same restrictions applied to a record owner if the record owner, after request, failed to identify the beneficial owner. Any stockholder found unsuitable and who held, directly or indirectly, any beneficial ownership of the voting securities of a registered publicly traded corporation beyond such period of time as might have been prescribed by the Nevada Commission might have been found guilty of a criminal offense. The Company was subject to disciplinary action if, after it received notice that a person was unsuitable to be a stockholder or to have any other relationship with the Company or ACSC, the Company: 1. paid the person any dividend or interest upon voting securities of the Company; 2. allowed that person to exercise, directly or indirectly, any voting right conferred through securities held by that person; 3. paid remuneration in any form to that person for services rendered or otherwise; or 4. failed to pursue all lawful efforts to require such unsuitable person to relinquish his voting securities for cash at fair market value. The Nevada Commission, in its discretion, may require the holder of any debt security of a registered publicly traded corporation to file applications, be investigated and be found suitable to own the debt security of a registered publicly traded corporation. Nevada law provides that if the Nevada Commission determines that a person is unsuitable to own a debt security of a registered publicly traded 6 corporation, the corporation can be sanctioned, including the loss of its approvals, if it takes any of the following actions without having first obtained the approval of the Nevada Commission: 1. pays to the unsuitable person any dividend, interest, or any distribution whatsoever; 2. recognizes any voting right by such unsuitable person in connection with such securities; 3. pays the unsuitable person remuneration in any form; or 4. makes any payment to the unsuitable person by way of principal, redemption, conversion, exchange, liquidation, or similar transaction. The Company was required to maintain a current stock ledger in Nevada which could be examined by the Nevada gaming authorities at any time. If any securities were held in trust by an agent or by a nominee, the record holder could be required to disclose the identity of the beneficial owner to the Nevada gaming authorities. A failure to make such disclosure could be grounds for finding the record holder unsuitable. The Company was also required to render maximum assistance in determining the identity of the beneficial owner. The Nevada Commission had the power to require the Company's stock certificates to bear a legend indicating that the securities are subject to the Nevada gaming laws. The Company could not make a public offering of its securities without the prior approval of the Nevada Commission if the securities or the proceeds therefrom were intended to be used to construct, acquire or finance gaming facilities in Nevada, or to retire or extend obligations incurred from such purposes. Such approval, if given, did not constitute a finding, recommendation or approval by the Nevada Commission or the Nevada Board as to the accuracy or adequacy of the prospectus or the investment merits of the securities. Any representation to the contrary was unlawful. Changes in control of the Company through merger, consolidation, stock or asset acquisitions, management or consulting agreements, or any act or conduct by a person whereby he obtained control, could not occur without the prior approval of the Nevada Commission. Entities seeking to acquire control of a registered publicly traded corporation must satisfy the Nevada Board and Nevada Commission in a variety of stringent standards prior to assuming control of a registered publicly traded corporation. The Nevada Commission may also require controlling stockholders, officers, directors and other persons having a material relationship or involvement with the entity proposing to acquire control to be investigated and licensed as part of the approval process relating to the transaction. The Nevada legislature has declared that some corporate acquisitions opposed by management, repurchases of voting securities and corporate defense tactics affecting Nevada gaming licensees, and registered publicly traded corporations that are affiliated with those operations, may be injurious to stable and productive corporate gaming. The Nevada Commission has established a regulatory scheme to ameliorate the potentially adverse effect of these business practices upon Nevada's gaming industry and to further Nevada's policy to: 1. assure the financial stability of corporate gaming operators and their affiliates; 2. preserve the beneficial aspects of conducting business in the corporate form; and 3. promote a neutral environment for the orderly governance of corporate affairs. Approvals were, in certain circumstances, required from the Nevada Commission before the Company could make exceptional repurchases of voting securities above the current market price thereof and before a corporate acquisition opposed by management could be consummated. The Nevada gaming 7 laws also required prior approval of a plan of recapitalization proposed by the Company's board of directors in response to a tender offer made directly to the registered publicly traded corporation's stockholders for the purposes of acquiring control of the registered publicly traded corporation. Nevada licensees such as ACSC that held licenses as a manufacturer and distributor were required to pay annual license renewal fees to the State of Nevada. Any person who is licensed, required to be licensed, registered, required to be registered, or who is under common control with such persons (collectively referred to as "Licensees"), and who proposes to become involved in the operation of a gaming venture outside of Nevada is required to deposit with the Nevada Board, and thereafter maintain, a revolving fund in the amount of $10,000 to pay the expenses of investigation of the Nevada Board of their participation in such foreign gaming. The revolving fund is subject to increase or decrease in the discretion of the Nevada Commission. Thereafter, Licensees are required to comply with certain reporting requirements imposed by the Nevada gaming laws. A licensee is also subject to disciplinary action by the Nevada Commission if he knowingly violates any laws of the foreign jurisdiction pertaining to the foreign gaming operation, fails to conduct the foreign gaming operation in accordance with the standards of honesty and integrity required of Nevada gaming operations, engages in activities that are harmful to the State of Nevada or its ability to collect gaming taxes and fees, or employs a person in the foreign operations who has been denied a license or finding of suitability in Nevada on the ground of personal unsuitability. Employees - --------- At December 31, 2001, Greate Bay had approximately 110 employees, none of whom are represented under collective bargaining agreements. Management considers its labor relations to be good. After the sale of ACSC in March 2002, Greate Bay had only one remaining employee. ITEM 2. PROPERTIES ACSC leased approximately 18,000 square feet of office space for its operating and administrative needs including two offices in New Jersey and one in California. The office leases will expire at various dates through October 31, 2003. ACSC was sold in March 2002 and Greate Bay has no obligation under these lease agreements. ITEM 3. LEGAL PROCEEDINGS On December 28, 2001, the Debtors filed voluntary petitions for protection under the Bankruptcy Code in the Delaware Bankruptcy Court. Each of the Debtors continues to operate in the ordinary course of business, as set forth in the Bankruptcy Code, and each company's executive officers and directors as of the date of the filing remain in office, subject to the jurisdiction of the Delaware Bankruptcy Court. ACSC was not included in the bankruptcy filings and continued to conduct business as usual until sold in March 2002. Concurrent with the bankruptcy filing, the Debtors filed the Plan, which provided for the pre-confirmation sale of ACSC by Greate Bay. The Plan further provides that proceeds from the sale and any residual cash, after payment in full of normal trade obligations and administrative claims, are to be distributed to HWCC, Greate Bay's sole major third party creditor, in settlement of outstanding obligations. Since the aggregate amount of the sale proceeds and residual cash is substantially less than its existing obligations to HWCC, there will be no cash or other assets remaining available for distribution to the Company's shareholders. The sale of ACSC was approved by the Delaware Bankruptcy Court on March 6, 2002 and completed on March 19, 2002. 8 Although the Company believes that HWCC is its only creditor (except for minor trade obligations which will be paid in full under the Plan), two alleged creditors have filed claims in the Company's bankruptcy proceeding. LVSI has filed a claim in the amount of $20.1 million alleging breach of contract of a license agreement dated May 19, 1987 concerning the licensing of the "Sands" name and trademark with respect to a property previously operated by a subsidiary of the Company in San Juan, Puerto Rico which was sold in 1997. LVSI has also filed an objection to the HWCC claims. Pratt has filed a claim in the amount of $3 million purporting to represent amounts owing for "services performed" and "wages, salaries and commissions". The Company believes the LVSI and Pratt claims are without merit and, accordingly, has filed objections to both claims requesting that the Bankruptcy Court disallow such claims in full. A hearing in the Bankruptcy Court has been scheduled for May 2, 2002 to consider (1) the Company's objections to the foregoing claims, (2) LVSI's objections to the HWCC claims and (3) confirmation of the Plan. Subsidiary Chapter 7 Filings and Related Litigation - --------------------------------------------------- On June 30, 2000, three inactive, wholly owned, indirect subsidiaries of Greate Bay filed for liquidation under Chapter 7 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. The subsidiaries were originally formed to acquire property and build a second casino/hotel in Atlantic City, New Jersey. These plans were subsequently abandoned; however, the companies remained in existence pending the outcome of certain litigation which was substantially resolved in 1996. The cases were closed by the Trustee in bankruptcy in December 2000 with final liquidation orders received from the Delaware Bankruptcy Court in November 2001. The filings did not have a significant effect on the operations or financial position of Greate Bay. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fourth quarter of 2001, no matter was submitted to a vote of security holders through the solicitation of proxies or otherwise. 9 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS The common stock of Greate Bay is traded on the OTC Bulletin Board Service under the trading symbol "GEAA". The prices set forth in the following table represent actual transactions. Period High Low ------ ---- --- 2001 First Quarter $ .16 $ .10 Second Quarter .13 .01 Third Quarter .10 .02 Fourth Quarter .08 .02 2000 First Quarter $ .35 $ .09 Second Quarter .22 .05 Third Quarter .15 .05 Fourth Quarter .11 .01 At April 10, 2002, there were approximately 3,800 holders of record of Greate Bay's common stock. No dividends have been paid on Greate Bay's common stock in the past and Greate Bay's bankruptcy plan provides for no distribution to shareholders and for cancellation of the Company's common stock. 10 ITEM 6. SELECTED FINANCIAL DATA The following tables present selected financial data for Greate Bay and are qualified in their entirety by the consolidated financial statements, including the notes thereto, appearing elsewhere in this Form 10-K. The data as of December 31, 2001 and 2000, and for the years ended December 31, 2001, 2000 and 1999, have been derived from the audited consolidated financial statements of Greate Bay presented in Item 8.
Statement of Operations Data: Year Ended December 31, ------------------------------------------------------------------- 2001(1) 2000(2) 1999(2,3) 1998 (2) 1997 ---------- ----------- --------- ---------- ---------- (in thousands, except per share amounts) Net revenues ............................................ $ 36,029 $ 14,121 $ 6,422 $ 8,971 $ 263,691 ---------- ----------- --------- ---------- ---------- Expenses: Operating expenses ................................... 23,272 10,983 5,400 2,371 216,247 General and administrative ........................... 4,677 2,883 3,154 3,667 16,192 Depreciation and amortization ........................ 248 181 181 129 13,392 ---------- ---------- --------- ---------- ---------- Total expenses ..................................... 28,197 14,047 8,735 6,167 245,831 ---------- ---------- --------- ---------- ---------- Income (loss) from operations ........................... 7,832 74 (2,313) 2,804 17,860 ---------- ---------- --------- ---------- ---------- Non-operating income (expenses): Interest income ...................................... 511 548 667 942 1,486 Interest expense ..................................... (7,738) (7,156) (10,303) (16,194) (39,318) Equity in earnings of limited partnership ............ - - 2,660 6,494 5,012 Gain on elimination of investment in Pratt Casino Corporation ................................. - - 85,633 - - Equity in earnings of and gain on elimination of investment in GB Holdings, Inc. .................... - - - 31,233 - Restructuring costs .................................. - - (230) (1,548) (505) Gain on disposal of assets ........................... - - - 472 2,120 ---------- ---------- --------- ---------- ---------- Total non-operating (expense) income, net .......... (7,227) (6,608) 78,427 21,399 (31,205) ---------- ---------- --------- ---------- ---------- Income (loss) before income taxes, extraordinary and other items .......................................... 605 (6,534) 76,114 24,203 (13,345) Write off deferred financing costs ...................... - - - - (6,515) ---------- ---------- --------- ---------- ---------- Income (loss) before income taxes and extraordinary item ................................... 605 (6,534) 76,114 24,203 (19,860) Income tax (provision) benefit .......................... (872) (63) 7 287 (1,014) ---------- ---------- --------- ---------- ---------- (Loss) income before extraordinary item ................. (267) (6,597) 76,121 24,490 (20,874) Extraordinary item: Gain on early extinguishment of debt ................. - - - - 310 ---------- ---------- --------- ---------- ---------- Net (loss) income .................................. $ (267) $ (6,597) $ 76,121 $ 24,490 $ (20,564) ========== ========== ========= ========== ========== Basic and diluted (loss) income per common share: (Loss) income before extraordinary item .............. $ (.05) $ (1.27) $ 14.68 $ 4.72 $ (4.02) Extraordinary item ................................... - - - - 06 ---------- ---------- --------- ---------- ---------- Net (loss) income .................................. $ (.05) $ (1.27) $ 14.68 $ 4.72 $ (3.96) ========== ========== ========= ========== ==========
Statement of Net Liabilities Data: December 31, ------------------------------------------------------------------- 2001(1) 2000 1999(2) 1998(2) 1997(2) ---------- ---------- --------- ---------- ---------- (in thousands) Total assets ............................................ $ 22,417 $ 11,570 $ 9,004 $ 19,946 $ 15,752 Total debt, including capital lease obligations ......... 43,411 46,687 40,446 120,040 115,949 Net liabilities ......................................... (43,491) (49,102) (42,505) (118,626) (143,116)
______________ 11 (1) On December 28, 2001, the Debtors filed petitions for relief under the Bankruptcy Code in the Delaware Bankruptcy Court. The accrual of interest expense on the demand notes and the 14.875% secured promissory note (as herein defined) for the periods subsequent to the filing has been suspended. (2) As a result of the Chapter 11 filings by GB Holdings, Inc. ("Holdings"), GB Property Funding Corp. and Greate Bay Hotel and Casino, Inc., Greate Bay's control over these subsidiaries which owned and operated the Sands was subject to supervision of the New Jersey Bankruptcy Court and Greate Bay did not expect to be in control of such subsidiaries after reorganization. Furthermore, as a result of a settlement agreement reached by Greate Bay and Holdings in September 1998, Greate Bay no longer participated in the management of the Sands. Accordingly, these subsidiaries were excluded from the consolidated balance sheets of Greate Bay at December 31, 1999, 1998 and 1997. As more fully explained in Note 1 of the Notes to Consolidated Financial Statements of Greate Bay, during the period from January 1, 1998 through June 30, 1998, the operations of Holdings and its subsidiaries were accounted for by Greate Bay under the equity method of accounting. As a result of Greate Bay no longer controlling the operations of the Sands, the continued expectation that ownership control of Holdings would only be temporary and the September 1998 settlement agreement which resolved certain significant uncertainties, Greate Bay's investment in Holdings as well as certain amounts due to Holdings and its subsidiaries were revalued to a zero basis effective on July 1, 1998. Accordingly, for periods subsequent to June 30, 1998 and prior to confirmation of the Holdings and its subsidiaries' Joint Plan on August 14, 2000, Greate Bay accounted for its investment in Holdings under the cost method of accounting. (3) As a result of the Chapter 11 filings and plan of reorganization of Pratt Casino Corporation ("PCC"), PRT Funding Corp. ("PRT Funding") and New Jersey Management, Inc. ("NJMI"), Greate Bay's control over these subsidiaries which held management contracts with HCC-owned casino facilities was subject to supervision of the Delaware Bankruptcy Court. Greate Bay did not expect to have ownership or operating control over such subsidiaries after reorganization. As more fully explained in Note 1 of the Notes to Consolidated Financial Statements, Greate Bay's investment in PCC and its subsidiaries as well as certain amounts due from PCC and its subsidiaries were revalued to a zero basis effective on May 25, 1999. Accordingly, for period subsequent to May 25, 1999, Greate Bay accounted for its investment in PCC under the cost method of accounting. As part of the reorganization, Greate Bay sold its interest in PCC to HCC in October 1999. 12 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Annual Report on Form 10-K contains forward-looking statements about the business, results of operations, cash flows, financial condition and prospects of Greate Bay. The actual results could differ materially from those indicated by the forward-looking statements because of various risks and uncertainties including, among other things, changes in competition, economic conditions, tax regulations, state regulations applicable to ACSC's operations, and other risks indicated in Greate Bay's filing with the Securities and Exchange Commission. Such risks and uncertainties are beyond management's ability to control and, in many cases, can not be predicted by management. When used in this Annual Report on Form 10-K, the words "believes", "estimates", "anticipates" and similar expressions as they relate to Greate Bay or its management are intended to identify forward-looking statements. LIQUIDITY AND CAPITAL RESOURCES Operating Activities In prior years, Greate Bay and its subsidiaries conducted three major business activities: (1) non-casino operations and the management thereof, (2) management services for casino operations and (3) ownership of the Sands Hotel and Casino in Atlantic City, New Jersey. As a result of the Chapter 11 filings by PCC, PRT Funding and NJMI, and the resulting plan of reorganization confirmed in October 1999, Greate Bay no longer provides casino-related management services. As a result of Holdings and Greate Bay Hotel and Casino, Inc.'s Chapter 11 filings and the confirmation of their Joint Plan on August 14, 2000, Greate Bay no longer holds an equity position in the Sands. Accordingly, Greate Bay's business activity during the year ended December 31, 2001 consisted solely of the operations of ACSC. ACSC licensed casino information technology systems to HCC's casino facilities, the Sands and non-affiliated casino companies. The results of ACSC's operations for the years ended December 31, 2001, 2000 and 1999 are set forth below:
Year Ended December 31, ------------------------------------------------- 2001 2000 1999 ------------- ------------- -------------- System sales and support service revenues $ 36,029,000 $ 14,121,000 $ 5,945,000 ------------- ------------- ------------- Cost of sales 14,462,000 6,023,000 2,628,000 System development and support services 7,291,000 3,749,000 2,363,000 Marketing 1,519,000 1,211,000 409,000 General and administrative 3,247,000 1,915,000 1,457,000 Writedown of equipment held for sale 138,000 - - Depreciation 248,000 181,000 181,000 ------------- ------------- ------------- 26,905,000 13,079,000 7,038,000 ------------- ------------- ------------- Income (loss) from operations $ 9,124,000 $ 1,042,000 $ (1,093,000) ============= ============= =============
The improvement in operating results during both 2001 and 2000 from the prior year periods was primarily due to the increased volume of system sales and installation contracts. These improvements are more fully explained under the caption "Results of Operations". 13 ACSC's computer service revenues were derived primarily from system installation contracts and from sales to affiliates. System installation contracts generally required an extended period of time to complete and represented significant, but nonrecurring revenue earned from a given customer. Upon completion of an installation, ACSC would continue to recognize service or maintenance revenues from the customer at a much reduced amount. The following table demonstrates ACSC's dependence on installation contracts and on sales to affiliates: Year Ended December 31, ----------------------------- 2001 2000 1999 ------- ------ ------ Percentage of period revenues attributable to installation contracts 75.6 % 60.9 % 61.3 % Percentage of period revenues attributable to affiliate sales 4.7 % 22.9 % 22.8 % At December 31, 2001, Greate Bay and its subsidiaries had debt outstanding to HCC consisting of (1) demand notes (the "Greate Bay Notes") and accrued interest thereon totaling $10.1 million and (2) a 14.875% secured promissory note due 2006 (the "PPI Funding Notes") plus accrued interest thereon totaling $49.2 million. ACSC's operations did not generate sufficient cash flow to provide debt service on the HCC demand notes and, consequently, Greate Bay was and remains insolvent. Additionally, semi-annual interest payments of approximately $3.5 million attributable to the PPI Funding Notes became payable commencing in August 2001. Accordingly, on December 28, 2001, Greate Bay and three of its wholly owned subsidiaries, PPI Corp., PPI Funding Corp. and PCPI Funding Corp. (collectively, the "Debtors"), filed voluntary petitions for protection under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. Each company continues to operate in the ordinary course of business, as set forth in the Bankruptcy Code, and each company's executive officers and directors as of the date of the filing remain in office, subject to the jurisdiction of the Delaware Bankruptcy Court. ACSC was not included in the bankruptcy filings and continued to conduct business as ususal until sold in March 2002. Concurrent with the bankruptcy filing, the Debtors filed a joint disclosure statement and a joint Chapter 11 Plan which provided for the pre-confirmation sale of ACSC by Greate Bay. The Plan further provides that the proceeds from the sale and any residual cash, after payment in full of normal trade obligations and administrative claims, are to be distributed to HWCC, Greate Bay's sole major third party creditor, in settlement of outstanding obligations. Since the aggregate amount of the sale proceeds and residual cash is substantially less than its existing obligations to HCC, there will be no cash or other assets remaining available for distribution to the Company's shareholders. The sale of ACSC was approved by the Delaware Bankruptcy Court on March 6, 2002 and completed on March 19, 2002. Although the Company believes that HWCC is its only creditor (except for minor trade obligations which will be paid in full under the Plan), two alleged creditors have filed claims in the Company's bankruptcy proceeding. LVSI has filed a claim in the amount of $20.1 million alleging breach of contract of a license agreement dated May 19, 1987 concerning the licensing of the "Sands" name and trademark with respect to a property previously operated by a subsidiary of the Company in San Juan, Puerto Rico which was sold in 1997. LVSI has also filed an objection to the HWCC claims. Pratt has filed a claim in the amount of $3 million purporting to represent amounts owing for "services performed" and "wages, salaries and commissions". The Company believes the LVSI and Pratt claims are without merit and, accordingly, has filed objections to both claims requesting that the Bankruptcy Court disallow such claims in full. A hearing in 14 the Bankruptcy Court has been scheduled for May 2, 2002 to consider (1) the Company's objections to the foregoing claims, (2) LVSI's objections to the HWCC claims and (3) confirmation of the Plan. Financing Activities During 1994, Greate Bay issued the PPI Funding Notes to HCC in exchange for $38.8 million principal amount of 15.5% notes issued by another Greate Bay subsidiary and held by HCC. After the December 2001 principle repayments discussed below, the PPI Funding Notes have a maturity value of $43.2 million plus accrued interest. Payment of interest on the PPI Funding Notes was deferred through February 17, 2001 at which time interest became payable semiannually beginning on August 17, 2001, with the unpaid balance due on February 17, 2006. Effective as of April 1, 1997, HCC acquired from PPI Corporation the general partnership interest in the entity which held the Aurora management contract. The acquisition price for the general partnership interest included, among other things, the assignment of a portion of the PPI Funding Notes to PPI Corporation and a new note in the original amount of $3.8 million. Principal and interest payments by HCC on the $3.8 million note approximated the general partner's share of annual partnership distributions. In December 2001, Greate Bay and HCC entered into an agreement under which the PPI Funding Notes were partially offset by the outstanding balance of the $3.8 million receivable plus accrued interest. HCC then assigned its remaining PPI Funding Notes to HWCC and PPI Funding Corp. made a $2 million cash payment to HWCC. The demand notes consist primarily of loans in the original amount of $6.5 million borrowed from HCC during the third quarter of 1996. Such borrowings accrued interest at the rate of 13.75% per annum payable quarterly commencing October 1, 1996. The accrual of interest on the Greate Bay Notes was discontinued with the Chapter 11 filing in December 2001. During October 2000, Greate Bay paid $900,000 of the outstanding principal balance of the Greate Bay Notes to HCC and reached an agreement with HCC to offset an additional $146,000 of principal against other receivables due from HCC while negotiations to restructure Greate Bay's debt continued. The demand notes were also assigned by HCC to HWCC in December 2001. Capital Expenditures and Other Investments Property and equipment additions during the year ended December 31, 2001 totaled $322,000; management anticipates that capital expenditures during 2002 will not be significant. RESULTS OF OPERATIONS Revenues System sales and support service revenues earned by ACSC increased $21.9 million (155.1%) and $8.2 million (137.5%), respectively, during the years ended December 31, 2001 and 2000 compared to the prior years. The year 2001 increase resulted from increased system installations. During 2001, ACSC provided services on 16 system installation contracts, 12 of which were substantially completed during the year. These 16 contracts accounted for approximately $27.2 million of revenues during 2001. By comparison, 2000 and 1999 included revenues of $8.6 million and $3.6 million, respectively, from system installation contracts. The addition of personnel during 2001 and 2000 better positioned ACSC to service multiple contracts. Also contributing to the revenue increases were additional billings to third parties for inventory sales and other services. Such billings increased during 2001 to $7.1 million from $2.3 million in 2000 and $945,000 in 1999. The year 2001 revenue increases also reflect higher related party sales, which rebounded from the prior year period. The year 2000 revenue increases were slightly offset by decreases in billings to affiliates (exclusive of new installations) resulting from the restructuring 15 of maintenance and support agreements. Such billings to affiliates increased to $1.7 million in 2001 compared to $867,000 in 2000 and $1.4 million in 1999. Cost of Sales ACSC's cost of sales increased $8.4 million (140.1%) and $3.4 million (129.2%), respectively, during 2001 and 2000 compared to the prior year periods. The increases were a result of increased contract installations as previously described. Cost of sales does not fluctuate proportionately with the increase in revenues due to the mix of revenues earned (sales versus support services) as well as to differences in the profitability of system installation contracts resulting from the bidding process. System Development and Support Service Expenses System development and support services increased $3.5 million (94.5% ) and $1.4 million (58.7%) during 2001 and 2000, respectively, compared to the prior year periods. These increases result from additional personnel and equipment costs due to the expansion of ACSC's business activities. Marketing Expenses Marketing expenses for ACSC increased $308,000 (25.4%) and $802,000 (196.1%), respectively, during the years ended December 31, 2001 and 2000 compared to the preceding years. The 2001 increase reflects additional sales commissions associated with system sales and installation contract revenues earned as well as continuing efforts to market ACSC's casino information technology systems. The 2000 increase reflects additional personnel and other costs incurred in developing new sales initiatives to aggressively market ACSC's systems to third parties. General and Administrative Expenses Greate Bay's consolidated general and administrative expenses increased by $1.7 million (57.4%) and decreased by $271,000 (8.6%), respectively, during 2001 and 2000 compared to the prior year periods. Increases in such expenses at ACSC during 2001 resulting from the expansion of operations totaled $1.3 million and were compounded by increases in professional fees at Greate Bay in preparation for its bankruptcy filings. Reductions in corporate general and administrative expenses during 2000 resulted from the curtailment of Greate Bay's operations other than ACSC. The decrease in corporate expenses in 2000 offset an increase of $458,000 (31.4%) at ACSC resulting from the expansion of its operations. Write Down of Equipment Held for Sale Operating equipment acquired under a capital lease arrangement is no longer in use and is being marketed to third parties. The carrying value of the equipment has been adjusted to reflect management's best estimate of the net realizable value of the asset. Greate Bay recorded a loss of $138,000 during the year ended December 31, 2001 from the write down of such equipment. Depreciation and Amortization Depreciation and amortization expense increased $67,000 (37%) during 2001 compared to the prior year period. Such increase was the result of the purchase of equipment to support the expansion of ACSC's operations. Depreciation and amortization expense remained unchanged during 2000 compared to 1999. Increases in depreciation resulting from capital expenditures in 2000 were offset by the elimination of depreciation on certain assets that became fully depreciated during the year. 16 Interest Consolidated interest income for Greate Bay decreased $37,000 (6.8%) and $119,000 (17.8%), respectively, during 2001 and 2000 compared to the prior year periods as less cash was available for investment purposes and less interest was earned on Greate Bay's note receivable from HCC as a result of principal reductions. Interest expense increased $582,000 (8.1%) during 2001 compared to 2000. The increase in interest expense on the PPI Funding Notes due to the additional amortization of discount was partially offset by the suspension of any interest accrual as of the December 28, 2001 bankruptcy filing date. Interest expense decreased $3.1 million (30.5%) during 2000 compared to the prior year period as interest expense with respect to the PRT Funding Notes was no longer recognized subsequent to the May 1999 filings under Chapter 11 by PCC and its subsidiaries. The PRT Funding Notes were later settled as part of the Restructuring in October 1999. Exclusive of the interest incurred with respect to the PRT Funding Notes during 1999, interest expense during 2000 increased by $805,000 compared to 1999 as a result of additional amortization of discount with respect to the PPI Funding Notes. Gain on Elimination of Investment in Pratt Casino Corporation As a result of the filing of petitions for relief under Chapter 11 by PCC, NJMI and PRT Funding on May 25, 1999, Greate Bay did not expect to have ownership or operating control of these subsidiaries after reorganization. Accordingly, these subsidiaries are no longer included in the consolidated financial statements of Greate Bay for any period subsequent to May 25, 1999. Greate Bay's investment in PCC and its subsidiaries as well as certain intercompany balances with PCC and its subsidiaries were revalued to a zero basis effective on May 25, 1999. The elimination of the investment in and intercompany balances with PCC resulted in a gain amounting to $85.6 million for the year ended December 31, 1999. Income Tax Provision Based on the significant tax losses realized to date and the sale of Greate Bay's sole operating subsidiary in March 2002, management believes that it is more likely than not that Greate Bay will not be able to utilize its deferred tax assets. Accordingly, a valuation allowance has been established to fully reserve the net deferred tax asset for federal tax purposes at December 31, 2001. The remaining net deferred tax assets at December 31, 2001 represent state timing differences expected to be utilized. Greate Bay was included in the consolidated federal income tax returns of HCC until HCC distributed the stock of Greate Bay it owned to its shareholders on December 31, 1996. The Internal Revenue Service recently completed an examination of the consolidated federal income tax returns of HCC for the years 1993 through 1996, during which period Greate Bay was included, and the consolidated federal income tax returns of Greate Bay for the years ended 1997 and 1998. Such examinations resulted in adjustments to Greate Bay's consolidated net operating loss carryforwards and deferred tax assets. The Company anticipates no additional tax obligations. Market Risk The Company does not have and does not expect to have any securities subject to interest rate fluctuations. Management believes that all market risks are immaterial. 17 ITEM 8. INDEX TO FINANCIAL STATEMENTS
Page ---- Greate Bay Casino Corporation and Subsidiaries: Independent Auditors' Report ......................................... 19 Consolidated Statements of Net Liabilities as of December 31, 2001 and 2000 ........................................................... 20 Consolidated Statements of Operations for the Years Ended December 31, 2001, 2000 and 1999 ............................. 21 Consolidated Statement of Changes in Net Liabilities for the Three Years Ended December 31, 2001 ............ 22 Consolidated Statements of Cash Flows for the Years Ended December 31, 2001, 2000 and 1999 ............................. 23 Notes to Consolidated Financial Statements ........................... 24
18 INDEPENDENT AUDITORS' REPORT ---------------------------- To the Board of Directors and Shareholders of Greate Bay Casino Corporation: We have audited the accompanying consolidated statements of net liabilities of Greate Bay Casino Corporation (the Company and a Delaware corporation) and subsidiaries as of December 31, 2001 (liquidation basis) and 2000 (going concern basis), the related consolidated statements of operations and cash flows for each of the three years in the period ended December 31, 2001, and the consolidated statement of changes in net liabilities for the year ended December 31, 2001 (liquidation basis) and for each of the two years in the period ended December 31, 2000 (going concern basis). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As discussed in Note 2 to the consolidated financial statements, the Company changed its basis of accounting from the going concern basis to the liquidation basis effective December 31, 2001. In our opinion, such consolidated financial statements present fairly, in all material respects, (1) the consolidated net liabilities of Greate Bay Casino Corporation and subsidiaries as of December 31, 2001 (liquidation basis) and 2000 (going concern basis), (2) the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, and (3) the changes in net liabilities for the year ended December 31, 2001 (liquidation basis) and for each of the two years in the period ended December 31, 2000 (going concern basis) in conformity with accounting principles generally accepted in the United States of America. Deloitte & Touche LLP Dallas, Texas April 3, 2002 19 GREATE BAY CASINO CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF NET LIABILITIES
December 31, --------------------------------- 2001 2000 (Liquidation (Going Concern Basis) Basis) -------------- -------------- ASSETS Cash $ 8,657,000 $ 5,903,000 Temporary cash investment 100,000 100,000 Accounts receivable 4,516,000 1,301,000 Inventories 774,000 520,000 Costs and estimated earnings in excess of billings 350,000 340,000 Due from affiliates 197,000 2,457,000 Operating equipment 452,000 336,000 Equipment held for sale 70,000 - Net realizable value of division's assets in excess of historical cost 6,832,000 - Refundable deposits and other assets 469,000 613,000 -------------- -------------- Total assets 22,417,000 11,570,000 -------------- -------------- LIABILITIES Capital lease obligations 199,000 - Accounts payable 2,320,000 1,878,000 Accrued salaries and wages 597,000 305,000 Unearned revenues 2,264,000 2,407,000 Other current liabilities 138,000 56,000 Liabilities subject to compromise: Borrowings from affiliate 5,704,000 5,704,000 Long-term debt 43,212,000 46,687,000 Accrued interest 10,430,000 3,635,000 Other 90,000 - Reserve for estimated costs during the period of liquidation 954,000 - -------------- -------------- Total liabilities 65,908,000 60,672,000 -------------- -------------- Net liabilities $ (43,491,000) $ (49,102,000) ============== ==============
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 20 GREATE BAY CASINO CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31, ------------------------------------------------ 2001 2000 1999 ------------ ------------ ------------ Revenues: Computer services $ 36,029,000 $ 14,121,000 $ 5,945,000 Other - - 477,000 ------------ ------------ ------------ Net revenues 36,029,000 14,121,000 6,422,000 ------------ ------------ ------------ Expenses: Cost of sales 14,462,000 6,023,000 2,628,000 System development and support services 7,291,000 3,749,000 2,363,000 Marketing 1,519,000 1,211,000 409,000 General and administrative 4,539,000 2,883,000 3,154,000 Write down of equipment held for sale 138,000 - - Depreciation and amortization 248,000 181,000 181,000 ------------ ------------ ------------ Total expenses 28,197,000 14,047,000 8,735,000 ------------ ------------ ------------ Income (loss) from operations 7,832,000 74,000 (2,313,000) ------------ ------------ ------------ Non-operating income (expenses): Interest income 511,000 548,000 667,000 Interest expense (7,738,000) (7,156,000) (10,303,000) Gain on elimination of investment in Pratt Casino Corporation - - 85,633,000 Equity in earnings of Limited Partnership - - 2,660,000 Restructuring costs - - (230,000) ------------ ------------ ------------ Total non-operating (expense) income, net (7,227,000) (6,608,000) 78,427,000 ------------ ------------ ------------ Income (loss) before income taxes 605,000 (6,534,000) 76,114,000 Income tax (provision) benefit (872,000) (63,000) 7,000 ------------ ------------ ------------ Net (loss) income $ (267,000) $ (6,597,000) $ 76,121,000 ============ ============ ============ Basic and diluted net (loss) income per common share $ (.05) $ (1.27) $ 14.68 ============ ============ ============
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 21 GREATE BAY CASINO CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN NET LIABILITIES FOR THE THREE YEARS ENDED DECEMBER 31, 2001
2001 2000 1999 (Liquidation (Going Concern (Going Concern Basis) Basis) Basis) -------------- -------------- -------------- Net Liabilities, Beginning of Year $ (49,102,000) $ (42,505,000) $ (118,626,000) Net (loss) income from operations (267,000) (6,597,000) 76,121,000 Adjustment to liquidation basis 5,878,000 - - -------------- -------------- -------------- Net Liabilities, End of Year $ (43,491,000) $ (49,102,000) $ (42,505,000) ============== ============== ==============
The accompanying notes to consolidated financial statements are an integral part of this consolidated statement. 22 GREATE BAY CASINO CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, -------------------------------------------- 2001 2000 1999 ------------ ------------ ------------ OPERATING ACTIVITIES: Net (loss) income $ (267,000) $ (6,597,000) $ 76,121,000 Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities: Depreciation and amortization, including accretion of debt discount 1,164,000 6,422,000 5,587,000 Write down of equipment held for sale 138,000 - - Provision for doubtful accounts 8,000 20,000 50,000 Equity in earnings of Limited Partnership - - (2,660,000) Distributions received from Limited Partnership - - 4,038,000 Gain on elimination of investment in Pratt Casino Corporation - - (85,633,000) Deferred income tax (benefit) provision (27,000) 8,000 27,000 Increase in accounts receivable (3,223,000) (930,000) (52,000) Increase (decrease) in accounts payable and other accrued liabilities 7,529,000 1,706,000 (2,874,000) Net change in other current assets and liabilities (195,000) 1,517,000 (523,000) Net change in other noncurrent assets and liabilities - - 220,000 ------------ ------------ ------------ Net cash provided by (used in) operating activities 5,127,000 2,146,000 (5,699,000) ------------ ------------ ------------ INVESTING ACTIVITIES: Purchases of property and equipment (322,000) (184,000) (51,000) Deconsolidation of Pratt Casino Corporation - - (868,000) Temporary cash investment - (100,000) - Collections on notes receivable - 140,000 803,000 ------------ ------------ ------------ Net cash used in investing activities (322,000) (144,000) (116,000) ------------ ------------ ------------ FINANCING ACTIVITIES: Repayment of affiliate borrowings (2,000,000) (900,000) - Payments of capital lease obligation (51,000) - - ------------ ------------ ------------ Net cash used in financing activities (2,051,000) (900,000) - ------------ ------------ ------------ Net increase (decrease) in cash 2,754,000 1,102,000 (5,815,000) Cash at beginning of year 5,903,000 4,801,000 10,616,000 ------------ ------------ ------------ Cash at end of year $ 8,657,000 $ 5,903,000 $ 4,801,000 ============ ============ ============
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 23 GREATE BAY CASINO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) Organization, Business and Basis of Presentation Greate Bay Casino Corporation ("Greate Bay" or the "Company"), a Delaware corporation, was, prior to March 19, 2002, engaged in the development, installation and maintenance of casino systems through its wholly owned subsidiary, Advanced Casino Systems Corporation ("ACSC"). In prior years, Greate Bay and its other subsidiaries were also engaged in the operation and management of and provision of services to casino properties, including the ownership and operation of the Sands Hotel and Casino located in Atlantic City, New Jersey (the "Sands") and, until October 1999, contracts to manage and consult with gaming facilities located in Aurora, Illinois (the "Aurora Casino") and Tunica County, Mississippi (the "Tunica Casino") (see Notes 6 and 7). As explained below, when the Greate Bay subsidiary which owned the Sands emerged from its Chapter 11 proceedings, Greate Bay, as expected, did not retain ownership or operating control. The Greate Bay subsidiary which held the casino management and consulting contracts completed its reorganization under Chapter 11 in October 1999 and is no longer owned by Greate Bay. Accordingly, as further described below, the activities of the subsidiaries which owned the Sands and which held the management contracts with the Aurora Casino and Tunica Casino are no longer included in the consolidated operating results of Greate Bay. Approximately 35% of Greate Bay's outstanding stock is owned by Jack E. Pratt, Edward T. Pratt, Jr., William D. Pratt, Edward T. Pratt III and by certain general partnerships and trusts controlled by the Pratts and by other family members who also own approximately 53% of Hollywood Casino Corporation ("HCC"). HCC owns the Aurora Casino and the Tunica Casino. Until October 1999, Greate Bay's limited partnership interest in Pratt Management, L.P. ("PML"), the limited partnership which held the management contract on the Aurora Casino was held by its wholly owned subsidiary, Pratt Casino Corporation ("PCC"), and was presented under the equity method of accounting (see Note 7). As explained below, the operating results of PCC, including its equity in the earnings of PML, for periods subsequent to May 25, 1999 are not included in the consolidated results of operations of Greate Bay. Current Greate Bay Operations - During 2001, Greate Bay's only remaining operating subsidiary was ACSC. At December 31, 2001, Greate Bay and its subsidiaries had debt outstanding to HCC consisting of (1) demand notes and accrued interest thereon totaling $10,127,000 (see Notes 3 and 6) and (2) a 14.875% secured promissory note due 2006 plus accrued interest thereon in the amount of $49,219,000 (see Note 4). ACSC's operations did not generated sufficient cash flow to provide debt service on the HCC demand notes and, consequently, Greate Bay was and remains insolvent. Additionally, semi-annual interest payments of $3,540,000 attributable to the 14.875% secured promissory note became payable commencing in August 2001. On December 28, 2001, Greate Bay and three of its wholly owned subsidiaries, PPI Corporation, PPI Funding Corp. and PCPI Funding Corp. (collectively, the "Debtors"), filed voluntary petitions for protection under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the District of Delaware (the "Delaware Bankruptcy Court"). Each company continues to operate in the ordinary course of business, as set forth in the Bankruptcy Code, and each company's executive officers and directors as of the date of the filing remain in office, subject to 24 GREATE BAY CASINO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) the jurisdiction of the Delaware Bankruptcy Court. ACSC was not included in the bankruptcy filings and continued to conduct business as usual until sold in March 2002. Concurrent with the bankruptcy filing, the Debtors filed a joint disclosure statement and a joint Chapter 11 Plan (the "Plan") which provides for the pre-confirmation sale of ACSC by Greate Bay. The Plan further provides that the proceeds from the sale and any residual cash, after payment in full of normal trade obligations and administrative claims, are to be distributed to HWCC - Holdings, Inc. ("HWCC", a wholly owned subsidiary of HCC), Greate Bay's sole major third party creditor, in settlement of outstanding obligations. Since the aggregate amount of sale proceeds and residual cash is substantially less than its existing obligations to HWCC, there will be no cash or other assets remaining available for distribution to the Company's shareholders. The sale of ACSC was approved by the Delaware Bankruptcy Court on March 6, 2002 and completed on March 19, 2002 (see Note 15). Although the Company believes that HWCC is its only creditor (except for minor trade obligations which will be paid in full under the Plan), two alleged creditors have filed claims in the Company's bankruptcy proceeding. Las Vegas Sands, Inc. ("LVSI") has filed a claim in the amount of $20.1 million alleging breach of contract of a license agreement dated May 19, 1987 concerning the licensing of the "Sands" name and trademark with respect to a property previously operated by a subsidiary of the Company in San Juan, Puerto Rico which was sold in 1997. LVSI has also filed an objection to the HWCC claims. William D. Pratt, Jr. ("Pratt") has filed a claim in the amount of $3 million purporting to represent amounts owing for "services performed" and "wages, salaries and commissions". The Company believes the LVSI and Pratt claims are without merit and, accordingly, has filed objections to both claims requesting that the Bankruptcy Court disallow such claims in full. A hearing in the Bankruptcy Court has been scheduled for May 2, 2002 to consider (1) the Company's objections to the foregoing claims, (2) LVSI's objections to the HWCC claims and (3) confirmation of the Plan. GB Holdings, Inc. and Subsidiaries - On January 5, 1998, GB Holdings, Inc. ("Holdings"), at that time a wholly owned subsidiary of Greate Bay, together with Holdings' wholly owned subsidiaries, GB Property Funding Corp. ("GB Property Funding") and Greate Bay Hotel and Casino, Inc. ("GBHC"), filed petitions for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District of New Jersey (the "New Jersey Bankruptcy Court"). On June 1, 1999, a plan of reorganization was filed by the debtors with the New Jersey Bankruptcy Court. The reorganization plan, as filed, provided for the secured bondholders to receive new debt and 100% of the equity ownership of Holdings in exchange for their current claims and for unsecured creditors to receive a partial cash settlement of their claims. Subsequent to the filing of a reorganization plan by the debtors, two competing plans were filed by (1) Park Place Entertainment Corporation, a large and diversified gaming company with significant operations in Atlantic City, and (2) jointly by High River Limited Partnership ("High River"), an entity controlled by Carl C. Icahn, and by the Official Committee of Unsecured Creditors (the "Joint Plan"). On August 14, 2000, the New Jersey Bankruptcy Court confirmed the Joint Plan. The Sands subsequently transferred 46.3% of its equity interests to High River in exchange for $65 million in cash and the secured bondholders received $110 million in new notes plus the remaining equity interests in exchange for the $182.5 million of first mortgage notes in default. No distributions were made to the 25 GREATE BAY CASINO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) previous shareholders, including Greate Bay Holdings, L.L.C., an indirect, wholly owned subsidiary of Greate Bay, which held 79% of the outstanding common stock of Holdings (see Note 9). As a result of the Chapter 11 filings, Greate Bay's control over the filing subsidiaries was subject to supervision of the New Jersey Bankruptcy Court and Greate Bay did not expect to have ownership or operating control of such subsidiaries after reorganization. Furthermore, as the result of a settlement agreement reached by Greate Bay and Holdings during September 1998, Greate Bay no longer participated in the management of the Sands. Accordingly, Holdings, GB Property Funding and GBHC have not been included in the accompanying consolidated financial statements of Greate Bay. Pratt Casino Corporation and Subsidiaries - The filings under Chapter 11 by Holdings, GB Property Funding and GBHC resulted in a default under the indenture for $85,000,000 principal amount of 11.625% senior notes due 2004 (the "PRT Funding Notes") issued by PRT Funding Corp. ("PRT Funding"), an indirect, wholly owned subsidiary of Greate Bay. Accordingly, the outstanding principal amount of the PRT Funding Notes accelerated and became due and payable. PCC, as guarantor of the PRT Funding Notes, did not have sufficient assets to satisfy the outstanding amounts applicable to the PRT Funding Notes. PRT Funding deferred payment of interest due on the April 15 and October 15, 1998 and April 15, 1999 interest payment dates. On October 22, 1998, PRT Funding paid the bondholders an amount equal to a single semiannual interest payment ($4,941,000) while negotiations to restructure the PRT Funding Notes continued. On April 28, 1999, PCC, PRT Funding, New Jersey Management, Inc. ("NJMI," a PCC subsidiary which managed the Sands), Greate Bay, HCC and the holders of substantially all of the PRT Funding Notes entered into a voting agreement to restructure the PRT Funding Notes (the "Restructuring"). The voting agreement provided for HCC to acquire the stock of PCC, the parent of PRT Funding, from Greate Bay for nominal consideration. When acquired by HCC, PCC's assets were to consist of its limited partnership interest in its management contract for the Aurora Casino and a consulting contract for the Tunica Casino and its liabilities were to consist of a new obligation in the amount of $40,329,000 payable in satisfaction of the PRT Funding Notes. The voting agreement provided for HCC to immediately discharge the obligation. As part of the Restructuring, holders of the PRT Funding Notes were also to receive 100% of the remaining assets of PCC and its subsidiaries not acquired by HCC. Such assets consisted primarily of claims against Holdings, GB Property Funding and GBHC in their Chapter 11 proceedings. In connection with the Restructuring, PRT Funding paid deferred interest amounting to $6,768,000 to the bondholders on April 30, 1999. The successful completion of the Restructuring required that PCC, PRT Funding and NJMI file for protection under Chapter 11 with the above transactions included as part of a pre-negotiated plan of reorganization. Such petitions for relief were filed on a May 25, 1999 in the Delaware Bankruptcy Court and the related plan of reorganization was filed on May 26, 1999. The plan was confirmed by the Delaware Bankruptcy Court on October 1, 1999. On October 13, 1999, Greate Bay sold its ownership of PCC to HCC. At the time of the sale, PCC's assets consisted of the limited partnership interest and the consulting agreement valued in the aggregate at $40,329,000 and its liabilities consisted of an obligation 26 GREATE BAY CASINO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) in the amount of $40,329,000 payable in satisfaction of the PRT Funding Notes. HCC settled the obligation on October 14, 1999. Greate Bay's claims against Holdings, GB Property Funding and GBHC in their Chapter 11 proceedings as well as other claims previously held by PCC, PRT Funding and NJMI were conveyed to Greate Bay Holdings, L.L.C. for the benefit of the PRT Funding noteholders (see Note 9). As a result of the Chapter 11 filings and plan of reorganization of PCC, PRT Funding and NJMI, Greate Bay's control over the filing subsidiaries was subject to supervision of the Delaware Bankruptcy Court and Greate Bay did not expect to have ownership or operating control of such subsidiaries after reorganization. Accordingly, Greate Bay's investment in PCC and its subsidiaries as well as certain intercompany balances with PCC and its subsidiaries were revalued to a zero basis effective on May 25, 1999. For periods from May 25, 1999 until the sale of PCC to HCC on October 13, 1999, Greate Bay accounted for its investment in PCC under the cost method of accounting. Subsidiary Chapter 7 Filings - On June 30, 2000, three inactive, wholly owned, indirect subsidiaries of Greate Bay filed for liquidation under Chapter 7 of the Bankruptcy Code in the Delaware Bankruptcy Court. The subsidiaries were originally formed to acquire property and build a second casino/hotel in Atlantic City, New Jersey. These plans were subsequently abandoned; however, the companies remained in existence pending the outcome of certain litigation which was substantially resolved in 1996. The cases were closed by the Trustee in bankruptcy in December 2000 with final liquidation orders received from the Delaware Bankruptcy Court in November 2001. The filings did not have a significant effect on the operations or financial position of Greate Bay. (2) Summary of Significant Accounting Policies The significant accounting policies followed in the preparation of the accompanying consolidated financial statements are discussed below. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Principles of consolidation - Except as explained in Note 1 with respect to PCC, Holdings and their respective subsidiaries, the consolidated financial statements include the operating activities and cash flows of Greate Bay and its wholly owned subsidiaries. All significant intercompany transactions have been eliminated. As a result of the bankruptcy filing on December 28, 2001, it is anticipated that Greate Bay will be liquidated pursuant to the Company's plan of liquidation as submitted to the Delaware Bankruptcy Court. Accordingly, Greate Bay adopted the liquidation basis of accounting as of December 31, 2001. Assets have been valued at estimated net realizable value and liabilities include estimated costs associated with carrying out the liquidation. The net adjustments at December 31, 2001, required to convert from the 27 GREATE BAY CASINO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) going concern (historical cost) basis to the liquidation basis of accounting resulted in an increase in carrying value of $5,878,000, which is included in the accompanying consolidated statement of changes in net liabilities for the year ended December 31, 2001. Significant changes in the carrying value of net liabilities are summarized as follows: Net realizable value of division's assets in excess of historical cost $ 6,832,000 Estimated liabilities associated with carrying out the liquidation (953,000) Adjustments for other assets (1,000) ------------ $ 5,878,000 ============
The accompanying consolidated statement of net liabilities as of December 31, 2000 and the accompanying consolidated statements of operations and changes in net liabilities for the years ended December 31, 2000 and 1999 have been prepared using the going concern basis of accounting on which Greate Bay had previously reported its consolidated financial condition and its consolidated results of operations. Revenue recognition - Prior to its sale by Greate Bay, ACSC licensed casino information technology systems to affiliates of Greate Bay as well as to non-affiliated casino companies. Revenue was generally recognized when all significant contractual obligations had been satisfied and collection was reasonably assured. Revenue from hardware and inventory sales was recognized upon delivery and acceptance. Revenue from services was recognized upon performance. Certain of ACSC's sales of software to third parties were pursuant to agreements which specified modifications to be made, required on-going vendor support or provided for other specialized terms and conditions. In recognizing revenue under such agreements, ACSC adopted and complied with the reporting requirements of Statement of Position 97-2, "Software Revenue Recognition" ("SOP 97-2") issued by the American Institute of Certified Public Accountants. The provisions of SOP 97-2 require, among other things, that revenue from software sales that do not require significant production, modification or customization be recognized when evidence of an arrangement exists, delivery has occurred, the fee is fixed and determinable and collectability is probable. Software sales for which significant modifications are required are recognized under a percentage-of-completion method based on costs incurred to date compared with total estimated costs. Profit estimates on such contracts are reviewed periodically whenever there is a change in facts or circumstances. Any losses on a contract would result in the full amount of the loss being recognized immediately. Costs and estimated earnings in excess of billings on contracts in progress represents recoverable costs and the estimated profit thereon which have not yet been billed to the customer. Unearned revenues represent deposits or prepayments received from customers for services yet to be performed. Such advance payments are applied over the lives of the contracts. 28 GREATE BAY CASINO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Temporary cash investment - Temporary cash investment is comprised of a certificate of deposit which matures in November 2002. Allowance for doubtful accounts - The allowance for doubtful accounts is maintained at a level considered adequate to provide for possible future losses. Provisions for doubtful accounts amounting to $8,000, $20,000 and $50,000, respectively, were made during 2001, 2000 and 1999. Inventories - Inventories are stated at the lower of cost (on a first-in, first-out basis) or market. Operating equipment - Operating equipment is recorded at cost and is being depreciated utilizing the straight-line method over estimated useful lives of three to 15 years. Equipment held for sale - Operating equipment acquired under a capital lease arrangement (see Note 11) is no longer in use and is being marketed to third parties. The carrying amount of $70,000 as shown on the accompanying consolidated statement of net liabilities at December 31, 2001 represents management's best estimate of the net realizable value of the asset. Greate Bay incurred a loss from the write down to estimated net realizable value of $138,000 during the year ended December 31, 2001. Interest expense - Interest expense includes the accretion of debt discount amounting to $916,000, $6,241,000 and $5,406,000, respectively, during the years ended December 31, 2001, 2000 and 1999. Net (loss) income per common share - Basic earnings per common share is calculated by dividing the net (loss) income by the weighted average number of shares of common stock outstanding. Diluted earnings per common share is calculated for any period in which income from continuing operations was earned by dividing the components of net (loss) income by the weighted average number of shares of common stock and potential common shares outstanding. For each of the years ended December 31, 2001, 2000 and 1999, there were no potential common shares outstanding and basic and diluted (loss) income per share were the same. The weighted average number of shares of common stock used in the calculation of both basic and diluted (loss) income per share was 5,186,627 for each of the years ended December 31, 2001, 2000 and 1999. 29 GREATE BAY CASINO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Recent accounting pronouncements - In June 2001, the Financial Accounting Standards Board issued Statement No. 141, "Business Combinations" ("SFAS 141") and Statement No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 141 requires the use of the purchase method of accounting for all business combinations initiated after June 30, 2001. SFAS 142 establishes new standards for goodwill acquired in a business combination and requires that goodwill and other intangible assets be periodically reviewed for impairment rather than being amortized. SFAS 142 is effective for fiscal years beginning after December 15, 2001 with earlier application permitted. The Company does not expect the adoption of SFAS 142 to have a material effect on its consolidated financial statements. The Financial Accounting Standards Board issued Statement No. 143, "Accounting for Asset Retirement Obligations" ("SFAS 143") in June 2001 and Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144") in August 2001. SFAS 143 addresses reporting for obligations associated with the retirement of tangible long-lived assets and the related asset retirement costs. SFAS 143 is effective for fiscal years beginning after June 15, 2002. SFAS 144 supercedes earlier guidance with respect to such accounting and is effective for fiscal years beginning after December 15, 2001. The Company does not expect the adoption of SFAS 143 and SFAS 144 to have a material effect on its consolidated financial statements. Reclassifications - Certain reclassifications have been made to the prior years' consolidated financial statements to conform to the 2001 consolidated financial statement presentation. (3) Borrowings from Affiliates Greate Bay and its subsidiaries had outstanding affiliate borrowings from HCC of $5,704,000 at both December 31, 2001 and 2000. During 1996, Greate Bay borrowed $6,500,000 from HCC on a demand basis with interest at the rate of 13.75% per annum payable quarterly commencing October 1, 1996. In addition, a $250,000 loan from HCC with interest at the rate of 14% per annum payable semiannually was due on April 1, 1998 and remains outstanding. During October 2000, Greate Bay paid $900,000 of the outstanding principal balance and agreed to offset an additional $146,000 of principal against other receivables due from HCC while negotiations to restructure the debt continued. The demand notes were assigned by HCC to HWCC in December 2001. 30 GREATE BAY CASINO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (4) Long-Term Debt and Pledge of Assets Long-term debt consists of the following:
December 31, December 31, 2001 2000 ------------- ------------- 14.875% secured promissory note, due 2006, net of discount of $916,000 at December 31, 2000 $ 43,212,000 $ 46,687,000 Less - current maturities - - ------------- ------------- Total long-term debt $ 43,212,000 $ 46,687,000 ============= =============
On February 17, 1994, PPI Funding Corp., a subsidiary of Greate Bay, issued $40,524,000 discounted principal amount of new deferred interest notes (the "PPI Funding Notes") to HCC in exchange for $38,779,000 principal amount of 15.5% unsecured notes (the "PCPI Notes") held by HCC and issued by PCPI Funding Corp. The PPI Funding Notes were discounted to yield interest at the rate of 14.875% per annum and had a face value of $110,636,000. Subsequent principal payments by PPI Funding Corp. reduced the maturity value of the notes to $98,353,000 at December 31, 1996. During the second quarter of 1997, HCC assigned $13,750,000 undiscounted principal amount of the PPI Funding Notes to PPI Corporation, a wholly owned subsidiary of Greate Bay, as consideration, in part, for HCC's acquisition of the general partnership interest in PML (see Note 6). Such assignment reduced the maturity value of the notes to $84,603,000. At December 31, 1997, an additional $37,000,000 undiscounted face value ($23,631,000 discounted value) of the PPI Funding Notes was forgiven by HCC, further reducing the maturity value to $47,603,000. During December 2001, PPI Corporation assigned a note receivable and related interest from HCC (see Note 6) totaling $2,391,000 to PPI Funding Corp. PPI Funding Corp. used the note receivable and interest to offset a like amount owed to HCC under the PPI Funding Notes. HCC then assigned its remaining PPI Funding Notes to HWCC and PPI Funding Corp. made a $2,000,000 cash payment to HWCC. Payments to HCC under the PPI Funding Notes had been suspended since March 1, 2000 while negotiations to restructure the obligations continued. Under the Plan, proceeds from the sale of ACSC (see Note 1) together with any remaining residual cash are to be distributed to HWCC in settlement of the PPI Funding Notes. No interest was paid during the years ended December 31, 2001 and 2000; interest paid during the year ended December 31, 1999 amounted to $6,768,000. 31 GREATE BAY CASINO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (5) Income Taxes Components of Greate Bay's (provision) benefit for income taxes consist of the following:
Year Ended December 31, -------------------------------------------- 2001 2000 1999 ------------ ------------ ------------ Federal income tax benefit (provision): Current $ - $ - $ (29,000) Deferred (1,280,000) 1,399,000 (10,412,000) State income tax (provision) benefit: Current (899,000) (55,000) 63,000 Deferred 27,000 (8,000) (27,000) Valuation allowance 1,280,000 (1,399,000) 10,412,000 ------------ ------------ ------------ $ (872,000) $ (63,000) $ 7,000 ============ ============ ============
Greate Bay paid no federal income taxes during either of the years ended December 31, 2001 and 2000; federal income taxes of $29,000 were paid during the year ended December 31, 1999. Total state income taxes paid by Greate Bay for the years ended December 31, 2001, 2000 and 1999 amounted to $803,000, $15,000 and $178,000, respectively. A reconciliation between the calculated tax (provision) benefit based on the statutory rates in effect and the effective tax rates follows: Year Ended
Year Ended December 31, -------------------------------------------- 2001 2000 1999 ------------ ------------ ------------ Calculated income tax (provision) benefit $ (206,000) $ 2,222,000 $(26,640,000) Excludable cancellation of debt income - - 16,710,000 State income taxes (576,000) (42,000) 24,000 Other (1,370,000) (844,000) (499,000) Valuation allowance change 1,280,000 (1,399,000) 10,412,000 ------------ ------------ ------------ Tax (provision) benefit as shown on consolidated statements of operations $ (872,000) $ (63,000) $ 7,000 ============ ============ ============
As of December 31, 2001, Greate Bay and its subsidiaries have net operating loss carryforwards ("NOL's") totaling approximately $15,800,000 for federal income tax purposes, none of which begin to expire before the year 2012. Additionally, Greate Bay has alternative minimum tax credits available totaling $29,000 which do not expire. Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109") requires that the tax benefit of such NOL's and credit carryforwards, together with deferred tax assets resulting from temporary differences, be recorded as an asset and, to the extent that management can not assess that the utilization of such asset is more likely than not, a valuation allowance should be recorded. Based on the significant tax losses realized to date and the sale of Greate Bay's sole operating subsidiary in March 2002, management believes that it is more likely than not that Greate Bay will not be able to utilize its deferred tax assets. Accordingly, a 32 GREATE BAY CASINO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) valuation allowance has been established to fully reserve the net deferred tax asset for federal tax purposes at both December 31, 2001 and 2000. The remaining net deferred tax assets at December 31, 2001 and 2000 represent state timing differences expected to be utilized. The components of the net deferred tax asset are as follows: December 31, -------------------------- 2001 2000 ----------- ----------- Deferred tax assets: Net operating loss carryforwards $ 5,633,000 $ 6,579,000 Allowance for doubtful accounts 3,000 -- Alternative minimum tax credit 29,000 29,000 Investment and jobs tax credits -- 414,000 Other 178,000 74,000 ----------- ----------- Deferred tax asset 5,843,000 7,096,000 Valuation allowance (5,802,000) (7,082,000) ----------- ----------- $ 41,000 $ 14,000 =========== =========== Sales or purchases of Greate Bay common stock by certain five percent stockholders, as defined in the Internal Revenue Code of 1986, as amended (the "Code"), can cause a "change of control", as defined in Section 382 of the Code, which would limit the ability of Greate Bay to utilize these loss carryforwards in later tax periods. Should such a change of control occur, the amount of annual loss carryforwards available for use would most likely be substantially reduced. Future treasury regulations, administrative rulings or court decisions may also effect Greate Bay's future utilization of its loss carryforwards. Greate Bay was included in the consolidated federal income tax returns of HCC until HCC distributed the stock of Greate Bay it owned to its shareholders on December 31, 1996. The Internal Revenue Service recently completed an examination of the consolidated federal income tax returns of HCC for the years 1993 through 1996 during which period Greate Bay was included and the consolidated federal income tax returns of Greate Bay for the years 1997 and 1998. Such examinations resulted in adjustments to Greate Bay's consolidated NOL's and deferred tax assets. The Company anticipates no additional tax obligations. (6) Transactions with Related Parties In April 1997, HCC issued a five-year note in the original amount of $3,800,000 and assigned $13,750,000 undiscounted principal amount ($7,597,000 discounted value) of PPI Funding Notes (see Note 4) and $350,000 of accrued interest due from Greate Bay to PPI Corporation in exchange for the general partnership interest in PML. The $3,800,000 note was payable in monthly installments of $83,000, including interest at the rate of 14% per annum, commencing on May 1, 1997, with additional quarterly variable principal payments commencing on July 1, 1997 in an amount equal to the general 33 GREATE BAY CASINO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) partner's share of quarterly cash distributions, as defined, from PML. The note was amended as of the October 1999 acquisition of PCC by HCC (see Note 1) to provide for monthly installments of $83,000 including interest and additional quarterly principal payments of $21,000 beginning January 1, 2000. During December 2001, PPI Corporation assigned the remaining note balance of $1,893,000 and related interest to PPI Funding Corp., a wholly-owned subsidiary. PPI Funding Corp. and HCC agreed to offset the principle balance and accrued interest on the note against a portion of the PPI Funding Notes (see Note 4). The outstanding note balance at December 31, 2000 was $1,893,000. The note balance, along with accrued interest receivable of $243,000, is included in amounts due from affiliates on the accompanying consolidated statement of net liabilities at December 31, 2000. Interest income on the note from HCC amounted to $255,000, $266,000 and $348,000, respectively, during the years ended December 31, 2001, 2000 and 1999. Pursuant to a consulting agreement which was terminated as of October 13, 1999 with Hollywood Casino - Tunica, Inc. ("HCT"), the HCC subsidiary which owns and operates the Tunica Casino, PCC received monthly consulting fees of $100,000. Fees earned during 1999 prior to the deconsolidation of PCC on May 25, 1999 amounted to $477,000. HCC and its subsidiaries allocate certain general and administrative costs to Greate Bay and its subsidiaries pursuant to services agreements and Greate Bay allocates certain of its administrative costs to HCC. Net allocated costs and fees charged to Greate Bay and its subsidiaries by HCC and its subsidiaries amounted to $382,000 during each of the years ended December 31, 2001 and 2000, and $678,000 during the year ended December 31, 1999. In connection with such charges, net payables in the amount of $6,000 and $19,000 are included in the accompanying consolidated statements of net liabilities at December 31, 2001 and 2000, respectively. Prior to its sale by Greate Bay, ACSC provided computer, marketing and other administrative services to the Sands and to HCC and its subsidiaries. Computer services provided included hardware, software and operator support and, for the most part, such services were billed by ACSC at its direct cost plus expenses incurred. ACSC and HCT entered into a Computer Services Agreement dated as of January 1, 1994 and renewed through December 31, 1999 to provide such services and to license or sublicense to HCT computer software necessary to operate HCT's casino, hotel and related facilities and business operations. HCT paid ACSC for such equipment and licensed such software at amounts and on terms and conditions that ACSC provided to unrelated third parties. HCT also paid ACSC a fixed license fee of $33,600 per month. ACSC also provided services to the Aurora Casino through its management agreement with PML. ACSC's service agreements with PML and HCT terminated on October 13 and December 31, 1999, respectively. ACSC continued to provide services to the Aurora Casino on an as needed basis at third party consulting rates. ACSC entered into new maintenance and support agreements with HCT and the Aurora Casino effective as of January 1, 2000 which provided for an aggregate monthly fee of $26,000 (subject to change upon 60 days written notice) plus additional services at rates charged by ACSC to third parties. The agreement had an initial term of one year with automatic annual renewals unless notice of termination was given. ACSC's billings to HCC, HCT and the Aurora Casino for such services amounted to $1,351,000, $950,000 and $1,315,000 for the years ended December 31, 2001, 2000 and 1999, respectively. Unpaid charges from HCC, HCT and the Aurora Casino included in due from affiliates on the accompanying consolidated statements of net liabilities at December 31, 2001 and 2000 amounted to $185,000 and $141,000, respectively. Billings to 34 GREATE BAY CASINO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) the Sands amounted to $372,000 and $818,000, respectively, for the years ended December 31, 2000 and 1999. There were no unpaid charges from the Sands on the accompanying consolidated statement of net liabilities at December 31, 2000. During 2000, ACSC also provided and installed casino system software to a new HCC-owned casino property constructed in Shreveport, Louisiana (the "Shreveport Casino"). ACSC entered into a similar maintenance and support agreement with the Shreveport Casino effective as of October 12, 2000 at a monthly fee of $11,000 commencing 90 days after installation of ACSC's casino system software. Total amounts billed to the Shreveport Casino for the years ended December 31, 2001 and 2000 amounted to $330,000 and $2,474,000, respectively. The accompanying consolidated statements of net liabilities at December 31, 2001 and 2000 include receivables from the Shreveport Casino in the amounts of $12,000 and $160,000, respectively, in due from affiliates. At December 31, 2000, the accompanying consolidated statement of net liabilities also includes unearned revenues in the amount of $125,000 with respect to the Shreveport Casino installation. Interest expense with respect to borrowings from HCC is set forth below: Year Ended December 31, ------------------------------------ 2001 2000 1999 ---------- ---------- ---------- PPI Funding Notes (Note 4) $6,924,000 $6,241,000 $5,406,000 Short-term borrowings (Note 3) 787,000 913,000 941,000 Accretion of interest on the PPI Funding Notes for periods prior to February 17, 2001 is included in the outstanding note payable balances at December 31, 2001 and 2000. Interest accrued on the PPI Funding Notes subsequent to February 17, 2001 (which totaled $6,008,000) is included in interest payable at December 31, 2001. Interest accrued on short-term borrowings at December 31, 2001 and 2000 of $4,422,000 and $3,635,000, respectively, is included in interest payable on the accompanying consolidated statements of net liabilities. (7) Investment in Pratt Management, L.P. Between April 1, 1997 and the completion of the Restructuring in October 1999 (see Note 1), PCC held the limited partnership interest in PML which earned management fees from the Aurora Casino and incurred operating and other expenses with respect to its management thereof. As the limited partner in PML, PCC received 1% of the first $84,000 of net income earned by the partnership each month and 99% of any income earned above such amount. PML earned management fees amounting to $3,583,000 during 1999 prior to the deconsolidation of PCC on May 25, 1999. PML also incurred operating and other expenses amounting to $498,000 during the comparable periods for which management fees were earned in 1999. (8) Regulatory Matters Because the casino industry is highly regulated at the state level, ACSC was required to be licensed in order to provide services to casino operators in most jurisdictions. Generally, licensing required that 35 GREATE BAY CASINO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) ACSC and its officers, including officers of Greate Bay, be investigated and found suitable by state authorities. In addition, ACSC was required to meet periodic reporting requirements and provide other information to state authorities as requested. The suspension or revocation of a license could have materially impacted ACSC's ability to carry on its business activities. (9) Summarized Combined Financial Information of and Transactions With Unconsolidated Affiliates Greate Bay Holdings, L.L.C. - Greate Bay Holdings, L.L.C. was an indirect, wholly owned limited liability subsidiary of Greate Bay formed in October 1999 for the purpose of holding the remaining assets of PCC not acquired by HCC in connection with the Restructuring. Such assets consisted primarily of claims against Holdings, GB Property Funding and GBHC in their Chapter 11 proceedings. Greate Bay Holdings, L.L.C. had no operating activities and all transactions, once approved by the Delaware Bankruptcy Court, were accounted for as an adjustment to its net assets and obligations. In accordance with the plan of reorganization confirmed by the Delaware Bankruptcy Court in October 1999, the holders of the PRT Funding Notes received a final distribution of assets of Greate Bay Holdings, L.L.C. in final settlement of their claims in May 2001. Accordingly, because control by Greate Bay of Greate Bay Holdings, L.L.C. was temporary and because all of its net assets had an offsetting liability to the holders of the PRT Funding Notes, the accounts of Greate Bay Holdings, L.L.C. were not included in the accompanying consolidated statements of net liabilities of Greate Bay at December 31, 2000. The schedule below sets forth the accounts of Greate Bay Holdings, L.L.C. at December 31, 2000: Cash and cash equivalent $ 108,000 Receivables from Holdings and its subsidiaries (a) 61,000 Receivable from Park Place Entertainment 300,000 ----------- Total assets 469,000 ----------- Accounts payable and accrued liabilities 14,000 Due to holders of PRT Funding Notes (a) 368,000 Litigation reserve as established by the plan of reorganization 87,000 ----------- Total obligations 469,000 ----------- Net assets $ - =========== __________________ (a) As a consequence of the confirmation of the Joint Plan, intercompany notes and accrued interest which previously had a carrying amount of $22,368,000 are now considered fully impaired. Greate Bay Holdings, L.L.C. received $711,000 from Holdings during October 2000 in satisfaction of 36 GREATE BAY CASINO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) certain receivables and wrote off an additional $107,000 of receivables from Holdings in December 2000. Amounts due to holders of the PRT Funding Notes were correspondingly reduced by $107,000. In January 2001, Greate Bay Holdings, L.L.C. collected the remaining $61,000 from Holdings. (10) Commitments and Contingencies Greate Bay Chapter 11 Filings - On December 28, 2001, Greate Bay, PPI Corporation, PPI Funding Corp. and PCPI Funding Corp., filed voluntary petitions for protection under Chapter 11 of the Bankruptcy Code in the Delaware Bankruptcy Court. Each company continues to operate in the ordinary course of business, as set forth in the Bankruptcy Code, and each company's executive officers and directors as of the date of the filing remain in office, subject to the jurisdiction of the Delaware Bankruptcy Court. ACSC was not included in the bankruptcy filings and continued to conduct business as usual until sold in March 2002. Concurrent with the bankruptcy filing, the Debtors filed a joint disclosure statement and a joint Chapter 11 Plan which provided for the pre-confirmation sale of ACSC by Greate Bay. The Plan further provides that proceeds from the sale and any residual cash, after payment in full of normal trade obligations and administrative claims, are to be distributed to HWCC, Greate Bay's sole major third party creditor, in settlement of outstanding obligations. Since the aggregate amount of sales proceeds and residual cash is substantially less than its existing obligations to HWCC, there will be no cash or other assets remaining available for distribution to the Company's shareholders. The sale of ACSC was approved by the Delaware Bankruptcy Court on March 6, 2002 and completed on March 19, 2002. Although the Company believes that HWCC is its only creditor (except for minor trade obligations which will be paid in full under the Plan), two alleged creditors have filed claims in the Company's bankruptcy proceeding. LVSI has filed a claim in the amount of $20.1 million alleging breach of contract of a license agreement dated May 19, 1987 concerning the licensing of the "Sands" name and trademark with respect to a property previously operated by a subsidiary of the Company in San Juan, Puerto Rico which was sold in 1997. LVSI has also filed an objection to the HWCC claims. Pratt has filed a claim in the amount of $3 million purporting to represent amounts owing for "services performed" and "wages, salaries and commissions". The Company believes the LVSI and Pratt claims are without merit and, accordingly, has filed objections to both claims requesting that the Bankruptcy Court disallow such claims in full. A hearing in the Bankruptcy Court has been scheduled for May 2, 2002 to consider (1) the Company's objections to the foregoing claims, (2) LVSI's objections to the HWCC claims and (3) confirmation of the Plan. Greate Bay licensed the "Sands" name under a license agreement dated as of May 19, 1987, which rights with respect to Atlantic City, New Jersey were sublicensed to GBHC. The license agreement has a term of 99 years and requires a royalty payment for each location of the greater of 1.5% of gross room charges, as defined in the agreement, payable monthly, or $100,000 per calendar year. Greate Bay has entered into an agreement with the licensor, LVSI, whereby Greate Bay agreed to relinquish all rights under the license agreement with respect to Atlantic City and LVSI agreed to release Greate Bay from all 37 GREATE BAY CASINO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) liability and responsibility with respect to Atlantic City. The agreement became effective on the September 29, 2000 Effective Date of the Joint Plan. The Joint Plan provides for a substituted license agreement between GBHC and the licensor. Greate Bay does not currently operate any properties under the "Sands" name. Subsidiary Chapter 7 Filings - On June 30, 2000, three inactive, wholly owned, indirect subsidiaries of Greate Bay filed for liquidation under Chapter 7 of the Bankruptcy Code in the Delaware Bankruptcy Court. The subsidiaries were originally formed to acquire property and build a second casino/hotel in Atlantic City, New Jersey. These plans were subsequently abandoned; however, the companies remained in existence pending the outcome of certain litigation which was substantially resolved in 1996. The cases were closed by the Trustee in bankruptcy in December 2000 with final liquidation orders received from the Delaware Bankruptcy Court in November 2001. The filings did not have a significant effect on the operations or financial position of Greate Bay. (11) Leases Operating Leases - Greate Bay and its subsidiaries, primarily ACSC, lease office space and operating equipment under lease agreements accounted for as operating leases. The lease agreements expire at various dates through the year 2005 and several contain automatic renewals unless notice of termination is given. Total rental expense amounted to $523,000, $445,000 and $389,000, respectively, during the years ended December 31, 2001, 2000 and 1999. Future minimum lease payments as of December 31, 2001 under operating leases having an initial or remaining noncancellable lease term in excess of one year are as follows: 2002 $ 249,000 2003 75,000 2004 11,000 2005 5,000 ----------- $ 340,000 =========== Capital lease - During 2001, ACSC acquired certain equipment under a capital lease. The lease has an effective annual interest rate of 13.4% and expires in February 2004. ACSC's obligations under the lease agreement were secured by the equipment as well as by a $100,000 irrevocable line of credit during the term of the lease. The line of credit, which was subject to renewal in May 2002, was collateralized by a $100,000 temporary cash investment. Additionally, ACSC was required to provide the lessor with periodic financial reports and other financial information. ACSC also entered into a purchase agreement to acquire the equipment upon written notice from the lessor at a cost of $37,000 no earlier than 30 days 38 GREATE BAY CASINO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) prior to the expiration of the lease term. The asset under capital lease was no longer in use at December 31, 2001 and is reflected as equipment held for sale at an estimated net realizable value of $70,000 on the accompanying statement of net liabilities (see Note 2). Amortization expense with respect to this asset amounted to $42,000 during the year ended December 31, 2001. Future minimum lease payments under the capital lease obligation as of December 31, 2001 were as follows: 2002 $ 91,000 2003 91,000 2004 53,000 ---------- Total minimum lease payments 235,000 Less amount representing interest (36,000) ---------- Present value of future minimum lease payments 199,000 Current capital lease obligation (69,000) ---------- Long-term capital lease obligation $ 130,000 ========== (12) Supplemental Cash Flow Information During December 2001, the Board of Directors of PPI Funding Corp. approved the offset of a portion of the PPI Funding Notes against a note receivable due from HCC (see Note 4). This offset has been excluded from the accompanying consolidated statement of cash flows as a noncash transaction. During 2001, ACSC entered into a capital lease obligation for certain operating equipment in the original amount of $250,000 (see Note 11). This offset has been excluded from the accompanying consolidated statement of cash flows as a noncash transaction. During 2000, Greate Bay and HCC agreed to offset $146,000 of the outstanding principal balance of certain demand notes due to HCC against certain receivables owing from HCC (see Note 3). This offset has been excluded from the accompanying consolidated statement of cash flows as a noncash transaction. As a result of the May 1999 Chapter 11 filings by PCC, NJMI and PRT Funding, and as more fully explained in Note 1, Greate Bay changed to the cost method of accounting for its investment in PCC. Accordingly, the elimination of the following non-cash assets and liabilities from Greate Bay's 39 GREATE BAY CASINO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) consolidated balance sheet has been excluded from the accompanying consolidated statement of cash flows for the year ended December 31, 1999 as a non-cash transaction. Net current assets $ 463,000 Investment in PML 1,726,000 Accounts payable and accrued liabilities (5,202,000) Long-term debt (85,000,000) -------------- Net non-cash liabilities $ (88,013,000) ============== (13) Major Customers ACSC's computer service revenues were derived primarily from either system installation contracts or from sales to affiliates. System installation contracts generally required an extended period of time to complete and represented significant, but nonrecurring revenue earned from a given customer. Upon completion of an installation, ACSC would continue to recognize service or maintenance revenues from the customer at a much reduced amount. The following table demonstrates ACSC's dependence on installation contracts and on sales to affiliates: Year Ended December 31, ------------------------------- 2001 2000 1999 -------- -------- -------- Percentage of period revenues attributable to installation contracts 75.6% 60.9% 61.3% Percentage of period revenues attributable to affiliate sales 4.7% 22.9% 22.8% (14) Disclosures about Fair Value of Financial Instruments The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: Cash - The carrying amount equals fair value. Temporary cash investment - The carrying amount approximates fair value because of the short maturity of this investment. Notes receivable - affiliates - Notes receivable from affiliates are valued at carrying amount. As a result of the Chapter 11 filing, long-term debt and related accrued interest payable are subject to compromise and the fair value cannot be determined. At December 31, 2000, the fair value of the debt and related accrued interest was valued at the carrying amount. 40 GREATE BAY CASINO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The estimated carrying amounts and fair values of Greate Bay's financial instruments are as follows:
December 31, 2001 December 31, 2000 ---------------------------- ----------------------------- Carrying Carrying Amount Fair Value Amount Fair Value ------------ ------------ ------------- ------------- Financial Assets Cash $ 8,657,000 $ 8,657,000 $ 5,903,000 $ 5,903,000 Temporary cash investment 100,000 100,000 100,000 100,000 Notes receivable - affiliates - - 1,893,000 1,893,000 Financial Liabilities Interest payable $ 10,430,000 $ n/a $ 3,635,000 $ 3,635,000 Borrowings from affiliates 5,704,000 n/a 5,704,000 5,704,000 14 7/8% PPI Funding Notes 43,212,000 n/a 46,687,000 46,687,000
(15) Subsequent Event (Unaudited) On March 19, 2002, Greate Bay completed the sale of ACSC to Bally Gaming, Inc., a wholly owned subsidiary of Alliance Gaming Corporation, for $14.6 million as part of its Chapter 11 Plan (see Note 1). The proceeds from the sale together with any remaining residual cash, after payment in full of normal trade obligations and administrative claims, are to be distributed to HWCC, Greate Bay's sole major third party creditor, in settlement of outstanding obligations. Since the aggregate amount of sale proceeds and residual cash is substantially less than its existing obligations to HWCC, there will be no cash or other assets remaining available for distribution to the Company's shareholders. The following pro forma condensed statement of net liabilities as of December 31, 2001 presents the consolidated net liabilities of Greate Bay and as adjusted to reflect the sale of ACSC as if it had 41 GREATE BAY CASINO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) occurred on December 31, 2001. The following pro forma condensed statement of operations for the year ended December 31, 2001 presents the consolidated operations of Greate Bay and as adjusted to reflect the sale of ACSC as if it had occurred on January 1, 2001. Greate Bay Casino Corporation Condensed Consolidated Pro Forma Statement of Net Liabilities December 31, 2001
Greate Bay Pro Forma Pro Forma Consolidated ACSC Adjustments Greate Bay -------------- ------------- -------------- -------------- Cash $ 8,657,000 $ (6,754,000) $ - $ 1,903,000 Temporary cash investments 100,000 (100,000) - - Accounts receivable, net 4,516,000 (4,512,000) - 4,000 Inventory 774,000 (774,000) - - Costs and estimated earnings in excess of billings 350,000 (350,000) - - Due from affiliates 197,000 (197,000) - - Operating equipment 452,000 (451,000) - 1,000 Equipment held for sale 70,000 (70,000) - - Net realizable value in excess of cost 6,832,000 - (6,832,000)(a) - Deposits and other 469,000 (479,000) 140,000 (b) 130,000 ------------ ------------ ------------- ------------- Total assets 22,417,000 (13,687,000) (6,692,000) 2,038,000 ------------ ------------ ------------- ------------- Capital lease obligations 199,000 (199,000) - - Accounts payable 2,320,000 (2,722,000) 402,000 (b) - Accrued salaries and wages 597,000 (596,000) - 1,000 Unearned revenues 2,264,000 (2,264,000) - - Other current liabilities 138,000 (138,000) - - Liabilities subject to compromise: Affiliate borrowings 5,704,000 - - 5,704,000 Long-term debt 43,212,000 - - 43,212,000 Interest 10,430,000 - - 10,430,000 Other 90,000 - - 90,000 Reserve for estimated costs of liquidation 954,000 - - 954,000 ------------ ------------- ------------- ------------- Total liabilities 65,908,000 (5,919,000) 402,000 60,391,000 ------------ ------------- ------------- ------------- Net liabilities $(43,491,000) $ (7,768,000) $ (7,094,000) $ (58,353,000) ============ ============= ============= =============
42 GREATE BAY CASINO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Greate Bay Casino Corporation Condensed Consolidated Pro Forma Statement of Operations For the Year Ended December 31, 2001
Greate Bay Pro Forma Pro Forma Consolidated ACSC Adjustments Greate Bay ------------- --------------- --------------- --------------- Revenues $ 36,029,000 $ (36,029,000) $ - $ - ------------- --------------- --------------- --------------- Expenses: Cost of sales 14,462,000 (14,462,000) - - System development 7,291,000 (7,291,000) - - Marketing 1,519,000 (1,519,000) - - General and administrative 4,539,000 (3,247,000) (172,000)(c) 1,120,000 Write down of equipment 138,000 (138,000) - - Depreciation 248,000 (248,000) - - ------------ --------------- --------------- --------------- Total expenses 28,197,000 (26,905,000) (172,000) 1,120,000 ------------- --------------- --------------- --------------- Income (loss) from operations 7,832,000 (9,124,000) 172,000 (1,120,000) Interest income 511,000 (168,000) - 343,000 Interest expense (7,738,000) 25,000 2,172,000 (d) (5,541,000) ------------- --------------- --------------- --------------- Income (loss) before taxes 605,000 (9,267,000) 2,344,000 (6,318,000) Income tax provision (872,000) 3,703,000 (2,832,000)(e) (1,000) ------------ --------------- --------------- --------------- Net loss $ (267,000) $ (5,564,000) $ (488,000) $ (6,319,000) ============ =============== =============== ===============
_______________ (a) Eliminate write up of ACSC's net assets to estimated realizable value. (b) Eliminate ACSC's Federal income tax assets and liabilities under its intercompany tax sharing agreement. (c) Eliminate administrative costs incurred in connection with the sale of ACSC. (d) Apply estimated proceeds from sale of ACSC to reduce Greate Bay's obligations and, accordingly, reduce its interest expense. (e) Eliminate ACSC's Federal tax provision under its intercompany tax sharing agreement. 43 GREATE BAY CASINO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (16) Selected Quarterly Financial Data (Unaudited)
Quarter ----------------------------------------------------------------- First Second Third Fourth ------------- ------------- ------------- ------------- Year ended December 31, 2001: Net revenues $ 6,525,000 $ 10,388,000 $ 10,505,000 $ 8,611,000 ============= ============= ============= ============= Net (loss) income $ (935,000) $ 197,000 $ (973,000) $ 1,444,000 ============= ============= ============= ============= Net (loss) income per common share $ (.18) $ .04 $ (.19) $ .28 ============= ============= ============= ============= Year ended December 31, 2000: Net revenues $ 717,000 $ 4,148,000 $ 4,644,000 $ 4,612,000 ============= ============= ============= ============= Net loss $ (2,525,000) $ (1,545,000) $ (1,150,000) $ (1,377,000) ============= ============= ============= ============= Net loss per common share $ (.49) $ (.30) $ (.22) $ (.26) ============= ============ ============= =============
44 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Greate Bay had no disagreements with its independent accountants to report under this item. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Certain information is set forth below concerning the executive officers and directors of Greate Bay Casino Corporation ("Greate Bay" or the "Company"). Name Age Position ---- --- -------- John C. Hull ................ 63 Chairman of the Board, Chief Executive Officer and Director Edward T. Pratt III ......... 46 President and Chief Operating Officer Edward T. Pratt, Jr. ........ 78 Vice Chairman of the Board, Treasurer and Director William D. Pratt ............ 73 Executive Vice President, General Counsel, Secretary and Director Lawrence C. Cole ............ 55 Vice President for Management Information Systems Charles F. LaFrano III ...... 47 Vice President Jack E. Pratt ............... 75 Director and formerly Chief Executive Officer of the Company Bernard A. Capaldi .......... 59 Director Michael J. Chesser .......... 53 Director Business Experience for Past Five Years John C. Hull was elected to the positions shown above on January 2, 1998. He previously served as Corporate Controller of the Company since November 1994. Mr. Hull also served from April 1994 until January 1998 as Corporate Controller for Hollywood Casino Corporation ("HCC") which, prior to December 31,1996, owned approximately 80% of the outstanding common stock of the Company. Mr. Hull also served as Principal Accounting Officer for GB Holdings, Inc. ("Holdings") and GB Property Funding Corp. from November 1994 until January 1998. On January 5, 1998, these Greate Bay subsidiaries filed petitions for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of New Jersey. Mr. Hull was elected President, Chief Executive Officer and director of Pratt Casino Corporation ("PCC"), PRT Funding Corp. ("PRT Funding") and New Jersey Management, Inc. ("NJMI"), all wholly owned subsidiaries of the Company, on January 2, 1998 and served in such positions at the time of the filings by such companies of petitions for relief under Chapter 11 of the United States Bankruptcy Code on May 25, 1999. Mr. Hull also previously served as Principal Accounting Officer of PCC and PRT Funding until January 1998. Mr. 45 Hull was elected to the positions of Vice President and Assistant Secretary of PPI Corporation on November 26, 2001. He was also elected as Vice President and Assistant Secretary of PCPI Funding Corp. and PPI Funding Corp. on November 26, 2001 and has served as the Principal Accounting Officer for both companies for more than five years. On December 28, 2001, these Greate Bay subsidiaries filed petitions for protection under Chapter 11 of the United States Bankruptcy Code. Edward T. Pratt, Jr. has served as Vice Chairman of the Board and as director and executive officer of the Company for more than five years. On December 28, 2001, the Company filed a petition for protection under Chapter 11 of the United States Bankruptcy Code. He has also served as a director of HCC for more than five years and, prior to August 10, 2001, served as HCC's Vice Chairman of the Board, Vice President and Treasurer. Mr. Pratt also served until his resignation from such positions on January 2, 1998 as Vice Chairman of the Board of Directors of Holdings and of GB Property Funding Corp. and as a director of Greate Bay Hotel and Casino, Inc. ("GBHC"). On January 5, 1998, these three Greate Bay subsidiaries filed petitions for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of New Jersey. Mr. Pratt was elected Chief Financial Officer, Principal Accounting Officer and a director of PCC, PRT Funding and NJMI on January 2, 1998 and served in such positions at the time of the filings by such companies of petitions for relief under Chapter 11 of the United States Bankruptcy Code on May 25, 1999. He also served as Vice Chairman of the Board of Directors of PCC and PRT Funding from September 1993 to January 1, 1998 and as Executive Vice President, Treasurer and a director of NJMI for more than five years prior to January 1, 1998. Mr. Pratt also served as Vice President, Treasurer and a director of Pratt-Hollywood, Inc. ("PHI") and as a director of BPHC Acquisition, Inc. ("Acquisition") and BPHC Parking Corp. ("Parking") prior to his resignation from such positions in July 2000. On June 30, 2000, these three subsidiaries of the Company filed petitions for liquidation under Chapter 7 of the United States Bankruptcy Code. Mr. Pratt has also served for more than five years as Vice President, Treasurer and a director of both PPI Corporation and PCPI Funding Corp. and as Vice Chairman of the Board of PPI Funding Corp. On December 28, 2001, these three Greate Bay subsidiaries filed petitions for protection under Chapter 11 of the United States Bankruptcy Code. William D. Pratt has served as Executive Vice President, Secretary and as director of the Company for more than five years. He currently serves as General Counsel and, prior to May 1995, served as General Counsel of the Company for more than five years. On December 28, 2001, the Company filed a petition for protection under Chapter 11 of the United States Bankruptcy Code. He has also served as a director of HCC for more than five years and, prior to August 10, 2001, served as HCC's Executive Vice President, Secretary and General Counsel. Mr. Pratt also served until his resignation from such positions on January 2, 1998 as Executive Vice President, General Counsel and Secretary of Holdings and of GB Property Funding Corp. and as a director of GBHC. On January 5, 1998, these three Greate Bay subsidiaries filed petitions for relief under Chapter 11 of the United States Bankruptcy Code. Mr. Pratt also served until his resignation from such positions in January 1998 as Executive Vice President, General Counsel, Secretary and a director of PCC and PRT Funding and as Vice President, Secretary and a director of NJMI. On May 25, 1999, these three subsidiaries of the Company filed petitions for relief under Chapter 11 of the United States Bankruptcy Code. Mr. Pratt also served as Vice President, Secretary and a director of PHI and as Secretary and a director of Acquisition and Parking prior to his resignation from such positions in July 2000. On June 30, 2000, these three subsidiaries of the Company filed petitions for liquidation under Chapter 7 of the United States Bankruptcy Code. Mr. Pratt has also served for more than five years as Vice President, Secretary and a director of both PPI Corporation and PCPI Funding Corp. and as Executive Vice President, General Counsel, Secretary and a director of PPI Funding Corp. On December 28, 2001, these three Greate Bay subsidiaries filed petitions for protection under Chapter 11 of the United States Bankruptcy Code. Edward T. Pratt III was elected President and Chief Operating Officer of the Company in November 1995. From May 1987 until November 1995, he served the Company as Executive Vice 46 President -- Development and Corporate Affairs. On December 28, 2001, the Company filed a petition for protection under Chapter 11 of the United States Bankruptcy Code. He also serves as Chairman of the Board, President and Chief Executive Officer of HCC. Mr. Pratt served until his resignation from such positions on January 2, 1998 as President, Chief Operating Officer and a director of Holdings and as Executive Vice President and a director of GB Property Funding Corp. On January 5, 1998, these Greate Bay subsidiaries filed petitions for relief under Chapter 11 of the United States Bankruptcy Code. Mr. Pratt was elected Executive Vice President and Secretary of PCC, PRT Funding and NJMI on January 2, 1998 and served in such positions at the time of the filings by such companies of petitions for relief under Chapter 11 of the United States Bankruptcy Code on May 25, 1999. He also served as President, Chief Operating Officer and a director of PCC and as Executive Vice President and a director of PRT Funding from September 1993 to January 1, 1998. Mr. Pratt also served as Vice President and Assistant Treasurer of PHI prior to his resignation from such positions in July 2000. On June 30, 2000, this subsidiary of the Company filed a petition for liquidation under Chapter 7 of the United States Bankruptcy Code. Mr. Pratt has also served for more than five years as Vice President of PPI Corporation, as Vice President and Assistant Treasurer of PCPI Funding Corp. and as Executive Vice President and a director PPI Funding Corp. He was elected a director of PPI Corporation in January 1998. Prior to June 1998, he also served as Assistant Treasurer of PPI Corporation and subsequently served as Assistant Secretary. On December 28, 2001, PPI Corporation, PCPI Funding Corp. and PPI Funding Corp. filed petitions for protection under Chapter 11 of the United States Bankruptcy Code. Lawrence C. Cole has served as Vice President of Management Information Systems of the Company since December 1987. On December 28, 2001, the Company filed a petition for protection under Chapter 11 of the United States Bankruptcy Code. Mr. Cole also served as Chief Executive Officer and President of Advanced Casino Systems Corporation ("ACSC") which, prior to March 19, 2002, was a subsidiary of the Company which licensed software for automated casino accounting and control systems. Charles F. LaFrano III has served as Vice President and Assistant Secretary of the Company since September 1988. He also served as Corporate Controller (Principal Accounting Officer) of the Company from September 1988 until November 1994. On December 28, 2001, the Company filed a petition for protection under Chapter 11 of the United States Bankruptcy Code. He also serves as Vice President of Finance for HCC. Mr. LaFrano served until his resignation from such positions on January 2, 1998 as Vice President and Assistant Secretary of Holdings and GB Property Funding Corp. On January 5, 1998, these Greate Bay subsidiaries filed petitions for relief under Chapter 11 of the United States Bankruptcy Code. Mr. LaFrano served until his resignation from such positions in January 1998 as Vice President and Assistant Secretary of PCC and PRT Funding. On May 25, 1999, PCC and PRT Funding filed petitions for relief under Chapter 11 of the United States Bankruptcy Code. Mr. LaFrano has also served for more than five years as Vice President of PCPI Funding Corp. and as Vice President and Assistant Secretary of PPI Funding Corp. On December 28, 2001, these Greate Bay subsidiaries filed petitions for protection under Chapter 11 of the United States Bankruptcy Code. Jack E. Pratt has served as a director of the Company for more than five years. He has also served as a director of HCC for more than five years and, prior to August 10, 2001, served as HCC's Chairman of the Board and Chief Executive Officer. Mr. Pratt served as Chairman of the Board of Directors and Chief Executive Officer of Holdings and GBHC and as Chairman of the Board of Directors, President and Chief Executive Officer of GB Property Funding Corp. until his resignation from such positions on January 2, 1998. On January 5, 1998, these three Greate Bay subsidiaries filed petitions for relief under Chapter 11 of the United States Bankruptcy Code. Mr. Pratt served until his resignation from such positions in January 1998 as Chairman of the Board and Chief Executive Officer of PCC, Chairman of the Board, President and Chief Executive Officer of PRT Funding and Chairman of the Board and President of NJMI. On May 25, 1999, these three subsidiaries of the Company filed petitions for relief 47 under Chapter 11 of the United States Bankruptcy Code. Mr. Pratt also served as a President and a director of PHI, Acquisition and Parking prior to his resignation from such positions in July 2000. On June 30, 2000, these three subsidiaries of the Company filed petitions for liquidation under Chapter 7 of the United States Bankruptcy Code. Mr. Pratt also served as Chairman of the Board and Chief Executive Officer of Greate Bay prior to his resignation from such positions on January 2, 1998. He has also served for more than five years as President and a director of both PPI Corporation and PCPI Funding Corp. and as Chairman of the Board and Chief Executive Officer of PPI Funding Corp. On December 28, 2001, Greate Bay and these three subsidiaries filed petitions for protection under Chapter 11 of the United States Bankruptcy Code. Bernard A. Capaldi is a certified public accountant and is a principal of Capaldi, Reynolds & Associates, P.A., C.P.A.'s in New Jersey, and has held such position since 1965. He is also the Chairman of the Board of Shore Memorial Hospital's parent holding company. Mr. Capaldi also served as a director of PCC, PRT Funding and NJMI at the time they filed for protection under Chapter 11 of the United States Bankruptcy Code on May 25, 1999. Michael J. Chesser was elected to the Board of Directors of the Company on September 9,1997. He is currently Chairman and Chief Executive Officer of United Water. From April 2000 to December 2001, Mr. Chesser served as President and Chief Executive Officer of GPU Energy. He previously served as President, Chief Executive Officer and a director of Itron, Inc. from June 1999 until April 2000. From May 1998 until June 1999, Mr. Chesser was self employed as a business consultant. Prior to that, he served as President and Chief Operating Officer of Atlantic Energy Corporation from 1994 until May 1998 and served as a director of such company from 1996 until 1997. Mr. Chesser also served as a director of PCC, PRT Funding and NJMI at the time of the filings by such companies of petitions for relief under Chapter 11 of the United States Bankruptcy Code on May 25, 1999. Family Relationships Jack E. Pratt, Edward T. Pratt, Jr. and William D. Pratt are brothers (the "Pratt Brothers"). Edward T. Pratt III, President of the Company, is the son of Edward T. Pratt, Jr. There is no other family relationship between any of the directors and any executive officers of the Company or its subsidiaries or affiliates. 48 ITEM 11. EXECUTIVE COMPENSATION Summary of Cash and Certain Other Compensation The following table provides certain summary information concerning compensation paid or accrued by the Company, and its subsidiaries to or on behalf of the Company's Chief Executive Officer and its other compensated executive officer determined as of the end of the last fiscal year (hereafter referred to as the named executive officers) for the fiscal years ended December 31, 2001, 2000 and 1999. No other executive officers of the Company receive compensation for their services.
Long-Term Annual Compensation Compensation --------------------------------- Other Annual Awards/ All Other Name and Principal Position Year Salary Bonus Compensation Options Compensation (1) --------------------------- ---- --------- --------- ------------- ------------ ---------------- John C. Hull (2) 2001 $ 215,000 $ 35,000 $ - - $ 4,250 Chief Executive Officer and 2000 228,077 35,000 - - 4,250 Chairman of the Board of 1999 300,000 150,000 - - 4,000 Directors of the Company Lawrence C. Cole 2001 323,268 479,264 - - 4,250 Vice President of Management 2000 320,307 54,833 - - 4,250 Information Systems of the 1999 287,323 50,000 - - 4,000 Company
__________________ (1) Includes matching contributions by the Company to The Hollywood Casino Corporation Retirement Savings Plan on behalf of the named executive officer. See also "Employee Retirement Savings Plan" below. (2) Amounts shown for John C. Hull represent payments by the Company to HCC for services provided by Mr. Hull. Option Exercises and Holdings The Pratt Hotel Corporation 1990 Incentive Stock Option Plan (the "Plan") has expired. No options under the Plan were granted or exercised during 2001 and no unexercised options remain outstanding. Employment Contracts During the year ended December 31, 2001, John C. Hull, Chief Executive Officer of the Company, was under an employment agreement as amended as of January 1, 2001 and continuing through December 31, 2001. Mr. Hull's employment contract was further amended effective as of December 3, 2001 to extend the term to the date of entry of a final decree in the Chapter 11 bankruptcy action of the Company, unless sooner terminated in accordance with the agreement, and provide for an annual base salary of $215,000, a bonus for the calendar year 2001 in the amount of $35,000 and a bonus for the calendar year 2002 in the amount of $50,000 which shall be due and payable upon the successful consummation of the Company's plan of reorganization as part of its Chapter 11 bankruptcy action. Lawrence C. Cole, Vice President of Management Information Systems of the Company served under an employment contract, as amended on November 30, 1998, with ACSC. The employment agreement was amended as of September 20, 2001 and further amended as of December 19, 2001 and 49 continues through December 31, 2003 unless sooner terminated by one of the respective parties. The terms of Mr. Cole's amended contract provides for a minimum annual base salary of $275,000 subject to annual increases based on changes in the Consumer Price Index, as defined in the employment contract, a monthly transportation allowance of $800 effective as of December 19, 2001 and an incentive bonus based on 5% of Net Operating Results, as such term is defined in the agreement. Mr. Cole's agreement also provides that in the event of a sale of ACSC to an unaffiliated third party, Mr. Cole is to receive incentive compensation to be paid by HCC in the amount of 5% of the Proceeds up to $8 million, 10% of the Proceeds in excess of $8 million and 15% of the Proceeds in excess of $15 million, as the term "Proceeds" is defined in the agreement. In the event that ACSC is sold to an entity in which Mr. Cole is involved as an officer of shareholder or with which he assisted in obtaining equity or debt financing to acquire ACSC, Mr. Cole's incentive compensation as described above is to be reduced by 50%. In addition to the above, in the event of either type of sale of ACSC, Mr. Cole may, within 30 days of consummation of the sale, terminate his employment agreement. ACSC shall accept such termination effective 180 days following notice with the terms of the employment agreement remaining in effect during such period of time. Within 90 days of the termination of the employment agreement under such conditions, ACSC will be required to pay one-third and HCC will be required to pay two-thirds of the remaining base salary due Mr. Cole through December 31, 2003 under his employment agreement. Employee Retirement Savings Plan Employees of the Company participate in The Hollywood Casino Corporation Retirement Savings Plan (the "Savings Plan"). The Savings Plan is qualified under the requirements of section 401(k) of the Code allowing participating employees to benefit from the tax deferral opportunities provided therein. All employees of the Company who have completed 90 days of service, as defined, and who have attained the age of 21, are eligible to participate in the Savings Plan. The Savings Plan provides for a matching contribution by the Company based upon certain criteria, including levels of participation by the Company's employees. The Company incurred matching contributions totaling approximately $58,000 for the year ended December 31, 2001. Compensation of Directors Nonemployee directors of the Company received an annual fee of $40,000 for service on the Board of Directors and $1,000 for each Board meeting attended. The Board of Directors of the Company held one regularly scheduled meeting and one special meeting during the year ended December 31, 2001. The Board of Directors of the Company has Audit, Compliance and Compensation Committees, but does not have a standing nominating committee. Nonemployee members of the Audit Committee and Compliance Committee receive an annual fee of $2,500 for service on each committee and $500 for each committee meeting attended. Nonemployee members of the Compensation Committee receive a fee of $1,000 for each committee meeting attended. The Audit Committee, which is comprised of Edward T. Pratt, Jr., Bernard A. Capaldi and Michael J. Chesser, met once during 2001. The Compliance Committee, which is comprised of Edward T. Pratt, Jr., William D. Pratt and Bernard A Capaldi, met four times during 2001. The meeting with respect to the fourth quarter of 2001 was held on January 17, 2002 and the meeting with respect to the fourth quarter of 2000 was held on January 16, 2001. The Compensation Committee, which is comprised of Bernard A. Capaldi, Michael J. Chesser and Jack E. Pratt met once during 2001. 50 Compensation Committee Interlocks and Insider Participation The Compensation Committee of the Board of Directors of the Company is comprised of Bernard A. Capaldi, Michael Chesser and Jack E. Pratt. Neither Mr. Chesser nor Mr. Capaldi is a former or current officer or employee of the Company or any of its subsidiaries. Jack E. Pratt served as an executive officer and director of the Company until January 2, 1998 and served as an executive officer of HCC until August 2001 and continues to serve as a director of HCC. REPORT OF THE COMPENSATION COMMITTEE As members of the Compensation Committee, it has been our duty to review compensation levels of members of management, to evaluate the performance of management and to consider management succession and related matters. The Compensation Committee has reviewed with the Board in detail all aspects of compensation for all executive officers. The compensation policy of the Company, which has been endorsed by the Compensation Committee, is that the annual compensation of each officer was established to reward long-term strategic management and the enhancement of stockholder value, as well as to attract and retain key executives critical to the long-term success of the Company. Such compensation related to and was contingent upon the contributions, responsibilities and relative position in the Company of each individual officer, as well as the relative performance of the Company. The Compensation Committee also considered competition within the rapidly expanding gaming industry for experienced personnel as well as other subjective considerations in its deliberations regarding executive compensation. Mr. John C. Hull was elected to the position of Chief Executive Officer of the Company effective January 2, 1998. Mr. Hull entered into an amended employment agreement (the "Hull Agreement") effective as of January 1, 2001. The terms of the Hull Agreement called for an annual base salary of $215,000 and a bonus of $35,000. The Hull Agreement, which would have expired on December 31, 2001, was further amended effective as of December 3, 2001 to extend the term to the date of entry of a final decree in the Chapter 11 bankruptcy action of the Company, unless sooner terminated in accordance with the agreement, and provide for an annual base salary of $215,000, a bonus for the calendar year 2001 in the amount of $35,000 and a bonus for the calendar year 2002 in the amount of $50,000 which shall be due and payable upon the successful consummation of the Company's plan of reorganization as part of its Chapter 11 bankruptcy action. This report and the accompanying stock price performance graph are provided for general informational purposes only pursuant to regulations under the Securities Exchange Act of 1934. No information contained in this report or the accompanying graph shall be deemed to be filed in whole or in part for purposes under the Securities Act of 1933 or the Securities Exchange Act of 1934, or incorporated by reference into any filing made thereunder. Compensation Committee Jack E. Pratt Bernard A. Capaldi Michael J. Chesser 51 STOCK PRICE PERFORMANCE The graph set forth below compares the stock price performance of the Company with those of the Dow Jones Equity Market Index and the Dow Jones Index for the Casino Industry for the previous five years. The Company has not paid dividends over such period of time; however, the comparative equity market and industry data assumes reinvestment of dividends. The stock price performance shown below may not be indicative of future stock price performance. (Table substituted for graph). Greate Bay Casino Corporation Stock Price Performance (January 1, 1997 = 100) Greate Bay Equity Casino Casino Date Index Index Corporation ---- ----- ----- ----------- January 1, 1997 100.0 100.0 100.0 March 31, 1997 101.1 90.0 85.7 June 30, 1997 118.3 97.3 78.6 September 30, 1997 128.9 114.4 78.6 December 31, 1997 131.8 90.9 71.4 March 31, 1998 149.3 101.4 57.1 June 30, 1998 152.6 91.2 28.6 September 30, 1998 135.4 61.0 14.3 December 31, 1998 164.6 65.1 11.6 March 31, 1999 171.2 84.4 13.4 June 30, 1999 184.2 94.4 3.6 September 30, 1999 172.0 101.0 19.6 December 31, 1999 202.0 100.2 7.1 March 31, 2000 210.2 93.8 12.5 June 30, 2000 201.6 108.1 4.6 September 29, 2000 202.6 129.9 5.1 December 29, 2000 183.3 109.5 0.6 March 30, 2001 160.0 107.9 1.1 June 29, 2001 170.9 124.4 1.8 September 28, 2001 144.2 86.6 1.1 December 31, 2001 161.5 120.7 1.1 52 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Security Ownership of Certain Beneficial Owners Based on filings with the Securities and Exchange Commission, no persons, other than certain directors of the Company, are known who beneficially owned more than 5% of the outstanding Common Stock as of the March 29, 2002. Security Ownership of Management The following table presents the number of shares of Common Stock beneficially owned by each director, nominee for director and executive officer named under Item 11. "Executive Compensation" and by all current directors and officers of the Company as a group as of March 29, 2002: Shares of Percentage of Common Stock Outstanding Beneficially Common Beneficial Owner Owned (a) Stock - ---------------- ---------------------- ------------- Jack E. Pratt ....................... 877,336(b) 16.9% Edward T. Pratt, Jr. ................ 180,469 3.5% William D. Pratt .................... 89,301(c) 1.7% Edward T. Pratt III ................. 314,698(d) 6.1% John C. Hull ........................ -- -- Bernard A. Capaldi, CPA ............. -- -- Michael J. Chesser .................. -- -- Lawrence C. Cole .................... -- -- All directors and officers as a group (9 individuals) ........... 1,461,804 28.2% ______________________ (a) Except as otherwise described, each individual has the sole power to vote and dispose of the Common Stock beneficially owned by him. (b) Beneficial ownership is attributable to the following: (1) C.A. Pratt Partners, Ltd., a Texas limited partnership of which Jack E. Pratt is the General Partner, owns 58,106 shares (1.1%) of the outstanding common stock of the Company and (2) Mr. Pratt, as custodian for his minor children holds 160,492 shares (3.1%) of the outstanding common stock of the Company. (c) Beneficial ownership is attributable to the WDP Jr. Family Trust, for which Mr. Pratt is the Trustee, which owns 27,452 shares (less than 1%) of the outstanding common stock of the Company. (d) Beneficial ownership is attributable to 232,188 shares (4.5%) of the outstanding common stock of the Company owned of record by siblings of Mr. Pratt and subject to a proxy giving him the right to vote such shares and prohibiting the transfer of such shares without his approval. 53 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Hollywood Casino Corporation. During 1990, PBC, Inc., a predecessor company to HCC, which was then wholly owned by members of the Pratt family, acquired approximately $38.8 million of unsecured notes (the "PCPI Notes") issued by PCPI Funding Corp., a subsidiary of the Company. As part of a refinancing in February 1994 of virtually all of the Company's casino-related outstanding debt, a newly formed subsidiary of the Company issued approximately $40.5 million discounted principal amount of new deferred interest notes (the "PPI Funding Notes") in exchange for the $38.8 million principal amount of PCPI Notes held by HCC. Interest expense accreted and accrued with respect to the PPI Funding Notes for the year ended December 31, 2001 amounted to $6.9 million. The PPI Funding Notes were discounted to yield 14 7/8% interest per annum and had an original face value of $110.6 million. Subsequent principal payments, the offset by a note receivable due from HCC during December 2001 (as discussed below), the assignment of a portion of the PPI Funding Notes in 1997 (as discussed below) and the forgiveness of $37 million undiscounted fair value of the PPI Funding Notes by HCC in 1997 have reduced the maturity value to $43.2 million. The Company and its subsidiaries have also borrowed funds from HCC for various purposes. Such loans have including $6.5 million borrowed on a demand basis at the rate of 13.75% per annum and a $250,000 loan at the rate of 14% per annum which became due on April 1, 1998 and remains outstanding. During October 2000, Greate Bay paid $900,000 of the outstanding principal balance and reached an agreement with HCC to offset an additional $146,000 of principal against other receivables due from HCC while negotiations to restructure the debt continued. As a result of these transactions, the balance outstanding at December 31, 2001 has been reduced to $5.7 million. Interest expense on the borrowings from HCC amounted to $787,000 for the year ended December 31, 2001. Interest payable to HCC with respect to such borrowings amounted to $4.4 million at December 31, 2001. Hollywood Casino - Aurora, Inc. ("HCA"), a wholly owned subsidiary of HCC, was organized for the purpose of developing and owning a riverboat gaming facility in Aurora, Illinois, (the "Aurora Casino") which commenced operations on June 17, 1993. Effective as of April 1, 1997, PPI Corporation, a subsidiary of the Company, sold its general partnership interest in the limited partnership which held the management contract on the Aurora Casino to a subsidiary of HCC. The subsidiary of the Company received from HCC a five-year note in the original amount of $3.8 million, $7.6 million discounted principal amount of PPI Funding Notes (see above) and the assignment of certain accrued interest receivable in exchange for the general partnership interest. The $3.8 million note, as amended as of October 12, 1999, provided for monthly installments of $83,000 including interest and additional quarterly principal payments of $21,000 beginning January 1, 2000. Interest earned on the note amounted to $255,000 during the year ended December 31, 2001. During December 2001, PPI Corporation assigned the remaining note balance and related interest from HCC totaling $2,391,000 to PPI Funding Corp., its wholly owned subsidiary. PPI Funding Corp. and HCC agreed to offset the principle balance and accrued interest against a portion of the PPI Funding Notes. HCC then assigned its remaining PPI Funding Notes to HWCC and PPI Funding Corp. made a $2 million cash payment to HWCC - Holdings, Inc. ("HWCC", a wholly owned subsidiary of HCC). On December 28, 2001, Greate Bay and three of its wholly owned subsidiaries, PPI Corporation, PPI Funding Corp. and PCPI Funding Corp. (collectively, the "Debtors"), filed voluntary petitions for protection under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the District of Delaware (the "Delaware Bankruptcy Court"). Each company continues to operate in the ordinary course of business, as set forth in the Bankruptcy Code, and each company's executive officers and directors as of the date of the filing remain in office, subject to the jurisdiction of the Delaware Bankruptcy Court. ACSC was not included in the bankruptcy filings and continued to conduct business as usual until sold in March 2002. 54 Concurrent with the bankruptcy filing, the Debtors filed a joint disclosure statement and a joint Chapter 11 Plan (the "Plan") which provided for the pre-confirmation sale of ACSC by Greate Bay. The Plan further provides that the proceeds from the sale and any residual cash, after payment in full of normal trade obligations and administrative claims, are to be distributed to HWCC, Greate Bay's sole major third party creditor, in settlement of outstanding obligations. Since the aggregate amount of the sale proceeds and residual cash is substantially less than its existing obligations to HWCC, there will be no cash or other assets remaining available for distribution to the Company's shareholders. The sale of ACSC was approved by the Delaware Bankruptcy court on March 6, 2002 and completed on March 19, 2002. Although the Company believes that HWCC is its only creditor (except for minor trade obligations which will be paid in full under the Plan), two alleged creditors have filed claims in the Company's bankruptcy proceeding. Las Vegas Sands, Inc. ("LVSI") has filed a claim in the amount of $20.1 million alleging breach of contract of a license agreement dated May 19, 1987 concerning the licensing of the "Sands" name and trademark with respect to a property previously operated by a subsidiary of the Company in San Juan, Puerto Rico which was sold in 1997. LVSI has also filed an objection to the HWCC claims. William D. Pratt, Jr. ("Pratt") has filed a claim in the amount of $3 million purporting to represent amounts owing for "services performed" and "wages, salaries and commissions". The Company believes the LVSI and Pratt claims are without merit and, accordingly, has filed objections to both claims requesting that the Bankruptcy Court disallow such claims in full. A hearing in the Bankruptcy Court has been scheduled for May 2, 2002 to consider (1) the Company's objections to the foregoing claims, (2) LVSI's objections to the HWCC claims and (3) confirmation of the Plan. The Company and its subsidiaries share certain general and administrative costs with HCC pursuant to services agreements and the Company allocates certain of its administrative costs to HCC. Net allocated costs and fees charged to the Company by HCC amounted to $382,000 during the year ended December 31, 2001. A payable in the amount of $6,000 in connection with such allocated costs and fees was due to HCC at December 31, 2001. Prior to its sale by Greate Bay, ACSC provided computer, marketing and other administrative services to HCC and its subsidiaries. Computer services provided included hardware, software and operator support and, for the most part, such services were billed by ACSC at its direct cost plus expenses incurred. ACSC entered into new maintenance and support agreements with HCC's casino facilities in Aurora, Illinois and Tunica, Mississippi effective as of January 1, 2000 which provided for an aggregate monthly fee of $26,000 (subject to change upon 60 days written notice) plus additional services at rates charged by the subsidiary to third parties. The agreement had an initial term of one year with automatic annual renewals unless notice of termination was given. Billings to HCC and its casino facilities for such services amounted to $1.4 million for the year ended December 31, 2001. Unpaid charges from HCC and its subsidiaries at December 31, 2001 amounted to $185,000. During 2001, ACSC also provided and installed casino system software to a new HCC-owned casino property constructed in Shreveport, Louisiana (the "Shreveport Casino"). ACSC entered into a similar maintenance and support agreement with the Shreveport Casino effective as of October 12, 2000 at a monthly fee of $11,000 commencing 90 days after installation of ACSC's casino system software. Total amounts billed during 2001 to the Shreveport Casino amounted to $330,000. Receivables in the amount of $12,000 were outstanding at December 31, 2001 with respect to the Shreveport Casino. 55 ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as a part of this report: 1. Financial Statements The financial statements filed as part of this report are listed on the Index to Financial Statements on page 18. 2. Financial Statement Schedule -- Independent Auditors' Report -- Schedule II; Valuation and Qualifying Accounts All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted. 3. Exhibits @3.1 -- Certificate of Incorporation of Pratt Hotel Corporation ("PHC", now known as Greate Bay) as amended. (Exhibit 3.1) ##3.2 -- Amendment to Certificate of Incorporation of PHC. (Exhibit 3.2) @3.3 -- Amended Bylaws of PHC. (Exhibit 3.2) ++9.1 -- Voting Trust Agreement dated as of December 29, 1998 by and among Jill Pratt Laferney, formerly Jill A. Pratt, and John R. Pratt and Jack E. Pratt, Sr. (Exhibit 9.1) ++9.2 -- Voting Trust Agreement dated as of December 29, 1998 by and among Shawn Denise Bradshaw and Michael Shannan Pratt and William D. Pratt, Sr. (Exhibit 9.2) ++9.3 -- Voting Trust Agreement dated as of December 29, 1998 by and among Carolyn S. Hickey, Diana Pratt-Wyatt, formerly Diana L. Heisler, and Sharon A. Naftel, formerly Sharon R. Nash, and Edward T. Pratt III. (Exhibit 9.3) 9.4 -- First Amendment to Voting Trust Agreement dated as of December 30, 2001 by and among Carolyn S. Hickey, Diana Pratt-Wyatt, formerly Diana L. Heisler, and Sharon A. Naftel, formerly Sharon R. Nash, and Edward T. Pratt III. ++10.1 -- Management and Administrative Services Agreement dated October 1, 1998, by and between Hollywood Casino Corporation ("HCC") and Greate Bay. (Exhibit 10.1) +10.2 -- Tax Allocation Agreement by and among PHC, PPI Corporation, Greate Bay Hotel Corporation, Pratt Casino Properties, Pacsa No. 2, Inc., Pacsa No. 3, Inc., Pratt Hotel Funding, Inc. and Greate Bay Property Funding Corp., effective as of January 1, 1987. (Exhibit 10.17) +10.3 -- Tax Allocation Agreement by and among Pratt Casino Properties, BPHC Acquisition, Inc., PHMI, Greate Bay Casino Corporation, PCPI Funding Corp. and GBHC effective as of January 1, 1987. (Exhibit 10.18) ++10.4 -- Amendment to Employment Agreement dated November 30, 1998, between ACSC and Lawrence C. Cole. (Exhibit 10.9) #10.5 -- Employment Agreement dated as of February 13, 2000 between Greate Bay and John C. Hull. (Exhibit 10.9) 56 @@@10.6 -- Second Amendment to Employment Agreement dated as of September 20, 2001 among ACSC and Lawrence C. Cole. (Exhibit 10.1) ###10.7 -- Third Amendment to Employment Agreement dated as of December 19, 2001 among ACSC and Lawrence C. Cole. (Exhibit 99.1 - Exhibit G) 10.8 -- First Amendment to Employment Agreement dated as of January 1, 2001 between Greate Bay and John C. Hull. 10.9 -- Second Amendment to Employment Agreement dated as of December 3, 2001 between Greate Bay and John C. Hull. ###10.10 -- Amendment No. 1 to Stock Purchase Agreement dated February 4, 2002 by and among ACSC Acquisitions, Inc., Advanced Casino Systems Corporation, PPI Corporation and Greate Bay. (Exhibit 99.2) 21.1 -- Subsidiaries of Greate Bay. @@99.1 -- Debtors' Joint Chapter 11 Plan Dated December 28, 2001. (Exhibit 99.1) @@99.2 -- Debtors' Joint Disclosure Statement Dated December 28, 2001, in Support of the Debtors' Joint Chapter 11 Plan Dated December 28, 2001. (Exhibit 99.2) 99.3 -- Notice to Stockholders of Greate Bay Regarding the Debtors' First Amended Joint Plan Dated March 20, 2002 99.4 -- Debtors' First Amended Joint Chapter 11 Plan Dated March 20, 2002. 99.5 -- Debtors' First Amended Joint Disclosure Statement Under 11 U.S.C. 1125, Dated March 20, 2002, in Support of the Debtors' First Amended Joint Chapter 11 Plan Dated March 20, 2002. ______________________ @ Incorporated by reference from the exhibit shown in parenthesis to Greate Bay's Annual Report on Form 10-K for the fiscal year ended December 31, 1992. @@ Incorporated by reference from the exhibit shown in parenthesis filed in Greate Bay's Report on Form 8-K dated January 9, 2002. @@@ Incorporated by reference from the exhibit shown in parenthesis filed in Greate Bay's Quarterly Report on Form 10-Q as filed with the SEC on November 14, 2001. + Incorporated by reference from the exhibit shown in parenthesis to Form S-1 Registration Statement (Registration No. 33-58732) for Hollywood Casino Corporation as filed with the SEC on May 27, 1993. ++ Incorporated by reference from the exhibit shown in parenthesis filed in Greate Bay's Annual Report on Form 10-K for the fiscal year ended December 31, 1998. # Incorporated by reference from the exhibit shown in parenthesis to Greate Bay's Annual Report on Form 10-K for the fiscal year ended December 31, 1999. ## Incorporated by reference from the exhibit shown in parenthesis to Greate Bay's Annual Report on Form 10-K for the fiscal year ended December 31, 1996. ### Incorporated by reference from the exhibit shown in parenthesis to Greate Bay's Current Report on Form 8-K dated March 20, 2002 and filed with the Securities Exchange Commission on April 2, 2002. 57 (b) Reports on Form 8-K. The Registrant did not file any Reports on Form 8-K during the quarter ended December 31, 2001. The Registrant filed a Report on Form 8-K on January 9, 2002 to report the filing by the Registrant and three of its wholly owned subsidiaries on December 28, 2001 of voluntary petitions for protection under Chapter 11 of the United States Bankruptcy Code with the United States Bankruptcy Court for the District of Delaware together with a joint disclosure statement and a joint Chapter 11 Plan. The Registrant filed a Report on Form 8-K on April 2, 2002 to report the completion of its sale of Advanced Casino Systems Corporation to Bally Gaming, Inc., a wholly owned subsidiary of Alliance Gaming Corporation, for $14.6 million. 58 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Egg Harbor Township, State of New Jersey on April 12, 2002. GREATE BAY CASINO CORPORATION By:/s/ John C. Hull ---------------------------- John C. Hull Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant in the capacities and on the dates indicated: Signature Title Date --------- ----- ---- /s/ John C. Hull Chief Executive Officer April 12, 2002 - --------------------------- -------------------- John C. Hull and Director /s/ Edward T. Pratt, Jr. Treasurer, Principal April 12, 2002 - --------------------------- -------------------- Edward T. Pratt, Jr. Financial and Accounting Officer and Director /s/ Edward T. Pratt III President and Chief April 12, 2002 - --------------------------- -------------------- Edward T. Pratt III Operating Officer Executive Vice ___________________________ ____________________ William D. Pratt President, General Counsel, Secretary and Director Director ___________________________ ____________________ Jack E. Pratt /s/ Bernard A. Capaldi Director April 12, 2002 - --------------------------- -------------------- Bernard A. Capaldi /s/ Michael J. Chesser Director April 12, 2002 - --------------------------- -------------------- Michael J. Chesser 59 INDEX TO FINANCIAL STATEMENT SCHEDULE Greate Bay Casino Corporation and Subsidiaries -- Independent Auditors' Report -- Schedule II; Valuation and Qualifying Accounts 60 INDEPENDENT AUDITORS' REPORT ---------------------------- To Greate Bay Casino Corporation: We have audited the consolidated financial statements of Greate Bay Casino Corporation and subsidiaries as of, and for each of the three years in the period ended December 31, 2001 and have issued our report thereon dated April 3, 2001; such report is included elsewhere in this Form 10-K. Our audit also includes the financial statement schedule of Greate Bay Casino Corporation listed in Item 14. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audit. In our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. Deloitte & Touche LLP Dallas, Texas April 3, 2001 61 SCHEDULE II GREATE BAY CASINO CORPORATION AND SUBSIDIARIES Valuation and Qualifying Accounts
Amounts Balance at Charged to Balance Beginning Costs and at End Description of Period Expenses Deductions Other of Period - ----------- ------------ ----------- ----------- --------------- --------- Year Ended December 31, 2001: Valuation allowance on doubtful accounts receivable $ - $ 8,000 $ - $ - $ 8,000 ============ =========== ============= =============== ========= Year Ended December 31, 2000: Valuation allowances on affiliates receivables $ 232,000 $ - $ (54,000)(1) $ (178,000)(2) $ - Allowance for doubtful accounts receivable 28,000 20,000 (48,000)(1) - - ------------- ----------- ------------- --------------- --------- $ 260,000 $ 20,000 $ (102,000) $ (178,000) $ - ============ =========== ============= =============== ========= Year Ended December 31, 1999: Valuation allowances on affiliates receivables $ 20,977,000 $ 22,000 $ - $ (20,767,000)(3) $ 232,000 Allowance for doubtful accounts receivable - 28,000 - - 28,000 ------------ ----------- ------------- --------------- --------- $ 20,977,000 $ 50,000 $ - $ (20,767,000) $ 260,000 ============ =========== ============= =============== =========
______________________ (1) Represents net write offs of uncollectible accounts. (2) Represents recoveries of previously reserved balances. (3) Represents reserves written off in connection with the transfer of affiliate receivables to Greate Bay Holdings, L.L.C. for the benefit of the PRT Funding noteholders. The accompanying notes to consolidated financial statements are an integral part of this schedule. 62 EX-9.4 3 dex94.txt FIRST AMENDMENT TO VOTING TRUST AGREEMENT EXHIBIT 9.4 FIRST AMENDMENT TO GREATE BAY CASINO CORPORATION VOTING TRUST AGREEMENT ---------------------- THIS FIRST AMENDMENT TO GREATE BAY CASINO CORPORATION VOTING TRUST AGREEMENT (the "First Amendment") is made and entered into by and among CAROLYN S. HICKEY, DIANA PRATT-WYATT (FORMERLY DIANA L. HEISLER) and SHARON R. NAFTEL (FORMERLY SHARON R. NASH) (the "Shareholders") and EDWARD T. PRATT III (the "Proxy"). RECITALS -------- WHEREAS, the Shareholders and the Proxy entered into that certain Greate Bay Casino Corporation Voting Trust Agreement dated effective as of December 29, 1998 (the "Agreement"; all capitalized terms used but not otherwise defined herein shall have the meanings specified in the Agreement), providing, among other things, for the assignment by the Shareholders to the Proxy of the Shareholders' voting and certain other rights incident to certain shares of Common Stock of Greate Bay Casino Corporation in accordance with the Agreement; and WHEREAS, the Shareholders and the Proxy now desire to amend the Agreement to provide for the extension of the Term of the Agreement. AGREEMENTS ---------- NOW, THEREFORE, in consideration of the mutual covenants contained herein, the Shareholders and the Proxy hereby agree to amend the Agreement as follows: D. Section 7(a) of the Agreement is amended in its entirety to read as follows: (a) Effective Date and Term. This Agreement shall become effective as of December 28, 1998 and shall continue until December 31, 2004, unless terminated as provided in Paragraph 7(b) of this Agreement (the "Term"). 2. Except as amended by this First Amendment, the Agreement shall be and remain in full force and effect in accordance with its original terms. 3. This First Amendment may be executed in multiple counterparts each of which shall constitute an original and all of which taken together shall constitute one and the same instrument. 1 EXECUTED effective as of the 30/th/ day of December, 2001. /s/ Carolyn S. Hickey --------------------- Carolyn S. Hickey, Shareholder /s/ Diana Pratt-Wyatt ---------------------------------------------- Diana Pratt-Wyatt (formerly Diana L. Heisler), Shareholder /s/ Sharon R. Naftel -------------------- Sharon R. Naftel (formerly Sharon R. Nash), Shareholder /s/ Edward T. Pratt III ----------------------- Edward T. Pratt III, Proxy 2 EX-10.8 4 dex108.txt FIRST AMENDMENT TO EMPLOYMENT AGREEMENT EXHIBIT 10.8 FIRST AMENDMENT TO EMPLOYMENT AGREEMENT --------------------------------------- THIS FIRST AMENDMENT TO EMPLOYMENT AGREEMENT (the "First Amendment") is made and entered into to be effective as of the 1st day of January, 2001 between GREATE BAY CASINO CORPORATION, a Delaware corporation (the "Employer"), and JOHN C. HULL (the "Employee") with reference to the foregoing. RECITALS -------- A. Employer and Employee entered into that certain Employment Agreement dated as of February 13, 2000 (the "Existing Employment Agreement"); and B. Employer and Employee now desire to amend the Existing Employment Agreement as provided below. AGREEMENTS ---------- NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Paragraph 6 of the Existing Employment Agreement is hereby amended by deleting the reference therein to "December 31, 2000" and replacing it with a reference to "December 31, 2001." 2. Paragraph 8(b) of the Existing Employment Agreement is hereby amended by deleting the reference therein to "December 31, 2000" and replacing it with a reference to "December 31, 2001." 3. This First Amendment may be executed in multiple counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. 4. If any provision of this First Amendment or the application hereof to any person or circumstances shall to any extent be held void, unenforceable or invalid, then the remainder of this First Amendment or the application of such provision to persons or circumstances other than those as to which it is held void, unenforceable or invalid shall not be affected thereby, and each provision of this First Amendment shall be valid and enforced to the fullest extent permitted by law. 5. THIS FIRST AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO ANY OF SUCH STATE'S DOCTRINES REGARD CONFLICTS OF LAWS. 6. Except as amended hereby, the Existing Employment Agreement shall continue in full force and effect without any further action by the parties thereto. On or after the effective date of this First Amendment, references to the "Agreement" in the Existing Employment Agreement, as amended 1 hereby, shall be deemed to mean, for purposes of determining the rights, remedies, obligations and liabilities of the parties thereto and all other purposes, the Existing Employment Agreement, as amended by this First Amendment. IN WITNESS WHEREOF, the parties to this First Amendment have executed such First Amendment effective as of the date first set forth above. /s/ John C. Hull ---------------------------------------------------- John C. Hull GREATE BAY CASINO CORPORATION By: /s/ Edward T. Pratt III ------------------------------------------------- Name: Edward T. Pratt III Title: President and Chief Operating Officer 2 EX-10.9 5 dex109.txt SECOND AMENDMENT TO EMPLOYMENT AGREEMENT EXHIBIT 10.9 SECOND AMENDMENT TO EMPLOYMENT AGREEMENT ---------------------------------------- THIS SECOND AMENDMENT TO EMPLOYMENT AGREEMENT (the "Second Amendment") is made and entered into to be effective as of the 3rd day of December, 2001 between GREATE BAY CASINO CORPORATION, a Delaware corporation (the "Employer"), and JOHN C. HULL (the "Employee") with reference to the foregoing. RECITALS -------- A. Employer and Employee entered into that certain Employment Agreement dated as of February 13, 2000 (as amended by that certain First Amendment to Employment Agreement dated as of January 1, 2001, the "Existing Employment Agreement"); and B. Employer and Employee now desire to amend the Existing Employment Agreement as provided below. AGREEMENTS ---------- NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Paragraph 6 of the Existing Employment Agreement is hereby amended in its entirety to read as follows: "6. TERM. The term of this Agreement shall commence on the ---- Effective Date and expire on the date of entry of a final decree in the Chapter 11 bankruptcy action (the "Chapter 11 Bankruptcy Action") which Employer and certain of its subsidiaries (the "Debtors") will shortly file with the United States Bankruptcy Court for the District of Delaware (the "Term"), unless sooner terminated as provided herein." 2. Paragraph 8(b) of the Existing Employment Agreement is hereby amended in its entirety to read as follows: "(b) Bonus. In addition to receiving the base salary prescribed ----- under Paragraph 8(a) above, Employee shall also be entitled to receive (i) a bonus for the calendar year 2001 in the amount of $35,000 due and payable on the first to occur of the execution and delivery of the Stock Purchase Agreement among Employer, PPI Corporation, Advanced Casino Systems Corporation and ACSC Acquisitions, Inc. or December 31, 2001 and (ii) a bonus for the calendar year 2002 in the amount of $50,000 which shall be due and payable on the date of the successful consummation of the plan of reorganization confirmed by the Bankruptcy Court in the Chapter 11 Bankruptcy Action of the Debtors." 1 3. This Second Amendment may be executed in multiple counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. 4. If any provision of this Second Amendment or the application hereof to any person or circumstances shall to any extent be held void, unenforceable or invalid, then the remainder of this Second Amendment or the application of such provision to persons or circumstances other than those as to which it is held void, unenforceable or invalid shall not be affected thereby, and each provision of this Second Amendment shall be valid and enforced to the fullest extent permitted by law. 5. THIS SECOND AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO ANY OF SUCH STATE'S DOCTRINES REGARD CONFLICTS OF LAWS. 6. Except as amended hereby, the Existing Employment Agreement shall continue in full force and effect without any further action by the parties thereto. On or after the effective date of this Second Amendment, references to the "Agreement" in the Existing Employment Agreement, as amended hereby, shall be deemed to mean, for purposes of determining the rights, remedies, obligations and liabilities of the parties thereto and all other purposes, the Existing Employment Agreement, as amended by this Second Amendment. IN WITNESS WHEREOF, the parties to this Second Amendment have executed such First Amendment effective as of the date first set forth above. /s/ John C. Hull -------------------------------- John C. Hull GREATE BAY CASINO CORPORATION By: /s/ Edward T. Pratt III ------------------------------ Name: Edward T. Pratt III Title: President and Chief Operating Officer 2 EX-21.1 6 dex211.txt SUBSIDIARIES OF GREATE BAY EXHIBIT 21.1 SUBSIDIARIES OF GREATE BAY CASINO CORPORATION State Name Address Organized PPI Corporation Two Galleria Tower New Jersey 13455 Noel Road, Suite 2200 Dallas, Texas 75240 PPI Funding Corp. Two Galleria Tower Delaware 13455 Noel Road, Suite 2200 Dallas, Texas 75240 PCPI Funding Corp. Two Galleria Tower Delaware 13455 Noel Road, Suite 2200 Dallas, Texas 75240 Advanced Casino Systems 200 Decadon Drive, Suite 100 Delaware Corporation Egg Harbor Township, New Jersey 08234 EX-99.3 7 dex993.txt NOTICE OF STOCKHOLDERS EXHIBIT 99.3 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE IN RE: (S) Chapter 11 (S) GREATE BAY CASINO CORPORATION (S) Case Nos. 01-11729 (PJW) through PPI CORPORATION (S) 01-11732 (PJW) PCPI FUNDING CORP. (S) PPI FUNDING CORP. (S) Administratively Consolidated Under (S) Case No. 01-11729 (PJW) (S) NOTICE TO STOCKHOLDERS OF GREATE BAY CASINO CORPORATION REGARDING THE DEBTORS' FIRST AMENDED JOINT PLAN DATED MARCH 20, 2002 ------------------------------- As you should be aware, Greate Bay Casino Corporation ("GBCC"), PPI Corporation ("PPI"), PCPI Funding Corp. ("PCPI Funding") and PPI Funding Corp. ("PPI Funding"), the four above-referenced Debtors-in-Possession (collectively, the "Debtors") are currently the subject of Chapter 11 bankruptcy proceedings pending in the United States Bankruptcy Court for the District of Delaware. The Debtors have proposed the Debtors' First Amended Joint Plan Dated March 20, 2002 (the "Plan"), and the Bankruptcy Court has authorized the Debtors to solicit acceptances or rejections of the Plan from holders of claims and equity interests. Because the Debtors have insufficient assets to provide any distribution to the stockholders of GBCC, you are deemed to have rejected the Plan and are not being asked to vote on it. The Plan contemplates (a) a preconfirmation sale by PPI of all of the issued and outstanding capital stock of Advanced Casino Systems Corporation ("ACSC"), which is a non-Debtor subsidiary of PPI, to an entity known as ACSC Acquisitions, Inc., a wholly owned subsidiary of Bally Gaming, Inc., for the sum of $14.6 million, subject to certain purchase price adjustments (the "Sale Proceeds"); (b) the satisfaction of certain liabilities of the Debtors from the Sale Proceeds and from the other residual assets of the Debtors and (c) the cessation of existence of the Debtors. More specifically, the Plan provides that the Debtors' largest creditor, HWCC-Holdings, Inc., will receive certain cash on hand of PPI and the Sale Proceeds. HWCC-Holdings, Inc. has agreed to subordinate a portion of its claims to the disputed claim of Las Vegas Sands, Inc. if such claim is ultimately allowed by the Court. Administrative claimants, tax claimants, and other unsecured claimants will be paid from cash on hand of GBCC, PPI, PCPI Funding and PPI Funding. Because unsecured creditors (i.e., the claims of HWCC-Holdings, Inc.) are not being paid in full, the priority scheme of the Bankruptcy Code provides that stockholders may not receive a distribution on account of their equity interests in GBCC. Moreover, all stock of GBCC will be canceled under the Plan. ----------------------------------------------------------- The Bankruptcy Court has scheduled a hearing on confirmation of the Plan to commence on May 2, 2002 at 9:30 a.m., prevailing Eastern time, or as soon thereafter as counsel can be heard, before the Honorable Chief Judge Peter J. Walsh, in Courtroom No. 2, 824 Market Street, 6th Floor, PAGE 1 Wilmington, Delaware. Objections to confirmation of the Plan must be in writing, must state with particularity the grounds for objection, and must be (a) filed with the Bankruptcy Court; (b) served upon all parties listed upon the Rule 2002 Service List available from the Bankruptcy Court and (c) served upon Stacey Jernigan, Haynes and Boone, LLP, 901 Main Street, Suite 3100, Dallas, Texas 75202, Fax: 214.200.0486, with a copy to Greate Bay Casino Corporation, Attn: John Hull, CEO, Two Galleria Tower, 13455 Noel Rd., Suite 2200, Dallas, TX 75240, Fax: 972.716.3896, so that such objections are filed and received by such persons on or before 4:00 p.m., prevailing Eastern time on April 22, 2002. All objections must also be mailed to all parties listed on the Rule 2002 Service List by such date. Copies of the Rule 2002 Service List may be obtained from the Clerk of Bankruptcy Court. The Confirmation Hearing may be adjourned from time to time without further notice to creditors or parties in interest other than by announcement in the Bankruptcy Court of such adjournment on the date scheduled for Confirmation Hearing. Pursuant to an order of the Bankruptcy Court, the Debtors will not provide you with a copy of the Plan or the Debtors' First Amended Joint Disclosure Statement Under 11 U.S.C. (S) 1125, Dated March 20, 2002, in Support of the Plan (the "Disclosure Statement") unless you request a copy in writing. Please direct your requests for copies to: Stacey Jernigan Haynes and Boone, L.L.P. 901 Main Street, Suite 3100 Dallas, Texas 75201-3714 Facsimile: 214-200-0486 You may also access the Plan and Disclosure Statement in the EDGAR database of the Securities and Exchange Commission which is accessible at www.sec.gov and ----------- through a number of investment services on the Internet. Any questions regarding this notice should be directed to one of the following attorneys with Haynes and Boone, L.L.P., attorneys for the Debtors: Stacey Jernigan 214-651-5516 Robert Albergotti 214-651-5613 NOTICE: IF YOU HOLD EQUITY SECURITIES OF GBCC AS NOMINEE OR FOR THE BENEFIT OF ANOTHER PARTY, YOU ARE DIRECTED TO DELIVER A COPY OF THIS NOTICE TO ALL BENEFICIAL HOLDERS OF SUCH EQUITY SECURITIES REGISTERED UNDER YOUR NAME. PAGE 2 EX-99.4 8 dex994.txt DEBTORS FIRST AMENDED JOINT CHAPTER 11 Exhibit 99.4 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE IN RE: (S) Chapter 11 (S) GREATE BAY CASINO CORPORATION (S) Case No. 01-11729 (PJW) PPI CORPORATION (S) Case No. 01-11730 (PJW) PCPI FUNDING CORP. (S) Case No. 01-11731 (PJW) PPI FUNDING CORP. (S) Case No. 01-11732 (PJW) (S) Debtors. (S) (S) Jointly Administered Under (S) Case No. 01-11729 (PJW) --------------------------------------------- DEBTORS' FIRST AMENDED JOINT CHAPTER 11 PLAN DATED MARCH 20, 2002 --------------------------------------------- TABLE OF CONTENTS ARTICLE 1 DEFINITIONS.................................................. 3 1.1 ACSC......................................................... 4 1.2 ACSC Common Stock............................................ 4 1.3 Affiliate.................................................... 4 1.4 Allowed Administrative Claim................................. 4 1.5 Allowed Claim................................................ 4 1.6 Allowed Interest............................................. 5 1.7 Allowed Priority Claim....................................... 5 1.8 Allowed Secured Claim........................................ 5 1.9 Allowed Tax Claim............................................ 5 1.10 Allowed Unsecured Claim...................................... 5 1.11 Avoidance Action............................................. 5 1.12 Ballots...................................................... 5 1.13 Ballot Return Date........................................... 5 1.14 Bankruptcy Case.............................................. 6 1.15 Bankruptcy Code or Code...................................... 6 1.16 Bankruptcy Court............................................. 6 1.17 Bankruptcy Rules............................................. 6 1.18 Bar Date..................................................... 6 1.19 Business Day................................................. 6 1.20 Cash......................................................... 6 1.21 Chapter 11 Payables Reserve.................................. 6 1.22 Claim........................................................ 6 1.23 Class........................................................ 7 1.24 Confirmation................................................. 7 1.25 Confirmation Date............................................ 7 1.26 Confirmation Order........................................... 7 1.27 Creditor..................................................... 7 1.28 Debtors...................................................... 7 1.29 Disclosure Statement......................................... 7 1.30 Disputed Claim............................................... 7 1.31 Disputed Interest............................................ 7 1.32 Distributions................................................ 7 1.33 Effective Date............................................... 7 1.34 Encumbrance.................................................. 7 1.35 Estates...................................................... 8 1.36 Estimated Claim.............................................. 8 1.37 Excess Chapter 11 Payables Reserve\.......................... 8 1.38 Exculpated Persons........................................... 8 1.39 Executory Contract........................................... 8 1.40 File or Filed................................................ 8 1.41 Final Order.................................................. 8
i 1.42 Four GBCC Promissory Notes to Hollywood........................ 8 1.43 GBCC........................................................... 10 1.44 GBCC Common Stock.............................................. 10 1.45 GBCC Guaranty.................................................. 10 1.46 GBCC/Joplin DQ Promissory Note to PCPI Funding................. 10 1.47 GBCC $16,265,000 Indebtedness to PPI Funding................... 10 1.48 GBCC $23,265,577 Promissory Note to PCPI Funding............... 10 1.49 GBCC $2,200,000 Indebtedness to PPI............................ 10 1.50 Hollywood Zero-Coupon Note from PPI Funding.................... 10 1.51 HWCC........................................................... 11 1.52 Intercompany Claims............................................ 11 1.53 Impaired....................................................... 11 1.54 Interest....................................................... 11 1.55 Insurance Proceeds............................................. 11 1.56 Insured Claim.................................................. 11 1.57 Liquidating Trust.............................................. 11 1.58 Liquidating Trust Agreement.................................... 12 1.59 Liquidating Trustee............................................ 12 1.60 Miscellaneous Assets........................................... 12 1.61 PCPI Funding................................................... 12 1.62 PCPI Funding Common Stock...................................... 12 1.63 PCPI Funding Replacement Note to PPI Funding................... 12 1.64 PCPI Funding $13,450 Indebtedness to PPI....................... 12 1.65 Person......................................................... 12 1.66 Petition Date.................................................. 13 1.67 Plan........................................................... 13 1.68 Plan Supplement................................................ 13 1.69 PPI............................................................ 13 1.70 PPI Common Stock............................................... 13 1.71 PPI Funding.................................................... 13 1.72 PPI Funding Common Stock....................................... 13 1.73 PPI Guaranty................................................... 13 1.74 PPI's $350,000 Claim against GBCC.............................. 13 1.75 Pro Rata....................................................... 14 1.76 Purchaser...................................................... 14 1.77 Record Date Balloting.......................................... 14 1.78 Record Date Distributions...................................... 14 1.79 Rejection Claim................................................ 14 1.80 Released Matters............................................... 14 1.81 Releasees...................................................... 14 1.82 Sale........................................................... 14 1.83 Sale Motion.................................................... 14 1.84 Sale Order..................................................... 15 1.85 Sale Proceeds.................................................. 15 1.86 Sands Trade Mark Adversary..................................... 15
ii 1.87 Schedules............................................................................ 15 1.88 SEC.................................................................................. 15 1.89 SEC Reports.......................................................................... 15 1.90 Securities Act....................................................................... 15 1.91 Security Agreement................................................................... 15 1.92 Split-Off Zero-Coupon Note from PPI Funding.......................................... 15 1.93 Stock Purchase Agreement............................................................. 16 1.94 Unclaimed Distribution............................................................... 16 1.95 Unclassified Claims.................................................................. 16 1.96 Unexpired Lease...................................................................... 16 1.97 Unliquidated or Contingent Claim..................................................... 16 1.98 Unsecured Claim...................................................................... 16 1.99 Unsecured Convenience Claim.......................................................... 16 ARTICLE 2 DESIGNATION OF CLASSES OF CLAIMS AND INTERESTS AND SPECIFICATION OF IMPAIRED OR UNIMPAIRED STATUS.............................................. 16 2.1 Summary.............................................................................. 16 A. Claims........................................................................... 17 B. Interests........................................................................ 18 2.2 Impairment Controversies............................................................. 18 ARTICLE 3 TREATMENT OF UNCLASSIFIED CLAIMS..................................................... 19 3.1 Allowed Administrative Claims........................................................ 19 A. General.......................................................................... 19 B. Payment of Statutory Fees........................................................ 20 C. Ordinary Course Liabilities...................................................... 20 3.2 Allowed Tax Claims................................................................... 20 ARTICLE 4 TREATMENT OF CLASSIFIED CLAIMS AND INTERESTS......................................... 20 4.1 Class 1 HWCC's Claim against PPI Funding in respect of the Hollywood Zero-Coupon Note from PPI Funding, in the total Allowed Amount of $49,219,370.05....................................................................... 20 4.2 Class 2 Intercompany Claims Against GBCC............................................. 20 4.3 Class 3 Intercompany Claims Against PCPI Funding..................................... 21 4.4 Class 4 Intercompany Claims Against PPI Funding...................................... 21 4.5 Class 5 - Unsecured Convenience Claims against any of GBCC, PPI, PCPI Funding or PPI Funding (trade claims or other)............................. 21 4.6 Class 6 General Unsecured Claims Against any of GBCC, PPI, PCPI Funding or PPI Funding, not Otherwise Classified (believed to consist only of HWCC's Claims against GBCC in respect of the Four GBCC Promissory Notes to Hollywood, in the aggregate Allowed Amount of $10,126,668.50 and the Disputed Claims of Las Vegas Sands, Inc. and William D. Pratt, Jr., a former employee of a former GBCC affiliate)................. 21 4.7 Class 7 Interests of the holders of the GBCC Common Stock............................ 22 4.8 Class 8 Interests of the holder of the PPI Common Stock.............................. 22 4.9 Class 9 - Interests of the holder of the PCPI Funding Common Stock.................. 22 4.10 Class 10 - Interests of the holder of the PPI Funding Common Stock................... 22 ARTICLE 5 ACCEPTANCE OR REJECTION OF THE PLAN.................................................. 22
iii 5.1 Voting Classes..................................................................... 22 5.2 Presumed Rejection of Plan......................................................... 22 ARTICLE 6 MEANS FOR EXECUTION AND IMPLEMENTATION OF THE PLAN................................. 22 6.1 Plan Implementation Steps Occurring on or around the Effective Date................ 22 A. PPI_s Contribution to PPI Funding of Sale Proceeds and Cash................... 22 B. Distribution of Sale Proceeds and PPI's Cash to HWCC.......................... 23 C. Simultaneous Merger of PPI, PCPI Funding and PPI Funding with and into GBCC.................................................... 23 D. Establishment of the Chapter 11 Payables Reserve, Conveyance of Chapter 11 Payables Reserve, LVSI Reserve and Miscellaneous Assets to Liquidating Trustee, and Distributions to holders of any Allowed Administrative Claims, Allowed Tax Claims, and Allowed Unsecured Claims in Class 5................................................... 24 E. Subordination of HWCC's Class 1 Claim to any Allowed LVSI Claim of up to $3 million................................................ 24 F. Cancellation of GBCC Common Stock and Equity Interests........................ 24 6.2 Merger of Corporate Entities....................................................... 25 6.3 Transfer of Assets to the Liquidating Trust........................................ 25 6.4 Ratification of Liquidating Trust Agreement........................................ 25 A. Powers and Duties............................................................. 26 B. Compensation of Liquidating Trustee........................................... 26 C. Limitation of Liability....................................................... 26 D. Right to Hire Professionals and Agents........................................ 26 E. Tax Treatment of the Liquidating Trust........................................ 26 F. Termination of Liquidating Trust.............................................. 27 6.5 Cancellation of GBCC Common Stock and Ultimate Dissolution of GBCC................. 27 6.6 Corporate Action................................................................... 27 6.7 Objections to Claims............................................................... 28 6.8 Retention Of Causes Of Action...................................................... 28 6.9 Limitation of Liability............................................................ 28 6.10 Releases by Debtors................................................................ 29 6.11 Exemption from Stamp and Similar Taxes............................................. 29 6.12 Notice of Effective Date........................................................... 29 ARTICLE 7 FUNDING AND METHODS OF DISTRIBUTION................................................ 30 7.1 Distribution Procedures-Generally.................................................. 30 7.2 Distributions to Holders of Allowed Administrative Claims.......................... 30 7.3 Distributions to Holders of Allowed Tax Claims, Allowed Class 5 Claims and Allowed Class 6 Claims.................................................. 30 7.4 Distributions to Holder(s) of Allowed Class 6 Claims............................... 30 7.5 Sources of Cash Distributions...................................................... 30 7.6 Disputed Claims.................................................................... 31 7.7 Delivery of Distributions and Undeliverable or Unclaimed Distributions............. 31 A. Delivery of Distributions in General.......................................... 31 B. Undeliverable Distributions................................................... 31 7.8 De Minimis Distributions........................................................... 31
iv 7.9 Failure to Negotiate Checks.................................................... 31 7.10 Compliance with Tax Requirements............................................... 32 7.11 Setoffs........................................................................ 32 ARTICLE 8 TREATMENT OF EXECUTORY CONTRACTS............................................... 32 8.1 Deemed Rejection of Executory Contracts and Unexpired Leases................... 32 8.2 Options........................................................................ 32 8.3 Approval of Assumption or Rejection of Executory Contracts and Unexpired Leases............................................................... 33 8.4 Bar Date for Filing Proofs of Claim Relating to Executory Contracts and Unexpired Leases Rejected Pursuant to the Plan................................. 33 8.5 Cure Payments with Regard to Assumed Executory Contracts or Unexpired Leases............................................................... 33 ARTICLE 9 CONDITIONS TO CONFIRMATION OF PLAN............................................. 34 9.1 Conditions to Confirmation..................................................... 34 9.2 Waiver of Conditions........................................................... 34 ARTICLE 10 CONDITIONS TO EFFECTIVENESS OF THE PLAN........................................ 34 10.1 Conditions to Effectiveness.................................................... 34 10.2 Waiver of Conditions........................................................... 35 ARTICLE 11 EFFECTS OF PLAN CONFIRMATION................................................... 35 11.1 Discharge of Debtors and Injunction............................................ 35 11.2 Revesting...................................................................... 36 11.3 No Liability for Solicitation or Participation................................. 36 11.4 Other Documents and Actions.................................................... 36 11.5 Post-Consummation Effect of Evidences of Claims or Interests................... 37 11.6 Term of Injunctions or Stays.................................................. 37 ARTICLE 12 CONFIRMABILITY OF PLAN AND CRAMDOWN............................................ 37 ARTICLE 13 RETENTION OF JURISDICTION...................................................... 37 ARTICLE 14 MISCELLANEOUS PROVISIONS....................................................... 39 14.1 Fractional Dollars............................................................. 39 14.2 Modification of Plan........................................................... 39 14.3 Governing Law.................................................................. 39 14.4 Payment Dates.................................................................. 39 14.5 Headings....................................................................... 39 14.6 Successors and Assigns......................................................... 39 14.7 Severability of Plan Provisions................................................ 39 14.8 No Admissions.................................................................. 40
v IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE IN RE: (S) Chapter 11 (S) GREATE BAY CASINO CORPORATION (S) Case No. 01-11729 (PJW) PPI CORPORATION (S) Case No. 01-11730 (PJW) PCPI FUNDING CORP. (S) Case No. 01-11731 (PJW) PPI FUNDING CORP. (S) Case No. 01-11732 (PJW) (S) Debtors. (S) (S) Jointly Administered Under (S) Case No. 01-11729 (PJW) --------------------------------------------- DEBTORS' FIRST AMENDED JOINT CHAPTER 11 PLAN DATED MARCH 20, 2002 --------------------------------------------- Greate Bay Casino Corporation ("GBCC"), PPI Corporation ("PPI"), PCPI Funding Corp. ("PCPI Funding"), and PPI Funding Corp. ("PPI Funding"), as debtors and debtors-in-possession (collectively, the "Debtors"), propose this First Amended Joint Chapter 11 Plan Dated March 20, 2002 (the "Plan") pursuant to section 1121(a) of Title 11 of the United States Code, for the resolution of the Debtors' outstanding creditor claims and equity interests. Reference is made to the Debtors' First Amended Joint Disclosure Statement Dated March 20, 2002 (the "Disclosure Statement") for a discussion of the Debtors' history, business, properties and results of operations, and for a summary of this Plan and certain related matters. In general, the Plan (which was prenegotiated with the Debtors' largest Creditor, HWCC-Holdings, Inc. ("HWCC")), provides for the distribution to creditors of approximately $14.6 Million in proceeds1 of a pre-confirmation sale ("Sale") by the Debtor, PPI, of all of the issued and ___________________ /1/ Plus additional cash held by certain of the Debtors. Page 1 outstanding capital stock of Advanced Casino Systems Corporation ("ACSC"),/2/ which was a non-Debtor subsidiary of the Debtor PPI, that is in the business of developing, installing, licensing and providing maintenance for certain casino information technology systems and software used by casino companies. The Sale was to an entity known as ACSC Acquisitions, Inc., a wholly owned subsidiary of Bally Gaming, Inc. ("Purchaser"),/3/ for the sum of $14.6 million ("Sale Proceeds"), subject to certain purchase price adjustments. The Sale Proceeds were paid to the Debtors on March 19, 2002. Debtors believe that, other than HWCC, there are only a handful of small trade creditors (totaling less than $50,000) who will have Allowed Unsecured Claims. Las Vegas Sands, Inc. ("LVSI") has filed a Proof of Claim against each of the Debtors in the amount of approximately $20 million. The Debtors dispute this Claim. On previous occasions in court hearings and pleadings in this bankruptcy case, LVSI asserted it had a claim against GBCC having a present value of approximately $2 million. The Plan provides that HWCC will subordinate its Class 1 Claim in this Bankruptcy Case to any LVSI Claim that is Allowed up to an amount of $3 million and will agree that up to $3 million of the consideration that would otherwise be paid to HWCC in respect of its Class 1 Allowed Claim may be paid to LVSI, if and to the extent the Disputed Claim of LVSI becomes an Allowed Claim. The Plan contemplates that prior to the Effective Date of the Plan, the Court may estimate the amount of the LVSI Claim, pursuant to 11 U.S.C. (S) 502(c), as if the dispute regarding GBCC's liability were resolved in LVSI's favor. Such estimated amount will be deposited into the LVSI Reserve (See Section 1.60 herein) and held in such Reserve until it is determined that _____________________ /2/ The Bankruptcy Court approved the Sale on March 6, 2002. /3/ Neither the Purchaser, nor any affiliate, is and "insider" or "affiliate of any of the Debtors or any of their affiliates as such terms are defined in the Bankruptcy Code. The Stock Purchase Agreement was negotiated for many weeks at arm's length, with each party represented by competent counsel of its own choosing. Page 2 any of the disputed LVSI Claim should be an Allowed Claim. The Sale Proceeds not necessary to fund the LVSI Reserve shall be distributed to HWCC as part of its Class 1 consideration on the Effective Date. The disputed LVSI Claim for which a Reserve has been established that becomes an Allowed Claim by Final Order shall be paid promptly out of the LVSI Reserve. After the disputed LVSI Claim is resolved or disallowed, the balance of the LVSI Reserve (to the extent it exceeds the Allowed LVSI Claim) shall be distributed to HWCC as the only holder of an Allowed Claim in Class 1. To the extent LVSI ultimately has an Allowed Claim that is larger than the amount of the LVSI Reserve, such excess LVSI Claim will receive treatment in Class 6 of the Plan. A former employee of a former GBCC affiliate (which owned the San Juan Sands) has also filed a Proof of Claim that is disputed, in the amount of $3,025,000. The Debtors believe it will be disallowed in its entirety, but, to the extent it is allowed in any amount, it will receive treatment as defined in Class 6 in this Plan. All holders of Claims and Interests are encouraged to read the Plan and the Disclosure Statement in their entirety before voting to accept or reject this Plan. No materials, other than the Disclosure Statement and any exhibits and appendices attached thereto or referenced therein, have been approved by the Debtors for use in soliciting acceptances or rejections of this Plan. ARTICLE 1 DEFINITIONS Rules of Interpretation. As used herein, the following terms have the ----------------------- respective meanings specified below, and such meanings shall be equally applicable to both the singular and plural and masculine and feminine forms of the terms defined. The words "herein," "hereof," "hereto," "hereunder" and others of similar import, refer to the Plan as a whole and not to any particular section, subsection or clause contained in the Plan. Captions and headings to articles, sections and exhibits are inserted for convenience of reference only and are not intended to be part of or to affect the interpretation of the Plan. The rules of construction set forth in section 102 of the Bankruptcy Code shall apply. In computing any period of time prescribed or allowed by the Plan, the provisions of Bankruptcy Rule 9006(a) shall apply. Any capitalized term used herein that is not defined herein Page 3 but is defined in the Bankruptcy Code shall have the meaning ascribed to such term in the Bankruptcy Code. All references to documents shall include all addenda, exhibits, and schedules attached thereto or referred to therein. In addition to such other terms as are defined in other sections of the Plan, the following terms (which appear in the Plan as capitalized terms) have the following meanings as used in the Plan. 1.1 "ACSC" means Advanced Casino Systems Corporation, a corporation ---- organized under the laws of Delaware, and a wholly owned, direct subsidiary of PPI (but not a Debtor herein). 1.2 "ACSC Common Stock" means all of the capital stock of ACSC issued ----------------- and outstanding prior to the Petition Date, and includes any options or warrants with the right to acquire ACSC Common Stock, which common stock (and associated options, warrants or rights) was, as of the Petition Date (and until its sale to Purchaser), property of the PPI bankruptcy estate under 11 U.S.C. (S) 541. 1.3 "Affiliate" means (A) an entity that directly or indirectly owns, --------- controls or holds with power to vote, twenty percent or more of the outstanding voting securities of a Debtor, other than an entity that holds such securities (1) in a fiduciary or agency capacity without sole discretionary power to vote such securities or (2) solely to secure a debt, if such entity has not in fact exercised such power to vote, or (B) a corporation twenty percent or more of whose outstanding voting securities are directly or indirectly owned, controlled or held with power to vote, by a Debtor, or by an entity that directly or indirectly owns, controls or holds with power to vote, twenty percent or more of the outstanding voting securities of a Debtor, other than an entity that holds such securities (1) in a fiduciary or agency capacity without sole discretionary power to vote such securities or (2) solely to secure a debt, if such entity has not in fact exercised such power to vote. 1.4 "Allowed Administrative Claim" means an allowed claim, or that ---------------------------- portion thereof, that is entitled to priority under sections 503(b) and 507(a)(1) of the Bankruptcy Code, including, without limitation: (A) the actual and necessary costs and expenses incurred after the Petition Date of preserving the Estates and operating the business of the Debtors (such as wages, salaries or payments for goods and services); (B) compensation for legal, financial advisory, accounting and other services and reimbursement of expenses awarded or allowed under sections 330(a) or 331 of the Bankruptcy Code; and (C) all fees and charges assessed against the Estates under 28 U.S.C. (S) 1930. 1.5 "Allowed Claim" means a Claim against any one of the Debtors to ------------- the extent that: (A) (1) the Claim was Filed prior to the date designated by the Bankruptcy Court as the last date for filing that category of proof of claim (or Filed after such date with leave of Court) or the Claim was, or is hereafter, listed in the Schedules and is not listed as disputed, contingent or unliquidated as to amount; and (2) the Debtors, or any other party in interest entitled to do so, do not file an objection prior to the Effective Date or such other date as may be Page 4 established by the Plan or the Bankruptcy Court (or if such an objection is so filed, the objection is later withdrawn); or, (B) the Claim is allowed by a Final Order of the Bankruptcy Court, which Final Order is no longer subject to being modified or reversed on reconsideration or appeal; or, (C) the Claim is allowed by the Plan. 1.6 "Allowed Interest" means (A) an Interest as to which neither the ---------------- Debtors nor any other party in interest entitled to do so has filed an objection prior to the Effective Date or such other date as may be established by the Plan or the Bankruptcy Court (or if such an objection is so filed, the objection is later withdrawn), or (B) an Interest allowed by a Final Order of the Bankruptcy Court, which Final Order is no longer subject to being modified or reversed on reconsideration or appeal, or (C) an Interest allowed by the Plan. 1.7 "Allowed Priority Claim" means an Allowed Claim, or that portion ---------------------- thereof, that is entitled to priority under section 507(a) of the Bankruptcy Code, other than an Allowed Administrative Claim or an Allowed Tax Claim. There are no Claims known to the Debtors that would be Allowed Priority Claims in this Bankruptcy Case. 1.8 "Allowed Secured Claim" means an Allowed Claim, or that portion --------------------- thereof, that is secured (directly or by enforceable subrogation) by an Encumbrance on or interest in property of one or more of the Debtors or that is subject to setoff under section 553 of the Code, but only to the extent of the value of the creditor's interest (directly or by enforceable subrogation) in one or more of the Debtors' interest in such property or to the extent of the amount subject to setoff, which value shall be determined as provided in section 506(a) of the Code. There are no Claims known to the Debtors that would be Allowed Secured Claims in this Bankruptcy Case. 1.9 "Allowed Tax Claim" means an Allowed Claim, or that portion ----------------- thereof, that is entitled to priority under section 507(a)(8) of the Code. 1.10 "Allowed Unsecured Claim" means an Allowed Claim, or that portion ------------------------ thereof, that is not entitled to priority or to secured status under the Code. 1.11 "Avoidance Action" means a cause of action assertable by any one ----------------- of the Debtors and/or Liquidating Trustee or their successors pursuant to sections 329, 542, 543, 544, 545, 547, 548, 549, 550, or 553 of the Bankruptcy Code. To the extent there is ultimately any pursuit and recovery on Avoidance Actions, any such recovery will become Miscellaneous Assets, as herein defined. 1.12 "Ballots" means the written Ballots for acceptance or rejection ------- of the Plan. 1.13 "Ballot Return Date" means 4:00 p.m. Eastern Daylight Time on ------------------ April 22, 2002, unless and to the extent such date is extended by the Debtors in accordance with the Disclosure Statement. Page 5 1.14 "Bankruptcy Case" means, collectively, the Debtors' cases under --------------- Chapter 11 of the Bankruptcy Code that were commenced on the Petition Date. 1.15 "Bankruptcy Code" or "Code" means Title 11 of the United States --------------- Code as now in effect or hereafter amended to the date of Confirmation of the Plan. 1.16 "Bankruptcy Court" means the United States Bankruptcy Court for ---------------- the District of Delaware, which presides over this Bankruptcy Case, or if necessary, the United States District Court for said District having original jurisdiction over this Bankruptcy Case. 1.17 "Bankruptcy Rules" means, collectively (A) the Federal Rules of ---------------- Bankruptcy Procedure, and (B) the local rules of the Bankruptcy Court, as applicable from time to time in the Bankruptcy Case. 1.18 "Bar Date" means (A) with respect to all Persons except -------- ---------------------------------- governmental entities, March 15, 2002, the date by which Claims must have been - ------------------------------------- Filed with the Bankruptcy Court pursuant to that certain Order (1) Fixing Deadline for the Filing of Proofs of Claim, and (2) Approving Form and Manner of Notice with Respect Thereto, and (B) with respect to governmental entities, June 26, 2002, which is 180 days after the Petition Date. 1.19 "Business Day" means any day, other than a Saturday, Sunday or ------------ "legal holiday" (as defined in Bankruptcy Rule 9006(a)) on which banks are open for business in the city of New York, New York. 1.20 "Cash" means cash, wire transfer of immediately available funds, ---- certified check, and cash equivalents, including readily marketable direct obligations of the United States of America, including interest accrued or earned thereon, or a check from the Debtors. 1.21 "Chapter 11 Payables Reserve" means Cash on hand of any of GBCC, --------------------------- PCPI Funding or PPI Funding, as of the commencement of the Effective Date, as well as certain Cash of PPI equal to its Pro Rata share of Allowed Administrative Claims, which Cash will be conveyed to the Liquidating Trustee, segregated and held in reserve for the benefit and payment of (i) the holders of Allowed Administrative Claims, (ii) Allowed Tax Claims, (iii) Allowed Class 5 Claims, and (iv) an amount to pay the fees and expenses of the Liquidating Trustee, all as further described in Article 6.1(D) of the Plan; provided, that -------------- any residual amounts after payment of the Liquidating Trustee's fees and expenses and satisfaction of the Allowed Administrative Claims, Allowed Tax Claims, and Allowed Class 5 Claims against any of the Debtors, shall become "Excess Chapter 11 Payables Reserve" and shall ultimately be paid to any holder of a Class 6 Claim, pursuant to Articles 4.6 and 6.1(G) of the Plan, whose claim ------------ ------ has not otherwise been paid in Cash, in full (without post-petition interest). 1.22 "Claim" means any right to payment from any one of the Debtors ----- arising before the Confirmation Date, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, contested, uncontested, legal, equitable, secured, or unsecured; or Page 6 any right to an equitable remedy for breach of performance if such breach gives rise to a right of payment from the Debtors, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, contested, uncontested, secured or unsecured. 1.23 "Class" means a class of Claims or Interests as provided for in the ----- Plan. 1.24 "Confirmation" means the entry of a Confirmation Order confirming ------------ this Plan at or after a hearing pursuant to section 1129 of the Bankruptcy Code. 1.25 "Confirmation Date" means the date the Confirmation Order is entered ------------------ on the docket by the Clerk of the Bankruptcy Court. 1.26 "Confirmation Order" means the order entered by the Bankruptcy Court ------------------ determining that this Plan meets the requirements of Chapter 11 of the Bankruptcy Code and is entitled to Confirmation pursuant to section 1129 of the Bankruptcy Code. 1.27 "Creditor" means "creditor" as defined in section 101(10) of the -------- Code. 1.28 "Debtors" means Greate Bay Casino Corporation, PPI Corporation, PCPI ------- Funding Corp., and PPI Funding Corp. 1.29 "Disclosure Statement" means the Debtors' First Amended Joint -------------------- Disclosure Statement, Dated March 20, 2002, Filed by the Debtors respecting the Plan, as approved by the Bankruptcy Court for submission to the Creditors, Interest holders, and parties-in-interest of the Debtors, and all amendments, supplements, appendices, and exhibits thereto Filed by the Debtors. 1.30 "Disputed Claim" means a Claim against any one of the Debtors that is -------------- not an Allowed Claim; including without limitation the Disputed Claim of Las Vegas Sands, Inc. and the Disputed Claim of William D. Pratt, Jr. 1.31 "Disputed Interest" means an Interest in any one of the Debtors that ----------------- is not an Allowed Interest. 1.32 "Distributions" means the properties or interests in property to be ------------- paid or distributed hereunder to the holders of Allowed Claims. 1.33 "Effective Date" means the first practicable Business Day after (A) -------------- the Confirmation Order has become a Final Order, and (B) all of the conditions required in Articles 9.1 and 10.1 of the Plan have either occurred or have been expressly waived pursuant to Articles 9.2 and 10.2 of the Plan. 1.34 "Encumbrance" means, with respect to any interest in property, any ----------- mortgage, lien, pledge, charge, security interest, easement, or encumbrance of any kind whatsoever affecting such interest in property. Page 7 1.35 "Estates" means the estates created in the Bankruptcy Case under ------- section 541 of the Bankruptcy Code. 1.36 "Estimated Claim" means a Claim, the allowed amount of which has been --------------- or is to be estimated by the Court under section 502(c) of the Code. 1.37 "Excess Chapter 11 Payables Reserve" means any excess or residual ---------------------------------- amounts of "Chapter 11 Payables Reserve," after payment of the fees and expenses of the Liquidating Trustee, and satisfaction of the Allowed Administrative Claims, Allowed Tax Claims, and Allowed Class 5 Claims against any of GBCC, PPI, PCPI Funding or PPI Funding. Such residual amount shall be paid to the holders of Allowed Class 6 Claims to the extent they have not otherwise been paid in Cash, in full (without post-petition interest). 1.38 "Exculpated Persons" shall have the meaning ascribed to such term in ------------------ Article 6.9 of the Plan. - ----------- 1.39 "Executory Contract" shall have the meaning set forth in section 365 ------------------ of the Code. 1.40 "File" or "Filed" means filed with the Bankruptcy Court in the ----- ----- Bankruptcy Case. 1.41 "Final Order" means, as to any court, an order or judgment of such ----------- court, as entered on its docket, that is not interlocutory, and (A) as to which the time to seek an initial appeal or petition for rehearing has expired; and (B) with respect to which order or judgment there is no stay on its execution or enforcement in effect. The pendency of an appeal, in the absence of a stay, will not preclude an order or judgment from being deemed a Final Order hereunder. 1.42 "Four GBCC Promissory Notes to Hollywood" means those certain four --------------------------------------- separate promissory notes, executed by GBCC and payable to the order of Hollywood Casino Corporation, pursuant to which there was an aggregate principal amount of $5,704,243.50, plus accrued interest of $4,422,425.00 due and owing as of the Petition Date, for a total of $10,126,668.50 due and owing, and which notes are more particularly described as follows: (A) An unsecured Promissory Note in the original principal amount of $1,250,000 dated October 29, 1993, duly executed by Pratt Hotel Corporation (n.k.a. GBCC, as a result of a name change effectuated December 31, 1996), and payable to the order of Hollywood Casino Corporation, and bearing interest at the rate of 14% per annum. The issuance of this promissory note was ratified by the three disinterested directors of the Board of GBCC at its meeting held on February 8, 1994. The funds that were lent by Hollywood Casino Corporation to GBCC were used in the operation of a facility known as the Holiday Inn/DFW North in Texas, which was owned by an entity of which GBCC was a partner and which GBCC operated pursuant to an operating agreement. This Promissory Note, as of the Petition Date, had an outstanding principal balance of $250,000 and accrued interest owing of $196,000. Page 8 (B) An unsecured Promissory Note in the original principal amount of $3,000,000 dated July 12, 1996, duly executed by Pratt Hotel Corporation (n.k.a. GBCC, as a result of a name change effectuated December 31, 1996), and payable to the order of Hollywood Casino Corporation, and bearing interest at the rate of 13.75 % per annum. The issuance of this promissory note was ratified by the sole attending disinterested director of the Board of GBCC at its meeting held on September 18, 1996. The funds that were lent by Hollywood Casino Corporation to GBCC were immediately loaned from GBCC to GBHC, then still a wholly-owned indirect GBCC subsidiary, that owned and operated the Sands Hotel and Casino in Atlantic City, for use in the operations of the Sands Hotel and Casino. (The indebtedness from GBHC to GBCC was canceled and released, effective September 10, 1998, pursuant to a settlement agreement approved by the United States Bankruptcy Court for the District of New Jersey, Camden Vicinage, in the bankruptcy case of In re Great Bay Hotel and Casino, Inc., Case No. 98-10001; Adv. Pro. No. 98-01220.) This Promissory Note, as of the Petition Date, had an outstanding principal balance of $1,954,243.50 and accrued interest owing of $2,017,779.22. (C) An unsecured Promissory Note in the original principal amount of $1,500,000 dated August 2, 1996, duly executed by Pratt Hotel Corporation (n.k.a. GBCC, as a result of a name change effectuated December 31, 1996), and payable to the order of Hollywood Casino Corporation, and bearing interest at the rate of 13.75 % per annum. The issuance of this promissory note was ratified by the sole attending disinterested director of the Board of GBCC at its meeting held on September 18, 1996. The funds that were lent by Hollywood Casino Corporation to GBCC were also immediately loaned from GBCC to GBHC for use in the operations of the Sands Hotel and Casino. (The indebtedness from GBHC to GBCC was released and canceled, effective September 10, 1998, pursuant to a settlement agreement approved by the United States Bankruptcy Court for the District of New Jersey, Camden Vicinage, in the bankruptcy case of In re Great Bay Hotel and Casino, Inc., Case No. 98-10001; Adv. Pro. No. 98-01220.) This promissory note, as of the Petition Date, had an outstanding principal balance of $1,500,000 and accrued interest owing of $1,096,562.50. (D) An unsecured Promissory Note in the original principal amount of $2,000,000 dated August 7, 1996, duly executed by Pratt Hotel Corporation (n.k.a. GBCC, as a result of a name change effectuated December 31, 1996), and payable to the order of Hollywood Casino Corporation, and bearing interest at the rate of 13.75 % per annum. The issuance of this promissory note was ratified by the sole attending disinterested director of the Board of GBCC at its meeting held on September 18, 1996. The funds that were lent by Hollywood Casino Corporation to GBCC were also immediately loaned from GBCC to GBHC, for use in the operations of the Sands Hotel and Casino. (The indebtedness from GBHC to GBCC was released and canceled, effective September 10, 1998, pursuant to a settlement agreement approved by the United States Bankruptcy Court for the District of New Jersey, Camden Vicinage, in the bankruptcy case of In re Great Bay Hotel and Casino, Inc., Case Page 9 No. 98-10001; Adv. Pro. No. 98-01220.) This promissory note, as of the Petition Date, had an outstanding principal balance of $2,000,000 and accrued interest owing of $1,462,083.33. 1.43 "GBCC" means Greate Bay Casino Corporation, a publicly held ---- corporation organized under the laws of Delaware, and one of the Debtors herein, and the 100% direct parent of PPI, another one of the Debtors herein, and also a party to the Stock Purchase Agreement. Prior to December 31, 1996, GBCC was known as Pratt Hotel Corporation. 1.44 "GBCC Common Stock" means the common stock of GBCC issued and ----------------- outstanding prior to the Petition Date, and includes any options or warrants with the right to acquire GBCC Common Stock. 1.45 "GBCC Guaranty" means the guaranty by GBCC of the PCPI Funding ------------- Replacement Note to PPI Funding, as more particularly described in the definition of "PCPI Funding Replacement Note to PPI Funding." 1.46 "GBCC/Joplin DQ Promissory Note to PCPI Funding" means that certain ---------------------------------------------- promissory note dated February 23, 1988, in the amount of $22,164,357.59, duly executed by Joplin DQ Funding, Inc. (which was dissolved into GBCC, which assumed the liabilities of Joplin DQ Funding, Inc.), and payable to the order of PCPI Funding Corp., and bearing interest at the rate of 16.5% per annum. 1.47 "GBCC $16,265,000 Indebtedness to PPI Funding" means those certain -------------------------------------------- non-interest bearing advances from PPI Funding to GBCC in the aggregate amount of $16,265,000, which multiple advances occurred on a series of dates starting in October 1994 through October 1997, and which advances were used for general operating purposes of GBCC. 1.48 "GBCC $23,265,577 Promissory Note to PCPI Funding" means that certain ------------------------------------------------ promissory note dated February 23, 1988, in the amount of $23,265,577, duly executed by Pratt Hotel Corporation (n.k.a. GBCC, by virtue of a corporate name change effectuated December 31, 1996), and payable to the order of PCPI Funding Corp., and bearing interest at the rate of 16.5% per annum. 1.49 "GBCC $2,200,000 Indebtedness to PPI" means those certain non- ----------------------------------- interest bearing advances from PPI to GBCC in the aggregate amount of $2,200,000, which multiple advances occurred on a series of dates starting in March 1996 through October 1997, and which advances were used for general operating purposes of GBCC. 1.50 "Hollywood Zero-Coupon Note from PPI Funding" means that certain ------------------------------------------- promissory note dated April 1, 1997, in the face amount of $84,602,548.66, duly executed by PPI Funding Corp., and payable to the order of Hollywood Casino Corporation, and bearing interest at the rate of 14.875% per annum. This note, and the Split-Off Zero-Coupon Note from PPI Funding in the face amount of $13,750,000 (as later defined), were both given in renewal of the unpaid principal balance of, and in amendment and restatement of, that certain Secured Promissory Note (a.k.a. the "Original Page 10 Zero-Coupon Note") in the amount of $110,635,739.40 dated February 17, 1994, executed by PPI Funding and payable to Hollywood Casino Corporation, in order to convert the Original Zero-Coupon Note into two (2) separate promissory notes. Further background information regarding the origin of the Hollywood Zero-Coupon Note from PPI Funding is more fully described at Section IV(B) of the Disclosure ------------- Statement. As of the Petition Date, the balance on the Hollywood Zero-Coupon Note from PPI Funding was $43,211,359.24 principal and $6,008,010.81 interest, for a total of $49,219,370.05. 1.51 "HWCC" means HWCC-Holdings, Inc., a wholly owned subsidiary of ---- Hollywood Casino Corporation, who, by virtue of a capital contribution from Hollywood Casino Corporation, is the holder of the Four GBCC Promissory Notes to Hollywood and the Hollywood Zero-Coupon Note from PPI Funding, and, accordingly, is the largest creditor of GBCC (with a Claim against it in the amount of $10,126,668.50) and the largest creditor of PPI Funding (with a Claim against it in the amount of $49,219,370.05). 1.52 "Intercompany Claims" means any indebtedness owed by any one of the ------------------- Debtors to another Debtor or Debtors, including: (a) PPI's Claim against GBCC in respect of the GBCC $2,200,000 Indebtedness to PPI; (b) PCPI Funding's Claim against GBCC in respect of the GBCC $23,265,577 Promissory Note to PCPI Funding; (c) PCPI Funding's Claim against GBCC in respect of the GBCC/Joplin DQ Promissory Note to PCPI Funding; (d) PPI Funding's Claim against GBCC in respect of the GBCC $16,265,000 Indebtedness to PPI Funding; (e) PPI's Claim against PCPI Funding in respect of the PCPI $13,450 Indebtedness to PPI; (f) PPI Funding's Claim against PCPI Funding in respect of the PCPI Funding Replacement Note to PPI Funding; (g) PPI's Claim Against PPI Funding in respect of the Split-Off Zero-Coupon Note from PPI Funding; and (h) PPI's $350,000 Claim against GBCC. 1.53 "Impaired" means, with respect to a Class of Claims or Interests -------- under the Plan, that the Plan alters the legal, equitable or contractual rights of the holders of Claims or Interests within that Class, as further described at section 1124 of the Bankruptcy Code. 1.54 "Interest" means any and all rights or Claims arising out of the -------- purchase or ownership of the GBCC, PPI, PCPI Funding and PPI Funding Common Stock, and all rights and Claims arising out of contracts, options or warrants to purchase or sell such Common Stock. 1.55 "Insurance Proceeds" means any and all proceeds in respect of third ------------------ party liability insurance policies, on which any one of the Debtors is an insured party, which proceeds would arise as a result of an event triggering insurance coverage to a third party. 1.56 "Insured Claim" means an Allowed Claim against any one of the Debtors ------------- for which Insurance Proceeds would be available to pay such Allowed Claim. 1.57 "Liquidating Trust" means that certain trust, substantially as ----------------- described in the form of Liquidating Trust Agreement included in the Plan Supplement, which Liquidating Trust may be established on behalf of and for the benefit of the Creditors, and the assets of which shall Page 11 substantially consist of, as of the Effective Date, the following: the Chapter 11 Payables Reserve, the LVSI Reserve, and the Miscellaneous Assets. 1.58 "Liquidating Trust Agreement" means that certain form of agreement, --------------------------- substantially in the form included in the Plan Supplement, which will give rise to and describe the Liquidating Trust. 1.59 "Liquidating Trustee" means that Person, or such Person's successor, ------------------- selected in accordance with the Liquidating Trust Agreement, as trustee for the Liquidating Trust, to serve in the role of making Distributions from the Chapter 11 Payables Reserve under the Plan, prosecuting and filing objections to Disputed Claims or pursuing Causes of Action, and otherwise winding up any further business and responsibilities of these Estates (and pursuant to the Plan) after the Effective Date. Among other things, the Liquidating Trustee shall be the type of representative described in section 1123(b)(3)(B) of the Bankruptcy Code with authority to pursue Avoidance Actions. 1.60 "LVSI Reserve" means an amount of Cash equal to $3 million, unless a ------------ lesser amount is otherwise ordered by the Court, in an estimation hearing, or agreed to between Las Vegas Sands, Inc. and the Debtors and HWCC. The LVSI Reserve will be established from the Cash and/or Sale Proceeds that would otherwise be paid to HWCC in respect of its Allowed Class 1 Claim. 1.61 "Miscellaneous Assets" means (a) any deposits, unearned premiums, -------------------- cash values of insurance policies, or prepaids in which any of the Debtors may have rights, with respect to certain vendors or insurance companies, (b) the office furniture/furnishings of any of the Debtors, and (c) any other remaining assets, claims or rights of the Debtors after the implementation of the steps described at Article 6.1.C of the Plan; provided, however, that the ------------- Miscellaneous Assets do not include the Cash that forms the Chapter 11 Payables Reserve, nor the LVSI Reserve, nor the Cash and Sale Proceeds of PPI that are disbursed pursuant to Article 6.1.B of the Plan. The Miscellaneous Assets are ------------- estimated to have an aggregate value of less than $10,000. 1.62 "PCPI Funding" means PCPI Funding Corp., a corporation organized ------------ under the laws of Delaware, and one of the Debtors herein, and a wholly owned, direct subsidiary of PPI. 1.63 "PCPI Funding Common Stock" means the common stock of PCPI Funding ------------------------- issued and outstanding prior to the Petition Date, and includes any options or warrants with the right to acquire PCPI Common Stock. 1.64 "PCPI Funding Replacement Note to PPI Funding" means that certain -------------------------------------------- promissory note dated March 31, 1995, in the deemed principal amount of $40,524,055, with accrued interest of $25,495,577, duly executed by PCPI Funding, and payable to the order of PPI Funding, and bearing interest at the rate of 15.5% per annum, and guaranteed by GBCC and PPI. 1.65 "PCPI Funding $13,450 Indebtedness to PPI" means those certain ---------------------------------------- non-interest bearing advances from PPI to PCPI Funding in the amount of $13,450 (advanced for payment of trade debt). 1.66 "Person" means any individual, corporation, general partnership, ------ limited partnership, association, joint stock company, joint venture, estate, trust, indenture trustee, government or any Page 12 political subdivision, governmental unit (as defined in the Bankruptcy Code), official committee appointed by the Office of the United States Trustee, unofficial committee of creditors or equity holders or other entity. 1.67 "Petition Date" means December 28, 2001, the date on which ------------- Debtors filed their voluntary Chapter 11 petitions. 1.68 "Plan" means this First Amended Joint Chapter 11 Plan Dated ---- March 20, 2002, in its present form, or as it may be amended, modified, and/or supplemented from time to time in accordance with the Bankruptcy Code, or by agreement of the Debtors, or by order of the Bankruptcy Court, as the case may be. 1.69 "Plan Supplement" means the documents, including the form of --------------- Notice of Effective Date (disclosing, among other things, the identity of the Liquidating Trustee), the Liquidating Trust Agreement, the Notice of any Executory Contracts or Unexpired Leases being Assumed (and/or Assumed and Assigned) by the Debtors, and such other documents as may be necessary or advisable to effectuate the Plan, which documents shall be contained in a separate Plan Supplement filed with the Clerk of the Bankruptcy Court at least fifteen (15) days prior to the date on which the Confirmation Hearing shall first commence, or such other deadline as is ordered by the Bankruptcy Court. The Plan Supplement may be inspected in the office of the Clerk of the Bankruptcy Court during hours established therefor. Holders of Claims against and Interests in the Debtors may obtain a copy of the Plan Supplement upon written request to the Debtors. The Plan Supplement shall for all purposes be deemed incorporated into and become a part of the Plan as if fully set forth herein. 1.70 "PPI" means PPI Corporation, a corporation organized under the --- laws of New Jersey, and one of the Debtors herein, and a wholly owned, direct subsidiary of GBCC, and also a party to the Stock Purchase Agreement. 1.71 "PPI Common Stock" means the common stock of PPI issued and ---------------- outstanding prior to the Petition Date, and includes any options or warrants with the right to acquire PPI Common Stock. 1.72 "PPI Funding" means PPI Funding Corp., a corporation organized ----------- under the laws of Delaware, and one of the Debtors herein, and a wholly owned, direct subsidiary of PPI. 1.73 "PPI Funding Common Stock" means the common stock of PPI Funding ------------------------ issued and outstanding prior to the Petition Date, and includes any options or warrants with the right to acquire PPI Funding Common Stock. 1.74 "PPI Guaranty" means the guaranty by PPI of the PCPI Funding ------------ Replacement Note to PPI Funding, as more particularly described in the definition of "PCPI Funding Replacement Note to PPI Funding." 1.75 "PPI's $350,000 Claim against GBCC" means the Claim that PPI has --------------------------------- against GBCC in respect of certain interest that accrued on the Four GBCC Promissory Notes to Hollywood prior to Page 13 April 1, 1997, and which Hollywood Casino Corporation assigned to PPI in a transaction that occurred April 1, 1997. 1.76 "Pro Rata" means proportionately so that, with respect to an -------- Allowed Claim or Allowed Interest, the ratio of (A) (1) the amount of payments or other property distributed on account of a particular Allowed Claim or Allowed Interest to (2) the amount of the Allowed Claim or Allowed Interest, is the same as the ratio of (B)(1) the amount of payments or other property distributed on account of all Allowed Claims or Allowed Interests which are entitled to receive such payments or other property to (2) the amount of all Allowed Claims or Allowed Interests which are entitled to receive such payments or other property. 1.77 "Purchaser" means ACSC Acquisitions, Inc., a wholly owned --------- subsidiary of Bally Gaming, Inc., who under the terms of the Stock Purchase Agreement, dated December 19, 2001, as amended, will purchase all of the ACSC Common Stock for the sum of $14.6 million, subject to certain purchase price adjustments, all as further described in the Stock Purchase Agreement, as amended, the Sale Motion and in Section V(B) of the Disclosure Statement. ----------- 1.78 "Record Date Balloting" means the date fixed by the Bankruptcy --------------------- Court or designated by the Debtors, prior to distribution of ballots for voting on the Plan, as the record date for determination of the holders of other Claims that may vote on the Plan. The Record Date Balloting shall be March 15, 2002. 1.79 "Record Date Distributions" means the date fixed by the ------------------------- Bankruptcy Court or designated by the Debtors, prior to the entry of the Confirmation Order, as the record date for determination of the holders of other Claims that are entitled to receive Distributions in connection with the Plan. Unless otherwise ordered by the Bankruptcy Court, the Record Date Distributions shall be the date the Bankruptcy Court enters the Confirmation Order. 1.80 "Rejection Claim" means a Claim resulting from the rejection of --------------- a lease or executory contract by a Debtor. 1.81 "Released Matters" shall have the meaning ascribed to such term ---------------- in Article 6.10 of the Plan. ------------ 1.82 "Releasees" shall have the meaning ascribed to such term in --------- Article 6.10 of the Plan. - ------------ 1.83 "Sale" means the sale pursuant to section 363 of the Bankruptcy ---- Code, by the Debtor, PPI, of the ACSC Common Stock, to Purchaser, pursuant to the Stock Purchase Agreement, as amended. 1.84 "Sale Motion" means that certain "Debtor, PPI Corporation's, ----------- Motion for Order Authorizing Private Sale of the Common Stock of Wholly Owned Non-Debtor Subsidiary, Advanced Casino Systems Corporation, Free and Clear of Liens, Claims and Encumbrances, Pursuant to 11 U.S.C. (S)363(f) and F.R.B.P. 6004, and for Authority to Assume Stock Purchase Agreement Relating Page 14 Thereto, Pursuant to 11 U.S.C. (S)365," filed by the Debtor, PPI, on the Petition Date, seeking approval of the Sale and entry of the Sale Order. 1.85 "Sale Order" means that certain Order, as entered by the ---------- Bankruptcy Court, approving the Sale and the Sale Motion, and, more specifically, authorizing, pursuant to sections 363 and 365 of the Bankruptcy Code, the sale of the ACSC Common Stock to Purchaser. The Sale Order was entered on March 6, 2002. 1.86 "Sale Proceeds" means the sum of $14.6 million, subject to ------------- certain purchase price adjustments contained in the Stock Purchase Agreement, as amended. 1.87 "Sands Trademark Adversary" means Adversary Proceeding No. ------------------------- 02-01803 filed January 31, 2002, and styled Greate Bay Casino Corporation v. Las Vegas Sands, Inc., in the United States Bankruptcy Court for the District of Delaware. 1.88 "Schedules" means the Schedules of Assets and Liabilities, --------- Statement of Financial Affairs and Statement of Executory Contracts Filed by the Debtors with the Bankruptcy Court, as amended or supplemented on or before the Effective Date, listing the liabilities and assets of the Debtors. 1.89 "SEC" means the Securities and Exchange Commission. --- 1.90 "SEC Reports" means those quarterly and annual reports filed ----------- with the Securities and Exchange Commission by GBCC, PPI, PCPI Funding and PPI Funding. 1.91 "Securities Act" means the Securities Act of 1933, as amended. -------------- 1.92 "Security Agreement" means the documentation under which a lien ------------------ against property is reflected. 1.93 "Split-Off Zero-Coupon Note from PPI Funding" means that certain ------------------------------------------- promissory note dated April 1, 1997, duly executed by PPI Funding, and payable to the order of Hollywood Casino Corporation, in the face amount of $13,750,000, and bearing interest at the rate of 14.875% per annum. This note, and the Hollywood Zero-Coupon Note from PPI Funding, as hereinabove defined, were both given in renewal of the unpaid principal balance of, and in amendment and restatement of, that certain Secured Promissory Note (a.k.a. the "Original Zero-Coupon Note") in the amount of $110,635,739.40 dated February 17, 1994, executed by PPI Funding and payable to Hollywood Casino Corporation, in order to convert the Original Zero-Coupon Note into two (2) separate promissory notes. This note was subsequently assigned by Hollywood Casino Corporation to PPI. Further background information regarding the origin and history of the Split-Off Zero-Coupon Note from PPI Funding is more fully described at Section IV(B) of ------------- the Disclosure Statement. As of the Petition Date, the balance on the Split-Off Zero-Coupon Note from PPI Funding was $15,492,168.00. Page 15 1.94 "Stock Purchase Agreement" means that certain agreement, ------------------------ originally executed on December 19, 2001, by Purchaser, PPI, GBCC, and ACSC (with the consent of HWCC), as amended by that certain Amendment No. 1 to Stock Purchase Agreement, dated February 4, 2002, pursuant to which Purchaser will acquire all of the ACSC Common Stock, together with all amendments. 1.95 "Unclaimed Distribution" means, in respect of any Class of ---------------------- Claims, all Cash or other property deemed to be "Unclaimed Distributions" pursuant to Article 7.7.B of the Plan. ------------ 1.96 "Unclassified Claims" means Administrative Claims and Tax Claims ------------------- which, pursuant to section 1123(a)(1) of the Bankruptcy Code, are not required to be classified. 1.97 "Unexpired Lease" shall have the meaning set forth in section --------------- 365 of the Code. 1.98 "Unliquidated or Contingent Claim" means any Claim, the amount -------------------------------- of which is undetermined or the liability for which is not proven or is contingent, as reflected in either the Schedules or the Proof of Claim filed by any Creditor. 1.99 "Unsecured Claim" means any Claim against any one or more of the --------------- Debtors that arose or that is deemed by the Bankruptcy Code to have arisen prior to the Petition Date, including, but not limited to, trade claims and Rejection Claims, and that is not a Claim or an Interest expressly classified in any other Class. 1.100 "Unsecured Convenience Claim" means any Unsecured Claim against --------------------------- any one or more of the Debtors, other than an Intercompany Claim, which is either (i) $15,000 or less in amount or (ii) in excess of $15,000, but whose holder elects to accept $15,000 Cash in full satisfaction of such Claim. Unsecured Convenience Claims are classified in Class 5 in this Plan. ARTICLE 2 DESIGNATION OF CLASSES OF CLAIMS AND INTERESTS AND SPECIFICATION OF IMPAIRED OR UNIMPAIRED STATUS 2.1 Summary. The following is a designation of the Classes of Claims and Interests under this Plan and a specification of which Classes are impaired or not impaired. In accordance with section 1123(a)(1) of the Bankruptcy Code, Allowed Administrative Claims and Allowed Tax Claims described in Article 3 of --------- this Plan have not been classified and are excluded from the following Classes. A Claim or Interest is classified in a particular Class only to the extent that the Claim or Interest is an Allowed Claim or Allowed Interest in that Class and has not been paid, released or otherwise satisfied before the Effective Date; a Claim or Interest which is not an Allowed Claim or Interest is not in any Class. Notwithstanding anything to the contrary contained in this Plan, no distribution shall be made on account of any Claim or Interest to which an objection has been interposed or with regard to which the Debtors anticipate interposing a timely objection unless and until the Claim or Interest becomes an Allowed Claim or Allowed Interest. Class Status ----- ------ Page 16 A. Claims Class 1: HWCC's Claim against Impaired - entitled to vote PPI Funding, in respect of respect of the Hollywood Zero-Coupon Note from PPI Funding, which Claim is Allowed by this Plan in the total amount of $49,219,370.05. Class 2: Intercompany Claims Against GBCC Impaired - entitled to vote (consisting of: (a) PPI's Claim against GBCC in respect of the GBCC $2,200,000 Indebtedness to PPI; (b) PPI's $350,000 Claim against GBCC; (c) PCPI Funding's Claim against GBCC in respect of the GBCC $23,265,577 Promissory Note to PCPI Funding; (d) PCPI Funding's Claim against GBCC in respect of the GBCC/Joplin DQ Promissory Note to PCPI Funding; and (e) PPI Funding's Claim against GBCC in respect of the GBCC $16,265,000 Indebtedness to PPI Funding). Class 3: Intercompany Claims Against PCPI Impaired - entitled to vote Funding (consisting of: (a) PPI's Claim against PCPI Funding in respect of the PCPI $13,450 Indebtedness to PPI; and (b) PPI Funding's Claim against PCPI Funding in respect of the PCPI Funding Replacement Note to PPI Funding). Class 4: Intercompany Claims Against Impaired - entitled to vote PPI Funding (consisting of PPI's Claim Against PPI Funding in respect of the Split-Off Zero-Coupon Note from PPI Funding). Page 17 Class 5: Unsecured Convenience Claims against Impaired - entitled to vote any of GBCC, PPI, PCPI Funding or PPI Funding (consisting of any trade claim or other Unsecured Claim in the amount of $15,000 or less, or any that elect to reduce their Claims to $15,000; any such Claims are believed to be only against GBCC). Class 6: General Unsecured Claims Impaired - entitled to vote against any of GBCC, PPI, PCPI Funding, or PPI Funding, not otherwise classified (Debtors believe that the only Claim that will be an Allowed Class 6 Claim is the Claim of HWCC in respect of the Four GBCC Promissory Notes to Hollywood, which Claims are Allowed by this Plan in the aggregate amount of $10,126,668.50. However, Las Vegas Sands, Inc. and a former employee of a former GBCC affiliate have each filed Claims that Debtors dispute but which would be Claims in Class 6 if they became Allowed Claims.) B. Interests Class 7: Interests of GBCC's Impaired - not entitled to Equity Security Holder vote deemed to reject; 11 U.S.C. (S)1126(g)) Class 8: Interests of PPI's Impaired - entitled to vote Equity Security Holder Class 9: Interests of PCPI Funding's Impaired - entitled to vote Equity Security Holder Class 10: Interests of PPI Funding's Impaired - entitled to vote Equity Security Holder 2.2 Impairment Controversies. If a controversy arises as to whether any Class of Claims or Equity Interests is impaired under this Plan, the Bankruptcy Court shall, after notice and a hearing, determine the controversy. Page 18 ARTICLE 3 TREATMENT OF UNCLASSIFIED CLAIMS 3.1 Allowed Administrative Claims A. General. Subject to the bar date provisions herein (to the extent applicable), each holder of an Allowed Administrative Claim shall receive Cash (from the Chapter 11 Payables Reserve) equal to the unpaid portion of such Allowed Administrative Claim on the later of (1) the Effective Date or as soon as practicable thereafter, (2) the date on which such Claim becomes an Allowed Administrative Claim, and (3) such other date as is mutually agreed upon by (a) the Debtors and/or the Liquidating Trustee and (b) the holder of such Claim. (1) Bar Date for Administrative Claims (a) General Provisions. Except as provided in Article 3.1.C ------------- hereinbelow, and except with regard to statutory fees pursuant to 28 U.S.C. 1930, requests for payment of Administrative Claims must be Filed no later than forty-five (45) days after the Effective Date. Holders of Administrative Claims (including, without limitation, professionals requesting compensation or reimbursement of expenses) that are required to File a request for payment of such Claims and that do not File such requests by the applicable bar date shall be forever barred from asserting such Claims against the Debtors, the Estates, the Liquidating Trustee, any of their affiliates, or any of their respective property. (b) Professionals. All professionals or other entities requesting compensation or reimbursement of expenses pursuant to sections 327, 328, 330, 331, 503(b) and 1103 of the Bankruptcy Code for services rendered before the Effective Date (including, without limitation, any compensation requested by any professional or any other entity for making a substantial contribution in the Bankruptcy Case) shall File and serve on the Debtors and/or Liquidating Trustee and their counsel, any official committee appointed in this Bankruptcy Case and its counsel, and the United States Trustee an application for final allowance of compensation and expenses no later than forty- five (45) days after the Effective Date. Any professional fees and reimbursements of expenses incurred by Debtors or any official committees (or any successor thereto), relating solely to the closing of the transactions contemplated by the Plan, objections to Claims and the prosecution of fee applications subsequent to the Effective Date, shall be paid by the Liquidating Trustee from the remaining Chapter 11 Payables Reserve without application to the Bankruptcy Court. Payment of allowed fees and expenses shall be prorated, and appropriately reserved, between GBCC and PPI based upon the ratio of amount of cash in each Estate immediately prior to the Effective Date to the total cash in all Estates at such time. (c) Objections to Administrative Claims, Including Those of Professionals. Objections to requests for payment of Administrative Claims (including objections to applications of professionals for compensation or reimbursement of expenses) must be Filed and Page 19 served on the claimant and/or professional to whom the objection is addressed, the Debtors and/or Liquidating Trustee, any official committee, and the United States Trustee, no later than sixty-five (65) days after the Effective Date. B. Payment of Statutory Fees. Notwithstanding any other provision of this Plan, all fees payable pursuant to 28 U.S.C. 1930 shall be paid in Cash when due by the Debtors and/or the Liquidating Trustee. C. Ordinary Course Liabilities. Notwithstanding any other provision of this Plan, holders of Administrative Claims based on liabilities incurred postpetition in the ordinary course of the Debtors' business shall not be required to File any request for payment of such Claims, and such obligations shall be paid as they become due by the Debtors and/or the Liquidating Trustee, unless the Debtors and/or the Liquidating Trustee and a holder of such a Claim otherwise mutually agree. 3.2 Allowed Tax Claims. The holders of Allowed Tax Claims shall be paid in full in Cash (from the Chapter 11 Payables Reserve) on the later of (1) the Effective Date or as soon as practicable thereafter, (2) the date on which such Claim becomes an Allowed Tax Claim, and (3) such other date as is mutually agreed upon by the Debtors and/or the Liquidating Trustee and the holder of such Claim. ARTICLE 4 TREATMENT OF CLASSIFIED CLAIMS AND INTERESTS 4.1 Class 1 HWCC's Claim against PPI Funding in respect of the Hollywood Zero-Coupon Note from PPI Funding, in the total Allowed Amount of $49,219,370.05. The Allowed Class 1 Claim shall be discharged, extinguished and satisfied in full by the distribution to the Class 1 holder of the following consideration on the Effective Date: (i) the Sale Proceeds and the existing Cash of PPI, less an amount of Cash or Sale Proceeds that may be necessary to fund the Chapter 11 Payables Reserve, and less an amount of Cash or Sale Proceeds that may be necessary to fund the LVSI Reserve; and (ii) any residue in the LVSI Reserve after payment of the Allowed Amount, if any, of the Disputed LVSI Claim. 4.2 Class 2 Intercompany Claims Against GBCC (consisting of: (a) PPI's Claim against GBCC in respect of the GBCC $2,200,000 Indebtedness to PPI; (b) PPI's $350,000 Claim against GBCC; (c) PCPI Funding's Claim against GBCC in respect of the GBCC $23,265,577 Promissory Note to PCPI Funding; (d) PCPI Funding's Claim against GBCC in respect of the GBCC/Joplin DQ Promissory Note to PCPI Funding; and (e) PPI Funding's Claim against GBCC in respect of the GBCC $16,265,000 Indebtedness to PPI Funding). The Allowed Class 2 Claims shall be deemed discharged, extinguished and satisfied in full, as of the Effective Date, by virtue of the merger described at Article 6.1.C of the Plan. ------------- Page 20 4.3 Class 3 Intercompany Claims Against PCPI Funding (consisting of: (a) PPI's Claim against PCPI Funding in respect of the PCPI Funding $13,450 Indebtedness to PPI; and (b) PPI Funding's Claim against PCPI Funding in respect of the PCPI Funding Replacement Note to PPI Funding). The Allowed Class 3 Claims shall be deemed discharged, extinguished and satisfied in full, as of the Effective Date, by virtue of the merger described at Article 6.1.C of the Plan. ------------- 4.4 Class 4 Intercompany Claims Against PPI Funding (consisting only of PPI's Claim Against PPI Funding in respect of the Split-Off Zero-Coupon Note from PPI Funding). The Allowed Class 4 Claim shall be deemed discharged, extinguished and satisfied in full, as of the Effective Date, by virtue of the merger described at Article 6.1.C of the Plan. ------------- 4.5 Class 5 - Unsecured Convenience Claims against any of GBCC, PPI, PCPI Funding or PPI Funding (trade claims or other). To the extent necessary for purposes of section 1122 of the Code, the Allowed Unsecured Convenience Claims against each of GBCC, PPI, PCPI Funding and PPI Funding shall be deemed classified in separate sub-Classes hereunder (however, the Debtors believe that there are only Class 5 Claims against GBCC). The Allowed Class 5 Claims shall be discharged, extinguished, and satisfied in full, by the distribution of Cash to each holder of an Allowed Class 5 Claim, in the full amount of any such holder's Allowed Claim (from the Chapter 11 Payables Reserve or, alternatively, from Insurance Proceeds if any such Claim is an Insured Claim), on the later of (A) the Effective Date or as soon as practicable thereafter; (B) the date on which any such Claim becomes an Allowed Claim; and (C) such other date as is mutually agreed upon by the Debtors and/or the Liquidating Trustee and the holder of any such Claim. Notwithstanding the foregoing, any right of setoff that the Debtors may have with regard to any of these Claims is preserved. 4.6 Class 6 General Unsecured Claims Against any of GBCC, PPI, PCPI Funding or PPI Funding, not Otherwise Classified (believed to consist only of HWCC's Claims against GBCC in respect of the Four GBCC Promissory Notes to Hollywood, in the aggregate Allowed Amount of $10,126,668.50 and the Disputed Claims of Las Vegas Sands, Inc. and William D. Pratt, Jr., a former employee of a former GBCC affiliate). To the extent necessary for purposes of section 1122 of the Code, the Allowed General Unsecured Claims against each of GBCC, PPI, PCPI Funding and PPI Funding shall be deemed classified in separate sub-Classes hereunder. The Allowed Class 6 Claims shall be discharged, extinguished and satisfied in full by the distribution of the following consideration, on or as soon practicable after, the Effective Date: the Excess Chapter 11 Payables Reserve and the Miscellaneous Assets. To the extent that there is more than one holder of an Allowed Claim in this Class, the holders shall share Pro Rata in the Excess Chapter 11 Payables Reserve and the Miscellaneous Assets. To the extent that LVSI has an Allowed Claim that is not satisfied in full from the LVSI Reserve (which HWCC has agreed to make available to LVSI from the consideration that HWCC would otherwise be entitled to in respect of its Class 1 Claim), the unsatisfied portion of LVSI's Allowed Claim shall share Pro Rata from the consideration to be distributed to Class 6 claimants. Debtors believe HWCC will be the only person who will receive payment in this Class. Page 21 4.7 Class 7 Interests of the holders of the GBCC Common Stock. The Allowed Class 7 Interests shall be canceled, extinguished, and of no further force or effect as of the Effective Date. The Holders of the Class 7 Interests will not receive any distribution on account of their Interests. 4.8 Class 8 Interests of the holder of the PPI Common Stock. The Allowed Class 8 Interests shall be canceled, extinguished, and of no further force or effect as of the Effective Date. The holder of the Allowed Class 8 Interests (GBCC) shall receive the remaining assets of PPI at the time of the merger described in Article 6.1.C of the Plan. ------------- 4.9 Class 9 - Interests of the holder of the PCPI Funding Common Stock. The Allowed Class 9 Interests shall be canceled, extinguished, and of no further force or effect as of the Effective Date. The holder of the Allowed Class 9 Interests (PPI) shall receive the remaining assets of PCPI at the time of the merger described in Article 6.1.C of the Plan. ------------- 4.10 Class 10 - Interests of the holder of the PPI Funding Common Stock. The Allowed Class 10 Interests shall be canceled, extinguished, and of no further force or effect as of the Effective Date. The holder of the Allowed Class 10 Interests (PPI) shall receive the remaining assets of PPI Funding at the time of the merger described in Article 6.1.C of the Plan. ------------- ARTICLE 5 ACCEPTANCE OR REJECTION OF THE PLAN 5.1 Voting Classes. The holders of Claims and Interests in Classes 1-6 and 8-10 are impaired and shall be entitled to vote to accept or reject the Plan. 5.2 Presumed Rejection of Plan. The holders of Interests in Class 7 are also impaired under the Plan, but are conclusively deemed to reject the plan pursuant to 11 U.S.C. (S) 1126(g), since their Interests are canceled and they are receiving no distribution of property of any kind under the Plan. ARTICLE 6 MEANS FOR EXECUTION AND IMPLEMENTATION OF THE PLAN 6.1 Plan Implementation Steps Occurring on or around the Effective Date. On the Effective Date, or as soon as practicable thereafter, the following events shall occur in the following sequence: A. PPI's Contribution to PPI Funding of Sale Proceeds and Cash. PPI, ----------------------------------------------------------- which will be holding the Sale Proceeds, between the time of the consummation of the Sale, pursuant to the Sale Order, and the Effective Date, shall immediately make a capital contribution to PPI Funding of: (1) the Sale Proceeds, as well as (2) PPI's other Cash that it has on hand (in addition to the Sale Proceeds), less an amount of Cash that Page 22 may be necessary to fund the Chapter 11 Payables Reserve, less an amount of Cash or Sale Proceeds that may be necessary to fund the LVSI Reserve. B. Distribution of Sale Proceeds and PPI's Cash to HWCC. PPI Funding ---------------------------------------------------- shall immediately thereafter distribute: (1) the Sale Proceeds, and (2) PPI's other Cash that it has on hand (in addition to the Sale Proceeds), less an amount of Cash that may be necessary to fund the Chapter 11 Payables Reserve, and less an amount of Cash or Sale Proceeds that may be necessary to fund the LVSI Reserve, to HWCC, on account of its Allowed Class 1 Claim, in respect of the Hollywood Zero-Coupon Note from PPI Funding. C. Simultaneous Merger of PPI, PCPI Funding and PPI Funding with and ----------------------------------------------------------------- into GBCC. Simultaneously thereafter, each of PPI, PCPI Funding --------- and PPI Funding shall merge with and into GBCC. In the process, all of the Intercompany Claims (in Classes 2, 3, and 4) will essentially be eliminated and will be deemed discharged, extinguished and satisfied in full, as of the Effective Date, by virtue of the merger. Similarly, the PPI Common Stock (Class 8), the PCPI Funding Common Stock (Class 9), and the PPI Funding Common Stock (Class 10) shall be canceled by virtue of this merger, with GBCC succeeding to all of the remaining assets and liabilities of PPI, PCPI Funding, and PPI Funding. After the implementation of the merger, GBCC will have the following known assets: ASSETS ------ -Cash (including, but not limited to, the LVSI Reserve) -Miscellaneous Assets (deposits, prepaids, furniture, etc.) Additionally, after the implementation of the merger, GBCC will have the following liabilities: LIABILITIES ----------- -Administrative Claims against any of the Debtors -Tax Claims against any of the Debtors -Class 5 Unsecured Convenience Claims against any of the Debtors -Class 6 General Unsecured Claims against any of the Debtors, including, the Allowed Claim of HWCC and perhaps some Disputed Claims Class 6 is believed to consist only of the Claims of HWCC in respect of the Four GBCC Promissory Notes to Hollywood. Class 5 is believed to consist of only a handful of vendor claims against GBCC. However, Las Vegas Sands, Inc. has filed a Proof of Claim of approximately $20 million that would be in Class 6. Debtors believe this Claim will be disallowed. A former employee of a former GBCC affiliate has also filed a $3,025,000 Proof of Claim against GBCC that would be in Class 6 which Debtors also believe will be disallowed. Page 23 D. Establishment of the Chapter 11 Payables Reserve,Conveyance of -------------------------------------------------------------- Chapter 11 Payables Reserve, LVSI Reserve and Miscellaneous ----------------------------------------------------------- Assets to Liquidating Trustee, and Distributions to holders of --------------------------------------------------------------- any Allowed Administrative Claims, Allowed Tax Claims, and ---------------------------------------------------------- Allowed Unsecured Claims in Class 5. On the Effective Date, a ------------------------------------ Article 6.1, GBCC shall set aside the Cash it has on ----------- and and such Cash shall constitute the Chapter 11 Payables Reserve. GBCC shall immediately convey the Chapter 11 Payables Reserve and the LVSI Reserve to the Liquidating Trustee. GBCC shall also immediately convey the Miscellaneous Assets to the Liquidating Trustee. The Liquidating Trustee shall as promptly as practicable make the Cash Distributions required under the Plan to any holder of Allowed Administrative Claims, Allowed Tax Claims, and Allowed Unsecured Convenience Claims in Class 5 against any of GBCC, PPI, PCPI Funding or PPI Funding from the Chapter 11 Payables Reserve, unless the Debtors and any holder of such a Claim shall have otherwise mutually agreed. In addition to making such Distributions, the Liquidating Trustee shall set aside and hold in reserve any undistributed Chapter 11 Payables Reserve for any Administrative Claims, Tax Claims, and Unsecured Convenience Claims in Class 5 that are not yet Allowed Claims as of the Effective Date, until such time as such Claims have become resolved by a Final Order. E. Subordination of HWCC's Class 1 Claim to any Allowed LVSI Claim --------------------------------------------------------------- of up to $3 million. HWCC has agreed that it will subordinate its ------------------- right to receive distributions from the Class 1 consideration that it would otherwise receive up to an amount of $3 million and the LVSI Reserve will be established and held by the Liquidating Trustee until such time as LVSI's Disputed Claim is resolved. If LVSI ultimately has an Allowed Claim, it will be paid by the Liquidating Trustee from the LVSI Reserve. If an Allowed Claim of LVSI is more than the LVSI Reserve, then any excess Allowed LVSI Claim gets treated as a Class 6 Claim. If an Allowed LVSI Claim is less than the LVSI Reserve, then the excess LVSI Reserve will be disbursed by the Liquidating Trustee to HWCC in respect of its Class 1 Claim. F. Cancellation of GBCC Common Stock and Equity Interests. At this ------------------------------------------------------ stage, GBCC will have no remaining assets (having conveyed all remaining assets to the Liquidating Trustee). The Interests of the holders of the GBCC Common Stock (CLASS 10) shall be canceled and there shall be no distribution to the holders of GBCC Common Stock. GBCC will be dissolved. G. Distribution of any Excess Chapter 11 Payables Reserve and ---------------------------------------------------------- Miscellaneous Assets to holder(s) of Allowed Class 6 Claims. At ----------------------------------------------------------- this stage, the only remaining assets available for distribution will be: (1) any Excess Chapter 11 Payables Reserve (held by the Liquidating Trustee), after satisfaction of the Allowed Administrative Claims, Allowed Tax Claims, and Allowed Class 5 Convenience Claims against the Debtors, and (2) any Miscellaneous Assets. On the Effective Date or as soon thereafter as practicable (at the earliest practicable time after all Disputed Claims and Page 24 and other Claims against the Debtors not yet Allowed as of the Effective Date have become resolved by a Final Order), the Liquidating Trustee will distribute any Excess Chapter 11 Payables Reserve and the Miscellaneous Assets to the holder(s) of Class 6 Claims in full discharge of the Class 6 Claims. Once again, the Debtors believe that the only Claims that will be Allowed in Class 6 will be HWCC's Claims in respect of the Four GBCC Promissory Notes to Hollywood. To the extent that there is more than one holder of an Allowed Claim in this Class, the holders shall share Pro Rata in the Excess Chapter 11 Payables Reserve and Miscellaneous Assets. Additionally, if HWCC is the only holder of an Allowed Class 6 Claim, the Liquidating Trustee may distribute any Miscellaneous Assets that are not readily convertible into Cash to HWCC in kind. If there is more than one holder of an Allowed Class 6 Claim, the Liquidating Trustee will liquidate and convert to Cash any Miscellaneous Assets and then distribute the proceeds Pro Rata among the Allowed Class 6 Claimants. If LVSI has an Allowed Claim in this Class, it will only share in a distribution in this Class to the extent it has not been paid in full from the LVSI Reserve. 6.2 Merger of Corporate Entities. In order to optimize the benefits of the Plan for the Debtors' Estates and their Creditors, certain corporate consolidation (i.e., the merger of PPI, PCPI Funding and PPI Funding into GBCC) and other transactions with or among related entities are occurring as of the Effective Date. Notwithstanding the occurrence of any such consolidation or other transactions as of the Effective Date, Persons holding Claims against or Interests in any Debtor are receiving treatment under the Plan that is at least as favorable as any treatment to which such Creditor or Interest holder would have been entitled to receive if such consolidation or transactions had not occurred. This is largely due to the fact that the only Creditor that is expected to have an Allowed Claim against any of these Debtors (excluding Allowed Administrative Claims, Allowed Tax Claims, and Allowed Class 6 Unsecured Convenience Claims, all of which will be paid in Cash in full) is HWCC. As further explained in Section XIII(B) of the Disclosure Statement, even if there are -------------- other third-party Creditors who are granted Allowed Claims in Class 6 in this Bankruptcy Case, this Plan affords at least as favorable treatment to such Creditors as they would be entitled in a Chapter 7 case in which no merger and/or no substantive consolidation were involved. 6.3 Transfer of Assets to the Liquidating Trust. On the Effective Date, pursuant to Article 6.1.D hereinabove, GBCC shall ------------- deliver the Chapter 11 Payables Reserve, the LVSI Reserve, and the Miscellaneous Assets to the Liquidating Trust, on behalf of and for the benefit of the holders of Allowed Administrative Claims, Allowed Tax Claims, the Allowed Class 5 Claims, and Allowed Class 6 Claims, including the Allowed Claim, if any, of LVSI, all of whom shall collectively be the beneficial interest holders of the Liquidating Trust. 6.4 Ratification of Liquidating Trust Agreement. On the Effective Date, each Creditor will be deemed to have ratified and become bound by the terms of the Liquidating Trust Agreement. The Liquidating Trust Agreement shall become Page 25 effective upon its execution by the Debtors and acceptance by the Liquidating Trustee. A. Powers and Duties. The Liquidating Trustee shall have the powers, duties and obligations specified in this Plan and the Liquidating Trust Agreement. B. Compensation of Liquidating Trustee. The Liquidating Trustee shall be entitled to receive from the Trust Estate compensation for his services as Liquidating Trustee substantially in accordance with the description in the Liquidating Trust Agreement, which compensation shall be approved by the Court at the Confirmation Hearing. The Liquidating Trustee shall also be reimbursed by the Trust Estate for all reasonable out-of-pocket expenses incurred by the Liquidating Trustee in the performance of his duties. C. Limitation of Liability. The Liquidating Trustee shall use reasonable discretion in exercising each of the powers herein granted. No Liquidating Trustee or any attorney, agent, or servant of the Liquidating Trustee shall be personally liable in any case whatsoever arising in connection with the performance of obligations under this Plan, whether for their acts or their failure to act unless they shall have been guilty of willful fraud or gross negligence. The Liquidating Trustee may consult with attorneys, accountants, and agents, and the opinions of the same shall be full protection and justification to the Liquidating Trustee and his employees for anything done or admitted or omitted or suffered to be done in accordance with said opinions. The Liquidating Trustee shall not be required to give any bond for the faithful performance of his duties hereunder or under the Liquidating Trust Agreement. D. Right to Hire Professionals and Agents. The Liquidating Trustee shall have the right to reasonably utilize the services of attorneys or any other professionals which, in the discretion of the Liquidating Trustee, are necessary to perform the duties of the Liquidating Trustee. Reasonable fees and expenses incurred by the attorneys, accountants or other agents of the Liquidating Trustee shall be paid by the Liquidating Trust. The Liquidating Trustee may hire agents to effect distributions from the Liquidating Trust, and may pay the reasonable fees and expenses of such agents. E. Tax Treatment of the Liquidating Trust. It is intended that the Liquidating Trust will be treated as a "liquidating trust" within the meaning of Treasury Regulations Section 301.7701-4(d). Accordingly, for federal income tax purposes, the transfer and assignment of the assets, as described in Article 6.1.D hereinabove shall be treated as a deemed ------------- transfer and assignment of such assets to the holders of Claims who are beneficiaries of the Trust, followed by a deemed transfer and assignment by such holders to the Liquidating Trust. The Liquidating Trust shall be treated as a grantor trust owned by such holders. Each owner of an interest in the Liquidating Page 26 Trust shall be considered for tax purposes to own an undivided interest in the assets of the Liquidating Trust. The Liquidating Trustee shall provide any Creditor with an Allowed Administrative Claim, Allowed Tax Claim, Allowed Class 5 Claim, or Allowed Class 6 Claim with a valuation of the assets transferred to the Liquidating Trust and such valuation shall be used consistently by the Debtors, the Liquidating Trust and all Creditors for all federal income tax purposes. All items of income, deduction, credit or loss of the Liquidating Trust shall be allocated for federal, state and local income tax purposes on a current basis among the Creditors, as set forth in the Liquidating Trust Agreement; provided, however, that to the extent that any item of income cannot be allocated to a particular Creditor in the taxable year in which it arises, the Liquidating Trust shall pay the federal, state, and local taxes attributable to such income (net of related deductions) at the highest rate applicable to trusts (for federal tax purposes, 39.6% currently). The Liquidating Trust shall file annual information returns as a grantor trust pursuant to Treasury Regulations Section 1.671-4(a) that will include information concerning the allocation of items of income, gain or loss, deduction or credit to the Creditors. Each Creditor will receive a copy of such information return. F. Termination of Liquidating Trust. The duties, powers and responsibilities of the Liquidating Trustee shall terminate two years after the Effective Date or, if earlier, upon the liquidation and distribution to the holders of beneficial interests in the Liquidating Trust of all proceeds in the Liquidating Trust estate in accordance with this Plan. If all proceeds in the Liquidating Trust have not been distributed to holders of beneficial interests in the Liquidating Trust, the term of the Liquidating Trust may be extended from time to time by order of the Bankruptcy Court for such period or periods as it determines are reasonable, such determination to be made within six months of the beginning of the extended period. 6.5 Cancellation of GBCC Common Stock and Ultimate Dissolution of GBCC. As of the Effective Date, the GBCC Common Stock shall be terminated and statements of resolution and any other documentation governing such GBCC Common Stock shall be rendered void. After the transfer of assets from GBCC to the Liquidating Trustee described in Article 6.1.D of the Plan, ------------- and the cancellation of the GBCC Common Stock as described in Article 6.1.F of the Plan, the officers of the GBCC shall sign ------------- and file articles of dissolution for GBCC with the Secretary of State of the State of Delaware, substantially in the form that will be included with the Plan Supplement (the "Articles of Dissolution"). Pursuant to Delaware law, no approval of the shareholders or directors of GBCC shall be required for the filing of the Articles of Dissolution. 6.6 Corporate Action. Upon entry of the Confirmation Order, the events and/or transactions set forth in Article 6.1 ----------- hereinabove shall be and be deemed authorized and approved in all respects. On the Effective Date, the matters provided under the Plan involving the capital and corporate structures and governance of the respective Debtors, including the merger of PPI, PCPI Funding and PPI Funding with and into Page 27 GBCC, shall be deemed to have occurred and shall be in effect from and after the EffectiveDate pursuant to applicable state laws without any requirement of further action by the stockholders or directors of the Debtors. On the Effective Date, the Debtors and the Liquidating Trustee shall be authorized and directed to take all necessary and appropriate actions to effectuate the transactions contemplated by the Plan in the name of and on behalf of the Debtors and/or the Estates. 6.7 Objections to Claims. Except as otherwise provided for with respect to Administrative Claims and applications of professionals for compensation and reimbursement of expenses, as provided in Article 3.1.A hereof, or as otherwise ordered ------------- by the Bankruptcy Court after notice and a hearing, objections to Claims, shall be Filed and served upon the holder of such Claim not later than the later of (A) forty-five (45) days after the Effective Date, and (B) forty-five (45) days after a proof of claim is Filed, unless this period is extended by the Court on request of a party seeking to object. After the Effective Date, the Liquidating Trustee shall be the sole entity with standing to object to Claims (other than Claims of professionals for compensation and reimbursement of expenses). The Liquidating Trustee shall remain in existence for at least until such time as all Disputed Claims and other Claims not yet Allowed as of the Effective Date have become resolved by a Final Order. The Liquidating Trustee will vigorously prosecute objections to the Disputed Claim of Las Vegas Sands, Inc. (including by his intervention in the Sands Trademark Adversary Proceeding). 6.8 Retention Of Causes Of Action. Pursuant to section 1123(b)(3)(B) of the Code, except as provided in Article 6.10 ------------ hereinbelow or otherwise in the Plan or Confirmation Order, the Liquidating Trustee, on behalf of holders of Allowed Claims and Allowed Interests, shall, as a representative of the Estates post-Effective Date, retain all Causes of Action which the Debtors had or had power to assert immediately prior to Confirmation of the Plan, including, without limitation, Avoidance Actions, and may commence or continue, in any appropriate court or tribunal, any suit or other proceeding for the enforcement of such Causes of Action. Any recovery by the Liquidating Trustee on Causes of Action would ultimately become Miscellaneous Assets (as herein defined) (for distribution to the Class 6 holder(s)). Except as provided in Article 6.10, nothing contained in the Plan shall constitute a ------------ waiver of the rights, if any, of the Liquidating Trustee to a jury trial with respect to any Cause of Action or objection to any Claim. 6.9 Limitation of Liability. Upon and after the Effective Date, none of the Debtors, any official committee appointed in the cases and the members thereof, the Liquidating Trustee nor any of their respective officers, directors, employees, agents, nor any professional persons employed by any of them (collectively the "Exculpated Persons"), shall have or incur any liability to any Person for any act taken or omission made in good faith in connection with or related to formulating, implementing, confirming or consummating the Plan, the Disclosure Statement or any contract, instrument, release or other agreement or document created in connection with the Page 28 Plan. Upon and after the Effective Date, the Exculpated Persons shall have no liabilityto any Creditors, Interest holders, or other parties in interest for actions taken under the Plan, in connection therewith or with respect thereto in good faith, including, without limitation, failure to satisfy any condition or conditions, or refusal to waive any condition or conditions, precedent to Confirmation or to the occurrence of the Effective Date. Further, upon and after the Effective Date, the Exculpated Persons will not have or incur any liability to any holder of a Claim, holder of an Interest, other party-in-interest herein or any other Person for any act or omission in connection with or arising out of their administration of the Plan or the property to be distributed under the Plan, except for breach of the terms of the Plan or documents and agreements pursuant thereto, gross negligence or willful misconduct, and with respect to liability for gross negligence or willful misconduct such persons will be entitled to rely upon the advice of counsel with respect to their duties and responsibilities under the Plan. 6.10 Releases by Debtors. On the Effective Date, GBCC, on its own behalf and as representative of the Debtors' Estates, in consideration of services rendered in the Bankruptcy Case and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, releases unconditionally, and is hereby deemed to release unconditionally, each of the Debtors' present and former officers, directors, as well as HWCC and Hollywood Casino Corporation and their officers and directors, and any of their respective professional advisers (collectively, the "Releasees") from any and all claims, obligations, suits, judgments, damages, rights, Causes of Action and liabilities whatsoever (including, without limitation, those arising under the Code), whether known or unknown, foreseen or unforeseen, existing or hereafter arising, in law, equity or otherwise, based in whole or in part on any act, omission, transaction, event or other occurrence taking place before, on or after the Petition Date up to and including the Effective Date, in any way relating to the Debtors (before, on or after the Petition Date), the Bankruptcy Case, or the Plan (collectively, the "Released Matters"). 6.11 Exemption from Stamp and Similar Taxes. The issuance and delivery of any instrument of transfer under of in furtherance of this Plan (including, but not limited to in connection with the Sale, as contemplated by the Stock Purchase Agreement, and as provided in this Plan at Article 6.1.A), shall not be taxed ------------- under any law imposing a stamp tax or similar tax in accordance with 11 U.S.C.(S)1146(c). 6.12 Notice of Effective Date. The Liquidating Trustee shall file a notice of occurrence of Effective Date, in the form included in the Plan Supplement, within 10 days after the Effective Date, to be served on all Creditors and Interest holders, and to contain information relating to the Administrative Claim bar date. Page 29 ARTICLE 7 FUNDING AND METHODS OF DISTRIBUTION 7.1 Distribution Procedures Generally. The Liquidating Trustee shall make all Distributions under the Plan to holders of Allowed Administrative Claims, Allowed Tax Claims, the Allowed Class 5 Claims and the Allowed Class 6 Claims (and possibly a Distribution of residual LVSI Reserve to HWCC in respect of its Class 1 Claim). PPI Funding (before it is merged into GBCC) shall make the Distributions described in Article 6.1.B ------------- to the holder in Class 1. Except as otherwise provided in the Plan, all Distributions of Cash and other property shall be made on the later of the Effective Date (or as soon thereafter as practicable) or the date on which a particular Claim becomes Allowed (or as soon thereafter as practicable). Distributions required to be made on a particular date shall be deemed to have been made on such date if actually made on such date or as soon thereafter as practicable. No payments or other Distributions of property shall be made on account of any Claim or portion thereof unless and until such Claim or portion thereof is Allowed. 7.2 Distributions to Holders of Allowed Administrative Claims. Commencing on the Effective Date, the Liquidating Trustee shall, in accordance with Article 3 of the Plan, distribute to --------- each holder of a then unpaid Administrative Claim, Cash in the Allowed amount of such holder's Claim. 7.3 Distributions to Holders of Allowed Tax Claims, Allowed Class 5 Claims and Allowed Class 6 Claims. Commencing on the Effective Date, the Liquidating Trustee shall, in accordance with Article 3 of the Plan, distribute to each holder of a --------- then unpaid Allowed Tax Claim, Cash in the Allowed amount of such holder's Claim. Also, commencing on the Effective Date, the Liquidating Trustee shall, in accordance with Article 4.5 ----------- of the Plan, distribute to each holder of a then unpaid Allowed Class 5 Claim, Cash in the Allowed amount of such holder's Claim. 7.4 Distributions to Holder(s) of Allowed Class 6 Claims. Distributions on the Allowed Class 6 Claims shall be made in accordance with Article 4.6 of the Plan by the Liquidating ----------- Trustee. 7.5 Sources of Cash Distributions. All Cash Distributions made pursuant to the Plan shall be made from: (a) the Chapter 11 Payables Reserve, with respect to those Distributions to holders of Allowed Administrative Claims, Allowed Tax Claims, or Allowed Class 5 Claims; (b) the Excess Chapter 11 Payables Reserve and the Miscellaneous Assets, with respect to those Distributions to the holder(s) in Class 6; (c) the LVSI Reserve, if appropriate, to satisfy any Allowed LVSI Claim or, if applicable, to return to HWCC some or all of the LVSI Reserve, if any Allowed LVSI Claim is less than the LVSI Reserve, and (d) the Sales Proceeds (less amounts necessary to fund the Chapter 11 Payables Reserve and/or the LVSI Reserve) and existing Cash of PPI with respect to that Distribution to the holder in Class 1. Such Page 30 Cash Distributions shall be in U.S. dollars, by checks drawn on a domestic bank selected by the Debtors and/or Liquidating Trustee, or by wire transfer from a domestic bank, at the option of Debtors and/or Liquidating Trustee. 7.6 Disputed Claims. Notwithstanding any other provisions of the Plan, no payments or Distributions shall be made on account of any Disputed Claim until such Claim becomes an Allowed Claim, and then only to the extent that it becomes an Allowed Claim. 7.7 Delivery of Distributions and Undeliverable or Unclaimed Distributions. A. Delivery of Distributions in General. Except as provided below in Article 7.7.B, Distributions to holders of Allowed ------------- Claims shall be distributed by mail as follows: at the addresses set forth in (a) the respective proofs of claim filed by such holders; (b) any written notices of address changes delivered to the Debtors after the date of any related proof of claim; or (c) the Schedules of Assets and Liabilities Filed by the Debtors if no proof of claim or proof of interest is Filed and the Debtors have not received a written notice of a change of address. B. Undeliverable Distributions. If the Distribution to the holder of any Claim is returned to the Liquidating Trustee as undeliverable, no further Distribution shall be made to such holder unless and until the Liquidating Trustee is notified in writing of such holder's then current address. Undeliverable Distributions shall remain in the possession of the Liquidating Trustee until such time as a Distribution becomes deliverable. Undeliverable Distributions shall be held for the benefit of such holders, and shall be accounted for separately. Any funds shall be held in interest-bearing accounts, to the extent practicable, and the parties entitled to such funds shall be entitled to any earned interest on such funds. Any holder of an Allowed Claim who does not assert a claim for an undeliverable Distribution within one (1) year after the Effective Date shall no longer have any claim to or interest in such undeliverable Distribution, shall be forever barred from receiving any Distributions under this Plan, and such unclaimed Distributions shall become Miscellaneous Assets, for distribution to the holder(s) of Class 6 Claims. 7.8 De Minimis Distributions. No Cash payment of less than five dollars ($5.00) shall be made to any holder on account of an Allowed Claim. 7.9 Failure to Negotiate Checks. Checks issued in respect of Distributions under the Plan shall be null and void if not negotiated within 60 days after the date of issuance. Requests for reissuance of any such check may be made directly to the Liquidating Trustee by the holder of the Allowed Claim with respect to which such check originally was issued. Any claim in respect of such voided check is required to be made before the first anniversary of the Effective Date. Thereafter, all amounts represented by any voided check shall become Miscellaneous Assets, for the benefit of Class 6 claimant(s). All Claims in respect of void checks and the underlying Page 31 Distributions shall be discharged and forever barred from assertion against the Debtors, the Liquidating Trustee, their Affiliates, the Creditors, or any other party in interest herein, and their respective property. 7.10 Compliance with Tax Requirements. In connection with the Plan, to the extent applicable, the Debtors and the Liquidating Trustee shall comply with all withholding and reporting requirements imposed on them by any governmental unit, and all distributions pursuant to the Plan shall be subject to such withholding and reporting requirements. 7.11 Setoffs. Unless otherwise provided in a Final Order or in this Plan, the Debtors and/or the Liquidating Trustee may, but shall not be required to, setoff against any Claim and the payments to be made pursuant to the Plan in respect of such Claim, any claims of any nature whatsoever the Debtors may have under the Plan or arising out of the Bankruptcy Case against the holder thereof or its predecessor, but neither the failure to do so nor the allowance of any Claim hereunder shall constitute a waiver or release by the Debtor and/or Liquidating Trustee of any such Claims the Debtors may have against such holder or its predecessor. ARTICLE 8 TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES 8.1 Deemed Rejection of Executory Contracts and Unexpired Leases. Subject to Article 8.3 below, all Executory Contracts and ----------- Unexpired Leases that exist between the Debtors and any entity which have not been assumed or rejected prior to the Effective Date shall be deemed rejected as of the Effective Date, except for any Executory Contract or Unexpired Lease: (A) that has been expressly assumed (and/or assumed and assigned) pursuant to this Plan or an order of the Bankruptcy Court entered at or prior to the Effective Date, or (B) which is subject to a pending application to assume and/or assume and assign, or (C) which is subject to an application to extend time to assume or reject. Nothing contained herein shall constitute a waiver of any claim, right, or cause of action that the Debtors may hold against any party to any Executory Contract or lessee/lessor under any Unexpired Lease, including any insurer under any policy of insurance. A list of Executory Contracts and Unexpired Leases to be assumed (and/or assumed and assigned) pursuant the Plan, together with proposed cure amounts, if any, will be included in the Plan Supplement. 8.2 Options. Any options, warrants, or other equity interests representing the right to acquire GBCC Common Stock shall be canceled as of the Effective Date. All Claims arising under such warrants or options shall be classified in Class 7. Page 32 8.3 Approval of Assumption or Rejection of Executory Contracts and Unexpired Leases. Entry of the Confirmation Order shall constitute the approval, pursuant to section 365(a) of the Bankruptcy Code, of the assumption or rejection of the Executory Contracts and Unexpired Leases to be assumed or rejected pursuant to the Plan, and the assignment (if applicable) of any such assumed Executory Contracts or Unexpired Leases to any proposed assignee. Notice of the hearing on Confirmation of this Plan shall constitute notice to any nondebtor party to an Executory Contract or Unexpired Lease, which is to be assumed and assigned or rejected under this Plan, of the Debtors' intent to assume and assign or reject such contract or lease. 8.4 Bar Date for Filing Proofs of Claim Relating to Executory Contracts and Unexpired Leases Rejected Pursuant to the Plan. Any and all Proofs of Claim arising out of the rejection of an Executory Contract or Unexpired Lease pursuant to this Article 8 must be filed within thirty (30) days after the Effective Date. Any Holder of a Claim arising out of the rejection of an Executory Contract or Unexpired Lease who fails to file a Proof of Claim within such time shall be forever barred, estopped, and enjoined from asserting such Claim against the Debtors or their Estates or the Liquidating Trustee. Unless otherwise ordered by the Bankruptcy Court or provided under this Plan, all Claims arising from the rejection of Executory Contracts and Unexpired Leases shall be treated as either Unsecured Convenience Claims or General Unsecured Claims (Class 5 or 6, depending on amount) under the Plan. Nothing contained herein shall extend the time for filing a Proof of Claim for rejection of any contract or lease rejected prior to the Confirmation Date. 8.5 Cure Payments with Regard to Assumed Executory Contracts or Unexpired Leases. Any "cure" amounts that the Debtors believe are associated with Executory Contracts or Unexpired Leases proposed to be assumed will be set forth in the Plan Supplement. Such "cure" amounts will be paid by the Liquidating Trustee in cash in full on the Effective Date, or as soon as practicable thereafter, to the respective parties owed such amounts, in accordance with section 365(b)(1) of the Bankruptcy Code, except that in the event of a dispute regarding the amount of any "cure" payments, the "cure" payments required by section 365(b)(1) of the Bankruptcy Code shall be made by the Liquidating Trustee only after the entry of a Final Order of the Bankruptcy Court resolving the dispute or after the parties have otherwise reached agreements. If a party disputes the "cure" amount set forth in the Plan Supplement (or if no "cure" amount is indicated as being owed in the Plan Supplement for a particular Executory Contract or Unexpired Lease and an affected party believes there is a "cure" amount owing), or otherwise objects to assumption pursuant to section 365(b)(1) of the Bankruptcy Code and pursuant to the Plan, then the affected party(ies) to the Executory Contract or Unexpired Lease should file a written objection and serve it upon the Debtors' counsel, which objection should be filed and served so as to be received three (3) days prior to the scheduled Confirmation Hearing. A party's failure to file and serve such an objection three (3) days prior to the Confirmation Hearing will be deemed a waiver of any objection to assumption or to the "cure" amounts set forth in the Plan Supplement, and the Debtors will present Page 33 an order to the Court at the Confirmation Hearing that will provide for approval of the assumption and the "cure" amounts, as set forth in the Plan Supplement, which order will be binding on parties in interest receiving the Plan Supplement. ARTICLE 9 CONDITIONS TO CONFIRMATION OF PLAN 9.1 Conditions to Confirmation. Except as expressly waived by the Debtors, Hollywood Casino Corporation, and HWCC, the following conditions must occur and/or be satisfied prior to Confirmation of the Plan: A. The Sale shall have been consummated and the Sale Proceeds shall have been received by PPI. B. There shall be no Claims for cure of executory contracts or unexpired leases. C. All Claims of HWCC shall be allowed under the Confirmation Order. D. The Confirmation Order (and related findings of fact and conclusions of law) shall be in form and substance reasonably satisfactory to the Debtors, Hollywood Casino Corporation, and HWCC. E. The documentation in the Plan Supplement shall be in form and substance reasonably satisfactory to the Debtors, Hollywood Casino Corporation, and HWCC. 9.2 Waiver of Conditions. The Debtors, Hollywood Casino Corporation, and HWCC may waive any condition set forth in this Article 9 at any time, without notice, without leave of --------- or order of the Court, and without any formal action other than proceeding to confirm the Plan. ARTICLE 10 CONDITIONS TO EFFECTIVENESS OF THE PLAN 10.1 Conditions to Effectiveness. Except as expressly waived by the Debtors, Hollywood Casino Corporation, and HWCC, the following conditions must occur and be satisfied on or before the Effective Date: A. The Confirmation Order (and related findings of fact and conclusions of law) shall have been signed by the Court and duly entered on the docket for the Bankruptcy Page 34 Case by the clerk of the Court, in form and substance reasonably acceptable to the Debtors, Hollywood Casino Corporation, and HWCC. B. The Confirmation Order shall have become a Final Order. C. The Sale shall have been consummated and the Stock Purchase Agreement shall not have been terminated and there shall be no fact, event, condition or circumstance that will impede or prevent the distribution of the Sale Proceeds as contemplated by the Plan on the Effective Date. 10.2 Waiver of Conditions. The Debtors, Hollywood Casino Corporation, and HWCC may waive any condition set forth in this Article 10 (except for Article 10.1.B and C) at any time, ---------- -------------------- without notice, without leave of or order of the Court, and without any formal action other than proceeding to consummate the Plan. ARTICLE 11 EFFECTS OF PLAN CONFIRMATION 11.1 Discharge of Debtors and Injunction. The rights afforded in the Plan and the treatment of all Claims and Interests herein, shall be in exchange for and in reliance on the complete satisfaction, discharge, and release of all Claims and Interests of any nature whatsoever, including any interest accrued on such Claims from and after the Petition Date, against the Debtors, the Debtors-In-Possession, the Liquidating Trustee or any of their assets or properties. Except as otherwise provided in the Plan or the Confirmation Order: (A) on the Effective Date, the Debtors and these Estates shall be deemed discharged and released to the fullest extent permitted by section 1141 of the Bankruptcy Code from all Claims and Interests, including, but not limited to, demands, liabilities, Claims and Interests that arose before the Effective Date and all debts of the kind specified in sections 502(g), 502(h) or 502(i) of the Bankruptcy Code, whether or not: (1) a proof of claim or proof of interest based on such debt or Interest is Filed or deemed Filed pursuant to section 501 of the Bankruptcy Code, (2) a Claim or Interest based on such debt or Interest is allowed pursuant to section 502 of the Bankruptcy Code, or (3) the holder of a Claim or Interest based on such debt or Interest has accepted the Plan; and (B) all Persons shall be precluded from asserting against the Debtors, the Liquidating Trustee, the Estates, any Creditors or other parties-in-interest, and their successors, or any of their assets or properties, any other or further Claims or Interests based upon any act or omission, transaction, or other activity of any kind or nature that occurred prior to the Effective Date. Except as otherwise provided in the Plan or the Confirmation Order, as of the Effective Date, the Confirmation Order shall act as a discharge of any and all Claims against and all debts and liabilities of the Debtors, as provided in sections 524 and 1141 of the Bankruptcy Code, and such discharge shall void any judgment against any of the Debtors at any time obtained to the extent that it relates to a Claim discharged. The Page 35 discharge of the Debtors provided in the Plan shall not affect the obligations of the Debtors under any executory contract assumed under Article 8.1 hereinabove, nor under any agreement ----------- pursuant to or in connection with this Plan intended to be in force on or after the Effective Date. Except as otherwise provided in the Plan or the Confirmation Order, on and after the Effective Date, all persons who have held, currently hold or may hold a debt, Claim or Interest discharged pursuant to the terms of this Plan are permanently enjoined from taking any of the following actions on account of any such discharged debt, Claim or Interest: (1) commencing or continuing in any manner any action or other proceeding against the Debtors, the Liquidating Trustee, any of their successors or their respective property; (2) enforcing, attaching, collecting or recovering in any manner any judgment, award, decree or order against the Debtors, the Liquidating Trustee, any of their successors or their respective property; (3) creating, perfecting or enforcing any lien or encumbrance against the Debtors, the Liquidating Trustee, any of their successors or their respective property; (4) asserting any setoff, right of subrogation or recoupment of any kind against any obligation due to the Debtors, the Liquidating Trustee, any of their successors or their respective property; and (5) commencing or continuing any action, in any manner, in any place that does not comply with or is inconsistent with the provisions of this Plan or the Confirmation Order. Any Person injured by any willful violation of such injunction shall recover actual damages, including costs and attorneys' fees, and, in appropriate circumstances, may recover punitive damages, from the willful violator. 11.2 Revesting. On the Effective Date, the Liquidating Trustee, on behalf of the Debtors' Estates, will be vested with all the property of the respective Estates of the Debtors that is not otherwise transferred under the Plan free and clear of all Claims and other interests of Creditors and equity holders, except as provided herein; provided, however, that the Debtors shall continue as debtors in possession under the Bankruptcy Code until the Effective Date, and, thereafter, the Liquidating Trustee may wind up the business free of any restrictions imposed by the Bankruptcy Code or the Court (except for any restrictions set forth in the Confirmation Order). 11.3 No Liability for Solicitation or Participation. As specified in section 1125(e) of the Bankruptcy Code, Persons that solicit acceptances or rejections of the Plan and/or that participate in the offer, issuance, sale, or purchase of securities offered or sold under the Plan, in good faith and in compliance with the applicable provisions of the Bankruptcy Code, are not liable, on account of such solicitation or participation, for violation of any applicable law, rule, or regulation governing the solicitation of acceptances or rejections of the Plan or the offer, issuance, sale, or purchase of securities. 11.4 Other Documents and Actions. The Debtors, the Debtors-In-Possession, and the Liquidating Trustee may execute such documents and take such other action as is necessary to effectuate the transactions provided for in the Plan. Page 36 11.5 Post-Consummation Effect of Evidences of Claims or Interests. Evidences of Claims against or Interests in the Debtors shall, effective upon the Effective Date, represent only the right to participate in the Distributions contemplated by the Plan. 11.6 Term of Injunctions or Stays. Unless otherwise provided, all injunctions or stays provided for in the Bankruptcy Case pursuant to sections 105 or 362 of the Bankruptcy Code or otherwise and in effect on the Confirmation Date shall remain in full force and effect until the Effective Date. ARTICLE 12 CONFIRMABILITY OF PLAN AND CRAMDOWN The Debtors will request Confirmation under section 1129(b) of the Bankruptcy Code if any impaired Class of Creditors does not accept the Plan pursuant to section 1126 of the Bankruptcy Code. In that event, the Debtors reserve the right to modify the Plan to the extent, if any, that Confirmation of the Plan under section 1129(b) of the Bankruptcy Code requires modification. ARTICLE 13 RETENTION OF JURISDICTION Notwithstanding the entry of the Confirmation Order or the occurrence of the Effective Date, the Bankruptcy Court shall retain such jurisdiction over the Bankruptcy Case after the Effective Date as is legally permissible, including, without limitation, jurisdiction to: 1. Allow, disallow, determine, liquidate, classify or establish the priority or secured or unsecured status of or estimate any Claim or Interest, including, without limitation, the resolution of any request for payment of any Administrative Claim and the resolution of any and all objections to the allowance or priority of Claims or Interests including any adversary proceedings; 2. Grant or deny any and all applications for allowance of compensation or reimbursement of expenses authorized pursuant to the Bankruptcy Code or the Plan, for periods ending on or before the Effective Date; 3. Resolve any motions pending on the Effective Date to assume, assume and assign or reject any executory contract or unexpired lease to which the Debtors are parties or with respect to which the Debtors may be liable and to hear, determine and, if necessary, liquidate, any and all Claims arising therefrom; Page 37 4. Ensure that Distributions to holders of Allowed Claims and Allowed Interests are accomplished pursuant to the provisions of the Plan; 5. Decide or resolve any and all applications, motions, adversary proceedings, contested or litigated matters and any other matters or grant or deny any applications involving the Debtors or Liquidating Trustee that may be pending on the Effective Date; 6. Enter such Orders as may be necessary or appropriate to implement or consummate the provisions of the Plan and all contracts, instruments, releases, and other agreements or documents created in connection with the Plan or the Disclosure Statement; 7. Resolve any and all controversies, suits or issues that may arise in connection with the consummation, interpretation or enforcement of the Plan or any entity's obligations incurred in connection with the Plan; 8. Modify the Plan before or after the Effective Date pursuant to section 1127 of the Bankruptcy Code, or to modify the Disclosure Statement or any contract, instrument, release, or other agreement or document created in connection with the Plan or the Disclosure Statement; or remedy any defect or omission or reconcile any inconsistency in any Bankruptcy Court Order, the Plan, the Disclosure Statement or any contract, instrument, release, or other agreement or document created in connection with the Plan or the Disclosure Statement, in such manner as may be necessary or appropriate to consummate the Plan, to the extent authorized by the Bankruptcy Code; 9. Issue injunctions, enter and implement other orders or take such other actions as may be necessary or appropriate to restrain interference by any entity with consummation or enforcement of the Plan; 10. Enter and implement such orders as are necessary or appropriate if the Confirmation Order is for any reason modified, stayed, reversed, revoked or vacated; 11. Determine any other matters that may arise in connection with or related to the Plan, the Disclosure Statement, the Confirmation Order or any contract, instrument, release, or other agreement or document created in connection with the Plan or the Disclosure Statement; and 12. Enter a final decree closing the Bankruptcy Case. If the Bankruptcy Court abstains from exercising jurisdiction or is otherwise without jurisdiction over any matter arising out of the Bankruptcy Case, including, without limitation, the matters set forth in this Article, this Article shall have no effect upon and shall not control, prohibit, or limit the exercise of jurisdiction by any other court having competent jurisdiction with respect to such matter. Page 38 ARTICLE 14 MISCELLANEOUS PROVISIONS 14.1 Fractional Dollars. Any other provision of the Plan notwithstanding, no payments of fractions of dollars will be made to any holder of an Allowed Claim. Whenever any payment of a fraction of a dollar to any holder of an Allowed Claim would otherwise be called for, the actual payment made will reflect a rounding of such fraction to the nearest whole dollar (up or down). 14.2 Modification of Plan. The Debtors reserve the right, in accordance with the Bankruptcy Code, to amend or modify the Plan prior to the entry of the Confirmation Order. After the entry of the Confirmation Order, the Debtors and/or Liquidating Trustee may, upon order of the Bankruptcy Court, amend or modify the Plan in accordance with section 1127(b) of the Bankruptcy Code, or remedy any defect or omission or reconcile any inconsistency in the Plan in such manner as may be necessary to carry out the purpose and intent of the Plan. 14.3 Governing Law. Except to the extent the Bankruptcy Code or the Bankruptcy Rules are applicable, the rights and obligations arising under the Plan shall be governed by, and construed and enforced in accordance with the laws of the State of Delaware, without giving effect to the principles of conflicts of law thereof. 14.4 Payment Dates. Whenever any payment to be made under the Plan is due on a day other than a Business Day, such payment will instead be made, without interest, on the next Business Day. 14.5 Headings. The headings used in this Plan are inserted for convenience only and neither constitute a portion of the Plan nor in any manner affect the provisions of the Plan. 14.6 Successors and Assigns. The rights, benefits and obligations of any entity named or referred to in the Plan shall be binding on, and shall inure to the benefit of, any heir, executor, administrator, successor or assign of such entity. 14.7 Severability of Plan Provisions. If prior to Confirmation any term or provision of the Plan, which does not govern the treatment of Claims or Interests or the conditions of the Effective Date or which is not governed by the terms of the Stock Purchase Agreement or documents related thereto, is held by the Bankruptcy Court to be invalid, void, or unenforceable, the Bankruptcy Court shall have the power to alter and interpret such term or provision to make it valid or enforceable to the maximum extent practicable, consistent with the original purpose of the term or provision held to be invalid, void, or unenforceable, and such term or provision shall then be applicable as altered or interpreted. Notwithstanding any such holding, alteration or Page 39 interpretation, the remainder of the terms and provisions of the Plan will remain in full force and effect and will in no way be affected, impaired, or invalidated by such holding, alteration, or interpretation. The Confirmation Order shall constitute a judicial determination and shall provide that each term and provision of the Plan, as it may have been altered or interpreted in accordance with the foregoing, is valid and enforceable pursuant to its terms. 14.8 No Admissions. Notwithstanding anything herein to the contrary, nothing contained in the Plan shall be deemed as an admission by the Debtors with respect to any matter set forth herein, including, without limitation, liability on any Claim or the propriety of any Claims classification. Page 40 Dated as of March 20, 2002 GREATE BAY CASINO CORPORATION Debtor and Debtor-In-Possession ___________________________________ By: John C. Hull Its: Chief Executive Officer PPI CORPORATION Debtor and Debtor-In-Possession ___________________________________ By: John C. Hull Its: Vice President PCPI FUNDING CORP. Debtor and Debtor-In-Possession ___________________________________ By: John C. Hull Its: Vice President PPI FUNDING CORP. Debtor and Debtor-In-Possession ___________________________________ By: John C. Hull Its: Vice President Page 41 Counsel to the Debtors: - ----------------------- Robert D. Albergotti, Esquire Stacey Jernigan, Esquire HAYNES AND BOONE, L.L.P. 901 Main Street, Suite 3100 Dallas, Texas 75201-3714 Telephone: (214) 651-5000 Steven K. Kortanek, Esquire KLEHR, HARRISON, HARVEY, BRANZBURG & ELLERS LLP 919 Market Street, Suite 1000 Wilmington, Delaware 19801-3062 Telephone: (302) 426-1189 Page 42 EX-99.5 9 dex995.txt DEBTORS FIRST AMENDED JOINT DISCLOSURE Exhibit 99.5 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE IN RE: (S) Chapter 11 (S) GREATE BAY CASINO CORPORATION (S) Case No. 01-11729 (PJW) PPI CORPORATION (S) Case No. 01-11730 (PJW) PCPI FUNDING CORP. (S) Case No. 01-11731 (PJW) PPI FUNDING CORP. (S) Case No. 01-11732 (PJW) (S) Debtors. (S) (S) Jointly Administered Under (S) Case No. 01-11729 (PJW) - -------------------------------------------------------------------------------- DEBTORS' FIRST AMENDED JOINT DISCLOSURE STATEMENT UNDER 11 U.S.C. (S) 1125, DATED MARCH 20, 2002, IN SUPPORT OF THE DEBTORS' FIRST AMENDED JOINT CHAPTER 11 PLAN DATED MARCH 20, 2002 - -------------------------------------------------------------------------------- THIS DISCLOSURE STATEMENT (HEREIN SO CALLED) HAS BEEN PREPARED BY GREATE BAY CASINO CORPORATION ("GBCC"), PPI CORPORATION ("PPI"), PCPI FUNDING CORP. ("PCPI FUNDING"), AND PPI FUNDING CORP. ("PPI FUNDING") (COLLECTIVELY, THE "DEBTORS") AND DESCRIBES THE TERMS AND PROVISIONS OF THE DEBTORS' FIRST AMENDED JOINT CHAPTER 11 PLAN DATED MARCH 20, 2002 (THE "PLAN"). ANY CAPITALIZED TERM USED IN THIS DISCLOSURE STATEMENT THAT IS NOT DEFINED HEREIN HAS THE MEANING ASCRIBED TO THAT TERM IN THE PLAN. THE DEBTORS URGE YOU TO ACCEPT THE PLAN. IN THE EVENT THE PLAN IS NOT CONFIRMED, IT IS LIKELY THAT THE DEBTORS WILL BE FORCED TO LIQUIDATE THEIR ASSETS UNDER CHAPTER 7 OF THE BANKRUPTCY CODE. IN A CHAPTER 7 LIQUIDATION, THE DEBTORS BELIEVE UNSECURED CREDITORS WOULD RECEIVE FAR LESS THAN IS CONTEMPLATED BY THE PLAN. HAYNES AND BOONE, L.L.P. Robert D. Albergotti, Esquire Stacey Jernigan, Esquire 901 Main Street, Suite 3100 Dallas, Texas 75201-3714 Telephone: (214) 651-5000 Telecopy: (214) 651-5940 KLEHR, HARRISON, HARVEY, BRANZBURG & ELLERS LLP Steven K. Kortanek, Esquire 919 Market Street, Suite 1000 Wilmington, Delaware 19801-3062 Telephone: (302) 426-1189 CO-COUNSEL TO THE DEBTORS TABLE OF CONTENTS SUMMARY OF THE PLAN.............................................................................................. 1 I. INTRODUCTION............................................................................................... 3 A. Filing of the Debtors' Chapter 11 Bankruptcy Cases............................................. 3 B. Purpose of Disclosure Statement................................................................ 3 C. Hearing on Confirmation of the Plan............................................................ 5 D. Sources of Information......................................................................... 6 II. EXPLANATION OF CHAPTER 11.................................................................................. 6 A. Overview of Chapter 11......................................................................... 6 B. Plan of Reorganization......................................................................... 7 III. VOTING PROCEDURES AND REQUIREMENTS FOR CONFIRMATION........................................................ 8 A. Voting Claims.................................................................................. 8 B. Return of Ballots.............................................................................. 9 1. Voting Record Date (a.k.a. the Record Date--Balloting )........................................ 10 2. Deadline for Submission of Ballots............................................................. 10 C. Confirmation of Plan........................................................................... 10 1. Solicitation of Acceptances.................................................................... 10 2. Requirements for Confirmation of the Plan...................................................... 11 3. Acceptances Necessary to Confirm the Plan...................................................... 13 4. Cramdown....................................................................................... 13 IV. BACKGROUND OF THE DEBTORS.................................................................................. 14 A. Nature of the Debtors' Business: Overview of Assets and Liabilities............................ 14 B. Explanation of Claims Against the Debtors: Origin of the Various HWCC Claims Against the Debtors................................................................ 18 1. The HWCC Claims against GBCC (aggregating $10,126,668.50)...................................... 18 2. The HWCC Claim against PPI Funding ($49,219,370.05)............................................ 20 3. HWCC as Current Holder of the Four GBCC Promissory Notes to Hollywood and the Hollywood Zero-Coupon Note................................................... 24 4. Hollywood Casino Corporation as Former Ultimate Parent of the Debtors.......................... 24 C. Recap: Assets and Liabilities of the Four Debtors as of Petition Date.......................... 25 1. GBCC .......................................................................................... 25 2. PPI ........................................................................................... 26 3. PCPI Funding................................................................................... 26 4. PPI Funding.................................................................................... 26 D. Board of Directors and Executive Officers of Debtors........................................... 27 E. Stock Ownership of GBCC Common Stock of Certain Beneficial Owners and Management.......................................................................... 28 1. Stock Ownership................................................................................ 28 2. Issued Common Stock Ownership Table............................................................ 31 F. Disputed LVSI Claim............................................................................ 33 1. The Sands Trademark Licensing Agreement........................................................ 33 2. The Debtors' Adversary Proceeding Against LVSI................................................. 34 3. Other Pleadings Filed by LVSI in These Cases.................................................. 35 4. Treatment of LVSI's Disputed Claim............................................................ 35 G. Existing and Potential Litigation/Proceedings.................................................. 35 H. Preference and Other Avoidance Litigation...................................................... 36 V. EVENTS LEADING TO BANKRUPTCY............................................................................... 39
i A. Formal Marketing of ACSC....................................................................... 39 B. Selection of Proposal of ACSC Acquisitions, Inc. a Wholly Owned Subsidiary of Bally Gaming, Inc., As Highest and Best Alternative.............................. 40 VI. POST-BANKRUPTCY OPERATIONS AND SIGNIFICANT EVENTS.......................................................... 44 A. Post-Bankruptcy Operations..................................................................... 44 B. Significant Orders Entered During the Case..................................................... 44 C. Professionals' Fees and Expenses............................................................... 44 1. Professionals employed by the Debtors.......................................................... 44 VII. DESCRIPTION OF THE PLAN.................................................................................... 45 A. Introduction................................................................................... 45 B. Designation of Claims and Interests............................................................ 45 C. Interests...................................................................................... 47 D. Identity of the Debtors' Creditors............................................................. 47 E. Treatment of Claims and Interests.............................................................. 49 1. Treatment of Unclassified Claims............................................................... 49 (a) Allowed Administrative Claims............................................................ 49 (i) General ............................................................................. 49 (ii) Bar Date for Administrative Claims.................................................. 49 (iii) Payment of Statutory Fees........................................................... 50 (iv) Ordinary Course Liabilities......................................................... 50 (b) Allowed Tax Claims...................................................................... 50 2. Classification and Treatment of Classified Claims and Interests................................ 51 (a) Class 1 -HWCC's Claim against PPI Funding in respect of the Hollywood Zero-Coupon Note from PPI Funding, in the total Allowed Amount of $49,219,370.05........................................................................... 51 (b) Class 2 -Intercompany Claims Against GBCC................................................ 51 (c) Class 3 -Intercompany Claims Against PCPI Funding........................................ 51 (d) Class 4 -Intercompany Claims Against PPI Funding......................................... 51 (e) Class 5 -Unsecured Convenience Claims against any of GBCC, PPI, PCPI Funding or PPI Funding (trade claims or other)................................. 51 (f) Class 6 - General Unsecured Claims Against any of GBCC, PPI, PCPI Funding or PPI Funding, not Otherwise Classified (believed to consist only of HWCC's Claims against GBCC in respect of the Four GBCC Promissory Notes to Hollywood, in the aggregate Allowed Amount of $10,126,668.50 and the Disputed Claims of Las Vegas, Inc. and William D. Pratt, Jr., a former employee of a former GBCC affiliate)............................................ 52 (g) Class 7 -Interests of the holders of the GBCC Common Stock............................... 52 (h) Class 8 -Interests of the holder of the PPI Common Stock................................. 52 (i) Class 9 -Interests of the holder of the PCPI Funding Common Stock........................ 52 (j) Class 10 -Interests of the holder of the PPI Funding Common Stock........................ 52 F. Summary of Treatment of Individual Creditors................................................... 53 G. Reasons for Separate Treatment of Class 1 and Class 5 and Class 6.............................. 55 VIII. MEANS FOR EXECUTION AND IMPLEMENTATION OF THE PLAN......................................................... 56 A. Plan Implementation Steps Occurring on or around the Effective Date............................ 56 1. PPI's Contribution to PPI Funding of Sale Proceeds and Cash.................................... 56 2. Distribution of Sale Proceeds and PPI's Cash to HWCC........................................... 56 3. Simultaneous Merger of PPI, PCPI Funding and PPI Funding with and into GBCC...................................................................................... 56
ii 4. Establishment of the Chapter 11 Payables Reserve, Conveyance of LVSI Reserve and Chapter 11 Payables Reserve and Miscellaneous Assets to Liquidating Trustee, and Distributions to holders of any Allowed Administrative Claims,Allowed Tax Claims, and Allowed Unsecured Claims in Class 5..................................................................................... 57 5. Subordination of HWCC's Class 1 Claim to any Allowed LVSI Claim of up to $3 million.................................................................................. 57 6. Cancellation of GBCC Common Stock and Equity Interests......................................... 58 B. Merger of Corporate Entities................................................................... 58 C. Transfer of Assets to the Liquidating Trust.................................................... 59 D. Ratification of Liquidating Trust Agreement.................................................... 59 1. Powers and Duties.............................................................................. 59 2. Compensation of Liquidating Trustee............................................................ 59 3. Limitation of Liability........................................................................ 59 4. Right to Hire Professionals and Agents......................................................... 60 5. Tax Treatment of the Liquidating Trust......................................................... 60 6. Termination of Liquidating Trust............................................................... 60 F. Corporate Action............................................................................... 61 G. Objections to Claims........................................................................... 61 IX. CONDITIONS TO CONFIRMATION OF PLAN...................................................................... 61 A. Conditions to Confirmation..................................................................... 61 B. Waiver of Conditions........................................................................... 62 X. CONDITIONS TO EFFECTIVENESS OF THE PLAN................................................................. 62 A. Conditions to Effectiveness.................................................................... 62 B. Waiver of Conditions........................................................................... 63 XI. FUTURE BUSINESS/WINDING UP OF ESTATES POST-EFFECTIVE DATE............................................... 63 XII. RISKS AND FEASIBILITY................................................................................... 63 XIII. ALTERNATIVES TO PLAN AND LIQUIDATION ANALYSIS........................................................... 63 A. Dismissal...................................................................................... 63 B. Chapter 7 Liquidation.......................................................................... 63 XIV. CERTAIN MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN.............................. 66 A. Introduction................................................................................... 66 B. The Plan................................................................................................ 67 C. Treatment of the Debtors....................................................................... 67 D. Treatment of the Liquidating Trust............................................................. 68 E. Treatment of the Creditors..................................................................... 69 1. Generally...................................................................................... 69 2. Receipt of Interest............................................................................ 69 3. Backup Withholding............................................................................. 69 XV. MISCELLANEOUS PROVISIONS................................................................................ 70 XVI. CONCLUSION.............................................................................................. 70
iii EXHIBITS Exhibit "A" The Debtors' First Amended Joint Chapter 11 Plan Dated March 20, - ----------- 2002 (Filed as separate Exhibit 99.4) Exhibit "B" Order Approving the Sale of All of the Issued and Outstanding - ----------- Shares of Stock of Advanced Casino Systems Corporation to ACSC Acquisitions, Inc., Free and Clear of All Liens, Claims, Interests and Encumbrances, and Assumption of Stock Purchase Agreement, as Amended, Under sections 105, 363(f) and 365 of the Bankruptcy Code Exhibit "C": Chart Depicting Corporate Organizational Structure Present - ----------- Exhibit "D": Chart Depicting Corporate Organizational Structure Past - ----------- Exhibit "E": Greate Bay Casino Corporation year 2001 (first, second and third - ----------- quarter) Form 10Qs (Not included herein) iv IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE IN RE: (S) Chapter 11 (S) GREATE BAY CASINO CORPORATION (S) Case No. 01-11729 (PJW) PPI CORPORATION (S) Case No. 01-11730 (PJW) PCPI FUNDING CORP. (S) Case No. 01-11731 (PJW) PPI FUNDING CORP. (S) Case No. 01-11732 (PJW) (S) Debtors. (S) (S) Jointly Administered Under (S) Case No. 01-11729 (PJW) - -------------------------------------------------------------------------------- DEBTORS' FIRST AMENDED JOINT DISCLOSURE STATEMENT UNDER 11 U.S.C. (S) 1125, DATED MARCH 20, 2002, IN SUPPORT OF THE DEBTORS' FIRST AMENDED JOINT CHAPTER 11 PLAN DATED MARCH 20, 2002 - -------------------------------------------------------------------------------- SUMMARY OF THE PLAN Greate Bay Casino Corporation ("GBCC"), PPI Corporation ("PPI"), PCPI Funding Corp. ("PCPI Funding"), and PPI Funding Corp. ("PPI Funding"), as debtors and debtors-in-possession (collectively, the "Debtors"), have proposed a First Amended Joint Chapter 11 Plan Dated March 20, 2002 (the "Plan")/1/, pursuant to section 1121(a) of Title 11 of the United States Code, for the resolution of the Debtors' outstanding Creditor Claims and Equity Interests. In general, the Plan (which was prenegotiated with the Debtors' largest and only significant Creditor whose claims the Debtors do not dispute, HWCC-Holdings, Inc. ("HWCC")), contemplates the distribution to creditors on the Plan Effective Date of the Debtors' assets: principally cash, and the cash proceeds of a pre-confirmation sale by one of the Debtors, PPI, of all of the issued and outstanding capital stock of Advanced Casino Systems Corporation ("ACSC"), which was a non-Debtor subsidiary of the Debtor PPI, that is in the business of developing, installing, licensing and providing maintenance for certain casino information technology systems and software used by casino companies. Such sale of the ACSC common stock was consummated with an entity known as ACSC Acquisitions, Inc., a wholly owned subsidiary of Bally Gaming, Inc. (the "Purchaser"),/2/ for - ---------- /1/ Attached to this Disclosure Statement as Exhibit "A". ----------- /2/ Neither the Purchaser, nor any affiliate, is an "insider" or "affiliate" of any of the Debtors or any of their affiliates as such terms are defined in the Bankruptcy Code. A Stock Purchase Agreement was negotiated with Purchaser for many weeks at arm's length, with each party represented by competent counsel of its own choosing. Page 1 the sum of $14.6 million ("Sale Proceeds"), subject to certain purchase price adjustments. The sale of the ACSC stock to Purchaser was approved by the Bankruptcy Court by Order entered March 6, 2002. The sale closed on March 19, 2002. A copy of the Order approving the sale is attached as Exhibit "B". ----------- In the months prior to the filing of their bankruptcy cases, as the insolvency of the Debtors became apparent and as their future viability became more uncertain, the Debtors began actively marketing ACSC, as a way to maximize value for Creditors and Interest holders. The Debtors' marketing efforts were undertaken with the assistance of a third-party investment banker, CIBC World Markets, who aggressively sought competing bids for the acquisition of the ACSC Common Stock. The details of this marketing activity are summarized in Section V ------------------------------------------------------------------ of this Disclosure Statement. Additionally, the Debtors obtained a third-party - ---------------------------- independent appraisal, from the firm of Howard Frazier Barker Elliott, Inc., which appraisal supports a conclusion that the purchase price paid by Purchaser was favorable. Additionally, at the direction of the Court, the Debtors conducted postpetition marketing efforts with regard to the ACSC Common Stock and provided a widespread notice to potential bidders in the financial investor community and in the casino industry of the opportunity to submit a competing bid to purchase the ACSC Common Stock. No bids were submitted to compete with that of the Purchaser. The Debtors believe that the Stock Purchase Agreement with Purchaser presented the fairest and best opportunity to maximize value for the ACSC Common Stock, for the benefit of these Debtors' Estates. The Debtors have only one major creditor whose claims the Debtors do not dispute, HWCC, who supports the Plan and, specifically, the sale of the ACSC Common Stock to Purchaser. In addition, Las Vegas Sands, Inc. ("LVSI") has filed an unsecured proof of claim in the amount of $20,120,052 based on GBCC's alleged failure to pay certain royalties under a Trademark License Agreement dated May 19, 1987 (the "License Agreement") between GBCC and an assignor or predecessor in interest to LVSI. LVSI had previously asserted (in court hearings and pleadings in this Bankruptcy Case) that its unsecured claim could be as high as $8.7 million (with a present value of approximately $2 million). The background -------------- of LVSI's Claim, various motions filed by LVSI in these Cases, and the Debtors' - ------------------------------------------------------------------------------- explanation of its objections to LVSI's Claim are summarized in Section IV.F of - ------------------------------------------------------------------------------- this Disclosure Statement. Additionally, a former employee of a former - ------------------------- subsidiary or affiliate of GBCC (i.e. a non-Debtor) has filed a proof of claim in the amount of $3,025,000, which the Debtors dispute and believe will be entirely disallowed. Other than HWCC, who is owed almost $60 million in the aggregate (in respect of five different promissory notes), Debtors believe that only a handful of small trade creditors (totaling less than $50,000) will have allowed unsecured claims. The Plan provides that holders of Allowed Administrative Claims, Allowed Tax Claims, and Allowed Unsecured Claims of less than $15,000 in amount will be paid in Cash in full on the Effective Date or as soon as practicable after the Effective Date (or when any such Claim becomes an Allowed Claim). The Plan provides that HWCC will subordinate its Class 1 Claim in these cases to any LVSI Claim that is Allowed up to an amount of $3 million and will agree that up to $3 million of the consideration that would otherwise be paid to HWCC in respect of its Class 1 Allowed Claim may be paid to LVSI, if and to the extent the Disputed Claim of LVSI becomes an Allowed Claim. The Plan contemplates that prior to the Effective Date of the Plan, the Court may estimate the amount of the LVSI Claim, pursuant to 11 Page 2 U.S.C. (S) 502(c) as if the dispute were resolved in LVSI's favor. Such estimated amount will be deposited into the LVSI Reserve (see Article 1.60 of the Plan) and held in such Reserve until it is determined that any of the disputed LVSI Claim should be an Allowed Claim. The Sale Proceeds not necessary to fund the LVSI Reserve shall be distributed to HWCC as part of its Class 1 consideration on the Effective Date. The disputed LVSI Claim for which a Reserve has been established that becomes an Allowed Claim by Final Order shall be paid promptly out of the LVSI Reserve. After the disputed LVSI Claim is resolved or disallowed, the balance of the LVSI Reserve (to the extent it exceeds the Allowed LVSI Claim) shall be distributed to HWCC as the only holder of an Allowed Claim in Class 1. To the extent LVSI ultimately has an Allowed Claim that is larger than the amount of the LVSI Reserve, such excess LVSI Claim will receive treatment in Class 6 of the Plan. Class 6 consists of any Allowed Unsecured Claim against any of the Debtors in an amount of more than $15,000 (other than the Class 1 Claim of HWCC). The Distribution to Class 6 Claimants is expected to be minimal (except to the extent of the LVSI Reserve). All holders of Claims and Interests are encouraged to read the Plan and the Disclosure Statement in their entirety before voting to accept or reject the Plan. No materials, other than the Disclosure Statement and any exhibits and appendices attached hereto or referenced herein, have been approved by the Debtors for use in soliciting acceptances or rejections of the Plan. I. INTRODUCTION A. Filing of the Debtors' Chapter 11 Bankruptcy Cases The Debtors filed their petitions for relief under Chapter 11 of the Bankruptcy Code on December 28, 2001 (the "Petition Date"), in the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"). Pursuant to an Order entered by the Bankruptcy Court on January 7, 2002, the Debtors' bankruptcy cases were procedurally consolidated and have been jointly administered under Case No. 01-11729 (PJW). Since the Petition Date, the Debtors have continued to operate their businesses and manage their properties and assets as debtors-in-possession pursuant to sections 1107 and 1108 of the Bankruptcy Code. B. Purpose of Disclosure Statement This Disclosure Statement is submitted in accordance with section 1125 of the Bankruptcy Code for the purpose of soliciting acceptances of the Plan from holders of certain Classes of Claims. The only Creditors whose acceptances of the Plan are sought are those whose Claims are "impaired" by the Plan, as that term is defined in section 1124 of the Bankruptcy Code and who are receiving --- distributions under the Plan. Holders of Claims that are not "impaired" are deemed to have accepted the Plan. Holders of Claims or Interests that are not ------------------------------------------- receiving or retaining any property under the Plan are deemed to have rejected - ------------------------------------------------------------------------------ the Plan. - -------- Page 3 The Debtors have prepared this Disclosure Statement pursuant to the provisions of section 1125 of the Bankruptcy Code, which requires that a copy of the Plan, or a summary thereof, be submitted to all holders of Claims against, and Interests in, the Debtors, along with a written Disclosure Statement containing adequate information about the Debtors of a kind, and in sufficient detail, as far as is reasonably practicable, that would enable a hypothetical, reasonable investor typical of Creditors and holders of Interests to make an informed judgment in exercising their right to vote on the Plan. A copy of the Plan is attached hereto as Exhibit "A" and incorporated herein by reference. ------- - Section 1125 of the Bankruptcy Code provides, in pertinent part: (b) An acceptance or rejection of a plan may not be solicited after the commencement of the case under this title from a holder of a claim or interest with respect to such claim or interest, unless, at the time of or before such solicitation, there is transmitted to such holder the plan or a summary of the plan, and a written disclosure statement approved, after notice and a hearing, by the court as containing adequate information. The court may approve a disclosure statement without a valuation of the debtor or an appraisal of the debtor's assets. * * * (d) Whether a disclosure statement required under subsection (b) of this section contains adequate information is not governed by any otherwise applicable nonbankruptcy law, rule, or regulation, but an agency or official whose duty is to administer or enforce such a law, rule, or regulation may be heard on the issue of whether a disclosure statement contains adequate information. Such an agency or official may not appeal from, or otherwise seek review of, an order approving a disclosure statement. (e) A person that solicits acceptance or rejection of a plan, in good faith and in compliance with the applicable provisions of this title, or that participates, in good faith and in compliance with the applicable provisions of this title, in the offer, issuance, sale, or purchase of a security, offered or sold under the plan, of the debtor, of an affiliate participating in a joint plan with the debtor, or of a newly organized successor to the debtor under the plan, is not liable, on account of such solicitation or participation, for violation of any applicable law, rule, or regulation governing solicitation of acceptance or rejection of a plan or the offer, issuance, sale, or purchase of securities. This Disclosure Statement was approved by the Bankruptcy Court on March 21, 2002. Such approval is required by the Bankruptcy Code and does not constitute a judgment by the Bankruptcy Court as to the desirability of the Plan, or as to the value or suitability of any consideration offered there under. Such approval does indicate, however, that the Bankruptcy Court has determined that the Disclosure Statement meets the requirements of section 1125 of the Bankruptcy Code and Page 4 contains adequate information to permit the holders of Allowed Claims, whose acceptance of the Plan is solicited, to make an informed judgment regarding acceptance or rejection of the Plan. THE APPROVAL BY THE BANKRUPTCY COURT OF THIS DISCLOSURE STATEMENT DOES NOT CONSTITUTE AN ENDORSEMENT BY THE BANKRUPTCY COURT OF THE PLAN OR A GUARANTEE OF THE ACCURACY OR COMPLETENESS OF THE INFORMATION CONTAINED HEREIN. THE MATERIAL HEREIN CONTAINED IS INTENDED SOLELY FOR THE USE OF CREDITORS AND HOLDERS OF INTERESTS OF THE DEBTORS IN EVALUATING THE PLAN AND VOTING TO ACCEPT OR REJECT THE PLAN AND, ACCORDINGLY, MAY NOT BE RELIED UPON FOR ANY PURPOSE OTHER THAN THE DETERMINATION OF HOW TO VOTE ON, OR WHETHER TO OBJECT TO, THE PLAN. THE DEBTORS' IMPLEMENTATION OF THE PLAN IS SUBJECT TO NUMEROUS CONDITIONS AND VARIABLES AND THERE CAN BE NO ABSOLUTE ASSURANCE THAT THE PLAN, AS CONTEMPLATED, WILL BE EFFECTUATED. THE DEBTORS BELIEVE THAT THE PLAN AND THE TREATMENT OF CLAIMS THERE UNDER IS IN THE BEST INTERESTS OF CREDITORS, AND URGE THAT YOU VOTE TO ACCEPT THE PLAN. THIS DISCLOSURE STATEMENT HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THE STATEMENTS CONTAINED HEREIN. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. A COPY OF THE PLAN IS ATTACHED HERETO AS EXHIBIT "A" AND SHOULD BE REVIEWED ------- - CAREFULLY. C. Hearing on Confirmation of the Plan The Bankruptcy Court has set May 2 , 2002, at 9:30 a.m., prevailing Eastern Time, as the time and date for the hearing (the "Confirmation Hearing") to determine whether the Plan has been accepted by the requisite number of Creditors and holders of Interests and whether the other requirements for Confirmation of the Plan have been satisfied. Holders of Claims against or Interests in the Debtors may vote on the Plan by completing and delivering the enclosed ballot to Haynes and Boone, L.L.P., 901 Main Street, Suite 3100, Dallas, Texas 75202-3789 (Attn: Stacey Jernigan), on or before 4:00 p.m. --------- prevailing Eastern time on April 22, 2002. If the Plan is rejected by one or more impaired Classes of creditors or holders of Interests, the Plan, or a modification thereof, may still be confirmed by the Bankruptcy Court under section 1129(b) of the Bankruptcy Code (commonly referred to as a "cramdown") if the Bankruptcy Court determines, among other things, that the Plan does not discriminate unfairly and is fair and equitable with respect to the rejecting Class or Classes of creditors or holders of Interests impaired by the Plan. The procedures and requirements for voting on the Plan are described in more detail below. Page 5 D. Sources of Information Except as otherwise expressly indicated, the portions of this Disclosure Statement describing the Debtors, their businesses, properties and management, and the Plan have been prepared from information furnished by the Debtors. Certain of the materials contained in this Disclosure Statement are taken directly from other readily accessible documents or are digests of other documents. While the Debtors have made every effort to retain the meaning of such other documents or portions that have been summarized, the Debtors urge that any reliance on the contents of such other documents should depend on a thorough review of the documents themselves. In the event of a discrepancy between this Disclosure Statement and the actual terms of a document, the actual terms of such document shall apply. The statements contained in this Disclosure Statement are made as of the date hereof unless another time is specified, and neither the delivery of this Disclosure Statement nor any exchange of rights made in connection with it shall, under any circumstances, create an implication that there has been no change in the facts set forth herein since the date hereof. No statements concerning the Debtors, the value of their property, or the value of any benefit offered to the holder of a Claim or Interest in connection with the Plan should be relied upon other than as set forth in this Disclosure Statement. In arriving at your decision, you should not rely on any representation or inducement made to secure your acceptance or rejection that is contrary to information contained in this Disclosure Statement, and any such additional representations or inducements should be reported to counsel for the Debtors, Stacey Jernigan, Esq., Haynes and Boone, L.L.P., 901 Main Street, Suite 3100, Dallas, Texas 75202, (214) 651-5000. II. EXPLANATION OF CHAPTER 11 A. Overview of Chapter 11 Chapter 11 is the principal reorganization chapter of the Bankruptcy Code. Pursuant to Chapter 11, a debtor-in-possession attempts to reorganize its business and financial affairs for the benefit of the debtor, its creditors, and other parties-in-interest. The commencement of a Chapter 11 case creates an estate comprising all the legal and equitable interests of the debtor in property as of the date the petition is filed. Unless the Bankruptcy Court orders the appointment of a trustee, sections 1101, 1107 and 1108 of the Bankruptcy Code provide that a Chapter 11 debtor may continue to operate its business and control the assets of its estate as a "debtor-in-possession," as have the Debtors since the Petition Date. Page 6 The filing of a Chapter 11 petition also triggers the automatic stay, which is set forth in section 362 of the Bankruptcy Code. The automatic stay essentially halts all attempts to collect prepetition claims from the debtor or to otherwise interfere with the debtor's business or its estate. Formulation of a plan of reorganization or liquidation is the principal purpose of a Chapter 11 case. The plan sets forth the means for satisfying the claims of creditors against and interests of equity security holders in the debtor. Unless a trustee is appointed, only the debtor may file a plan during the first 120 days of a Chapter 11 case (the "Exclusive Period"). After the Exclusive Period has expired, a creditor or any other party-in-interest may file a plan, unless the debtor files a plan within the Exclusive Period. If a debtor does file a plan within the Exclusive Period, the debtor is given sixty (60) additional days (the "Solicitation Period") to solicit acceptances of its plan. Section 1121(d) of the Bankruptcy Code permits the Bankruptcy Court to extend or reduce the Exclusive Period and the Solicitation Period upon a showing of adequate "cause." B. Plan of Reorganization Although often referred to as a plan of reorganization, a plan may provide simply for an orderly liquidation of a debtor's assets. This Plan does, in fact, essentially provide for an orderly liquidation of these Debtors' assets. After a Chapter 11 plan has been filed, the holders of claims against or interests in a debtor are permitted to vote on whether to accept or reject the plan. Chapter 11 does not require that each holder of a claim against or interest in a debtor vote in favor of a Chapter 11 plan in order for the plan to be confirmed. At a minimum, however, a plan must be accepted by a majority in number and two-thirds in amount of those claims actually voting from at least one class of claims impaired under the plan. The Bankruptcy Code also defines acceptance of a plan by a class of interests (equity securities) as acceptance by holders of two-thirds of the number of shares actually voted. Classes of claims or interests that are not "impaired" under a Chapter 11 plan are conclusively presumed to have accepted the plan and, thus, are not entitled to vote. A class is "impaired" if the legal, equitable, or contractual rights attaching to the claims or interests of that class are modified. Modification does not include curing defaults and reinstating maturity or payment in full in cash. Conversely, classes of claims or interests that receive or retain no property under a plan of reorganization are conclusively presumed to have rejected the plan and, thus, are not entitled to vote. Thus, acceptances of the Plan in this case are being solicited only from those persons who hold Claims in Classes 1-6 and 8-10. Acceptances of the Plan are not being solicited from those persons who hold Interests in Classes 7 (i.e., the Interests of the holders of the GBCC Common Stock) because such Class is impaired and the holders therein are receiving no Distributions and are not retaining their Interests (i.e., their Interests are being canceled) and, thus, the holders in Class 7 are deemed to "reject" the Plan. Even if all classes of claims and interests accept a Chapter 11 plan, the Bankruptcy Court may nonetheless still deny confirmation. Section 1129 of the Bankruptcy Code sets forth the requirements for confirmation and, among other things, the Bankruptcy Code requires that a plan be Page 7 in the "best interests" of impaired and dissenting creditors and shareholders and that the plan be feasible. The "best interests" test generally requires that the value of the consideration to be distributed to impaired and dissenting claimants and interest holders under a plan may not be less than those parties would receive if that debtor were liquidated under a hypothetical liquidation occurring under Chapter 7 of the Bankruptcy Code. A Chapter 11 plan must also be determined to be "feasible," which generally requires a finding that there is a reasonable probability that the debtor will be able to perform the obligations incurred under the plan, and that the debtor will be able to continue operations without the need for further financial reorganization. The Bankruptcy Court may confirm a Chapter 11 plan even though fewer than all of the classes of impaired claims and interests accept it. In order for a plan to be confirmed despite the rejection of a class of impaired claims or interests, the proponent of the plan must show, among other things, that the plan does not discriminate unfairly and that the plan is fair and equitable with respect to each impaired class of claims or interests that has not accepted the plan. The Plan provides that if any impaired class of creditors votes to reject the Plan, the Debtors will nonetheless request the Court to confirm the Plan under section 1129(b) of the Code. Under section 1129(b) of the Bankruptcy Code, a plan is "fair and equitable" as to a class if, among other things, the plan provides: (a) that each holder of a claim included in the rejecting class will receive or retain on account of its claim property that has a value, as of the effective date of the plan, equal to the allowed amount of such claim; or (b) that the holder of any claim or interest that is junior to the claims of such class will not receive or retain on account of such junior claim or interest any property at all. The Bankruptcy Court must further find that the economic terms of the plan meet the specific requirements of section 1129(b) of the Bankruptcy Code with respect to the particular objecting class. The proponent of the Chapter 11 plan must also meet all applicable requirements of section 1129(a) of the Bankruptcy Code (except section 1129(a)(8) if the proponent proposes to seek confirmation of the plan under the provisions of section 1129(b)). These requirements include the requirement that the plan comply with applicable provisions of the Bankruptcy Code and other applicable law, that the plan be proposed in good faith, and that at least one impaired class of creditors has voted to accepted the plan. III. VOTING PROCEDURES AND REQUIREMENTS FOR CONFIRMATION If you are in one of the Classes of Claims whose rights are affected by the Plan (see "Description of the Plan" in Section VII below), it is important that ----------- you vote. If you fail to vote, your rights may be jeopardized. A. "Voting Claims" -- Parties Entitled to Vote Pursuant to the provisions of section 1126 of the Bankruptcy Code, holders of Claims or Interests that are (i) allowed, (ii) impaired, and (iii) that are ------- -------- receiving or retaining property on - ---------------------------------- Page 8 account of such Claims or Interests pursuant to the Plan, are entitled to vote - ----------------------------------- either for or against the Plan (hereinafter, "Voting Claims" or "Voting Interests"). Accordingly, in this Bankruptcy Case, any holder of a Claim or Interest classified in Classes 1, 2, 3, 4, 5, 6, 8, 9, and 10 of this Plan may have a Voting Claim or Interest and should have received a ballot for voting (with return envelope) in these Disclosure Statement and Plan materials (hereinafter, "Solicitation Package") since these are the only Classes consisting of impaired Claims or Interests that are receiving property. -------- ------------------ As referenced in the preceding paragraph, a Claim or Interest must be allowed to be a Voting Claim or Interest. The Debtors filed schedules in this - ------- Bankruptcy Case listing Claims against the Debtors. To the extent a creditor's Claim was listed in the Debtors' schedules, and was not listed as disputed, contingent, or unliquidated, it is deemed "allowed." Any creditor whose Claim was not scheduled, or was listed as disputed, contingent or unliquidated, must have timely filed a proof of Claim in order to have an "allowed" Claim. The last day for filing Claims for amounts owed pre-petition was March 15, 2002 for all -------------- Persons other than governmental entities and is June 26, 2002 for governmental ------- ---- entities. Absent an objection to that proof of Claim, it is deemed "allowed." In the event that any proof of Claim is subject to an objection by the Debtors as of or during the Plan voting period ("Objected-to Claim"), then, by definition, it is not "allowed," for purposes of section 1126 of the Bankruptcy Code, and is not to be considered a Voting Claim entitled to cast a ballot. Nevertheless, pursuant to Bankruptcy Rule 3018(a), the holder of an Objected-to Claim may petition the Bankruptcy Court, after notice and hearing, to allow the Claim temporarily for voting purposes in an amount which the Bankruptcy Court deems proper. Allowance of a Claim for voting purposes, and disallowance for voting purposes, does not necessarily mean that all or a portion of the Claim will be allowed or disallowed for distribution purposes. BY ENCLOSING A BALLOT, THE DEBTORS ARE NOT REPRESENTING THAT YOU ARE ENTITLED TO VOTE ON THE PLAN. BY INCLUDING A CLAIM AMOUNT ON THE BALLOT (IF APPLICABLE), THE DEBTORS ARE NEITHER ACKNOWLEDGING THAT YOU HAVE AN ALLOWED CLAIM IN THAT AMOUNT NOR WAIVING ANY RIGHTS THE DEBTORS MAY HAVE TO OBJECT TO YOUR VOTE OR CLAIM. If you believe you are a holder of a Claim in an impaired Class under the Plan and entitled to vote to accept or reject the Plan, but did not receive a ballot with these materials, please contact Stacey Jernigan, Haynes and Boone, L.L.P., 901 Main Street, Suite 3100, Dallas, Texas 75202, Telephone (214) 651-5000, Telecopy (214) 651-5940. B. Return of Ballots If you are a holder of a Voting Claim, your vote on the Plan is important. Completed ballots should either be returned in the enclosed envelope or sent to: Stacey Jernigan, Esq. Haynes and Boone, L.L.P. 901 Main Street, Suite 3100 Dallas, Texas 75202-3714 Page 9 Telephone: (214) 651-5000 Telecopy: (214) 651-5940 1. Voting Record Date (a.k.a. the "Record Date--Balloting") Pursuant to Bankruptcy Rule 3017(d), March 15, 2002, is the "Voting Record Date" (a.k.a. the "Record Date--Balloting") for determining which creditors of the Debtors may be entitled to vote to accept or reject the Plan. Only holders of record of Claims against the Debtors on that date are entitled to cast ballots. 2. Deadline for Submission of Ballots BALLOTS MUST BE SUBMITTED TO AND ACTUALLY RECEIVED BY COUNSEL FOR THE DEBTORS, C/O STACEY JERNIGAN, HAYNES AND BOONE, L.L.P., 901 MAIN STREET, SUITE 3100, DALLAS, TEXAS 75202-3714, WHETHER BY MAIL, DELIVERY, OR FACSIMILE, BY APRIL 22, 2002, AT 4:00 P.M. EASTERN ------------------------------------ DAYLIGHT TIME (THE "BALLOT RETURN DATE"). ANY BALLOTS RECEIVED AFTER --------------------------------------- THAT TIME WILL NOT BE COUNTED. ANY BALLOT WHICH IS NOT EXECUTED BY A PERSON AUTHORIZED TO SIGN SUCH BALLOT WILL NOT BE COUNTED. IF YOU HAVE ANY QUESTIONS REGARDING THE PROCEDURES FOR VOTING ON THE PLAN, CONTACT STACEY JERNIGAN, HAYNES AND BOONE, L.L.P., 901 MAIN STREET, SUITE 3100, DALLAS, TEXAS 75202, TELEPHONE (214) 651-5000, TELECOPY (214) 651-5940. THE DEBTORS URGE ALL HOLDERS OF VOTING CLAIMS AND INTERESTS TO VOTE IN FAVOR OF THE PLAN. C. Confirmation of Plan 1. Solicitation of Acceptances The Debtors are soliciting your vote. The cost of any solicitation by the Debtors will be borne by the Debtors. No other additional compensation shall be received by any party for any solicitation other than as disclosed to the Bankruptcy Court. NO REPRESENTATIONS OR ASSURANCES, IF ANY, CONCERNING THE DEBTORS OR ------------------------------------------------------------------- THE PLAN ARE AUTHORIZED BY THE DEBTORS -------------------------------------- Page 10 OTHER THAN AS SET FORTH IN THIS DISCLOSURE STATEMENT. ANY -------------------------------------------------------------- REPRESENTATIONS OR INDUCEMENTS MADE BY ANY PERSON TO SECURE -------------------------------------------------------------- YOUR VOTE THAT ARE OTHER THAN HEREIN CONTAINED SHOULD NOT BE -------------------------------------------------------------- RELIED UPON BY YOU IN ARRIVING AT YOUR DECISION, AND SUCH -------------------------------------------------------------- ADDITIONAL REPRESENTATIONS OR INDUCEMENTS SHOULD BE REPORTED -------------------------------------------------------------- TO COUNSEL FOR THE DEBTORS FOR SUCH ACTION AS MAY BE DEEMED -------------------------------------------------------- APPROPRIATE. ------------ THIS IS A SOLICITATION SOLELY BY THE DEBTORS AND IS NOT A -------------------------------------------------------------- SOLICITATION BY ANY SHAREHOLDER, ATTORNEY, OR ACCOUNTANT FOR -------------------------------------------------------------- THE DEBTORS. THE REPRESENTATIONS, IF ANY, MADE HEREIN ARE -------------------------------------------------------------- THOSE OF THE DEBTORS AND NOT OF SUCH SHAREHOLDERS, ATTORNEYS, -------------------------------------------------------------- OR ACCOUNTANTS, EXCEPT AS MAY BE OTHERWISE SPECIFICALLY AND -------------------------------------------------------------- EXPRESSLY INDICATED. -------------------- Under the Bankruptcy Code, a vote for acceptance or rejection of a plan may not be solicited unless the claimant has received a copy of a disclosure statement approved by the Bankruptcy Court prior to, or concurrently with, such solicitation. This solicitation of votes on the Plan is governed by section 1125(b) of the Bankruptcy Code. Violation of section 1125(b) of the Bankruptcy Code may result in sanctions by the Bankruptcy Court, including disallowance of any improperly solicited vote. 2. Requirements for Confirmation of the Plan At the Confirmation Hearing, the Bankruptcy Court shall determine whether the requirements of section 1129 of the Bankruptcy Code have been satisfied, in which event the Bankruptcy Court shall enter an Order confirming the Plan. For the Plan to be confirmed, section 1129 requires that: (a) The Plan comply with the applicable provisions of the Bankruptcy Code; (b) The Debtors have complied with the applicable provisions of the Bankruptcy Code; (c) The Plan has been proposed in good faith and not by any means forbidden by law; (d) Any payment or distribution made or promised by the Debtors or by a person issuing securities or acquiring property under the Plan for services or for costs and expense in connection with the Plan has been disclosed to the Bankruptcy Court, and any such payment made before the confirmation of the Plan is reasonable, or if such payment is to be fixed after confirmation of the Plan, such payment is subject to the approval of the Bankruptcy Court as reasonable; Page 11 (e) The Debtors have disclosed the identity and affiliations of any individual proposed to serve, after confirmation of the Plan, as a director, officer or voting trustee of the Debtors, an affiliate of the Debtors participating in a joint plan with the Debtors, or a successor to the Debtors under the Plan; the appointment to, or continuance in, such office of such individual is consistent with the interests of Creditors and holders of Interests and with public policy; and the Debtors have disclosed the identity of any insider that will be employed or retained by the Reorganized Debtor and the nature of any compensation for such insider; (f) Any government regulatory commission with jurisdiction, after confirmation of the Plan, over the rates of the Debtors have approved any rate change provided for in the Plan, or such rate change is expressly conditioned on such approval; (g) With respect to each impaired Class of Claims or Interests, either each holder of a Claim or Interest of the Class has accepted the Plan or will receive or retain under the Plan on account of that Claim or Interest property of a value, as of the Effective Date of the Plan, that is not less than the amount that such holder would so receive or retain if the Debtors were liquidated on such date under Chapter 7 of the Bankruptcy Code. If section 1111(b)(2) of the Bankruptcy Code applies to the Claims of a Class, each holder of a Claim of that Class will receive or retain under the Plan on account of that Claim property of a value, as of the Effective Date, that is not less than the value of that holder's interest in the Debtor's interest in the property that secures that Claim; (h) Each Class of Claims or Interests has either accepted the Plan or is not impaired under the Plan; (i) Except to the extent that the holder of a particular Administrative Claim or Priority Claim has agreed to a different treatment of its Claim, the Plan provides that Administrative Claims and Priority Claims shall be paid in full on the Effective Date or the date on which it is Allowed; (j) If a Class of Claims is impaired under the Plan, at least one Class of Claims that is impaired under the Plan has accepted the Plan, determined without including any acceptance of the Plan by any insider holding a Claim of that Class; and (k) Confirmation of the Plan is not likely to be followed by the liquidation or the need for further financial reorganization of the Debtors or any successor to the Debtors under the Plan, unless such liquidation or reorganization is proposed in the Plan. Page 12 The Debtors believe that the Plan satisfies all of the statutory requirements of the Bankruptcy Code and that the Plan was proposed in good faith. The Debtors believe they have complied or will have complied with all the requirements of the Bankruptcy Code. LVSI has stated that because it contends that HWCC is an "insider" of the Debtors, the Debtors will not be able to confirm a Plan of Reorganization relying solely upon the affirmative vote of HWCC. 3. Acceptances Necessary to Confirm the Plan Voting on the Plan by each holder of a Claim or Interest is important. Chapter 11 of the Bankruptcy Code does not require that each holder of a Claim or Interest vote in favor of the Plan in order for the Court to confirm the Plan. Generally, to be confirmed under the acceptance provisions of section 1126(a) of the Bankruptcy Code, the Plan must be accepted by each Class of Claims that is impaired under the Plan by Class members holding at least two-thirds (2/3) in dollar amount and more than one-half in number of the Allowed Claims of such Class actually voting in connection with the Plan; in connection with a Class of Interests, more than two-thirds (2/3) of the shares actually voted must accept to bind that Class. Even if all Classes of Claims and Interests accept the Plan, the Bankruptcy Court may refuse to confirm the Plan. 4. Cramdown In the event that any impaired Class of Claims or Interests does not accept the Plan, the Bankruptcy Court may still confirm the Plan at the request of the Debtors if, as to each impaired Class that has not accepted the Plan, the Plan "does not discriminate unfairly" and is "fair and equitable." A plan does not discriminate unfairly within the meaning of the Bankruptcy Code if no class receives more than it is legally entitled to receive for its claims or equity interests. "Fair and equitable" has different meanings for holders of secured and unsecured claims and equity interests. With respect to a secured claim, "fair and equitable" means either (i) the impaired secured creditor retains its liens to the extent of its allowed claim and receives deferred cash payments at least equal to the allowed amount of its claims with a present value as of the effective date of the plan at least equal to the value of such creditor's interest in the property securing its liens, (ii) property subject to the lien of the impaired secured creditor is sold free and clear of that lien, with that lien attaching to the proceeds of sale, and such lien proceeds must be treated in accordance with clauses (i) and (iii) hereof, or (iii) the impaired secured creditor realizes the "indubitable equivalent" of its claim under the plan. With respect to an unsecured claim, "fair and equitable" means either (i) each impaired creditor receives or retains property of a value equal to the amount of its allowed claim or (ii) the holders of claims and equity interests that are junior to the claims of the dissenting class will not receive any property under the plan. With respect to equity interests, "fair and equitable" means either (i) each impaired equity interest receives or retains, on account of that equity interest, property of a value equal to the greater Page 13 of the allowed amount of any fixed liquidation preference to which the holder is entitled, any fixed redemption price to which the holder is entitled, or the value of the equity interest; or (ii) the holder of any equity interest that is junior to the equity interest of that class will not receive or retain under the plan, on account of that junior equity interest, any property. In the event one or more Classes of impaired Claims or Interests rejects or is deemed to have rejected the Plan, the Debtors will request the Bankruptcy Court to determine at the Confirmation Hearing that the Plan is fair and equitable and does not discriminate unfairly against any rejecting impaired Class of Claims or Interests. The Debtors believe that the Plan does not discriminate unfairly and is fair and equitable with respect to each Class of Claims and Interests that is impaired. IV. BACKGROUND OF THE DEBTORS A. Nature of the Debtors' Business: Overview of Assets and Liabilities GBCC, PPI, PCPI Funding and PPI Funding are four related corporate debtors. GBCC is the ultimate parent and is a publicly held company whose stock is traded on the over-the-counter bulletin board (the "OTC BB"). PPI is a wholly owned direct subsidiary of GBCC. PCPI Funding and PPI Funding are each 100% directly owned by PPI. A schematic depicting the corporate structure of the GBCC corporate group (as of the Petition Date) is attached hereto at Exhibit "C". ----------- Additionally, a schematic depicting the corporate structure for GBCC and its subsidiaries a few years ago, when there were various other corporations in the GBCC corporate group that have previously filed bankruptcies or otherwise have ceased to exist, is attached hereto at Exhibit "D". /3/ ------------ GBCC, PPI, PCPI Funding and PPI Funding each have corporate offices at Two Galleria Tower, Suite 2200, 13455 Noel Rd., LB 48, Dallas, Texas 75240. In prior years, GBCC and its subsidiaries (including certain subsidiaries that no longer exist) conducted three major business activities: (1) hotel ownership and the management thereof; (2) management services for casino operations; and (3) ownership of the Sands Hotel and Casino in Atlantic City, New Jersey. As described below, as a result of various bankruptcies of GBCC subsidiaries, GBCC and its subsidiaries are no longer engaged in hotel and casino ownership and management services. GBCC's business activity, as of the Petition Date, consisted solely of the ______________________ /3/ There have been other subsidiaries in the corporate group, from time to time, that have served miscellaneous functions in the casino-ownership and management activities of the corporate group such as subsidiaries that were formed to separately hold real property that might be developed in the future and entities that owned partnership interests in management companies, etc. More details about the GBCC corporate group can be found in SEC filings and, attached as Exhibit "E," are GBCC's year 2001 (first, second and third quarter) Form ------------ 10Qs. Page 14 operations of Advanced Casino Systems Corporation ("ACSC") (its indirect, 100%-owned subsidiary that provides information technology systems for various casinos throughout North America). More specifically, as a result of the voluntary Chapter 11 bankruptcy petitions filed in 1998 by the subsidiaries GB Holdings, Inc., Greate Bay Hotel and Casino, Inc., and GB Property Funding Corp. (which cases were administratively consolidated under Case No. 98-10001, in the United States Bankruptcy Court for the District of New Jersey, Camden Vicinage, Judge Judith Wizmur presiding), see organizational chart at Exhibit "D", GBCC no longer has ----------- any direct or indirect interests or ownership in the Sands Hotel and Casino in Atlantic City. A plan of reorganization proposed in that bankruptcy case by the unsecured creditors committee and High River, an entity controlled by Carl Icahn, was confirmed in Case No. 98-10001 by a Bankruptcy Court order entered August 14, 2000 (after much litigation and several days of evidence), pursuant to which the equity interests of GBCC in these subsidiaries were cancelled and the Sands Hotel and Casino is now owned by High River and former public bondholders of these three entities. Additionally, as a result of the voluntary Chapter 11 bankruptcy petitions filed in 1999 by the subsidiaries Pratt Casino Corporation, PRT Funding Corp. and New Jersey Management, Inc. (which cases were administratively consolidated under Case No. 99-1204, in the United States Bankruptcy Court for the District of Delaware, Judge Mary Walrath presiding), see Exhibit D, GBCC no --------- longer has any direct or indirect interests or ownership in these entities (two of these entities, Pratt Casino Corporation and New Jersey Management, Inc., were involved with management of certain casinos). More specifically, a plan of reorganization was confirmed in Case No. 99-1204 by a bankruptcy court order entered October 1, 1999, pursuant to which these three entities were merged or dissolved and then essentially liquidated, and the creditors of these entities (public bondholders) received over $40 million in cash distributions (nearly a 50% distribution on their claims). The entity Greate Bay Holdings, LLC was an entity created in connection with such confirmed plan (and pursuant to New Jersey regulatory approval, through the New Jersey Casino Control Commission and the Division of Gaming Enforcement) to serve as the equivalent of a liquidating trust and to facilitate the distributions to the public bondholders. Upon the completion of all distributions to the public bondholders under the confirmed plan, Greate Bay Holdings, LLC was dissolved. As noted elsewhere herein, in 1998, GBCC's indirect wholly owned subsidiary, GB Holdings, Inc, and its subsidiaries, Greate Bay Hotel and Casino, Inc. ("GBHC") and GB Property Funding Corp. (collectively, "GBH") commenced Chapter 11 Cases in the United States Bankruptcy Court for the District of New Jersey. In the course of those proceedings, certain controversies arose between GBCC and GBH which were settled pursuant to a Settlement Agreement dated September 9, 1998. All payment and indemnity obligations under the Settlement Agreement (except for a claim of approximately $30,000 by GBCC against GBHC relating to the nondeductibilty of post-petition interest by GBHC) have been satisfied. Specifically, a central feature of the 1998 Settlement Agreement was the retention by the parties of rights to indemnification in respect to tax years prior to 1999 that might be subject to further review and additional assessment On November 30, 2001, GBCC and the Internal Revenue Service executed a settlement agreement relating to the 1997 and 1998 consolidated tax returns. That settlement concluded the IRS review of the last year that GBH reported to the IRS as part of Page 15 the GBCC consolidated group. Hence, the Debtors believe that GBH will not in the future be exposed to any claim in respect of 1997 or 1998 federal income taxes. Additionally, as a result of the voluntary Chapter 7 bankruptcy petitions filed in 2000 by the subsidiaries Pratt-Hollywood, Inc., BPHC Acquisition, Inc. and BPHC Parking Corp. (which cases were assigned Case Nos. 00-2883, 00-2884 and 00-2885, in the United States Bankruptcy Court for the District of Delaware, Judge Mary Walrath presiding), see Exhibit "D," these ---------- subsidiaries were liquidated through the Chapter 7 process and these entities no longer exist for all intents and purposes. Note that these entities had no assets at the time of liquidation (and, in fact, never had any assets other than funds that were either expended or repaid), as the entities had originally been formed to develop a new casino in Atlantic City (in addition to the Sands Hotel and Casino), which casino never became a reality. Thus, there were five entities left in the GBCC group as of the Petition Date: the four Debtor-companies plus ACSC. The four Debtor-companies are not operating companies. ACSC is an operating company (and thus the last revenue-producing entity in the GBCC group) and its stock is 100% owned by the Debtor PPI (and, thus, the ACSC stock is property of the bankruptcy estate). ACSC is in the business of developing, installing, licensing and providing maintenance for certain casino information technology systems and software that is used by various casino companies throughout North America. ACSC is based in Egg Harbor Township, New Jersey and has contracts to provide software and technology support with various non-affiliated casinos such as Aladdin, Atlantis Paradise Island, Boyd Delta Downs, Caesars, Casino Magic, Casino Morongo, Mohegan Sun, Trump Indiana, Venetian, and various Hyatt gaming establishments, as well as with various Hollywood Casino Corporation casinos and with the Sands Hotel and Casino in Atlantic City (which, as previously discussed, was formerly, but is no longer, in the GBCC corporate group). ACSC has approximately 112 employees and had revenues of $14.1 million in 2000 and is projected to have revenues of approximately $32 million in 2001. ACSC is subject to (and complies with) gaming regulations in the states of New Jersey, Mississippi, Louisiana, Nevada, Colorado, Delaware, Indiana, and in Toronto, Ontario, Canada, since ACSC provides goods and services to casinos, which are regulated, and ACSC, relatedly, has various gaming licenses and pending applications for gaming licenses in these various jurisdictions, as well as with various Indian Tribal Gaming Commissions, including the Cabazon Band of Mission Indians Gaming Commission, the Mohegan Tribe of Indians Tribal Gaming Commission, the Morongo Gaming Agency of the Morongo Band of Cahuilla Indians, the Twenty-Nine Palms Band of Mission Indians Gaming Commission, and the Shoshone - Bannock Gaming Commission. As of the Petition Date, the stock of ACSC was the only asset of the four Debtors' estates that had any material value, other than approximately $1.9 million of Cash, most of which is owned by PPI (however, each of the other Debtors, including GBCC, has a small amount of Cash available for distribution). The only other assets of the four Debtors, other than the ACSC Common Stock, the sale of which was approved by order dated March 6, 2002, and the Cash, are possibly some deposits, unearned premiums, cash values of insurance policies, or prepaids in which certain of the Debtors may have rights, with respect to certain vendors or insurance companies; some office Page 16 furniture/furnishings; and various inter-company/inter-Debtor receivables that are uncollectible against one another and, thus, valueless. ACSC is believed to be solvent and, thus, a bankruptcy filing for it was not deemed to be necessary or appropriate. The purpose of these bankruptcies is to: (a) maximize, for the benefit of creditors and/or other stakeholders of the Debtors, the only assets/value that these four Debtors' estates have, that is, by selling the stock of ACSC to an unrelated third-party purchaser and distributing the sale proceeds and other remaining cash/assets of the four Debtors' estates; and (b) wind-down in an orderly, open and responsible fashion the business affairs of the four Debtors. Who are the creditors and/or other stakeholders of the four Debtors? They fall into five categories: (1) HWCC holds Claims, in the aggregate, totaling almost $60 million against two of these Debtors (approximately $49 million against PPI Funding and approximately $10.1 million against GBCC). HWCC is a wholly owned subsidiary of Hollywood Casino Corporation, which is an owner and operator of hotels and casinos in Shreveport, Louisiana, Tunica County, Mississippi, and Aurora, Indiana. Hollywood Casino Corporation was the former parent of GBCC but is no longer related. Hollywood Casino Corporation made various loans and extended other consideration to the Debtors, GBCC and PPI Funding, in the middle-1990's at a time when it was the ultimate parent of these Debtors (as further explained in Section IV.B below). Hollywood Casino Corporation, in turn, made ------------ a capital contribution to its subsidiary, HWCC, of these Claims, making HWCC the holder of these Claims; (2) there are a handful of vendors, tax claimants, or other miscellaneous claimants of GBCC and PPI whom the Debtors intend to pay in full in cash on the Effective Date and, thus, are virtually unaffected by these Chapter 11 filings (i.e., Class 5 Unsecured Convenience Claimants that are owed less than $15,000, or elect to have their Claims reduced as such); (3) there are inter-company (i.e., inter-Debtor claims) that will not receive any cash consideration and will essentially be disregarded/canceled, through the process of a merger proposed by the Plan; (4) there are public shareholders of GBCC whose shares will be canceled and they will receive no distribution in these cases;/4/ and (5) there are two disputed creditors: LVSI, which has filed a proof of claim in the approximate amount of $20 million (which is further described in Section IV.F) and ------------ ______________________ /4/ The GBCC Common Stock has been trading at $0.02 per share in recent weeks, with a range between $0.01-$0.16 during the last 52-week time period. With approximately 5.2 million shares issued and outstanding, this makes the market capitalization for the GBCC Common Stock only $104,000. Page 17 William D. Pratt, Jr., a former employee of a former GBCC subsidiary or affiliate (i.e., a non-Debtor which owned the San Juan Sands) who has filed a proof of claim in the amount of $3,025,000 for alleged employee-related claims. The Debtors dispute that either of these claimants have any valid claims. The Debtors dispute the validity of the claims described in item (5) above. The Plan provides that prior to the Effective Date of the Plan, the Court shall estimate the amount of the Disputed LVSI Claim as if the dispute regarding GBCC's liability were resolved in LVSI's favor. Pursuant to Article 6.1.D of the Plan, such estimated amount will be deposited into the LVSI Reserve (which LVSI Reserve shall not exceed $3 million) and held in reserve until the disputed claim becomes an Allowed Claim by Final Order, at which time such claim will be paid promptly out of the LVSI Reserve. If any Allowed LVSI Claim is more than the LVSI Reserve, the excess will share Pro Rata in the consideration that otherwise goes to Allowed Class 6 Claimants. If any Allowed LVSI Claim is less than the LVSI Reserve, then the excess LVSI Reserve shall be distributed to HWCC as part of its remaining Class 1 consideration. B. Explanation of Claims Against the Debtors: Origin of the Various HWCC Claims Against the Debtors Since HWCC is by far the largest creditor of the Debtors (in fact, the only significant known undisputed creditor), and since the history of the HWCC Claims is rather complex, an explanation of the origins of the HWCC Claims is set forth below. The HWCC Claims can be divided into two categories: (A) the HWCC Claims against GBCC ($10,126,668.50) and (B) the HWCC Claims against PPI Funding ($49,219,370.05). 1. The HWCC Claims against GBCC (aggregating $10,126,668.50) HWCC has four claims against GBCC that, as of the Petition Date, amount to $10,126,668.50 in the aggregate. These four claims arise from funds loaned from Hollywood Casino Corporation to GBCC during 1993-1996 (as more specifically described below) which funds were used in the operations of certain hotel and casino properties owned by GBCC or its subsidiaries. The liabilities of GBCC to HWCC are evidenced by four promissory notes (defined as the "Four GBCC Promissory Notes to Hollywood") described below: (a) An unsecured Promissory Note in the original principal amount of $1,250,000 dated October 29, 1993, duly executed by Pratt Hotel Corporation (n.k.a. GBCC, as of a result of a name change effectuated December 31, 1996), and payable to the order of Hollywood Casino Corporation. The issuance of this Promissory Note was ratified by the three disinterested directors of the Board of GBCC at its meeting held on February 8, 1994. The funds that were lent by Hollywood Casino Corporation to GBCC were used in the operation of the facility known as the Holiday Inn/DFW North in Texas, which was owned by an entity of which GBCC was a partner and which GBCC operated pursuant to an operating agreement. This Page 18 Promissory Note, as of the Petition Date, had an outstanding principal balance of $250,000 and accrued interest owing of $196,000. (b) An unsecured Promissory Note in the original principal amount of $3,000,000 dated July 12, 1996, duly executed by Pratt Hotel Corporation (n.k.a. GBCC, as a result of a name change effectuated December 31, 1996), and payable to the order of Hollywood Casino Corporation. The issuance of this Promissory Note was ratified by the sole attending disinterested director of the Board of GBCC at its meeting held on September 18, 1996. The funds that were lent by Hollywood Casino Corporation to GBCC were immediately loaned from GBCC to Greate Bay Hotel and Casino, Inc. ("GBHC"), then still a wholly-owned indirect GBCC subsidiary, that owned and operated the Sands Hotel and Casino in Atlantic City, for use in the operations of the Sands Hotel and Casino. (The indebtedness from GBHC to GBCC was canceled and released, effective September 10, 1998, pursuant to a settlement agreement approved by the United States Bankruptcy Court for the District of New Jersey, Camden Vicinage, in the bankruptcy case of In re Great Bay Hotel and Casino, Inc., Case No. 98-10001; Adv. Pro. No. 98-01220.) This Promissory Note, as of the Petition Date, had an outstanding principal balance of $1,954,243.50 plus accrued interest owing of $2,017,779.22. (c) An unsecured Promissory Note in the original principal amount of $1,500,000 dated August 2, 1996, duly executed by Pratt Hotel Corporation (n.k.a. GBCC, as a result of a name change effectuated December 31, 1996), and payable to the order of Hollywood Casino Corporation. The issuance of this Promissory Note was ratified by the sole attending disinterested director of the Board of GBCC at its meeting held on September 18, 1996. The funds that were lent by Hollywood Casino Corporation to GBCC were also immediately loaned from GBCC to GBHC for use in the operations of the Sands Hotel and Casino. (The indebtedness from GBHC to GBCC was released and canceled, effective September 10, 1998, pursuant to a settlement agreement approved by the United States Bankruptcy Court for the District of New Jersey, Camden Vicinage, in the bankruptcy case of In re Great Bay Hotel and Casino, Inc., Case No. 98-10001; Adv. Pro. No. 98-01220.) This Promissory Note, as of the Petition Date, had an outstanding principal balance of $1,500,000 plus accrued interest owing of $1,096,562.50. (d) An unsecured Promissory Note in the original principal amount of $2,000,000 dated August 7, 1996, duly executed by Pratt Hotel Corporation (n.k.a. GBCC, as a result of a name change effectuated December 31, 1996), and payable to the order of Hollywood Casino Corporation. The issuance of this Promissory Note was ratified by the sole attending disinterested director of the Board of GBCC at its meeting held on September 18, 1996. The funds that were lent by Hollywood Casino Corporation to GBCC were also immediately loaned from GBCC to GBHC, for use in the operations of the Sands Hotel and Casino. (The indebtedness from GBHC to GBCC was released and canceled, effective September 10, 1998, pursuant to a settlement agreement approved by the United States Bankruptcy Court for the District of New Jersey, Camden Vicinage, in the bankruptcy case of In re Great Bay Hotel and Casino, Inc., Case No. 98-10001; Adv. Pro. No. 98-01220.) This Promissory Page 19 Note, as of the Petition Date, had an outstanding principal balance of $2,000,000 plus accrued interest owing of $1,462,083.33. In summary, each of the Four GBCC Promissory Notes to Hollywood were duly authorized and ratified by disinterested members of the Board of Directors of GBCC (See discussion of GBCC Board composition in paragraph IV.D), executed and delivered, and good and valuable consideration was received by GBCC in the form of loan proceeds. 2. The HWCC Claim against PPI Funding ($49,219,370.05) The Claim held by HWCC against PPI Funding is evidenced by a "zero-coupon" note in the face amount of $84,602,548.66 (defined herein as the "Hollywood Zero-Coupon Note from PPI Funding"). The petition date indebtedness arising from the zero-coupon note was $49,219,370.05. This "zero-coupon" note has a somewhat complex origin, that involves: (1) a $115,000,000 public bond issuance on which PCPI Funding was the issuer (and GBCC and PPI were both guarantors), (2) the purchase by Hollywood Casino Corporation's predecessor of certain of these bonds, and (3) Hollywood Casino Corporation's agreement to temporarily forego payment on the bonds, when PCPI Funding, GBCC and PPI were unable to refinance or pay off the public bonds in full upon their maturity. Note that the Hollywood Zero-Coupon Note from PPI Funding, as well as the series of transactions that pre-date and underlie it, including the $115,000,000 public bond issuance, were duly authorized and ratified by disinterested members of the Board of Directors of GBCC, executed and delivered, with good and valuable consideration being received by GBCC and its subsidiaries in the form of loan proceeds and numerous forbearances. The liability of PPI Funding to HWCC is more fully described as follows: (a) In October of 1987, the Debtor PCPI Funding was organized as a corporation under the laws of Delaware, as a special purpose entity, for the purpose of borrowing funds through the issuance of public debt, much of which public debt was expected/earmarked to be used for a new casino that was contemplated to be built in Atlantic City, NJ. At this point in time, the GBCC corporate group already owned one casino in Atlantic City--the Sands Hotel and Casino. The remainder of the public debt was to be used for various other projects or refinancings in the GBCC group. (b) On February 23, 1988, PCPI Funding issued $115,000,000 principal amount of 15.5 % public notes due April 1, 1998 (the "PCPI Public Notes"), pursuant to an indenture. The PCPI Public Notes were unsecured and were guaranteed by both GBCC and an entity known as Pratt Casino Properties, Inc. which was later merged with and into the Debtor PPI. Thus, three of the current Debtors--(1) GBCC, (2) PPI, as a result of the merger of the former Pratt Casino Properties, Inc. into PPI, and (3) PCPI Funding--were at one time liable on the $115,000,000 of PCPI Public Notes. (c) Certain of the proceeds of the PCPI Public Notes (as well as much effort and time) were spent toward the development of the concept for the new casino, but, ultimately, the new casino was never able to become a reality. The Atlantic City market and page 20 the national economy generally were depressed during this time period. As the Atlantic City market continued to weaken during 1990, the PCPI Public Notes began trading at or less than 50% on the dollar. (d) Eventually, all but $38,779,000 of the $115,000,00 of PCPI Public Notes were either: (i) redeemed; or (ii) retired through the issuance of more public debt. (e) More specifically, first, on November 3, 1989, PCPI Funding itself redeemed $17,857,000 of the PCPI Public Notes (with proceeds from the PCPI Public Notes issuance that had been earmarked, but never used, for the new Atlantic City casino project). This left $97,143,000 of PCPI Public Notes outstanding ($115,000,000 - $17,857,000 = $97,143,000). (f) Then, on May 11, 1990, a corporation named PBC, Inc. (which no longer exists) was formed. On May 31, 1990, PBC, Inc. acquired $38,779,000 principal amount of the PCPI Public Notes,/5/ leaving $58,364,000 of the PCPI Public Notes still owned by the public ($97,143,000 - $38,779,000 = $58,364,000). No property of GBCC, PPI, PCPI Funding, PPI Funding, or any other GBCC subsidiary was used to acquire these PCPI Public Notes. Hollywood Casino Corporation eventually became the owner of the $38,779,000 of PCPI Public Notes that were purchased by PBC, Inc./6/ (g) In 1994, the PCPI Public Notes were refinanced. On February 17, 1994, yet another corporation in the GBCC group, known as PRT Funding Corp., issued $85,000,000 of public notes (the "PRT Public Notes") due April 15, 2004. The issuance was at first contemplated to be larger than this and the intention of GBCC, PPI and PCPI Funding was to retire all of the PCPI Public Notes with the proceeds of the issuance of the PRT Public Notes. However, not enough financing proceeds could ultimately be raised in the capital markets to retire all of the PCPI Public Notes and, moreover, there were operational needs and other needs for the funds from the PRT Public Notes in the GBCC group (particularly, in connection with GBHC, the owner of the Sands Hotel and Casino in Atlantic City). Thus, a portion of the proceeds from the $85,000,000 of PRT Public Notes was used to retire the $58,364,000 of PCPI Public Notes still held by the public, and GBCC, PPI and PCPI Funding reached an agreement with Hollywood Casino Corporation that the $38,779,000 principal amount of PCPI Public Notes held by Hollywood Casino Corporation would not be retired. __________________________ /5/ PBC, Inc. acquired the $38,779,000 principal amount of the PCPI Public Notes for the sum of $18,359,000. The $18,359,000 was obtained by PBC, Inc. from loans made to PBC, Inc. by unrelated third parties. No assets of any of the Debtors were used to fund the purchase price paid by PBC, Inc. for the PCPI Public Notes. /6/ Hollywood Casino Corporation became the owner of the $38,779,000 of PCPI Public Notes acquired by PBC, Inc. because: (a) on November 8, 1990, a new entity was formed named PRT Corporation, which would later be merged with PBC, Inc. (with PRT Corporation being the survivor); and (b) PRT Corporation would later, on May 15, 1992, change its name to Hollywood Casino Corporation (hereinafter so called), making Hollywood Casino Corporation the direct owner of the $38,779,000 of PCPI Public Notes. Page 21 (h) Thus, $58,364,000 of the PCPI Public Notes (which had been held by the public) were extinguished in 1994 (replaced by yet different, new public note indebtedness--the PRT Public Notes),/7/ but $38,779,000 of the PCPI Public Notes remained outstanding, held by Hollywood Casino Corporation. (i) Meanwhile, one of the Debtors, PPI Funding, had been formed in 1993. Then, on February 17, 1994, simultaneously with the extinguishment of the $58,364,000 PCPI Public Notes held by the public, PPI Funding acquired the $38,779,000 of PCPI Public Notes that Hollywood Casino Corporation owned. (j) The consideration that PPI Funding exchanged with Hollywood Casino Corporation, for PPI Funding's purchase of the $38,779,000 of PCPI Public Notes from it, was a "zero-coupon note," in the deemed principal amount of $40,524,055 (the actual face amount of the note was $110,635,739.40), on which PPI Funding was the issuer/obligor./8/ Note that GBCC and PPI were not guarantors for the "zero-coupon note" (whereas GBCC and PPI had been guarantors on the PCPI Public Notes). This note issued on February 17, 1994, will henceforth be referred to as the "Original Zero-Coupon Note." (k) Thus, as of February 17, 1994, PCPI Funding became obligated only to its sister-corporation, PPI Funding, on the PCPI Public Notes, and now only PPI Funding (not PCPI Funding, not GBCC and not PPI) was obligated to Hollywood Casino Corporation on $40,524,000 of indebtedness (face amount = $110,635,739.40; evidenced by the Original Zero-Coupon Note). ____________________________ /7/ It was these PRT Public Notes that were discharged in connection with the 1999 Chapter 11 cases of Pratt Casino Corporation, PRT Funding Corp., and New Jersey Management, Inc. in 1999. See Exhibit D , as well as discussion --------- in Section IV.A. herein. ------------- /8/ An explanation of the deemed principal amount and face amount of this zero-coupon note is as follows: The note was in the actual face amount of $110,635,739.40. However, the note also, by its terms, specified that $40,524,055 was deemed to have been advanced under the note and constituted the outstanding principal amount of the note as of the date of its issuance (February 17, 1994). This is because $40,524,055 was the amount deemed to be equal to the consideration that was given by Hollywood Casino Corporation on February 14, 1994 to PPI Funding in exchange for the zero-coupon note (in other words, Hollywood gave to PPI Funding, in consideration for the zero-coupon note, the $38,779,000 principal amount of PCPI Public Notes that it held, on which there was a call premium of $1,745,055, which meant a total of $40,524,055 was due in respect of the PCPI Public Notes). The zero-coupon note provided that interest on the $40,524,055 deemed principal amount of the note would be accrue at the rate of 14.875%, and would be due and payable as follows: interest would be due and payable semiannually as it accrued, on February 17 and August 17 of each year and at maturity (beginning with August 17, 1994), and the entire principal amount of the note would be due and payable on February 17, 2006, provided that through February 1, 2001, payment of interest on the note would be made by an automatic advance under the note on each interest accrual date in an amount equal to the accrued unpaid interest as of such interest accrual date, and each advance would be added to and become a part of the unpaid principal balance on the note and would bear interest. Thus (as set forth on a schedule attached to the note), because of this interest-accrual-without-payment feature, $110,635,739.40 would be the ultimate amount due on the note as of February 17, 2001 (the time when the automatic advancement of interest accruals was to stop, with actual payments of semiannual interest being required thereafter). Page 22 (l) On March 31, 1995, PCPI Funding executed an amendment and restatement of the PCPI Public Notes now held by PPI Funding. More specifically, to eliminate the expense and inconvenience of maintaining an indenture and having SEC-filing requirements (when the only remaining holder of the PCPI Public Notes was a member of the GBCC corporate group), the PCPI Public Notes were essentially replaced with a new note payable by PCPI Funding to PPI Funding (with GBCC and PPI executing an amended and restated guaranty so as to remain as guarantors on the new note), such new note being hereinafter referred to as the "PCPI Funding Replacement Note to PPI Funding". (m) Three years after its issuance, on April 1, 1997, the Original Zero-Coupon Note (which had a face value of $110,635,739.40) was split into two separate notes. The first split-off note had a face value of $84,602,548.66 and the second split-off note had a face value of $13,750,000. The reason for splitting the Original Zero-Coupon Note into two notes was as follows: A subsidiary of Hollywood Casino Corporation (i.e., HWCC-Aurora Management, Inc. ("HWCCAMI")) was purchasing from PPI a 99% general partnership interest in a casino management company named Pratt Management, L.P. The consideration Hollywood Casino Corporation paid PPI for the partnership interest was, essentially, assigning to PPI a portion ($13,750,000 face amount, to be exact) of this Original Zero-Coupon Note./9/ Thus, after the conclusion of the transactions of April 1, 1997, there was one "zero-coupon note" held by Hollywood Casino Corporation (defined as the "Hollywood Zero-Coupon Note from PPI Funding"),/10/ with a face value of $84,602,548, and there was a second "zero-coupon note" in the amount of $13,750,000 now held by PPI Funding's direct-parent, PPI (defined as the "Split-Off Zero-Coupon Note from PPI Funding"). Both the Hollywood Zero-Coupon Note and the Split-Off Zero-Coupon Note from PPI Funding held by PPI have the same interest-accrual feature (i.e., interest-accrual-without-payment feature, until February 17, 2001--the time when the automatic advancement of interest accruals was to stop) as the Original Zero-Coupon Note (as explained in footnote 8 herein). (n) On December 17, 1997, Hollywood Casino Corporation decided to forgive $37,000,000 of the face amount ($23,630,771 discounted amount) of the _______________________ /9/ Hollywood Casino Corporation also gave PPI additional consideration for the 99% general partnership it was acquiring from PPI. More specifically, Hollywood Casino Corporation additionally conveyed to PPI an assignment of accrued interest in the amount of $350,000 (i.e., a portion of interest that had accrued in connection with the Four GBCC Promissory Notes to Hollywood) and a new promissory note from HWCCAMI to PPI in the original principal amount of $3,800,000 (which note was amended and restated in a $2,160,199.63 Hollywood Casino Corporation-to-PPI Note on October 13, 1999 (hereinafter, "PPI's $2 million Hollywood Receivable"). PPI's $2 million Hollywood Receivable was the subject of a standstill agreement for several months, in light of the substantial indebtedness owed back to Hollywood Casino Corporation by PPI's subsidiary, PPI Funding. As explained at Section IV(H) of this Disclosure ------------- Statement, PPI's $2 million Hollywood Receivable was ultimately conveyed to HWCC in December 2001. /10/ The new Hollywood Zero-Coupon Note from PPI Funding was actually secured by the stock of Pratt Casino Corporation, a former subsidiary of PPI, which proved worthless. Pratt Casino Corporation was the subject of a Chapter 11 case filed in 1999, as discussed previously at Section IV(A) herein, and no longer exists. Page 23 indebtedness accumulated on the Hollywood Zero-Coupon Note from PPI Funding. As of the Petition Date, the PPI Funding indebtedness, in respect of the Hollywood Zero-Coupon Note from PPI Funding, is equal to $49,219,370.05. (o) The April 1, 1997 split-off transaction was approved by HCC's three outside directors and by GBCC's two outside directors, Messrs Capaldi and Muir, all of whom had no affiliation with the Debtors or the Pratt family. The December 1997 debt forgiveness was an HCC only transaction and it was approved by HCC's three outside directors. 3. HWCC as Current Holder of the Four GBCC Promissory Notes to Hollywood and the Hollywood Zero-Coupon Note In December 2001, Hollywood Casino Corporation effectuated a capital contribution to its wholly owned subsidiary HWCC, pursuant to which it conveyed to HWCC the Hollywood Zero-Coupon Note from PPI Funding and the Four GBCC Promissory Notes to Hollywood. Thus, HWCC is now the direct Creditor of GBCC and PPI Funding, in respect of the Claims described in Section IV.B.1 and 2 -------------- - hereinabove. LVSI contends that the HWCC debt may not be a valid claim because it arose predominantly while Hollywood Casino Corporation was the parent of the Debtor and that any redemption or repurchase by HWCC of the public debt of the subsidiary during that period should not equitably be enforceable against the Debtors. The Debtors dispute these contentions. 4. Hollywood Casino Corporation as Former Ultimate Parent of the Debtors At the time that the Four GBCC Promissory Notes to Hollywood were executed (giving rise to Hollywood Casino Corporation's various Claims against GBCC) and at the time most of the events underlying the Hollywood Zero-Coupon Note from PPI Funding occurred, Hollywood Casino Corporation was the ultimate publicly owned parent corporation of the Debtor-entities, owning directly 80% of the Common Stock of GBCC (then known as Pratt Hotel Corporation). In late 1996, Hollywood Casino Corporation spun off its 80% interest in GBCC to the Hollywood Casino Corporation shareholders and Pratt Hotel Corporation (as GBCC was then-known) then changed its name to GBCC. Thus, at least originally (at the time when GBCC first became a publicly held company with public shareholders), the GBCC shareholders were one-and-the-same as the Hollywood Casino Corporation public shareholders. For several years prior to the spin-off, the Hollywood Casino Corporation group of companies had engaged in a variety of hotel and gaming acquisitions, developments and, in some cases, divestitures. As a result of these activities, the corporate structure of, and the intercorporate finances among, the Hollywood Casino Corporation group of companies became somewhat complex. Page 24 As explained earlier, over the past several years, GBCC has divested (or lost through bankruptcy proceedings) all of its hotel and casino properties and, as of the Petition Date, conducted and had interests in only one remaining operation: ACSC, a direct, wholly-owned subsidiary of PPI, which is not liable for any of the Claims against these Debtors, and which is engaged in the casino information technology systems and software business. The Court has approved a sale of the stock of ACSC to Bally Gaming, Inc. (See Exhibit B). The sale is --------- expected to close on or before March 20, 2002. There are, however, quite a number of intercorporate obligations among and between GBCC and its subsidiaries that remain to this day. Although Hollywood Casino Corporation no longer has any equity ownership interest in GBCC, a Management Services Agreement exists between GBCC and Hollywood Casino Corporation, pursuant to which Hollywood makes available to GBCC or its subsidiaries personnel, office facilities, and other resources on an as-needed basis. GBCC is billed a fixed amount by Hollywood for the provision of these resources of $25,600 per month and GBCC's subsidiary, ACSC, is billed $6,200 per month for its utilization of Hollywood resources. These fixed amounts are periodically reviewed for a determination of whether adjustments are warranted. C. Recap: Assets and Liabilities of the Four Debtors as of Petition Date 1. GBCC Assets: ------- . Cash $394,000.00 (est.) ---- . Deposits, Retainers, Refunds, receivables and other items approx. --------------------------------------------------------- $50,000 PPI Stock --100% of the Common Stock of PPI. --------- Value: $0 Liabilities: ------------ . Notes Payable: -------------- .. Four GBCC Promissory Notes to Hollywood (Balance: $10,126,668.50). .. GBCC $23,265,577 Promissory Note to PCPI Funding. .. GBCC/Joplin DQ Promissory Note to PCPI Funding. . Other Indebtedness/Payables: ---------------------------- .. GBCC $16,265,000 Indebtedness to PPI Funding. .. GBCC $2,200,000 Indebtedness to PPI. .. GBCC Guarantee of the PCPI Funding Replacement Note to PPI Funding. (Contingent Balance: $66,019,632). . Miscellaneous Trade Debt and Taxes. . Disputed LVSI Claim (Balance: proof of claim process to determine; Debtors believe total allowed amount will not exceed $50,000). Page 25 2. PPI Assets: ------- . Cash -- $1.5 million (est.) ---- . Miscellaneous Refunds/Receiveables -- $21,500 (est.) ---------------------------------- . Note(s) Receivable: ------------------- .. Split-Off Zero-Coupon Note (Balance: $15,492,168.00) .. GBCC $2,200,000 Indebtedness to PPI. . Office Furniture & Equipment - Value: $1,000. ---------------------------- . ACSC Stock --100% of the Common Stock of ACSC. Value: $14.6 ---------- million. . PCPI Funding Stock --100% of the Common Stock of PCPI Funding. ------------------ Value: $0. . PPI Funding Stock --100% of the Common Stock of PPI Funding. ----------------- Value: $0. Liabilities: ----------- . PPI Guarantee of the PCPI Funding Replacement Note to PPI Funding. (Contingent Balance: $66,019,632). . Miscellaneous Trade Debt/Taxes. Balance unknown (believed $0; proof of claim process to determine). 3. PCPI Funding Assets: ------ . Cash -- $5,605.75. ---- . Note(s) Receivable: ------------------- .. GBCC $23,265,577 Promissory Note to PCPI Funding. .. GBCC/Joplin DQ Promissory Note to PCPI Funding. Liabilities: ------------ . Notes Payable: -------------- .. PCPI Funding Replacement Note to PPI Funding. (Balance: $66,019,632). .. PCPI Funding $13,450 Indebtedness to PPI. 4. PPI Funding Assets: ------- . Cash -- $6,160.55 ---- . Note(s) Receivable: ------------------- .. PCPI Funding Replacement Note to PPI Funding. (Balance: $66,019,632). .. GBCC $16,265,000 Indebtedness to PPI Funding. Page 26 Liabilities: ------------ . Notes Payable: -------------- .. Hollywood Zero-Coupon Note from PPI Funding. (Balance: $49,219,370.05) .. Split-Off Zero-Coupon Note. (Balance: $15,492,168.00). Attached at Exhibit "E" are the unaudited balance sheet, statement of ----------- operations and cash flow as of and for the fiscal quarters ended March 31, June 30, and September 30, 2001 contained in Forms 10-Q filed by GBCC with the SEC, on a consolidated basis, which have been prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the period covered thereby (except as noted therein), and are consistent in all material respects with the books and records of the Debtors. Audited financials for the Debtors for the year ending December 31, 2000 are on file with the SEC as part of GBCC's Form 10K for that year. The auditors for the Debtors are Deloitte & Touche. D. Board of Directors and Executive Officers of Debtors The Executive Officers of GBCC are currently: John C. Hull (Chairman of the Board and Chief Executive Officer), Edward T. Pratt, Jr. (Vice Chairman of the Board, Treasurer, and Assistant Secretary), Edward T. Pratt, III (President and Chief Operating Officer), William D. Pratt (Executive Vice President, Secretary and General Counsel), Charles F. LaFrano III (Vice President and Assistant Secretary), and Lawrence C. Cole (Vice President for Management Information Systems). The Board of Directors of GBCC is currently comprised: Jack E. Pratt, Edward T. Pratt, Jr., William D. Pratt, Bernard A. Capaldi, Michael J. Chesser, and John C. Hull. The Executive Officers of PPI are currently: Jack E. Pratt (President), Edward T. Pratt, Jr. (Vice President/Treasurer), William D. Pratt (Vice President/Secretary), Edward T. Pratt, III (Vice President/Assistant Secretary), and John C. Hull (Vice President/Assistant Secretary). The Board of Directors of PPI is currently comprised: Jack E. Pratt, Edward T. Pratt, Jr., William D. Pratt, and Edward T. Pratt, III. The Executive Officers of PCPI Funding are currently: Jack E. Pratt (President), Edward T. Pratt, Jr. (Vice President/Treasurer), William D. Pratt (Vice President/Secretary), Edward T. Pratt, III (Vice President/Assistant Secretary), Charles F. LaFrano, III (Vice President), and John C. Hull (Vice President/Assistant Secretary and Principal Accounting Officer). The Board of Directors of PCPI Funding is currently comprised: Jack E. Pratt, Edward T. Pratt, Jr., and William D. Pratt. The Executive Officers of PPI Funding are currently: Jack E. Pratt (Chairman of the Board, President and Chief Executive Officer), Edward T. Pratt, Jr. (Vice Chairman of the Board), William D. Pratt (Executive Vice President, General Counsel, and Secretary), Edward T. Pratt, III (Executive Vice President), Charles F. LaFrano, III (Vice President and Assistant Secretary) and John C. Hull (Vice President/Assistant Secretary and Principal Accounting Officer). The Board of Directors of Page 27 PPI Funding is currently comprised: Jack E. Pratt, Edward T. Pratt, Jr., William D. Pratt, and Edward T. Pratt, III. Note that the only salaried employee of any of the Debtors is John C. Hull, who has an employment contract with GBCC, and is paid for his services as CEO of GBCC. His annual salary for year 2001 was $215,000, plus a year-end bonus of $35,000. A Motion to assume such employment agreement is anticipated to be filed during the case, to ensure that the Estates can retain the benefit of Mr. Hull's services through consummation of a Plan. GBCC currently has two disinterested members on its board of directors: Michael J. Chesser, who has served as a director since September 9, 1997, and Bernard A. Capaldi, who has served as a director since 1988. In addition, GBCC's board formerly included Edward Muir, who served as a director from 1969 until his death in June, 2000, and James A. Colquitt, who served as a director from 1986 until his resignation in November, 1995. During their tenure as directors, none of these persons owned GBCC stock (except for Edward Muir who owned some GBCC stock which was sold by December 5, 1996) or served as officers or employees of GBCC. Other than fees related to their position as directors, none of the current or former disinterested directors has received compensation from GBCC or Hollywood Casino Corporation. Neither of the current disinterested directors of GBCC has any connection with Hollywood Casino Corporation. All material transactions between GBCC and Hollywood Casino Corporation were reviewed and approved by the disinterested members of the GBCC board. E. Stock Ownership of GBCC Common Stock of Certain Beneficial Owners and Management The following is information about the number of shares authorized, issued, and outstanding for each of GBCC and Hollywood Casino Corporation. Concern has been expressed by one objecting creditor in these Cases (Las Vegas Sands, Inc.) about Hollywood Casino Corporation possibly being and "insider" or "affiliate" of the Debtors since certain members of the Pratt family are shareholders of both entities. The Debtors do not believe Hollywood Casino Corporation is an "insider" or "affiliate" as defined by Section 101 of the Bankruptcy Code. There is no single person or entity that owns or has voting control of at least 20% of the stock of GBCC (although LVSI contends that, if members of the Pratt family were considered a consolidated group, the family members collectively hold approximately 35% of the stock of GBCC). The following table sets forth, as of the date of this Disclosure Statement, the number of shares owned by any person that might be defined as an "insider" under the Bankruptcy Code, known by GBCC to own beneficially Common Stock of GBCC, including the number of shares owned beneficially by directors and executive officers. Similar information is set forth for Hollywood Casino Corporation. GBCC owns of record all of the issued and outstanding shares of common stock of PPI. PPI owns of record all of the issued and outstanding shares of common stock of each of PCPI Funding and PPI Funding. 1. Stock Ownership Page 28 GBCC (a) Authorized Stock: (i) Common Stock: 10,000,000 shares ($0.10 par value) (ii) Preferred Stock (A) Class A Preferred Stock: 150,000 shares ($100 stated value) (B) Class B Preferred Stock: 10,000,000 shares ($1.00 par value) (b) Issued Stock: (i) Common Stock: 5,186,627 shares (ii) Preferred Stock (A) Class A Preferred Stock: 0 shares (B) Class B Preferred Stock: 0 shares Hollywood Casino Corporation (a) Authorized Stock: (i) Common Stock: (A) Class A Common Stock: 50,000,000 shares ($0.0001 par value) (B) Class B Common Stock: 10,000,000 shares ($0.0001 par value) (ii) Preferred Stock (A) Class A Cumulative Preferred Stock: 15,000 shares ($0.01 par value) (B) Series Preferred Stock: 15,000,000 shares ($0.01 par value) (C) Series A Junior Participating Preferred Stock: 1,000,000 shares ($0.01 par value) (b) Issued Stock: Page 29 (i) Common Stock: 25,333,865 shares (ii) Preferred Stock: (A) Class A Cumulative Preferred Stock: 0 shares (B) Series Preferred Stock: 0 shares (C) Series A Junior Participating Preferred Stock: 0 shares Page 30 2. Issued Common Stock Ownership Table
- ---------------------------------------------------------------------------------------------- GBCC HOLLYWOOD - ---------------------------------------------------------------------------------------------- Owner Number of Percentage Number of Percentage Shares Owned Ownership Shares Owned Ownership - ----------------------------------------------------------------------------------------------- Maria A. Pratt 129,223 shares 2.49% 814,970 shares 3.22% (Spouse of Edward T. Pratt, Jr.) - ---------------------------------------------------------------------------------------------- Edward T. Pratt III 82,510 shares 1.59% 1,083,713 shares 4.28% - ---------------------------------------------------------------------------------------------- Sharon Pratt Naftel 77,396 shares/1/ 1.49% 479,604 shares/1/ 1.89% (Adult child of Edward T.Pratt, Jr.)) - ---------------------------------------------------------------------------------------------- Diana Pratt Wyatt 77,396 shares/1/ 1.49% 479,604 shares/1/ 1.89% (Adult child of Edward T. Pratt, Jr.) - ---------------------------------------------------------------------------------------------- Carolyn Pratt 77,396 shares/1/ 1.49% 479,604 shares/1/ 1.89% Hickey (Adult child of Edward T. Pratt, Jr.) - ---------------------------------------------------------------------------------------------- Shawn Denise 27,453 shares .53% 190,544 shares .75% Bradshaw (Adult child of William D. Pratt) - ---------------------------------------------------------------------------------------------- Michael Shannan 27,453 shares .53% 190,544 shares/2/ .75% Pratt (Adult child of William D. Pratt) - ---------------------------------------------------------------------------------------------- William D. Pratt 61,849 shares 1.19% 13,200 shares .05% - ---------------------------------------------------------------------------------------------- WDP Jr. Family 27,452 shares/2/ .53% 200,294 shares/2/ .79% Trust (William D. Pratt - Trustee) - ---------------------------------------------------------------------------------------------- WDP Family, Ltd. 400,582 shares 1.58% (William D. Pratt - Managing General Partner) - ---------------------------------------------------------------------------------------------- Jack E. Pratt 658,738 shares 12.70% 4,110,477 shares 16.23% - ----------------------------------------------------------------------------------------------
___________________ /1/ Subject to voting trust arrangement giving Edward T. Pratt III voting power. /2/ Subject to voting trust arrangement giving William D. Pratt or his successor voting power. Page 31
- --------------------------------------------------------------------------------------------------- GBCC HOLLYWOOD - --------------------------------------------------------------------------------------------------- Owner Number of Percentage Number of Percentage Shares Owned Ownership Shares Owned Ownership - --------------------------------------------------------------------------------------------------- Jack E. Pratt, 80,246 shares/3/ 1.54% 487,568 shares 1.92% Custodian for Michael Eldon Pratt - --------------------------------------------------------------------------------------------------- Jack E. Pratt, 80,246 shares/3/ 1.54% 487,568 shares 1.92% Custodian for Caroline de LaFontaine Pratt - --------------------------------------------------------------------------------------------------- C.A. Pratt Partners, 58,106 shares/3/ 1.12% 1,642,001 shares 6.48% Ltd. (Jack E. Pratt - - Managing General Partner) - --------------------------------------------------------------------------------------------------- Jill Pratt LaFerney 87,159 shares 1.68% 508,316 shares/3/ 2.01% (Adult child of Jack E. Pratt) - --------------------------------------------------------------------------------------------------- John R. Pratt 87,159 shares 1.68% 521,616 shares/3/ 2.06% (Adult child of Jack E. Pratt) - --------------------------------------------------------------------------------------------------- Edward T. Pratt, Jr. 180,469 shares 3.48% 1,102,544 shares 4.35% - --------------------------------------------------------------------------------------------------- Linda M. Pratt 60,172 shares 1.19% (Ex-spouse of William D. Pratt) - --------------------------------------------------------------------------------------------------- MEP Family 14,000 shares .06% Partnership (Jack E. Pratt - Managing General Partner) - --------------------------------------------------------------------------------------------------- CLP Family 7,000 shares .03% Partnership (Jack E. Pratt - Managing General Partner) - --------------------------------------------------------------------------------------------------- J.E. Pratt Gift 27,500 shares/3/ .11% Trust (Jack E. Pratt - - Trustee) - --------------------------------------------------------------------------------------------------- Various CAP 11,600 shares/4/ .05% testamentary trusts - ---------------------------------------------------------------------------------------------------
- ------------------ /3/ Subject to voting trust arrangement giving Jack E. Pratt or his successor voting power. /4/ Controlled by Jack E. Pratt. Page 32
- --------------------------------------------------------------------------------------------------- GBCC HOLLYWOOD - --------------------------------------------------------------------------------------------------- Owner Number of Percentage Number of Percentage Shares Owned Ownership Shares Owned Ownership - --------------------------------------------------------------------------------------------------- Theodore H. Strauss 118,500 shares .47% - -------------------------------------------------------------------------------------------------- James A. Colquitt 10,000 shares .04% - -------------------------------------------------------------------------------------------------- Oliver B. Revell III 5,500 shares .02% - -------------------------------------------------------------------------------------------------- Public 3,306,204 shares 63.74% 11,947,016 shares 47.16% - -------------------------------------------------------------------------------------------------- TOTAL 5,186,627 shares 100% 25,333,865 shares 100% - -------------------------------------------------------------------------------------------------- GBCC Voting Groups - -------------------------------------------------------------------------------------------------- GBCC - ------------------------------------------------------------------------ Owner Number of Percentage of Shares Shares Controlled Controlled - ------------------------------------------------------------------------ Jack E. Pratt 888,936 shares 17.14% - ------------------------------------------------------------------------ William D. Pratt 89,301 shares 1.72% - ------------------------------------------------------------------------ Edward T. Pratt, III 314,698 shares 6.07% - --------------------------------------------------------------------------------------------------
F. Disputed LVSI Claim 1. The "Sands" Trademark Licensing Agreement In years prior to the date of the filing of the Debtors' bankruptcy petitions, GBCC (through certain subsidiaries), among other operations, owned and operated a hotel and casino in San Juan, Puerto Rico, also known as the Sands Hotel & Casino (the "San Juan Sands"). GBCC operated this hotel/casino under the trademark name "Sands" (hereinafter, the "Trademark"), pursuant to a Trademark License Agreement dated May 19, 1987 (the "License Agreement") between Pratt Hotel Corporation, as licensee, and Hughes Properties, Inc., as licensor. Pratt Hotel Corporation changed its name to Greate Bay Casino Corporation in December 1996. Las Vegas Sands, Inc. ("LVSI"), claims to be the assignee or successor in interest to Hughes Properties, Inc., the licensor under the License Agreement. The License Agreement was effective on May 19, 1987 and contemplated a 99 year term, unless the License Agreement terminated earlier by its own terms. The License Agreement requires, inter alia, GBCC to pay licensing fees to LVSI for each GBCC Sands location that it operates in a certain geographic portion of the West Indies. In November 1987, GBCC commenced operations in San Juan. Between the effective date of the License Agreement (May 19, 1987) and the opening of the San Juan Sands Page 33 (November 1987), Licensee operated no hotel or casino location in the West Indies and paid no royalties to LVSI. LVSI never demanded any royalties during this time period where there was not a "Sands" location. Once the San Juan Sands commenced operations in November 1987, GBCC timely paid royalties in connection with the San Juan Sands for as long as it had an ownership interest in this location. In 1997, GBCC sold all of its interest in the San Juan Sands to an entity known as Puerto Rico Hotel OPCO, LP, SE, which was, and is, in no way related to GBCC, and, soon thereafter, GBCC ceased any connection with the hotel and casino operations at this location. The buyer promptly stopped operating under the "Sands" name. GBCC informed LVSI that there had been a sale of the San Juan Sands and notified LVSI that GBCC (as well as the purchaser of the San Juan Sands) would cease using the "Sands" Trademark, vis-a-vis the former San Juan Sands, by no later than August 30, 1997. GBCC also notified LVSI that the payment for August 1997 royalties would be the last payment received by LVSI relative to the San Juan Sands location. Through pleadings filed in these case and statements made on the record, LVSI has asserted that it has a claim against GBCC for unpaid royalty payments for the time period from August 30, 1997 through the end of the original 99 year term of the License Agreement. LVSI has estimated, in previous court hearings and pleadings, that its claim could be "as high as $8.7 million," and that such claim has an "approximate present value of $2 Million." However, on or about March 15, 2002, LVSI filed a proof of claim against each of the Debtors in the amount of $20,120,052.00. The Debtors vehemently dispute this Claim. 2. The Debtors' Adversary Proceeding Against LVSI In response to LVSI's alleged claim, on January 31, 2002, GBCC commenced an adversary proceeding against LVSI (Adversary Proceeding No. 02-01803) by filing its Complaint for Declaratory Judgment that: (A) Las Vegas Sands, Inc. is Entitled to no Claim Against the Debtors in Connection with the License Agreement; (B) the License Agreement is De Facto Terminated; and (C) Request for Expedited Discovery and Scheduling and Other Relief (the "LVSI Adversary"). In the LVSI Adversary, GBCC seeks a declaratory judgment that LVSI has no claim against the Debtors under the License Agreement. GBCC bases its argument on the plain language of the contract: since GBCC operated no location in the West Indies after August 30, 1997, it owed no royalties to LVSI after August 30, 1997. GBCC also asserts that: (i) GBCC's cessation of casino operations in San Juan combined with LVSI's inaction for the past four years resulted in a de facto termination of the License Agreement; (ii) that the License Agreement has terminated due to LVSI's cessation of normal business operations in June of 1996 (by virtue of LVSI's cessation of operation of the Las Vegas Sands); (iii) that LVSI's claim is time-barred by the applicable statute of limitations and (iv) if LVSI is entitled to any claim, the amount cannot exceed the discounted present value of the stream of royalty payments over 87 years. On March 1, 2002, LVSI filed the Motion of Las Vegas Sands, Inc. to Compel Arbitration Pursuant to License Agreement and to Stay Proceeding Pending Arbitration (the "Arbitration Motion"). The Arbitration Motion has not yet been resolved. Page 34 3. Other Pleadings Filed by LVSI in These Cases Based, in part, upon the Debtors' position that LVSI has no valid claims against the Debtors, on January 28, 2002, LVSI filed its (a) Objection of Las Vegas Sands, Inc. to the Debtors' Motion for Order Authorizing Private Sale of the Common Stock of the Wholly Owned Non-Debtor Subsidiary, and for Authority to Assume Stock Purchase Agreement Relating Thereto; (b) Objection of Las Vegas Sands, Inc. to Debtors' Alternative Motion for Order Approving: (i) Break-Up Fee, Overbid Protections, and Certain Other Bid Procedures in Connection with Proposed Sale of Common Stock of Advanced Casino Corporation; and (ii) Form and Manner of Notice Related to Sale and (c) Supplemental Objection of Las Vegas Sands, Inc. to Confirmation of the Sale of the ACSC Common Stock (the "LVSI Sale Objections"). LVSI appeared at the January 31, 2002, hearings on the Debtors' motion for approval of the sale to Bally Gaming. LVSI examined witnesses and vigorously presented its Sale Objections. At the conclusion of the January 31, 2002, hearing, after considering the LVSI Sale Objections, the Court entered an Order (on February 5, 2002) which provided for certain additional marketing of the ACSC stock. The Order has been complied with and the sale to Bally Gaming has been approved. In addition, LVSI has filed its (i) Objection of LVSI to Debtors' Joint Disclosure Statement Dated December 28, 2001; (ii) Motion of Las Vegas Sands, Inc. for Reduction of Exclusivity Period Within Which Only Debtors May File a Plan; and (iii) Motion of Las Vegas Sands, Inc. for Order Appointing Trustee. Debtors have objected to the relief requested and believe the Court will sustain the Debtors' position in respect of each of LVSI's filings. 4. Treatment of LVSI's Disputed Claim HWCC has agreed to subordinate its Class 1 Claim, up to as much as $3 million, to any ultimately Allowed LVSI Claim. More specifically, prior to the Effective Date of the Plan, the Court (upon a request by the Debtors, pursuant to section 503(b) of the Bankruptcy Code) shall estimate the amount of the disputed LVSI claim as if the dispute regarding GBCC's liability were resolved in LVSI's favor. An amount of Cash equal to the lesser of $3 million and any amount estimated by the Court (or agreed to between LVSI and the Debtors and HWCC) shall be established as the "LVSI Reserve" and will be funded from PPI's Cash and/or the Sale Proceeds that would otherwise be paid to HWCC in respect of its Allowed Class 1 Claim. The LVSI Reserve, on the Effective Date, will be delivered to the Liquidating Trustee and will be held in reserve until LVSI's disputed claim becomes an allowed claim by final order of the Bankruptcy Court, at which time such claim will be paid promptly out of the LVSI Reserve. After the disputed LVSI claim is resolved or disallowed, the balance of the LVSI Reserve shall be distributed to HWCC as the only holder of an allowed claim in Class 1. To the extent LVSI ultimately has an Allowed Claim that is larger than the amount of the LVSI Reserve, such excess Claim will receive treatment in Class 6 of the Plan. G. Existing and Potential Litigation/Proceedings There is no existing and/or potential litigation/proceedings (in a non-bankruptcy context) of which the Debtors are aware, that would involve any of the three Debtors. Page 35 H. Preference and Other Avoidance Litigation During the ninety (90) days prior to the Petition Date, the Debtors made various payments and other transfers to creditors on account of antecedent debts. In addition, during the one-year period prior to the filing date, the Debtors may have made certain transfers to, or for the benefit of, certain "insider" creditors (pursuant to the Bankruptcy Code's definition of "insiders", 11 U.S.C. ss. 101(31)). While most of those payments were made in the ordinary course of the Debtors' business, some of those payments may be subject to avoidance and recovery by the Debtors' estates as preferential and/or fraudulent transfers pursuant to sections 329, 544, 547, 548 and 550 of the Bankruptcy Code. The Debtor, PPI, transferred the following consideration to Creditor HWCC in December 2001 (i.e., within the preference period): $2 million in Cash and PPI's $2 Million Hollywood Receivable (the latter of which was a note receivable held by PPI on which Hollywood Casino Corporation was the maker, as further referenced in footnote 9 herein). These payments were on account of the Hollywood Zero-Coupon Note from PPI Funding. PPI made these transfers through a capital contribution to its wholly-owned subsidiary PPI Funding, who is the obligor on the Hollywood-Zero Coupon Note to PPI Funding, and then PPI Funding offset amounts owed on the PPI note receivable from HCC against amounts owed by it on the Hollywood Zero-Coupon Note. Then PPI Funding paid $2 Million cash in respect of its obligation on the Hollywood Zero-Coupon Note. As discussed in footnote 8 above, the Hollywood Zero-Coupon Note provided for interest payments semi-annually on February 17 and August 17 of each year (beginning on August 17, 1994) and at maturity, with payments of interest through February 1, 2001, effected by adding accrued interest to the unpaid principal balance on the Hollywood Zero-Coupon Notes. Therefore, because the automatic advancement of interest accruals stopped on February 17, 2001, actual cash payments of semi-annual interest were to begin on August 17, 2001. In addition to the August 17, 2001 interest payment on the Hollywood Zero-Coupon Note due to HWCC, in late 2001, HWCC was owed $10,126,668.50 from GBCC, which represents the amount due and payable under the Four GBCC Promissory Notes. After the 1996 spin-off of GBCC to Hollywood Casino Corporation's shareholders, GBCC, PPI, PPI Funding and Hollywood Casino Corporation (and, more recently, HWCC) had entered into standstill and forbearance agreements governing the debts owed by the Debtors to Hollywood Casino Corporation (and, more recently, HWCC). During all of 2001, GBCC, and Hollywood Casino Corporation were negotiating to restructure the Debtors' obligations to HWCC. The transactions and offsets by PPI Funding in December 2001 were made in furtherance of and in connection with the standstill and forbearance agreement and were an integral part of the negotiations. The transactions (i.e., the payments and offsets) were undertaken to secure the cooperation of HWCC and Hollywood Casino Corporation in structuring the accompanying Plan and obtaining HWCC's agreement in principle to support the Plan. HWCC's agreement in principle to support the Plan is based upon the assumption that of the sale of ACSC to the Purchaser will be approved and consummated as described in the Plan. Page 36 In December 2001, when PPI transferred $2 Million in Cash and offset the $2 Million Hollywood Casino Corporation receivable owed to PPI, HWCC was insisting, as consideration for its continued forbearance on the debts owed to it by the Debtors, that the transfer be made to HWCC (and offset be recognized). Accordingly, because GBCC desired for HWCC to continue the long-standing forbearance from pursuing its claims against the Debtors, and because GBCC had concluded that the Plan would result in the resolution of its liabilities to HWCC, the GBCC Board of Directors, including its independent directors, upon the advice of outside counsel, agreed to the payment of $2 Million in Cash to HWCC and the offset by PPI Funding of the $2 Million PPI note receivable from Hollywood Casino Corporation. The Debtors do not believe these prepetition payments to HWCC would be deemed preferences under section 547 of the Bankruptcy Code since the payments did not enable HWCC to receive more than it otherwise would receive in a hypothetical Chapter 7 case involving PPI Funding, or these Debtors generally. This position is supported by the Plan's (i) payment in full of all claims of trade creditors; (ii) establishment of the Chapter 11 Payables Reserve to satisfy any disputed claim once such claim becomes an allowed claim by final order of the Bankruptcy Court; (iii) HWCC's agreement to subordinate its claims in Class 1 and Class 6 to the allowed amount of up to $3 million of LVSI's Claim and (iv) the cancellation of the intercompany claims. Finally, any such other Creditors that exist are Creditors of GBCC, and the transfers to HWCC that occurred happened at the PPI and PPI Funding level. The Plan contemplates HWCC's claims will be allowed claims when the Plan is confirmed. Thus there is no need for a mechanism by which the liquidating trustee can pursue a recovery of the $2 Million payment. If the Court determines that HWCC's claim should not be allowed, the Debtors will reopen negotiations with HWCC regarding the treatment of its claims under the Plan. Pursuant to section 1123(b)(3)(B) of the Code, except as otherwise provided in the Plan or Confirmation Order, the Liquidating Trustee, on behalf of the Debtors' Estates and holders of Allowed Claims and Allowed Interests, shall retain all Causes of Action which the Debtors had or had power to assert immediately prior to Confirmation of the Plan, including, without limitation, actions for the avoidance and recovery pursuant to section 329 of the Code or section 550 of the Code of transfers avoidable by reason of sections 544, 545, 547, 548, 549 or 553(b) of the Code, and may commence or continue, in any appropriate court or tribunal, any suit or other proceeding for the enforcement of such Causes of Action. All Causes of Action shall remain the property of the Liquidating Trustee post-Effective Date, and, if pursued and any recovery is ultimately realized, the proceeds of any such recovery would ultimately become Miscellaneous Assets (to be disbursed to the Class 6 Claimant(s)). With respect to any potential avoidance actions, in determining whether to pursue legal remedies for the avoidance and recovery of any transfers, the likelihood of successful recovery must be weighed against the legal fees and other expenses that would likely be incurred by the Liquidating Trustee. Inasmuch as the Debtors' investigation of such payments is in its initial phase, the Debtors are unable to provide any meaningful estimate of the total amount that could be recovered. The Debtors are unaware of any statutory liens, fraudulent conveyance actions, or avoidable setoffs. As described above, the Plan contemplates that all non-insider creditors except the Class 1 and 6 Claims (which are likely to consist only of the HWCC Claims), will be paid in full. Accordingly, recovery on preferences or avoidance actions from Creditors would provide no benefit Page 37 to the Estates, except for, perhaps, a benefit to HWCC. Unless HWCC (as the largest, and likely only, Class 1 and 6 Creditor) makes demand upon the Debtors and/or the Liquidating Trustee to pursue preferences/avoidance actions prior to Confirmation, the Debtors anticipate that no preference or avoidance actions will be pursued. Any creditor that received a pre-petition payment from the Debtors on or after September 29, 2001 or, in the case of insiders, on or after December 29, 2000, is hereby notified that the Debtors and/or Liquidating Trustee may sue it to recover those payments if they constitute preferences under section 547 of the Bankruptcy Code. I. Basis for Release of Claims Against Hollywood Casino Corporation The Debtors are not aware of any claims that might be asserted against any insider nondebtors. The GBCC board of directors has for most of the relevant time periods included three independent directors and since June 22, 2000, two independent directors. The Debtors' independent directors have in every material instance approved in advance and in some cases ratified the activities of GBCC and its subsidiaries. The transaction between GBCC and Bally Gaming, Inc. and the plan of reorganization were reviewed and independently approved by the independent directors. Although HWCC is not an insider of any of the Debtors, HCC, HWCC's parent was prior to December 31, 1996, also the 80% shareholder of GBCC. Hollywood Casino Corporation was the parent corporation of the Debtors when the obligations to HWCC, based upon the Four GBCC Promissory Notes to Hollywood, originated. Although LVSI contends Hollywood Casino Corporation was likewise the parent corporation of the Debtors when the obligation to HWCC, based upon the Hollywood Zero-Coupon Note, originated, the Debtors dispute the breadth of this statement, and refer readers to the chronology set forth in Section IV(B)(2) herein (explaining the origin of the Hollywood Zero-Coupon - ---------------- Note). All material transactions between Hollywood and its other direct and indirect subsidiaries, on the one hand, and GBCC, on the other were and have been subject to the independent review and approval of GBCC's independent directors. Moreover, at all material times, GBCC and HCC were reporting companies under the Securities Exchange Act of 1934. Pursuant to the Rules and Regulations of the 1934 Act, either or both of HCC and GBCC reported all of their related transactions on a contemporaneous basis and in Quarterly and Annual Reports. GBCC has not received any communication from either the SEC or any shareholder that any of the transactions should become the subject of a lawsuit or claim against any insider or affiliate of GBCC or against any HCC related party. In particular, there have been no demands or inquiries from shareholders relating to the debts that give rise to HWCC's claims in these Cases, notwithstanding their having been reported contemporaneously with their consummation and thereafter in every annual report. Inasmuch as (i) no party in interest prior to LVSI in its Objection to the Disclosure Statement has raised any claim that HWCC's claims are not valid and binding obligations of certain of the Debtors and (ii) the independent directors concluded in each instance that the transactions were in the interest of GBCC and its subsidiaries, the Debtors have no basis for believing that there may be claims against either GBCC insiders or HCC or any of its related parties. Page 38 Under the circumstances in which (i) HWCC is agreeing to payment of all other allowed claims, and ultimately to the payment of less than 25% of its allowed claims in these Cases and (ii) there being no facts asserted by LVSI or otherwise known to the Debtors that would justify litigation against any insider or any HCC entity, it was not unreasonable for HWCC to request and for the Debtors to agree to a release of claims that the estates might have against the HCC entities. The Plan has been amended to make clear that there is no intention to effect any release of any claim that a creditor, equity security holder or other party in interest may have in their own right, as opposed to rights derived from the claims that the Debtors might have against third parties and their officers, directors, employees and agents. V. EVENTS LEADING TO BANKRUPTCY As addressed previously at Section IV.A. of this Disclosure Statement, ------------- in prior years, GBCC and its subsidiaries (including certain subsidiaries that no longer exist) were actively involved in: (1) hotel ownership and the management thereof; (2) management services for casino operations; and (3) ownership of the Sands Hotel and Casino in Atlantic City, New Jersey. However, as a result of various bankruptcies of GBCC subsidiaries, and other divestitures in the ordinary course of business, GBCC and its subsidiaries are no longer engaged in hotel and casino ownership and management services. GBCC's current business activity consists solely of the operations of ACSC. While this entity standing alone is profitable, the four Debtor entities are encumbered with debt from previous years' activities. In the months prior to the filing of their bankruptcy cases, as the continuing insolvency of the Debtors became more of an issue that impacted their future viability, the Debtors began considering the possibility of marketing ACSC, as a way to maximize value for the Debtors' Creditors and Interest holders. In fact, the Debtors' Chapter 11 filing was the culmination of many months of negotiations between the Debtors and Hollywood Casino Corporation, concerning the significant indebtedness owed to HWCC, and the ultimate decision to implement a restructuring of the indebtedness to it through a sale of ACSC and the execution of such a sale through a Chapter 11 bankruptcy case. A. Formal Marketing of ACSC The Debtors, with the support and cooperation of Hollywood Casino Corporation and HWCC, spent many months in 2000 and 2001 first independently soliciting interest in a possible sale of either the assets of ACSC or the ACSC Common Stock./11/ Then, in early 2001, Hollywood Casino ______________________ /11/ Among other things, the Debtors obtained a third-party independent appraisal, from the firm of Howard Frazier Barker Elliott, Inc., with regard to ACSC in order to better inform them as to third parties' perceptions of value of ACSC, a copy of which appraisal will be made available upon any party-in-interest's request to Debtors' counsel, and a copy of which will also be submitted to the Court in connection with the hearing requesting permission to sell, pursuant to section 363 of the Bankruptcy Code, the ACSC Common Stock. Page 39 Corporation retained CIBC World Markets ("CIBC") as a financial advisor to assist GBCC, PPI and ACSC in a formal marketing process./12/ CIBC, in cooperation with the Debtors and ACSC, actively marketed ACSC and, among other things, sent a Confidential Information Memorandum to various prospective purchasers for use in considering their interest in ACSC. CIBC actively and aggressively pursued all reasonable alternatives for the sale of ACSC. Among other things, it contacted numerous industry and financial parties regarding capital infusion, business combinations, and outright acquisitions of all or part of ACSC. Certain potential bidders signed confidentiality agreements with GBCC, PPI and ACSC, and were permitted access to an ACSC "data room" for due-diligence purposes. With the assistance of CIBC, the Debtors and ACSC fielded questions of bidders. Initial indications of interest were received from four potential bidders. By early fall 2001, CIBC, the Debtors, and ACSC focused their attention on two serious players and negotiations commenced with these entities. These entities submitted competing bids and draft stock purchase agreements. CIBC and the Debtors analyzed the competing bids and draft stock purchase agreements to determine which bid and proposed terms provided the greatest value to Creditors. B. Selection of Proposal of ACSC Acquisitions, Inc. a Wholly Owned Subsidiary of Bally Gaming, Inc., As Highest and Best Alternative On December 19, 2001, discussions between the Debtors and Bally Gaming, Inc. culminated in an agreement by GBCC, PPI and ACSC to sell the ACSC Common Stock to ACSC Acquisitions, Inc., a Nevada corporation and wholly owned subsidiary of Bally Gaming, Inc. (the "Purchaser") Although another pre-petition bid proposal was received, the highest and best bid, considering both price and contingencies, was and continues to be the proposal of the Purchaser to acquire the ACSC Common Stock for $14.6 million cash, subject to certain purchase price adjustments and other adjustments as more fully described in the Stock Purchase Agreement as amended./13/ - ----------------------- /12/ CIBC was actually engaged by Hollywood Casino Corporation (the parent of the largest creditor, HWCC) and CIBC's fees have been, and will continue to be, the responsibility of Hollywood Casino Corporation. The Debtors submit that this is akin to the situation in which a creditors committee insists on its own financial advisor being involved with the marketing of the debtor-company. /13/ As initially negotiated, the most noteworthy potential purchase-price adjustment (that could operate to either increase or decrease the $14.6 million proposed purchase price) is described in Section 1.4(a) of the Stock Purchase Agreement and pertains to the working capital balance of ACSC at the time of closing of the proposed sale. More specifically, it is anticipated that ACSC's working capital balance, at the time of closing of the sale to Bally Gaming, will be within a range, or collar, between $5.1 million and $6.1 million. Within a few days after the closing, it is anticipated that ACSC will deliver to the Debtors and the Purchaser (and HWCC) a balance sheet prepared as of the date Page 40 Based upon the SPA, the Debtors filed a Motion for Order Authorizing Private Sale of the Common Stock of Wholly Owned Non-Debtor Subsidiary, Advanced Casino Systems Corporation, Free and Clear of Liens, Claims, and Encumbrances, pursuant to 11 U.S.C. (S) 363(f) and F.R.B.P. 6004, and for Authority to Assume Stock Purchase Agreement Relating Thereto, pursuant to 11 U.S.C. (S) 365 (and Brief in Support Thereof) (hereinafter, "Sale Motion"). The Sale Motion specifically requested the entry of an order: (a) authorizing GBCC and PPI to assume the Stock Purchase Agreement, pursuant to section 365 of the Bankruptcy Code, (b) further authorizing GBCC and PPI to implement the Stock Purchase Agreement and approving all ancillary agreements incorporated therein or relating thereto,/14/ and (c) authorizing PPI to convey to the Purchaser the - -------------------------------------------------------------------------------- of the closing that reflects what the working capital balance is as of the time of the closing and that, if such balance is less than $5.1 million, then the $14.6 million purchase price will be decreased by the difference, and if such balance is more than $6.1 million, then the $14.6 million purchase price will be increased by the difference. For purposes of providing for PPI's potential obligation to, essentially, return a portion of the sale proceeds, in the event that ACSC's working capital balance turns out to be less than $5.1 million, a $2.6 million secondary escrow is proposed to be established and it is proposed that these escrow proceeds will either be released to the Debtor PPI (in the event that the ACSC working capital balance turns out to be equal to or greater than $5.1 million, as is anticipated) or an appropriate amount of the secondary escrow will be released to Purchaser, in the event that the working capital balance turns out to be less than $5.1 million. As a result of the Debtors' inability to obtain Court approval of certain provisions of the Stock Purchase Agreement, Bally Gaming required an amendment to the Agreement that eliminated the Debtors receiving the benefit of any positive working capital variances. The only other potential purchase price adjustment that might result would be in the event there is ever determined to be any breach of a representation, warranty or covenant made by the Debtors in the Stock Purchase Agreement. A primary escrow in the amount of $1,000,000 is proposed to be established (from the $14.6 million of sale proceeds) to provide for any such liability of the Debtors that might arise for any such alleged breach by the Debtors. This would be the sole remedy for the Purchaser for any such alleged breach (except in the case of fraudulent, illegal or certain other types of knowing and willful breaches, as defined in Section 14.4 of the Stock Purchase Agreement). The primary escrow is proposed to be kept in place for eighteen months. /14/ The ancillary agreements referred to would include, in pertinent part: (1) Two Escrow Agreements (Exhibits B and C to the Stock Purchase Agreement), --------------------- pursuant to which an aggregate of $3,600,000 of the $14.6 million of sale proceeds shall be kept in escrow for a period of time (see footnote 13 herein, for a more detailed explanation of both the Secondary Escrow Agreement, pursuant to which $2,600,000 of the sale proceeds will be kept in escrow for a short period of time, and the Primary Escrow Agreement, pursuant to which $1,000,000 of the sale proceeds will be kept in escrow for an 18-month period). (2) A form of new License and Maintenance Agreement (not an Exhibit to the Stock ----------------------------------------------- Purchase Agreement, but referenced in the Stock Purchase Agreement), to be entered into between ACSC and each of Hollywood Casino-Aurora, Inc., Hollywood Casino Shreveport and HWCC-Tunica, Inc. (three wholly owned subsidiaries of Hollywood Casino Corporation, each of which are already licensed to use the technology of ACSC), which will be effective after a closing of the proposed sale to Purchaser. The purpose of the new form of License and Maintenance Agreement is to give these Hollywood Casino Corporation subsidiaries most favored nation status as to certain pricing and terms with ACSC going forward and the right to make future upgrades with regard to ACSC's technology. Whereas this type of form of License and Maintenance Agreement is not atypical, and there are other large customers of ACSC who have comparable arrangements, these particular Hollywood subsidiaries' agreements are acknowledged in the Stock Purchase Agreement, and are being specifically disclosed herein (in the interest of full and fair disclosure), since HWCC, a wholly owned subsidiary of Hollywood Casino Corporation, is the largest creditor herein and since Page 41 ACSC Common Stock. In exchange, the Purchaser shall pay to PPI an estimated purchase price of $14.6 million, subject to those certain purchase-price adjustments and other adjustments mentioned previously. Recognizing the possibility that the Court might require a formal postpetition auction process before approving the sale of the ACSC Common Stock, in addition to the Sale Motion, the Debtors' filed their Alternative Motion for Order Approving (i) Break-Up Fee, Overbid Protections, and Certain Other Bid Procedures in Connection with Proposed Sale of Common Stock of Non-Debtor Subsidiary, Advanced Casino Systems Corporation, and (ii) Form and Manner of Notice Related to the Sale. On January 31, 2002, the Court held a hearing to consider the Sale Motion and the Alternative Bid Procedures Motion. As previously noted, LVSI objected to the Sale Motion and participated actively in the January 31, 2002 hearing, and a subsequent telephonic hearing on February 4, 2002. Based upon the evidence presented at the hearing, the Court on February 5, 2002, entered its Order Continuing Hearing on Debtors' Sale Motion and Approving (i) Break-up Fee, Overbid Protections, and Certain Other Bid Procedures in Connection with Proposed Sale of Common Stock of Non-Debtor Subsidiary, Advanced Casino Systems Corporation, and (ii) Form and Manner of Notice Related to Sale (the "Bid Procedures Order"). In the Bid Procedures Order, the Court continued the hearing on the Sale Motion and approved various procedures for bidding on and possible auction of the ACSC Common Stock. These procedures include a break-up fee of $400,000 and expense reimbursement of up to $150,000 to be paid to the Purchaser as an administrative expense in the event that a competing bidder was the ultimate purchaser of the ACSC Common Stock. In addition, the Court instituted several qualifications for competing bids including, inter alia, requirements that competing bids (i) include a form of agreement substantially similar to the Stock Purchase Agreement; (ii) be in all cash; (iii) not be contingent upon due diligence, financing or regulatory approval and (iv) provide aggregate consideration having a value equal to an amount which is at least the sum of the purchase price - -------------------------------------------------------------------------------- Hollywood Casino Corporation negotiated this new form of License and Maintenance Agreement on a dual track with Debtors' negotiation of the Stock Purchase Agreement. (3) The Third Amendment to Employment Agreement between Larry Cole, the ------------------------------------------------------------------- President of ACSC, and ACSC (Exhibit G to the SPA), pursuant to which Mr. Cole, - --------------------------- who originally created ACSC's technology and whose continued involvement with ACSC, for at least some period of time, would have been critical to any buyer, is given a continuing employment agreement, and Mr. Cole is also giving Purchaser an extension of a non-compete agreement he has previously had in place with ACSC. It should also be noted that, pursuant to a Second Amendment to Employment Agreement with Mr. Cole, executed between ACSC and Mr. Cole prepetition, ACSC promised certain "Sale Incentive Compensation" to Mr. Cole in the event of a sale of ACSC (whether an asset sale or stock sale) to any unrelated third-party. The Sale Incentive Compensation promised by ACSC to Mr. Cole, in the event of a sale of ACSC to an unrelated third party, was: 5% of any sale proceeds up to $8 million; 10% of any sale proceeds in excess of $8 million; and 15% of any sale proceeds in excess of $15 million. In order to avoid any issues as to the enforceability of this prepetition Second Amendment to Employment Agreement in the bankruptcy case, and the issue of whether Mr. Cole indeed has a legal or equitable entitlement to the Sale Incentive Compensation, HWCC has agreed, in this Third Amendment to Employment Agreement, that it will pay the Sale Incentive Compensation to Mr. Cole, as defined in the Second Amendment to Employment Agreement, from the distribution it ultimately receives in these bankruptcy cases, pursuant to the Plan, and yet another escrow agreement is contemplated to provide for this payment. Page 42 provided for in the Stock Purchase Agreement plus the break-up fee amount plus the expense reimbursement amount plus $1. The Court also ordered that no competing bid would be considered unless the Debtors reasonably determined that the bidder has the financial ability to close the transaction and imposed March 1, 2002 as the bid deadline. As part of the Bid Procedures Order, the Court established an auction procedure in the event that the Debtors received competing bids for the ACSC Common Stock. Pursuant to the Bid Procedures Order, bidders that submitted qualifying bids would have been able to participate in an auction commencing at 11:00 a.m. E.S.T., Tuesday, March 5, 2002 at the offices of Klehr, Harrison, Harvey, Branzburg & Ellers LLP. For purposes of the auction, the Court set the initial overbid requirement at $200,000 and required subsequent overbids to be at least $100,000 greater than the initial overbid. The Court also set a continued hearing on the Sale Motion for March 6, 2002 at 3:00 p.m., at which time the Debtors were to announce whether any competing bids were received and the identity of the prevailing bidder. If the Debtors received no competing bids, the Court indicated that it would approve the sale to Purchaser. In the Bid Procedures Order, the Court required the Debtors to solicit competing bids for the ACSC Common Stock by serving the Bid Procedures Order and notice of the opportunity to submit competing bids and the continued hearing on the Sale Motion to several parties, including certain financial investors, publicly traded corporations registered with or reporting to the Nevada Gaming Commission, licensed casino operator in Atlantic City, major companies licensed as manufacturers of gaming devices in Nevada and New Jersey and any persons designated by LVSI. The Court also required the Debtors to publish notice in local newspapers in Atlantic City and Las Vegas. Finally, the Court required the Debtors to give reasonable informational access to potential bidders with the financial ability to purchase the ACSC Common Stock. On, February 8, 2002 the Debtors served a Notice of Bid Procedures and Auction for Proposed Sale of Common Stock of Advanced Casino Systems Corporation and a copy of the Bid Procedures Order on all parties on the Debtors' master service list and on all parties contemplated by the Bid Procedures Order. The Debtors caused similar notices to be published in the Las Vegas Review Journal and the Press of Atlantic City on February 15, 16, and 17, 2002. The Debtors received no bids or any other inquiries from potential purchasers of the ACSC Common Stock. For this reason, the Debtors did not conduct an auction on March 5, 2002. Nonetheless, Debtor representatives were present at the offices of Klehr, Harrison, Harvey, Branzburg & Ellers LLP at 11:00 a.m. E.S.T. on March 5, 2002. No person appeared expressing any interest in the ACSC stock. On March 6, 2002, the Court resumed the hearing on the Sale Motion and approved the sale of the ACSC Common Stock to Purchaser pursuant to the Stock Purchase Agreement and entered its Order Approving the Sale of All of the Issued and Outstanding Shares of Stock of Advanced Casino Systems Corporation to ACSC Acquisitions, Inc., Free and Clear of All Liens, Claims, Interests and Encumbrances, and Assumption of Stock Purchase Agreement, as Amended, Under sections 105, 363(f) and 365 of the Bankruptcy Code (the "Sale Order"). The closing of the Sale occurred March 19, 2002. Gross proceeds are expected to be $14.6 Million. Page 43 VI. POST-BANKRUPTCY OPERATIONS AND SIGNIFICANT EVENTS A. Post-Bankruptcy Operations Since the Debtors filed their voluntary petitions on December 28, 2001, the Debtors have continued to operate in the normal course of business. The Debtors have not made any significant purchases or sales of assets, and the Debtors are paying postpetition obligations (except for those subject to Court approval) as they become due. B. Significant Orders Entered During the Case On the Petition Date, the Debtors filed a number of motions designed to allow them to continue their business in the ordinary course without unnecessary disruption as a result of the bankruptcy filings. The Court entered orders that, among other things, allowed the Debtors' cases to be jointly administered, allowed the Debtors to maintain their bank accounts and cash management system, set a shortened bar date for the filing of proofs of claim, and authorized the Debtors to employ certain professionals including the law firms of Haynes and Boone, L.L.P. ("H&B") and Klehr, Harrison, Harvey, Branzburg & Ellers ("Klehr"). In response to the Debtors' Sale Motion and the Alternative Bid Procedures Motion, on February 5, 2002, the Court entered the Bid Procedures Order, and on March 6, 2002, the Court entered the Sale Order, all as described in more detail in Section V.B. above. C. Professionals' Fees and Expenses 1. Professionals employed by the Debtors H&B was employed as co-counsel to the Debtors pursuant to Court Order dated January 28, 2002. H&B was retained to serve as the Debtors' bankruptcy and general counsel. Prior to the Petition Date, the Debtors paid H&B a $75,000 retainer, which H&B currently holds. Klehr was employed as co-counsel to the Debtors pursuant to Court Order dated January 28, 2002. Klehr was retained to perform general bankruptcy services for the Debtors. Prior to the Petition Date, the Debtors paid Klehr a $25,000 retainer (plus $3,320 for Bankruptcy Court filing fees), which Klehr currently holds. H&B estimates its fees and expenses during this Chapter 11 case may be $600,000. Klehr estimates its fees and expenses during this Chapter 11 case may be $150,000. H&B and Klehr will file first and final fee applications at the end of the Chapter 11 cases requesting reimbursement of their fees and expenses incurred during the Chapter 11 cases. Page 44 As explained further in section VII.E.1 (a)(ii), payment of Chapter 11 professional fees as finally allowed will be prorated between GBCC and PPI. VII. DESCRIPTION OF THE PLAN A. Introduction A summary of the principal provisions of the Plan and the treatment of Classes of Allowed Claims and Interests is set out below. The summary is qualified in its entirety by the Plan. This Disclosure Statement is only a summary of the terms of the Plan. It is the Plan and not the Disclosure Statement that governs the rights and obligations of the parties. B. Designation of Claims and Interests The following is a designation of the classes of Claims and Interests under this Plan. In accordance with section 1123(a)(1) of the Bankruptcy Code, Administrative Claims and Tax Claims have not been classified and are excluded from the following classes. A Claim or Interest is classified in a particular class only to the extent that the Claim or Interest qualifies within the description of that class, and is classified in another class or classes to the extent that any remainder of the Claim or Interest qualifies within the description of such other class or classes. A Claim or Interest is classified in a particular class only to the extent that the Claim or Interest is an Allowed Claim or Allowed Interest in that class and has not been paid, released or otherwise satisfied before the Effective Date; a Claim or Interest which is not an Allowed Claim or Interest is not in any Class. Notwithstanding anything to the contrary contained in the Plan, no distribution shall be made on account of any Claim or Interest which is not an Allowed Claim or Allowed Interest. Class Status ----- ------ Claims Class 1: HWCC's Claim against Impaired - entitled to vote PPI Funding, in respect of respect of the Hollywood Zero-Coupon Note from PPI Funding, which Claim is Allowed by this Plan in the total amount of 49,219,370.05. Class 2: Intercompany Claims Against Impaired - entitled to vote GBCC (consisting of: (a) PPI's Claim against Page 45 GBCC in respect of the GBCC $2,200,000 Indebtedness to PPI; (b) PPI's $350,000 Claim against GBCC; (c) PCPI Funding's Claim against GBCC in respect of the GBCC $23,265,577 Promissory Note to PCPI Funding; (d) PCPI Funding's Claim against GBCC in respect of the GBCC/Joplin DQ Promissory Note to PCPI Funding; and (e) PPI Funding's Claim against GBCC in respect of the GBCC $16,265,000 Indebtedness to PPI Funding). Class 3: Intercompany Claims Against PCPI Impaired - entitled to vote Funding (consisting of: (a) PPI's Claim against PCPI Funding in respect of the PCPI $13,450 Indebtedness to PPI; and (b) PPI Funding's Claim against PCPI Funding in respect of the PCPI Funding Replacement Note to PPI Funding). Class 4: Intercompany Claims Against Impaired - entitled to vote PPI Funding (consisting of PPI's Claim Against PPI Funding in respect of the Split-Off Zero-Coupon Note from PPI Funding).14 Class 5: Unsecured Convenience Claims Impaired/15/ - entitled to vote Against any of GBCC, PPI, PCPI Funding or PPI Funding (consisting of any trade claim or other Unsecured Claim in the amount of $15,000 or less, or any that elect to reduce their Claims to $15,000; any - ----------------- /15/ LVSI objects to the description of Class 5 as "impaired." The Debtors believe Class 5 is technically "impaired" as a result of the 1994 amendments to the Bankruptcy Code (such amendments deleted subsection (3) of section 1124, which formerly provided that creditors were unimpaired, and, thus, not entitled to vote or receive postpetition interest, to the extent they were paid the allowed amount of their claims in cash on the effective date of a reorganization plan). Page 46 such Claims are believed to be only against GBCC). Class 6: General Unsecured Claims Impaired - entitled to vote against any of GBCC, PPI, PCPI Funding, or PPI Funding, not otherwise classified (Class 6 is believed to consist only of the Claims of HWCC in respect of the Four GBCC Promissory Notes to Hollywood, which Claims are Allowed by this Plan in the aggregate amount of $10,126,668.50 However, LVSI and a former employee of a former GBCC affiliate have filed Proofs of Claims that the Debtors dispute which would be Claims in Class 6 if they became Allowed Claims). C. Interests Class 7: Interests of GBCC's Impaired - not entitled to vote Equity Security Holder (deemed to reject; 11 U.S.C. (S)1126(g)) Class 8: Interests of PPI's Impaired - entitled to vote Equity Security Holder Class 9: Interests of PCPI Funding's Impaired - entitled to vote Equity Security Holder Class 10: Interests of PPI Funding's Impaired - entitled to vote Equity Security Holder D. Identity of the Debtors' Creditors The following table identifies all known creditors of the Debtors. For each creditor, the table notes the Plan classification, the amount of the claim or interest and the basis for the claim or interest. By listing claims or interests in this table, the Debtors are not admitting the validity of the claims or interests and reserve the right to file objections to any claim or interest listed in the table. Page 47
- -------------------------------------------------------------------------------------------------------------------- Plan Class Claimant Amount Basis for Claim or Interest - -------------------------------------------------------------------------------------------------------------------- Class 1 HWCC $49,219,370.05 Claim against PPI Funding in respect of the Hollywood Zero-Coupon Note from PPI - -------------------------------------------------------------------------------------------------------------------- Class 2 PPI $ 2,200,000 Intercompany claim against GBCC based on advances received from PPI --------------------------------------------------------------------------------------------------- PPI $ 350,000 Intercompany claim against GBCC based on accrued interest originally due to Hollywood Casino Corporation assigned to PPI in 1998 --------------------------------------------------------------------------------------------------- PCPI Funding $57,109,961.00 Intercompany claim against GBCC based on notes payable to PCPI Funding --------------------------------------------------------------------------------------------------- PPI Funding $ 16,265,000 Intercompany claim against GBCC based on advances from PPI Funding - -------------------------------------------------------------------------------------------------------------------- Class 3 PCPI $ 13,450 Intercompany claim against PCPI Funding based on cash advances --------------------------------------------------------------------------------------------------- PPI Funding $ 66,019,632 Intercompany claim against PCPI Funding based on PCPI Funding Replacement Note to PPI Funding - -------------------------------------------------------------------------------------------------------------------- Class 4 PPI $ 15,492,168 Intercompany claim against PPI Funding based on the Split-Off Zero-Coupon Note from PPI Funding - -------------------------------------------------------------------------------------------------------------------- Class 5 Depository Trust $ 90.00 Claim against GBCC arising in ordinary course of business --------------------------------------------------------------------------------------------------- Continental Stock $ 1,026.92 Claim against GBCC arising in ordinary course of business --------------------------------------------------------------------------------------------------- Cox & Smith $ 8,567.47 Claim against GBCC/16/ arising in ordinary course of business --------------------------------------------------------------------------------------------------- Brown, Previti & $ 880 Claim against PPI arising in ordinary course of Caroll business --------------------------------------------------------------------------------------------------- Deloitte & Touche $ 775 Claim against PPI arising in ordinary course of business --------------------------------------------------------------------------------------------------- Schreck, Brignone, $ 187.50 Claim against PPI arising in ordinary course of Godfrey business --------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- Class 6 HWCC $10,126,668.50 Claim against GBCC based on unsecured Promissory Notes dated 10.29.93, 7.12.96, 8.2.96 and 8.7.96 --------------------------------------------------------------------------------------------------- LVSI $20,120,052.00 Claim against Debtors based on trademark license --------------------------------------------------------------------------------------------------- Greate Bay Hotel & Disputed; No debt Claim against GBCC under tax indemnification Casino, Inc. owed agreement --------------------------------------------------------------------------------------------------- William D. Pratt, Jr. $ 3,025,000.00 Claim against GBCC of a former employee of an affiliate, based on alleged employee claims - --------------------------------------------------------------------------------------------------------------------
- -------------------- /16/ Claimant holds a retainer from GBCC that will likely be applied to satisfy Claimant's claim in full. Page 48 - -------------------------------------------------------------------------------------------------------------------- Class 7 GBCC's equity N/A security holders - -------------------------------------------------------------------------------------------------------------------- Class 8 PPI's equity security N/A holder - -------------------------------------------------------------------------------------------------------------------- Class 9 PCPI Funding's equity N/A security Holder - -------------------------------------------------------------------------------------------------------------------- Class 10 PPI Funding's equity N/A security holder - -------------------------------------------------------------------------------------------------------------------- Unclassified Haynes and Boone, LLP $ 600,000 (est.) estimated administrative claim based on legal fees incurred from Petition Date through May, 2002 --------------------------------------------------------------------------------------------------- Klehr, Harrison, $ 150,000 (est.) estimated administrative claim based on legal fees Harvey, Branzburg & incurred from Petition Date through May, 2002 Ellers LLP --------------------------------------------------------------------------------------------------- Internal Revenue $ 100,000 estimated priority tax claim against GBCC based on Service alternative minimum tax/17/ --------------------------------------------------------------------------------------------------- Internal Revenue $ 5,000 priority tax claim against GBCC for tax period Service ending 12.31.00 - --------------------------------------------------------------------------------------------------------------------
E. Treatment of Claims and Interests 1. Treatment of Unclassified Claims (a) Allowed Administrative Claims. (i) General. Subject to the bar date provisions in the Plan (to the extent applicable), each holder of an Allowed Administrative Claim shall receive Cash (from the Chapter 11 Payables Reserve) equal to the unpaid portion of such Allowed Administrative Claim on the later of (1) the Effective Date or as soon as practicable thereafter, (2) the date on which such Claim becomes an Allowed Administrative Claim, or (3) such other date as is mutually agreed upon by (a) the Debtors and/or the Liquidating Trustee and (b) the holder of such Claim. (ii) Bar Date for Administrative Claims. *General Provisions. Except as provided in Article ------- 3.1(C) of the Plan, and except with regard to statutory fees pursuant to 28 - ------ U.S.C. (S)1930, requests for payment of Administrative Claims must be Filed no later than forty-five (45) days after the Effective Date. Holders of Administrative Claims (including, without limitation, professionals requesting compensation or reimbursement of expenses) that are required to File a request for payment of such - ----------------------- /17/ The Alternative Minimum Tax has not yet been assessed against GBCC. The Debtors believe that this claim will not exceed $100,000. Page 49 Claims and that do not File such requests by the applicable bar date shall be forever barred from asserting such Claims against the Debtors, the Estates, the Liquidating Trustee, any of their affiliates, or any of their respective property. *Professionals. All professionals or other entities requesting compensation or reimbursement of expenses pursuant to sections 327, 328, 330, 331, 503(b) and 1103 of the Bankruptcy Code for services rendered before the Effective Date (including, without limitation, any compensation requested by any professional or any other entity for making a substantial contribution in the Bankruptcy Case) shall File and serve on the Debtors and/or Liquidating Trustee and their counsel, any official committee appointed in this Bankruptcy Case and its counsel, and the United States Trustee an application for final allowance of compensation and expenses no later than forty- five (45) days after the Effective Date. Any professional fees and reimbursements of expenses incurred by Debtors or any official committees (or any successor thereto), relating solely to the closing of the transactions contemplated by the Plan, objections to Claims and the prosecution of fee applications subsequent to the Effective Date, shall be paid by the Liquidating Trustee from the remaining Chapter 11 Payables Reserve without application to the Bankruptcy Court. Payment of professional fees, as allowed by final order, will be prorated between GBCC and PPI based on the ratio of Effective Date Cash in each estate to total cash in all estates. *Objections to Administrative Claims, Including Those of Professionals. Objections to requests for payment of Administrative Claims (including objections to applications of professionals for compensation or reimbursement of expenses) must be Filed and served on the claimant and/or professional to whom the objection is addressed, the Debtors and/or Liquidating Trustee, any official committee, and the United States Trustee, no later than sixty-five (65) days after the Effective Date. (iii) Payment of Statutory Fees. Notwithstanding any other provision of this Plan, all fees payable pursuant to 28 U.S.C. (S)1930 shall be paid in Cash when due by the Debtors and/or the Liquidating Trustee. (iv) Ordinary Course Liabilities. Notwithstanding any other provision of the Plan, holders of Administrative Claims based on liabilities incurred postpetition in the ordinary course of the Debtors' business shall not be required to File any request for payment of such Claims, and such obligations shall be paid as they become due by the Debtors and/or the Liquidating Trustee, unless the Debtors and/or the Liquidating Trustee and a holder of such a Claim otherwise mutually agree. (b) Allowed Tax Claims. The holders of Allowed Tax Claims shall be paid in full in Cash (from the Chapter 11 Payables Reserve) on the later of (1) the Effective Date or as soon as practicable thereafter, (2) the date on which such Claim becomes an Allowed Tax Claim, or (3) such other date as is mutually agreed upon by the Debtors and/or the Liquidating Trustee and the holder of such Claim. Page 50 2. Classification and Treatment of Classified Claims and Interests (a) Class 1 -HWCC's Claim against PPI Funding in respect of the Hollywood Zero-Coupon Note from PPI Funding, in the total Allowed Amount of $49,219,370.05. The Allowed Class 1 Claim shall be discharged, extinguished and satisfied in full by the distribution to the Class 1 holder of the following consideration on the Effective Date: (i) the Sale Proceeds and the existing Cash of PPI, less an amount of Cash or Sale Proceeds that may be necessary to fund the Chapter 11 Payables Reserve, and less an amount of Cash or Sale Proceeds that may be necessary to fund the LVSI Reserve; and (ii) any residue in the LVSI Reserve after payment of the Allowed Amount, if any, of the disputed LVSI Claim. (b) Class 2 -Intercompany Claims Against GBCC (consisting of: (a) PPI's Claim against GBCC in respect of the GBCC $2,200,000 Indebtedness to PPI; (b) PPI's $350,000 Claim against GBCC; (c) PCPI Funding's Claim against GBCC in respect of the GBCC $23,265,577 Promissory Note to PCPI Funding; (d) PCPI Funding's Claim against GBCC in respect of the GBCC/Joplin DQ Promissory Note to PCPI Funding; and (e) PPI Funding's Claim against GBCC in respect of the GBCC $16,265,000 Indebtedness to PPI Funding). The Allowed Class 2 Claims shall be deemed discharged, extinguished and satisfied in full, as of the Effective Date, by virtue of the merger described at Article 6.1.C of the Plan. ------------- (c) Class 3 -Intercompany Claims Against PCPI Funding (consisting of: (a) PPI's Claim against PCPI Funding in respect of the PCPI Funding $13,450 Indebtedness to PPI; and (b) PPI Funding's Claim against PCPI Funding in respect of the PCPI Funding Replacement Note to PPI Funding). The Allowed Class 3 Claims shall be deemed discharged, extinguished and satisfied in full, as of the Effective Date, by virtue of the merger described at Article 6.1.C of the Plan. ------------- (d) Class 4 -Intercompany Claims Against PPI Funding (consisting only of PPI's Claim Against PPI Funding in respect of the Split-Off Zero-Coupon Note from PPI Funding). The Allowed Class 4 Claim shall be deemed discharged, extinguished and satisfied in full, as of the Effective Date, by virtue of the merger described at Article 6.1.C of the Plan. ------------- (e) Class 5 -Unsecured Convenience Claims against any of GBCC, PPI, PCPI Funding or PPI Funding (trade claims or other). To the extent necessary for purposes of section 1122 of the Code, the Allowed Unsecured Convenience Claims against each of GBCC, PPI, PCPI Funding and PPI Funding shall be deemed classified in separate sub-Classes hereunder (however, the Debtors believe that there are only Class 5 Claims against GBCC). The Allowed Class 5 Claims shall be discharged, extinguished, and satisfied in full, by the distribution of Cash to each holder of an Allowed Class 5 Claim, in the full amount of any such holder's Allowed Claim (from the Chapter 11 Payables Reserve or, alternatively, from Insurance Proceeds if any such Claim is an Insured Claim), on the later of (A) the Effective Date or as soon as practicable thereafter; (B) the date on which any such Claim becomes an Allowed Claim; and (C) such other date as is mutually agreed upon by the Debtors and/or the Liquidating Trustee and the holder of any such Claim. Notwithstanding the foregoing, any right of setoff that the Debtors may have with regard to any of these Claims is preserved. Page 51 (f) Class 6 - General Unsecured Claims Against any of GBCC, PPI, PCPI Funding or PPI Funding, not Otherwise Classified (believed to consist only of HWCC's Claims against GBCC in respect of the Four GBCC Promissory Notes to Hollywood, in the aggregate Allowed Amount of $10,126,668.50 and the Disputed Claims of Las Vegas, Inc. and William D. Pratt, Jr., a former employee of a former GBCC affiliate). To the extent necessary for purposes of section 1122 of the Code, the Allowed General Unsecured Claims against each of GBCC, PPI, PCPI Funding and PPI Funding shall be deemed classified in separate sub-Classes hereunder. The Allowed Class 6 Claims shall be discharged, extinguished and satisfied in full by the distribution of the following consideration, on or as soon practicable after, the Effective Date: the Excess Chapter 11 Payables Reserve and the Miscellaneous Assets. To the extent that there is more than one holder of an Allowed Claim in this Class, the holders shall share Pro Rata in the Excess Chapter 11 Payables Reserve and the Miscellaneous Assets. To the extent that LVSI has an Allowed Claim that is not satisfied in full from the LVSI Reserve (which HWCC has agreed to make available to LVSI from the consideration that HWCC would otherwise be entitled to in respect of its Class 1 Claim), the unsatisfied portion of LVSI's Allowed Claim shall share Pro Rata from the consideration to be distributed to Class 6 claimants. Debtors believe HWCC will be the only person who will receive payment in this Class. (g) Class 7 -Interests of the holders of the GBCC Common Stock. The Allowed Class 7 Interests shall be canceled, extinguished, and of no further force or effect as of the Effective Date. The Holders of the Class 7 Interests will not receive any distribution on account of their Interests. (h) Class 8 -Interests of the holder of the PPI Common Stock. The Allowed Class 8 Interests shall be canceled, extinguished, and of no further force or effect as of the Effective Date. The holder of the Allowed Class 8 Interests (GBCC) shall receive the remaining assets of PPI at the time of the merger described in Article 6.1.C of the Plan. ------------- (i) Class 9 -Interests of the holder of the PCPI Funding Common Stock. The Allowed Class 9 Interests shall be canceled, extinguished, and of no further force or effect as of the Effective Date. The holder of the Allowed Class 9 Interests (PPI) shall receive the remaining assets of PCPI at the time of the merger described in Article 6.1.C. of the Plan. -------------- (j) Class 10 -Interests of the holder of the PPI Funding Common Stock. The Allowed Class 10 Interests shall be canceled, extinguished, and of no further force or effect as of the Effective Date. The holder of the Allowed Class 10 Interests (PPI) shall receive the remaining assets of PPI Funding at the time of the merger described in Article 6.1.C. of the Plan. -------------- Page 52 F. Summary of Treatment of Individual Creditors
- ---------------------------------------------------------------------------------------------------------------------- Plan Class Claimants Treatment Estimated Recovery - ------------------------------------------------------------------------------------------------------------------ Class 1 HWCC Cash payment on the Effective Date consisting Less than 25% of: (i) the proceeds from the sale of the ACSC Common Stock ($14.6 million); (ii) PPI's cash on hand (approx. $1 million); LESS amount necessary to fund Chapter 11 Payables Reserve and LVSI Reserve - ------------------------------------------------------------------------------------------------------------------ Class 2 PPI Post-confirmation merger of all Debtors will 0% result in elimination of claims. PPI PCPI Funding PPI Funding - ------------------------------------------------------------------------------------------------------------------ Class 3 PCPI Post-confirmation merger of all Debtors will 0% result in elimination of claims. PPI Funding - ------------------------------------------------------------------------------------------------------------------ Class 4 PPI Post-confirmation merger of all Debtors will 0% result in elimination of claim. - ------------------------------------------------------------------------------------------------------------------ Class 5 GBCC Depository Trust Cash payment on the Effective Date from funds in 100% the Chapter 11 Payables Reserve for any Allowed Continental Stock Class 5 Claims. The amount of any disputed claims will be held in reserve pending the Cox & Smith ultimate allowance or disallowance of the claim. Brown, Previti & The Chapter 11 Payables Reserve will be created Caroll from funds that would otherwise be paid to Class 1. Deloitte & Touche Schreck, Brignone, Godfrey - ------------------------------------------------------------------------------------------------------------------
Page 53 - ---------------------------------------------------------------------------------------------------- Class 6 LVSI If claim is allowed, cash payment 100% consisting of: (i) the portion of the LVSI Reserve necessary to satisfy claim; and (ii) a pro-rata share of the Excess Chapter 11 Payables Reserve (e.g., the amount remaining after distributions to administrative claimants, tax claimants and Class 5 claimants) and the Miscellaneous Assets, if claim amount exceeds amount of LVSI Reserve. The LVSI Reserve will be created from $3 million of the funds that would otherwise be paid to Class 1. - ---------------------------------------------------------------------------------------------------- HWCC, and any other Pro-rata share of Excess Chapter 11 0%-3% Allowed Class 6 Payables Reserve (e.g., the amount Claims (believed to remaining after distributions to be none) administrative claimants and Class 5 claimants) and the Miscellaneous Assets. - ---------------------------------------------------------------------------------------------------- Class 7-10 GBCC's equity Elimination of all interests on the 0% security holders Effective Date. PPI's equity security holder PCPI Funding's equity security Holder PPI Funding's equity security holder - ---------------------------------------------------------------------------------------------------- Unclassified Haynes and Boone, LLP Cash payment on the Effective Date 100% from funds in the Chapter 11 Payables reserve (98.1% allocated to PPI and 1.9% allocated to GBCC based on amounts contributed by each Debtor to the Chapter 11 Payables Reserve). - ----------------------------------------------------------------------------------------------------
Page 54 - ------------------------------------------------------------------------------------------------ Klehr, Harrison, Cash payment on the Effective Date 100% Harvey, Branzburg & from funds in the Chapter 11 Ellers LLP Payables reserve (98.1% allocated to PPI and 1.9% allocated to GBCC based on amounts contributed by each Debtor to the Chapter 11 Payables Reserve). - ------------------------------------------------------------------------------------------------ Internal Revenue Cash payment on the Effective Date 100% Service for from funds in the Chapter 11 Payables Reserve for any allowed tax claims. The amount of any disputed claims will be held in reserve pending the ultimate allowance or disallowance of the claim. - ------------------------------------------------------------------------------------------------
G. Reasons for Separate Treatment of Class 1, Class 5 and Class 6. Although Class 1 and Class 5 each contain claims of unsecured creditors, the Plan provides for separation of HWCC's Class 1 Claim and the Class 5 Allowed Unsecured Convenience Claims and the Class 6 Claims. HWCC has agreed that it will subordinate its right to receive distributions from the LVSI Reserve (which essentially subordinates HWCC to the only other known potential creditor that would fall into Class 6; there is one other potential Class 6 creditor, William D. Pratt, Jr., a former employee of a former GBCC non-Debtor affiliate, whom the Debtors believe will be allowed no Claim). This subordination and separate classification of Classes 1 and 5 and 6 will result in more favorable treatment for the holders of the Class 5 Claims and the LVSI Claim than would result if the Class 5 Claims, the Class 6 Claims and the Class 1 Claim were classified together and satisfied by the distribution of the Sale Proceeds and the existing Cash of PPI (which the Plan provides will be distributed in satisfaction of the Class 1 Claim) and the Chapter 11 Payables Reserve and any applicable Insurance Proceeds (which the Plan provides will be distributed in satisfaction of the Class 5 Claims). As currently constituted, the Plan provides for the payment in full of all Class 5 Claims, but does not provide for the payment in full of the Class 1 Claim. If the Class 1 Claim and the Class 5 Claims and Class 6 Claims were aggregated and discharged through the distribution of the funds currently contemplated to be distributed to the holders of the Class 1 Claim and the Class 5 Claims, because of the magnitude of the Class 1 Claim in relation to the aggregate size of the Class 5 and 6 Claims, HWCC would receive a larger pro rata distribution of the available funds than the Plan currently provides, and the holders of the Class 5 and 6 Claims would not receive payment in full of their Claims. HWCC has agreed to the separate classification of the Class 1 Claim and the Class 5 Claims because it believes that providing for more favorable treatment of the Class 5 Claims will facilitate confirmation of the Plan. Page 55 VIII. MEANS FOR EXECUTION AND IMPLEMENTATION OF THE PLAN A. Plan Implementation Steps Occurring on or around the Effective Date. On the Effective Date, or as soon as practicable thereafter, the following events shall occur in the following sequence: 1. PPI's Contribution to PPI Funding of Sale Proceeds and Cash ----------------------------------------------------------- PPI, which will be holding the Sale Proceeds, between the time of the consummation of the Sale, pursuant to the Sale Order, and the Effective Date, shall immediately make a capital contribution to PPI Funding of: (1) the Sale Proceeds, as well as (2) PPI's other Cash that it has on hand (in addition to the Sale Proceeds), less an amount of Cash that may be necessary to fund the Chapter 11 Payables Reserve, and less an amount of Cash or Sale Proceeds that may be necessary to fund the LVSI Reserve. 2. Distribution of Sale Proceeds and PPI's Cash to HWCC. PPI ---------------------------------------------------- Funding shall immediately thereafter distribute: (1) the Sale Proceeds, and (2) PPI's other Cash that it has on hand (in addition to the Sale Proceeds), less an amount of Cash that may be necessary to fund the Chapter 11 Payables Reserve, and less an amount of Cash or Sale Proceeds that may be necessary to fund the LVSI Reserve, to HWCC, on account of its Allowed Class 1 Claim, in respect of the Hollywood Zero-Coupon Note from PPI Funding. 3. Simultaneous Merger of PPI, PCPI Funding and PPI Funding with ------------------------------------------------------------- and into GBCC. Simultaneously thereafter, each of PPI, PCPI ------------- Funding and PPI Funding shall merge with and into GBCC. In the process, all of the Intercompany Claims (in Classes 2, 3, and 4) will essentially be eliminated and will be deemed discharged, extinguished and satisfied in full, as of the Effective Date, by virtue of the merger. Similarly, the PPI Common Stock (Class 8), the PCPI Funding Common Stock (Class 9), and the PPI Funding Common Stock (Class 10) shall be canceled by virtue of this merger, with GBCC succeeding to all of the remaining assets and liabilities of PPI, PCPI Funding, and PPI Funding. After the implementation of the merger, GBCC will have the following known assets: ASSETS ------ -Cash (including, but not limited to, the LVSI Reserve) -Miscellaneous Assets (deposits, prepaids, furniture, etc.) Additionally, after the implementation of the merger, GBCC will have the following liabilities: LIABILITIES ----------- Page 56 -Administrative Claims against any of the Debtors -Tax Claims against any of the Debtors -Class 5 Unsecured Convenience Claims against any of the Debtors -Class 6 General Unsecured Claims against any of the Debtors Class 6 is believed to consist only of the Claims of HWCC in respect of the Four GBCC Promissory Notes to Hollywood. Class 5 is believed to consist of only a handful of vendor claims against GBCC. However, Las Vegas Sands, Inc. has filed a Proof of Claim of approximately $20 million that would be in Class 6. Debtors believe this Claim will be disallowed. A former employee of a former affiliate of GBCC (that owned the San Juan Sands) has also filed a $3,025,000 Proof of Claim against GBCC that would be in Class 6 which Debtors also believe will be disallowed. 4. Establishment of the Chapter 11 Payables Reserve, Conveyance of --------------------------------------------------------------- LVSI Reserve and Chapter 11 Payables Reserve and Miscellaneous -------------------------------------------------------------- Assets to Liquidating Trustee, and Distributions to holders of -------------------------------------------------------------- any Allowed Administrative Claims, Allowed Tax Claims, and ---------------------------------------------------------- Allowed Unsecured Claims in Class 5. On the Effective Date, after ----------------------------------- Steps 1-3 above, GBCC shall set aside the Cash it has on hand (other than the LVSI Reserve) and such Cash shall constitute the Chapter 11 Payables Reserve. GBCC shall immediately convey the Chapter 11 Payables Reserve and the LVSI Reserve to the Liquidating Trustee. GBCC shall also immediately convey the Miscellaneous Assets to the Liquidating Trustee. The Liquidating Trustee shall as promptly as practicable make the Cash Distributions required under the Plan to any holder of Allowed Administrative Claims, Allowed Tax Claims, and Allowed Unsecured Convenience Claims in Class 5 against any of GBCC, PPI, PCPI Funding or PPI Funding from the Chapter 11 Payables Reserve, unless the Debtors and any holder of such a Claim shall have otherwise mutually agreed. In addition to making such Distributions, the Liquidating Trustee shall set aside and hold in reserve any undistributed Chapter 11 Payables Reserve for any Administrative Claims, Tax Claims, and Unsecured Convenience Claims in Class 5 that are not yet Allowed Claims as of the Effective Date, until such time as such Claims have become resolved by a Final Order. 5. Subordination of HWCC's Class 1 Claim to any Allowed LVSI Claim --------------------------------------------------------------- of up to $3 million. HWCC has agreed that it will subordinate its ------------------- right to receive distributions from the Class 1 consideration that it would otherwise receive up to an amount of $3 million and the LVSI Reserve will be established and held by the Liquidating Trustee until such time as LVSI's Disputed Claim is resolved. If LVSI ultimately has an Allowed Claim, it will be paid by the Liquidating Trustee from the LVSI Reserve. If an Allowed Claim of LVSI is more than the LVSI Reserve, then any excess Allowed LVSI Claim gets treated as a Class 6 Claim. If an Allowed LVSI Claim is less than the LVSI Reserve, then the excess LVSI Reserve will be disbursed by the Liquidating Trustee to HWCC in respect of its Class 1 Claim. Page 57 6. Cancellation of GBCC Common Stock and Equity Interests. At this ------------------------------------------------------ stage, GBCC will have no remaining assets (having conveyed all remaining assets to the Liquidating Trustee). The Interests of the holders of the GBCC Common Stock (Class 10) shall be canceled and there shall be no distribution to the holders of GBCC Common Stock. GBCC will be dissolved. 7. Distribution of any Excess Chapter 11 Payables Reserve and ---------------------------------------------------------- Miscellaneous Assets to holder(s) of Allowed Class 6 Claims. At ----------------------------------------------------------- this stage, the only remaining assets available for distribution will be: (1) any Excess Chapter 11 Payables Reserve (held by the Liquidating Trustee), after satisfaction of the Allowed Administrative Claims, Allowed Tax Claims, and Allowed Class 5 Convenience Claims against the Debtors, and (2) any Miscellaneous Assets. On the Effective Date or as soon thereafter as practicable (at the earliest practicable time after all Disputed Claims and other Claims against the Debtors not yet Allowed as of the Effective Date have become resolved by a Final Order), the Liquidating Trustee will distribute any Excess Chapter 11 Payables Reserve and the Miscellaneous Assets to the holder(s) of Class 6 Claims in full discharge of the Class 6 Claims. Once again, the Debtors believe that the only Claims that will be Allowed in Class 6 will be HWCC's Claims in respect of the Four GBCC Promissory Notes to Hollywood. To the extent that there is more than one holder of an Allowed Claim in this Class, the holders shall share Pro Rata in the Excess Chapter 11 Payables Reserve and Miscellaneous Assets. Additionally, if HWCC is the only holder of an Allowed Class 6 Claim, the Liquidating Trustee may distribute any Miscellaneous Assets that are not readily convertible into Cash to HWCC in kind. If there is more than one holder of an Allowed Class 6 Claim, the Liquidating Trustee will liquidate and convert to Cash any Miscellaneous Assets and then distribute the proceeds Pro Rata among the Allowed Class 6 Claimants. If LVSI has an Allowed Claim in this Class, it will only share in a distribution in this Class to the extent it has not been paid in full from the LVSI Reserve. B. Merger of Corporate Entities. In order to optimize the benefits of the Plan for the Debtors' Estates and their Creditors, certain corporate consolidation (i.e., the merger of PPI, PCPI Funding and PPI Funding into GBCC) and other transactions with or among related entities are occurring as of the Effective Date. Notwithstanding the occurrence of any such consolidation or other transactions as of the Effective Date, Persons holding Claims against or Interests in any Debtor are receiving treatment under the Plan that is at least as favorable as any treatment to which such Creditor or Interest holder would have been entitled to receive if such consolidation or transactions had not occurred. This is largely due to the fact that the only Creditor that is expected to have an Allowed Claim against any of these Debtors (excluding Allowed Administrative Claims, Allowed Tax Claims, and Allowed Class 6 Unsecured Convenience Claims, all of which will be paid in Cash in full) is HWCC. However, even if there are other third-party Creditors who are granted Allowed Claims in Class 6 in this Bankruptcy Case (i.e., who have Allowed Claims against GBCC or any of the other Debtors), this Plan affords at least as favorable treatment to such Creditors as they would be entitled in a Chapter 7 case in which no merger Page 58 and/or no substantive consolidation were involved. The liquidation analysis at Section XIII of this Disclosure Statement illustrates what ------------ would happen to Creditors/Interest holders in Chapter 7 Cases of these Debtors where no substantive consolidation occurs. C. Transfer of Assets to the Liquidating Trust. On the Effective Date, GBCC shall deliver the Chapter 11 Payables Reserve, the LVSI Reserve, and the Miscellaneous Assets to the Liquidating Trust, on behalf of and for the benefit of the holders of Allowed Administrative Claims, Allowed Tax Claims, the Allowed Class 5 Claims, and Allowed Class 6 Claims, including the Allowed Claim, if any, of LVSI, all of whom shall collectively be the beneficial interest holders of the Liquidating Trust. HWCC (in respect of its Class 1 Claim) shall additionally (i.e., in addition to its Class 6 Claim) be a beneficiary of the Liquidating Trust, to the extent that the LVSI Reserve exceeds any Allowed LVSI Claim. D. Ratification of Liquidating Trust Agreement. On the Effective Date, each Creditor will be deemed to have ratified and become bound by the terms of the Liquidating Trust Agreement. The Liquidating Trust Agreement shall become effective upon its execution by the Debtors and acceptance by the Liquidating Trustee. 1. Powers and Duties. The Liquidating Trustee shall have the powers, duties and obligations specified in the Plan and the Liquidating Trust Agreement. 2. Compensation of Liquidating Trustee. The Liquidating Trustee shall be entitled to receive from the Trust Estate compensation for his services as Liquidating Trustee substantially in accordance with the description in the Liquidating Trust Agreement, which compensation shall be approved by the Court at the Confirmation Hearing. The Liquidating Trustee shall also be reimbursed by the Trust Estate for all reasonable out-of-pocket expenses incurred by the Liquidating Trustee in the performance of his duties. 3. Limitation of Liability. The Liquidating Trustee shall use reasonable discretion in exercising each of the powers herein granted. No Liquidating Trustee or any attorney, agent, or servant of the Liquidating Trustee shall be personally liable in any case whatsoever arising in connection with the performance of obligations under this Plan, whether for their acts or their failure to act unless they shall have been guilty of willful fraud or gross negligence. The Liquidating Trustee may consult with attorneys, accountants, and agents, and the opinions of the same shall be full protection and justification to the Liquidating Trustee and his employees for anything done or admitted or omitted or suffered to be done in accordance with said opinions. The Liquidating Trustee shall not be required to give any bond for the faithful performance of his duties hereunder or under the Liquidating Trust Agreement. Page 59 4. Right to Hire Professionals and Agents. The Liquidating Trustee shall have the right to reasonably utilize the services of attorneys or any other professionals which, in the discretion of the Liquidating Trustee, are necessary to perform the duties of the Liquidating Trustee. Reasonable fees and expenses incurred by the attorneys, accountants or other agents of the Liquidating Trustee shall be paid by the Liquidating Trust. The Liquidating Trustee may hire agents to effect distributions from the Liquidating Trust, and may pay the reasonable fees and expenses of such agents. 5. Tax Treatment of the Liquidating Trust. It is intended that the Liquidating Trust will be treated as a "liquidating trust" within the meaning of Treasury Regulations Section 301.7701-4(d). Accordingly, for federal income tax purposes, the transfer and assignment of the assets, as described in Article 6.1(D) of the Plan shall be treated as a deemed ------------- transfer and assignment of such assets to the holders of Claims who are beneficiaries of the Trust, followed by a deemed transfer and assignment by such holders to the Liquidating Trust. The Liquidating Trust shall be treated as a grantor trust owned by such holders. Each owner of an interest in the Liquidating Trust shall be considered for tax purposes to own an undivided interest in the assets of the Liquidating Trust. The Liquidating Trustee shall provide any Creditor with an Allowed Administrative Claim, Allowed Tax Claim, Allowed Class 5 Claim, or Allowed Class 6 Claim with a valuation of the assets transferred to the Liquidating Trust and such valuation shall be used consistently by the Debtors, the Liquidating Trust and all Creditors for all federal income tax purposes. All items of income, deduction, credit or loss of the Liquidating Trust shall be allocated for federal, state and local income tax purposes on a current basis among the Creditors, as set forth in the Liquidating Trust Agreement; provided, however, that to the extent that any item of income cannot be allocated to a particular Creditor in the taxable year in which it arises, the Liquidating Trust shall pay the federal, state, and local taxes attributable to such income (net of related deductions) at the highest rate applicable to trusts (for federal tax purposes, 39.6% currently). The Liquidating Trust shall file annual information returns as a grantor trust pursuant to Treasury Regulations Section 1.671-4(a) that will include information concerning the allocation of items of income, gain or loss, deduction or credit to the Creditors. Each Creditor will receive a copy of such information return. 6. Termination of Liquidating Trust. The duties, powers and responsibilities of the Liquidating Trustee shall terminate two years after the Effective Date or, if earlier, upon the liquidation and distribution to the holders of beneficial interests in the Liquidating Trust of all proceeds in the Liquidating Trust estate in accordance with this Plan. If all proceeds in the Liquidating Trust have not been distributed to holders of beneficial interests in the Liquidating Trust, the term of the Liquidating Trust may be extended from time to time by order of the Bankruptcy Court for such period or periods as it determines are reasonable, such determination to be made within six months of the beginning of the extended period. Page 60 E. Cancellation of GBCC Common Stock and Ultimate Dissolution of GBCC` GBCC Common Stock shall be rendered void. After the transfer of assets from GBCC to the Liquidating Trustee described in Article 6.1.E of the ------------- Plan, and the cancellation of the GBCC Common Stock as described in Article 6.1.F of the Plan, the officers of the GBCC shall sign and ------------- file articles of dissolution for GBCC with the Secretary of State of the State of Delaware, substantially in the form that will be included with the Plan Supplement (the "Articles of Dissolution"). Pursuant to Delaware law, no approval of the shareholders or directors of GBCC shall be required for the filing of the Articles of Dissolution. F. Corporate Action. Upon entry of the Confirmation Order, the events and/or transactions set forth in Section VIII.A hereinabove shall be -------------- and be deemed authorized and approved in all respects. On the Effective Date, the matters provided under the Plan involving the capital and corporate structures and governance of the respective Debtors, including the described merger of PCPI Funding, PPI Funding and PPI with and into GBCC, shall be deemed to have occurred and shall be in effect from and after the Effective Date pursuant to applicable state laws without any requirement of further action by the stockholders or directors of the Debtors. On the Effective Date, the Debtors and the Plan shall be authorized and directed to take all necessary and appropriate actions to effectuate the transactions contemplated by the Plan in the name of and on behalf of the Debtors. G. Objections to Claims. Except as otherwise provided for with respect to Administrative Claims and applications of professionals for compensation and reimbursement of expenses, as provided in Article 3.1.A of the Plan, or as otherwise ordered by the Bankruptcy Court after notice and a hearing, objections to Claims, shall be Filed and served upon the holder of such Claim not later than the later of (A) forty-five (45) days after the Effective Date, and (B) forty-five (45) days after a proof of claim is Filed, unless this period is extended by the Court on request of a party seeking to object. After the Effective Date, the Liquidating Trustee shall be the sole entity with standing to object to Claims (other than Claims of professionals for compensation and reimbursement of expenses). The Liquidating Trustee shall remain in existence for at least until such time as all Disputed Claims and other Claims not yet Allowed as of the Effective Date have become resolved by a Final Order. The Liquidating Trustee will vigorously prosecute objections to the Disputed Claim of Las Vegas Sands, Inc. (including by his intervention in the Sands Trademark Adversary Proceeding). IX. CONDITIONS TO CONFIRMATION OF PLAN A. Conditions to Confirmation. Except as expressly waived by the Debtors, Hollywood Casino Corporation, and HWCC, the following conditions must occur and/or be satisfied prior to Confirmation of the Plan: Page 61 1. The Sale shall have been consummated and the Sale Proceeds shall have been received by PPI. 2. The Debtors must have requested and obtained from the Bankruptcy Court a Claims Bar Date for the Claims against the Debtors (excluding Claims of governmental entities), and such Claims Bar Date shall have passed. 3. There shall be no Claims for cure of executory contracts or unexpired leases. 4. All Claims of HWCC shall be allowed under the Confirmation Order. 5. The Confirmation Order (and related findings of fact and conclusions of law) shall be in form and substance reasonably satisfactory to the Debtors, Hollywood Casino Corporation, and HWCC. 6. The documentation in the Plan Supplement shall be in form and substance reasonably satisfactory to the Debtors, Hollywood Casino Corporation, and HWCC. B. Waiver of Conditions. The Debtors, Hollywood Casino Corporation, and HWCC may waive any condition set forth above at any time, without notice, without leave of or order of the Court, and without any formal action other than proceeding to confirm the Plan. X. CONDITIONS TO EFFECTIVENESS OF THE PLAN A. Conditions to Effectiveness. Except as expressly waived by the Debtors, Hollywood Casino Corporation, and HWCC, the following conditions must occur and be satisfied on or before the Effective Date: 1. The Confirmation Order (and related findings of fact and conclusions of law) shall have been signed by the Court and duly entered on the docket for the Bankruptcy Case by the clerk of the Court, in form and substance reasonably acceptable to the Debtors, Hollywood Casino Corporation, and HWCC. 2. The Confirmation Order shall have become a Final Order. 3. The Sale shall have been consummated and the Stock Purchase Agreement shall not have been terminated and there shall be no fact, event, condition or circumstance that will impede or prevent the distribution of the Sale Proceeds as contemplated by the Plan on the Effective Date. Page 62 B. Waiver of Conditions. The Debtors, Hollywood Casino Corporation, and HWCC may waive any condition set forth above (except for Section A.2.) ------------ at any time, without notice, without leave of or order of the Court, and without any formal action other than proceeding to consummate the Plan. XI. FUTURE BUSINESS/WINDING UP OF ESTATES POST-EFFECTIVE DATE The Debtors will cease to exist after the Effective Date. The Liquidating Trustee will have all authority, vested in it by the Confirmation Order, to wind up the business of the Estates, including making Distributions pursuant to the Plan, prosecuting objections to Claims and possibly pursuing Avoidance Actions (if determined to be in the best interests of the Creditors), and filing all necessary reports to the Court and the United States Trustee. The name of the individual that will serve on and after the Effective Date as the Liquidating Trustee will be identified in a document to be filed with the Bankruptcy Court as part of the Plan Supplement. XII. RISKS AND FEASIBILITY The Sale Order has been entered, and the Sale closed on March 19, 2002. Thus, risks associated with the Purchaser needing regulatory approval from various jurisdictions to qualify to purchase the Common Stock of ACSC (previously described ) are now eliminated. XIII. ALTERNATIVES TO PLAN AND LIQUIDATION ANALYSIS There are three possible consequences if the Plan is rejected or if the Bankruptcy Court refuses to confirm the Plan: (a) the Bankruptcy Court could dismiss the Debtors' Chapter 11 bankruptcy cases, (b) the Debtors' Chapter 11 bankruptcy cases could be converted to liquidation cases under Chapter 7 of the Bankruptcy Code, or (c) the Bankruptcy Court could consider an alternative plan of reorganization proposed by some other party. A. Dismissal If the Debtors' bankruptcy cases were to be dismissed, the Debtors would no longer have the protection of the Bankruptcy Court and the applicable provisions of the Bankruptcy Code. B. Chapter 7 Liquidation If the Plan is not confirmed, it is likely that the Debtors' Chapter 11 cases will be converted to cases under Chapter 7 of the Bankruptcy Code, in which a trustee or trustees would be elected or appointed to liquidate the assets of the Debtors for distribution to creditors in accordance with the priorities established by the Bankruptcy Code. Whether a bankruptcy case is one under Chapter 7 or Chapter 11, secured creditors, Administrative Claims and Page 63 Priority Claims are entitled to be paid in cash and in full before unsecured creditors receive any funds. If the Debtors' Chapter 11 cases were converted to Chapter 7, the present Administrative Priority Claims may have a priority lower than priority claims generated by the Chapter 7 cases, such as the Chapter 7 trustee's fees or the fees of attorneys, accountants and other professionals engaged by the trustee. The Debtors believe that liquidation under Chapter 7 would result in far smaller distributions being made to Creditors than those provided for in the Plan. Conversion to Chapter 7 would give rise to (a) additional administrative expenses involved in the appointment of a trustee and attorneys and other professionals to assist such trustee; (b) additional expenses and Claims, some of which would be entitled to priority, which would be generated during the liquidation; and (c) a possible failure to close the sale of the ACSC Common Stock. (see discussion at Section V --------- hereinabove). In a Chapter 7 liquidation, it is very likely that general unsecured creditors, other than HWCC, would receive little or a greatly diminished recovery on their claims. This is because, in a Chapter 7 liquidation scenario, the HWCC Class 1 Claim against PPI Funding in the amount of approximately $49.2 million, in respect of the Hollywood Zero-Coupon Note from PPI Funding, would legally entitled HWCC to receive virtually all assets of these Estates. This is illustrated as follows: First, the administering of the PPI Funding Chapter 7 Estate: - ------------------------------------------------------------ As described in Section IV herein, HWCC has an approximately $49.2 million Claim ---------- against PPI Funding in respect of the Hollywood Zero-Coupon Note. HWCC is the only Creditor of PPI Funding (other than PPI, which has an approximately $15.5 million Claim against PPI Funding in respect of the Split-Off Zero-Coupon Note). Thus, in a hypothetical Chapter 7 of PPI Funding, a Chapter 7 Trustee would distribute to HWCC 76% of the PPI Funding assets and would distribute to PPI 24% of the PPI Funding assets. Note that the only assets of PPI Funding are the PCPI Funding Replacement Note to PPI Funding (on which approximately $66 million is owing) and the GBCC $16,265,000 Indebtedness to PPI Funding. The Chapter 7 Trustee would have to attempt to liquidate these two notes. The next step to do that would be to look to the Estate/Trustee of PCPI Funding. The Administering of the PCPI Funding Chapter 7 Estate: - ------------------------------------------------------ The PPI Funding Trustee would be the only Creditor of PCPI Funding (in respect of the PCPI Funding Replacement Note to PPI Funding) so he/she would be entitled to all of its assets of PCPI Funding (actually, PPI has a negligible Claim in the amount of $13,450 against PCPI Funding, so this analysis will assume, for the sake of argument, that the Chapter 7 Trustee of PPI Funding gets 99% of the assets of PCPI Funding and PPI gets 1% of the assets of PCPI Funding). Page 64 The only assets of PCPI Funding are two notes against GBCC (the GBCC $23,265,577 Promissory Note to PCPI Funding and the GBCC/Joplin DQ Promissory Note to PCPI Funding), having an aggregate amount owing on them of $50 million. Thus, the PPI Funding Trustee would be entitled to 99% of any recovery obtained on these two GBCC notes having an aggregate balance of over $50 million, with HWCC entitled to 76% of that 99% recovery and PPI entitled to 24% of that 99% recovery). Before analyzing the administering of the GBCC Chapter 7 Estate (where clearly the PPI Funding Trustee is going to be the largest creditor, by virtue of (a) the GBCC $16,265,000 Indebtedness to PPI Funding that he/she directly holds, plus (b) his entitlement to 99% of what the PCPI Funding Trustee recovers on the GBCC $23,265,577 Promissory Note to PCPI Funding and the GBCC/Joplin DQ Promissory Note to PCPI Funding, having an aggregate amount owing on them of $50 million), the administering of the PPI Chapter 7 estate should be analyzed. The Administering of the PPI Chapter 7 Estate: - --------------------------------------------- PPI actually has some assets of quantifiable value, namely, approximately $1.5 million of Cash and the ACSC Common Stock or if the sale to Bally closes, proceeds of an additional $14.6 million. The Chapter 7 Trustee of PPI has substantial value to liquidate. Assuming he/she sells the ACSC Common Stock, and otherwise liquidates the PPI assets, who is the PPI Chapter 7 Trustee going to distribute the consideration to? Who are the Creditors of PPI? As it turns out, PPI only has one known liability: a contingent liability in respect of the PPI Guarantee of the PCPI Funding Replacement Note to PPI Funding. Thus, the Chapter 7 Trustee of PPI Funding (who is only holding some questionably-collectible notes from GBCC and PCPI Funding) is most certainly going to "call" that guarantee and file a proof of claim on account of it. Thus, the Chapter 7 Trustee of the PPI Funding Estate will be the only creditor of PPI and entitled to all of the assets of the PPI Estate. Upon recovery of these assets, HWCC would be entitled to 76% of them and PPI (or actually, now, the PPI Chapter 7 Trustee) would be entitled to 24% of them. Obviously, there would be a "setoff" (or accounting adjustment) to deal with the circularity of the PPI Trustee being entitled to 24% of the recovery that the PPI Funding Trustee realizes out of the PPI Estate. The end result would be that HWCC would be entitled to all of the assets/recovery realized by the PPI Trustee. The Administering of the GBCC Chapter 7 Estate: - ---------------------------------------------- Last, in the hypothetical scenario of a Chapter 7 Case of GBCC, you would have virtually no assets (some Cash, possibly some prepaids or deposits). But who are the Creditors that would compete for those few assets? Lining up as Creditors would be: (i) the PPI Funding Chapter 7 Trustee (in respect of the GBCC $16,265,000 Indebtedness to PPI Funding, of which, at this point HWCC is the only beneficiary); Page 65 (ii) the PCPI Funding Chapter 7 Trustee (in respect of the GBCC $23,265,577 Promissory Note to PCPI Funding and the GBCC/Joplin DQ Promissory Note to PCPI Funding, having an aggregate amount owing on them of over $50 million --of which, at this point, the PPI Funding Chapter 7 Trustee, for the benefit of HWCC, is the only beneficiary; (iii) the PPI Trustee (in respect of the GBCC $2,200,000 Indebtedness to PPI, of which the PPI Funding Trustee, for the benefit of HWCC, is the beneficiary. (iv) any trade creditors of GBCC would share pro rata with the PPI Funding Trustee, in respect of the various Claims he would assert as set forth in (i), (ii) and (iii). XIV. CERTAIN MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN A. Introduction The following discussion summarizes certain material U.S. federal income tax consequences of the implementation of the Plan to the Debtors and Creditors, including the formation and operation of the Liquidating Trust. It is based on the Internal Revenue Code of 1986, as amended, Treasury regulations thereunder, judicial decisions, and published rulings and pronouncements of the IRS in effect on the date of this Disclosure Statement. Changes in those rules, or new interpretations of those rules, may have retroactive effect and could significantly affect the federal income tax consequences described below. The material federal income tax consequences of the Plan and the formation and operation of the Trust are complex and subject to uncertainties. Except as provided herein, the Debtors have not requested a ruling from the IRS or an opinion with respect to any of the tax aspects of the Plan. There is no assurance that the IRS will agree with this discussion of material federal income tax consequences. In addition, this summary does not address state, local or foreign tax consequences of the Plan, and it does not purport to address the federal income tax consequences of the Plan to special classes of taxpayers (such as foreign taxpayers, broker-dealers, banks, insurance companies, financial institutions, small business investment corporations, regulated investment companies, tax-exempt organizations, or investors in pass through entities). THE FOLLOWING SUMMARY OF CERTAIN MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT A SUBSTITUTE FOR CAREFUL TAX PLANNING AND ADVICE BASED ON THE INDIVIDUAL CIRCUMSTANCES PERTAINING TO A PARTICULAR CREDITOR. ALL CREDITORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS IN DETERMINING THE U.S. FEDERAL, STATE, LOCAL, AND OTHER TAX CONSEQUENCES TO THEM UNDER THE PLAN. Page 66 B. The Plan Pursuant to the Plan, the Debtors will engage in various steps including the sale of a business and the formation of a Liquidating Trust in order to reorganize prior to the distribution to the Creditors of Cash and beneficial interests in the Liquidating Trust with respect to their existing Claims. The steps have been ordered in such a manner as to minimize adverse tax consequences to the Debtors and other members of the GBCC consolidated group. Pursuant to order entered on March 6, 2002, prior to the Effective Date, PPI will sell all of the capital stock of ACSC in exchange for the Sale Proceeds. Then, on the Effective Date, PPI will contribute the Sale Proceeds and additional Cash that it has on hand to PPI Funding. PPI Funding will distribute the Sale Proceeds and additional Cash received from PPI to HWCC in full satisfaction of its claim against PPI Funding. Following this, all remaining members of the GBCC consolidated group will be simultaneously merged with and into GBCC with GBCC as the survivor. After all of these steps are taken, GBCC will fund a Liquidating Trust (which as described in Article 6.3 of the Plan, will hold various assets (such assets, the ----------- "Liquidating Trust Assets")) established for the benefit of its Creditors. C. Treatment of the Debtors Upon the transfer of the Sale Proceeds and other Cash by PPI Funding to HWCC, PPI Funding will realize cancellation of indebtedness income ("COD income") in an amount equal to the difference between (i) the adjusted issue price of its outstanding note held by HWCC and the accrued interest from which PPI Funding is discharged and (ii) the amount of Sale Proceeds and other Cash transferred by PPI Funding in respect of the note. Because PPI Funding is in bankruptcy, this COD income will not be included in its gross income. Following the merger of GBCC consolidated group members into GBCC, all Intercompany Claims will be deemed discharged. It is believed that these Intercompany Claims will be deemed to be satisfied for their stated principal amount (including accrued interest) immediately before the merger. Thus, COD income will not result to any of the Debtors as a result of the merger. As a result of the creation of the Liquidating Trust for the benefit of Creditors with other Claims against GBCC, GBCC will realize COD income in an amount equal to the difference between (i) the adjusted issue price of its outstanding notes held by the Creditors and the accrued interest from which GBCC is discharged and (ii) the fair market value of Liquidating Trust Assets transferred by GBCC in respect of the notes. Because GBCC is in bankruptcy, this COD income will not be included in its gross income. In general, the Internal Revenue Code provides that a debtor in a bankruptcy case must reduce certain of its tax attributes, including net operating loss carryforwards ("NOLs"), tax credits, and tax basis in its assets, by any COD income excluded from the debtor's gross income. Thus, to the extent that the Debtors realize COD income pursuant to the Plan, they will be required to reduce certain of their tax attributes by an amount equal to the amount of Page 67 COD income. Although the Debtors should have sufficient NOLs to offset income and gains resulting from the dispositions of properties, the Debtors may incur an alternative minimum tax equal to twenty percent (20%) of the amount of such income and gains. However, provided that the Debtors have sufficient alternative minimum tax NOLs, the alternative minimum tax rate will be reduced to an effective rate of two percent (2%). D. Treatment of the Liquidating Trust The Liquidating Trust will be established for the purpose of satisfying Claims by Liquidating Trust Assets transferred to it by the Debtors, and distributing the Cash. The Trust shall have no objective of continuing or engaging in any trade or business except to the extent reasonably necessary to, and consistent with, the liquidating purpose of the Liquidating Trust. It is intended that the Liquidating Trust be classified for federal income tax purposes as a "liquidating trust" within the meaning of section 301.7701-4(d) of the Treasury Regulations. The Liquidating Trust shall terminate on the earlier of (i) the date that is two years after the Effective Date or (ii) on distribution of all Liquidating Trust Assets in accordance with the Plan. During its existence, the Liquidating Trust shall not receive or retain Cash or cash equivalents in excess of a reasonable amount necessary to meet claims and contingent liabilities (including disputed claims) or to maintain the value of its assets during liquidation. The Liquidating Trustee shall use its continuing best efforts to dispose of the Liquidating Trust Assets, make timely Distributions, and not to unduly prolong the duration of the Liquidating Trust. The Liquidating Trust is expected to be taxable as a grantor trust within the meaning of Internal Revenue Code section 671, et seq. Thus, it will be treated as owned by the holders of Claims against the Debtors. Each owner of an interest in the Trust (a "Creditor-beneficiary") will therefore be considered for federal income tax purposes to own an undivided interest in the underlying assets of the Trust. In general, to the extent the Liquidating Trust is taxed as a grantor trust, the income of the Liquidating Trust will be taxed directly to its Creditor-beneficiaries. In computing the taxable income of each Creditor-beneficiary, there must be included those items of the Liquidating Trust's income, deductions, and credits that are attributable to the portion of the Liquidating Trust that is treated as owned by the Creditor-beneficiary. The Liquidating Trustee shall file returns for the Liquidating Trust as a grantor trust pursuant to Treasury Regulations section 1.671-4(a). The Creditor-beneficiaries shall be responsible for payment of any taxes due with respect to the operations of the Liquidating Trust. The Liquidating Trust may hold Liquidating Trust Assets for Creditor-beneficiaries who remain unidentified after the Effective Date (e.g., distributions to such Creditor-beneficiaries are returned as undeliverable). While there is no authority governing the treatment of such Creditor-beneficiaries, or their effect, if any, on the qualification of the Liquidating Trust as a grantor trust, the Liquidating Trust intends to pay tax on income and gain allocable to such Page 68 Creditor-beneficiaries at the highest rate applicable to trusts (for federal income tax purposes, currently, 39.6%), to the extent that income, gain, deduction, loss and credit (and each separate item thereof) recognized by the Liquidating Trust cannot be allocated to such Creditor-beneficiaries. E. Treatment of the Creditors 1. Generally. Each Creditor will recognize gain or loss in --------- respect of holding notes, in an amount equal to the difference between (i) the sum of the amount of (A) Sale Proceeds, (B) other Cash, and/or (C) the fair market value of Liquidating Trust Assets it is treated as receiving (other than the amounts, if any, treated as interest) in exchange for the notes (or other evidences of indebtedness) it holds and (ii) the adjusted tax basis of the notes (or other evidences of indebtedness) in the hands of the Creditor. The character of any income or loss realized by the Creditor as capital gain or loss and, in the case of capital gain or loss, as short-term or long-term, will depend on a number of factors, including (i) the tax status of the Creditor, (ii) whether the notes (or other evidences of indebtedness) are capital assets in the hands of the Creditor as of the Effective Date, and (iii) the length of time that the Creditor has held the notes (or other evidences of indebtedness). 2. Receipt of Interest. Each creditor will recognize ordinary -------------------- income to the extent it receives cash or property properly allocable to interest that has not already been included by the Creditor in income for federal income tax purposes under its method of accounting. In the event that the cash and other property properly allocable to interest is less than the amount previously included as interest on the notes (or other evidences of indebtedness) in the Creditor's federal income tax return, the discharged portion of interest may be deducted in the taxable year in which the Effective Date occurs. Whether, and the extent to which, consideration distributed under the Plan is properly allocable to interest is uncertain; each Creditor should therefore consult its own tax advisor concerning that subject. 3. Backup Withholding. Under the Code, interest, dividends and ------------------ other "reportable payments" received by a Creditor may, under certain circumstances, be subject to "backup withholding" at a 30% rate. Withholding generally applies if the payee (i) fails to furnish his social security number or other taxpayer identification number ("TIN"); (ii) furnishes an incorrect TIN; (iii) fails to properly report interest or dividends; or (iv) under certain circumstances, fails to provide a certified statement, signed under penalty of perjury, that the TIN provided is its correct number and that it is not subject to backup withholding. Page 69 XV. MISCELLANEOUS PROVISIONS As specified in section 1125(e) of the Bankruptcy Code, Persons that solicit acceptances or rejections of the Plan and/or that participate in the offer, issuance, sale, or purchase of securities offered or sold under the Plan, in good faith and in compliance with the applicable provisions of the Bankruptcy Code, are not liable, on account of such solicitation or participation, for violation of any applicable law, rule, or regulation governing the solicitation of acceptances or rejections of the Plan or the offer, issuance, sale, or purchase of securities. XVI. CONCLUSION This Disclosure Statement has attempted to provide information regarding the Debtors' estates and the potential benefits that might accrue to holders of Claims against and Interests in the Debtors under the Plan as proposed. The Plan is the result of extensive efforts by the Debtors, their advisors, and management to provide the creditors with a meaningful dividend. The Debtors believe that the Plan is feasible and will provide each holder of a Claim against the Debtors with an opportunity to receive greater benefits than those that would be received by termination of the Debtors' business and the liquidation of their assets, or by any alternative plan or sale of the business to a third party. The Debtors, therefore, hereby urge you to vote in favor of the Plan. Whether or not you expect to attend the Confirmation Hearing, which is scheduled for May 2, 2002, at 9:30 a.m. Eastern Daylight Time, you must sign, date, and ----------- mail your ballot as soon as possible for the purpose of having your vote count at such hearing. All votes must be returned to Stacey Jernigan, Esquire, Haynes and Boone, L.L.P., 901 Main Street, Suite 3100, Dallas, Texas 75202-3714, as indicated on the Ballot, on or before 4:00 p.m. Eastern Daylight Time on April 22, 2002. Any ballot which is illegible or which fails to designate an acceptance or rejection of the Plan will not be counted as a vote. Page 70 Dated as of March 20, 2002 GREATE BAY CASINO CORPORATION Debtor and Debtor-In-Possession ____________________________________ By: John C. Hull Its: Chief Executive Officer PPI CORPORATION Debtor and Debtor-In-Possession ____________________________________ By: John C. Hull Its: Vice President PCPI FUNDING CORP. Debtor and Debtor-In-Possession ____________________________________ By: John C. Hull Its: Vice President PPI FUNDING CORP. Debtor and Debtor-In-Possession ____________________________________ By: John C. Hull Its: Vice President Page 71 Counsel to the Debtors: - ---------------------- Robert D. Albergotti, Esquire Stacey Jernigan, Esquire Ian T. Peck, Esquire HAYNES AND BOONE, L.L.P. 901 Main Street, Suite 3100 Dallas, Texas 75201-3714 Telephone: (214) 651-5000 Steven K. Kortanek, Esquire KLEHR, HARRISON, HARVEY, BRANZBURG & ELLERS LLP 919 Market Street, Suite 1000 Wilmington, Delaware 19801-3062 Telephone: (302) 426-1189 Page 72 UNITED STATES BANKRUPTCY COURT DISTRICT OF DELAWARE In re: Chapter 11 Greate Bay Casino Corporation, Case Nos.01-11729(PJW) through PPI Corporation, 01-11732 (PJW) PCPI Funding Corp., and PPI Funding Corp. Jointly Administered Under Case No. 01- 11729 (PJW) Debtors. re: docket #14 ORDER APPROVING THE SALE OF ALL OF THE ISSUED AND OUTSTANDING SHARES OF STOCK OF ADVANCED CASINO SYSTEMS CORPORATION TO ACSC ACQUISITION, INC., FREE AND CLEAR OF ALL LIENS, CLAIMS, INTERESTS AND ENCUMBRANCES, AND ASSUMPTION OF STOCK PURCHASE AGREEMENT, AS AMENDED, UNDER SECTIONS 105,363(f) AND 365 OF THE BANKRUPTCY CODE -------------------------------------------------------- On this day came on for consideration the continued hearing on the Debtors' Motion for Order Authorizing Private Sale of the Common Stock of Wholly Owned Non-Debtor Subsidiary, Advanced Casino Systems Corporation, Free And Clear Of Liens, Claims, And Encumbrances, Pursuant To 11 U.S.C. (S)363(f) And F.R.B.P. 6004 And for Authority to Assume Stock Purchase Agreement Relating Thereto Pursuant To 11 U.S.C. (S)365 (the "Sale Motion") filed by Greate Bay Casino Corporation ("GBCC"), PPI Corporation ("PPI"), PCPI Funding Corp. ("PCPI Funding") and PPI Funding Corp. ("PPI Funding"), the four above-referenced Debtors-in-Possession (collectively, the "Debtors")./1/ After reviewing the Sale Motion, the Stock Purchase Agreement, as amended,/2/ and - --------------------------- 1 Capitalized terms used in this Sale Approval Order without definition shall have the meaning assigned to them in the Stock Purchase Agreement annexed to the Sale Motion. 2 The Stock Purchase Agreement, which was annexed to the Sale Motion, was amended by that certain Amendment No. 1 to Stock Purchase Agreement, dated as of February 4, 2002, which was annexed to that certain Order Continuing Hearing on Debtors' Sale Motion and Approving(i) Break-Up Fee, Overbid Protections, and Certain Other Bid Procedures in Connection with Proposed Sale of Common Stock of Non-Debtor Subsidiary, Advanced Casino Systems Corporation, and (ii) Form and Manner of Notice Related to Sale, which Order was entered February 5, 2002, and is further described herein. References herein to the Stock Purchase Agreement, as amended, refer to this Amendment No. 1 to the Stock Purchase 1 the Exhibits thereto, the objections to the Sale Motion and responses thereto, the files and records of this case, as well as the testimony offered at the January 31, 2002 and March 6, 2002 hearings on the Sale Motion ("Sale Hearings"), and the arguments of counsel; and after due deliberation and sufficient cause appearing therefor, IT IS HEREBY FOUND, CONCLUDED AND DETERMINED THAT: A. The findings and conclusions set forth herein constitute this Court's findings of fact and conclusions of law pursuant to Bankruptcy Rule 7052, which is made applicable to this proceeding pursuant to Bankruptcy Rule 9014. To the extent that any finding of fact shall later be determined to be a conclusion of law it shall be so deemed and vice versa. B. This Court has jurisdiction to hear and determine the Sale Motion pursuant to 28 U.S.C. (S)(S) 157 and 1334. C. This is a core proceeding pursuant to 28 U.S.C. (S)(S) 157(b)(2)(A), (N) and (0). D. Venue of this cue in this district is proper pursuant to 28 U.S.C. (S) 1408 and venue of this proceeding is proper pursuant to 28 U.S.C. (S) 1409(a). E. The statutory predicates for the relief requested herein are Sections 105(a), 363 and 365 of the Bankruptcy Code and Bankruptcy Rules 2002, 6004, 6006 and 9019. F. Notice of the Sale Motion, the Sale Hearings and the sale of the Shares has been given by the Debtors to all parties in interest and creditors in these cases, including all persons and entities having a claim, lien or interest in or relating to the Shares in accordance with Bankruptcy Rule 6004(c), and as otherwise described in the Sale Motion. Such notice of the Sale Motion, the Sale Hearings and the sale of the Shares constitutes proper, timely, adequate and sufficient notice to all creditors and parties in interest, in accordance with all applicable law, including without limitation Section 102(l) of the Bankruptcy Code and Bankruptcy Rules 2002, 2 6004, 6006 and 9019 and the orders of this Court. No other or further notice of the Sale Motion, the Sale Hearings, the sale of the Shares or the entry of this Sale Approval Order is required. G. A reasonable opportunity to object and to be heard regarding the relief requested in the Sale Motion has been afforded to all interested persons and entities including, but not limited to, the Office of the United States Trustee, HWCC-Holdings, Inc. ("HWCC"), Las Vegas Sands, Inc. ("LVSI"), each party in interest that has requested notice pursuant to Federal Rule of Bankruptcy Procedure 2002, Buyer, and all parties known to have asserted a lien, claim or interest in or against the Shares. H. On December 28, 2001 (the "Petition Date"), each of the Debtors filed its voluntary petition for relief under Chapter 11 of the Bankruptcy Code. Since the Petition Date, the Debtors have continued to operate their businesses and manage their assets as debtors-in-possession pursuant to Sections 1107 and 1108 of the Bankruptcy Code. No trustee, examiner or committee has been appointed in the Debtors' Chapter 11 cases. I. GBCC is a publicly held company, incorporated in Delaware, whose stock is traded on the over-the-counter bulletin board. GBCC is the ultimate parent of the other Debtors. PPI is a wholly owned direct subsidiary of GBCC, and PCPI Funding and PPI Funding are each 100% directly owned by PPI. None of the Debtors are operating companies, although they do have substantial indebtedness. J. The Debtors believe that there is only one significant creditor affected by these cases. That creditor is HWCC, a wholly owned subsidiary of Hollywood Casino Corporation, which asserts it is owed approximately $60 million (in the aggregate) by two of the Debtors. Prior to January 1, 1997, Hollywood Casino Corporation was the 80% parent of the Debtor GBCC. 3 K. Other than the claims of HWCC, the Debtors believe that there are only a few small trade claims (all under $5,000) against GBCC and possibly some small tax claims that exist against these Debtors. L. LVSI, a party whose predecessor entered into a trademark license agreement with GBCC on May 19, 1987, asserts that it is an unsecured creditor of GBCC, holding a claim with a present value of approximately $2 million. LVSI objected to the Sale Motion. M. The United States Trustee also objected to the Sale Motion. N. In years prior to the Petition Date, GBCC and its present and former subsidiaries conducted three primary areas of business activities: (i) hotel ownership and management; (ii) management services for casino operations; and (iii) ownership and operation of the Sands Hotel and Casino in Atlantic City, New Jersey. As a result of previous bankruptcies of certain of GBCC's subsidiaries, GBCC's current business activity consists solely of the operation of Advanced Casino Systems Corporation ("ACSC"), its indirect wholly owned subsidiary. ACSC is the wholly owned direct subsidiary of the Debtor, PPI, ACSC provides information technology systems for various casinos throughout North America and is the sole remaining revenue-producing entity in the GBCC family. The Debtors believe that ACSC is solvent, and ACSC is not a debtor in these proceedings. 0. As alluded to above, all of the stock of ACSC (the "Shares") is owned by PPI, and, with the exception of some cash that PPI has on hand, the Shares are the only asset of the Debtors' estates with material value. P. The Debtors' uncontroverted testimony was that they filed these cases with the goal of maximizing value for their creditors and interest holders through a transaction to sell the 4 Shares and then distributing the sale proceeds and other remaining assets to the Debtors' creditors and winding down the business affairs of the Debtors. Q. Simultaneously with the filing of the four Debtors' voluntary petitions under Chapter 11, the Debtors filed a "Debtors' Joint Chapter 11 Plan Dated December 28, 2001" (the "Plan") which contemplates the distribution of the sale proceeds realized from a sale of the Shares to HWCC. The Plan has been pre-negotiated with HWCC. The Debtors' Plan proposes that the miscellaneous vendor and tax claims in these cases (none of which the Debtors expect to exceed $15,000 in amount) will be paid in cash in full (from other available cash of the Debtors) on the effective date of the Plan or, if applicable, as soon as any such claim becomes allowed by the Court. R. The Debtors testified that, prepetition, and in the face of the Debtors' insolvency, and in conjunction with the Debtors' efforts to find the optimal way to maximize value for their creditors and shareholders, the Debtors, for several months, undertook an extensive process to evaluate strategic alternatives. The strategic alternatives that were evaluated included, among other things, a possible sale of ACSC to a strategic or financial buyer or an outright liquidation of the Debtors and conveyance of the assets (including the Shares) directly to the Debtors' creditor(s). The Debtors determined, in the exercise of their business judgment and based upon advice from financial advisors, that a sale of the Shares to an interested party would likely provide the fairest and best available opportunity to maximize value to constituents. S. Accordingly, the Debtors and ACSC, with the assistance of CIBC World Markets, Inc. ("CIBC"), and in consultation with Hollywood Casino Corporation, actively sought out prospective purchasers for ACSC for most of the year 2000 and conducted a prepetition auction for the sale of the Shares. CIBC and the Debtors identified various parties who might be 5 prepared to bid for the Shares, and made due diligence materials available to such prospective bidders. As a result of these marketing efforts, and after discussions with various parties who expressed interest in bidding on ACSC and the Shares (and after discussions with one other party who actually submitted a bid), the Debtors and Bally's Gaming, Inc. ("Bally's") began in-depth discussions concerning a possible sale of ACSC to Bally's. These negotiations intensified in September 2001 and entailed good faith, arms' length negotiations that occurred over the next several weeks. T. On December 19, 2001, the discussions with Bally's culminated into an agreement by GBCC, PPI and ACSC to sell the Shares to ACSC Acquisitions, Inc., a Nevada corporation and wholly owned subsidiary of Bally's (the "Buyer"). The Stock Purchase Agreement by and among Buyer, ACSC, PPI and GBCC, dated as of December 19, 200l was attached to the Sale Motion. The Debtors provided testimony at the January 31, 2002 Sale Hearing that they, in consultation with CIBC, believe that (1) Buyer submitted the highest and best offer for the purchase of the Shares under the Stock Purchase Agreement, (2) the Purchase Price under the Stock Purchase Agreement is fair and reasonable, and (3) a higher and better price for the Shares was not likely to be obtained by further sale efforts. U. In connection with the Stock Purchase Agreement, and in light of the Debtors' financial condition and level of indebtedness, the Debtors and Buyer agreed that Buyer's acquisition of the Shares would be implemented pursuant to Chapter 11 filings by each of the Debtors and, specifically, through a motion filed pursuant to Sections 363 and 365 of the Bankruptcy Code seeking Bankruptcy Court approval for the sale of the Shares and, relatedly, approval for GBCC's and PPI's assumption of the Stock Purchase Agreement. 6 V. At the January 31, 2002 Sale Hearing, after hearing the evidence and arguments of counsel, the Court determined that a further postpetition marketing effort with regard to the Shares was warranted. Accordingly, the Court, at the January 31, 2002 Sale Hearing, considered the Debtors' Alternative Motion for Order Approving: (i) Break-Up Fee, Overbid Protections, and Certain Other Bid Procedures in Connection with Proposed Sale of Common Stock of Advanced Casino Systems Corporation; and (ii) Form and Manner of Notice Related to Sale (and Brief in Support) (the "Alternative Bid Procedures Motion") that had been filed and set for hearing simultaneously with the Sale Motion. W. The Court subsequently entered its Order Continuing Hearing on Debtors' Sale Motion and Approving (i) Break-Up Fee, Overbid Protections, and Certain Other Bid Procedures in Connection with Proposed Sale of Common Stock of Non-Debtor Subsidiary, Advanced Casino Systems Corporation, and (ii) Form and Manner of Notice Related to Sale (the "Bid Procedures Order") on February 5, 2002. X. The Bid Procedures Order continued the hearing on the Sale Motion to March 6, 2002 at 3:00 p.m. and established certain bidding procedures for the Shares and bid protections for the Buyer (including a break-up fee and expense reimbursement), to ensure that there was an exhaustive marketing process with regard to the Shares. Y. Among other things, the Bid Procedures Order required: (I) that, within 72 hours of the entry of the Bid Procedures Order, the Debtors should send a notice of the Bid Procedures Order and an opportunity to submit competing bids to "[at least 20 financial investors who are generally recognized as having the capability to consummate a transaction of this magnitude, every publicly traded corporation registered with or reporting to the Nevada Gaming Commission, every licensed casino operator in Atlantic City, New Jersey, every major company 7 licensed as a manufacturer of gaming devices in Nevada and New Jersey, and any persons given to the Debtors by LVSI"; (2) that the Debtors should cause a notice of the opportunity to submit competing bids for the Shares to be published "as soon as practicable in local newspapers in Atlantic City and Las Vegas"; (3) that March 1, 2002, at 11:00 a.m. Eastern Standard Time would be the deadline for any competing bids; (4) that any competing bids should (a) be submitted on a form substantially similar to the Stock Purchase Agreement; (b) be all cash, (c) not be subject to due diligence, financing, or regulatory approval; and (d) provide aggregate consideration having a value at least equal to $15,150,001; and (5) an auction should occur on March 5, 2002 at 11:00 a.m. E.S.T., at the offices of Klehr, Harrison, Harvey, Branzburg & Ellers, LLP, 919 Market Street, Suite 1000, Wilmington, DE 19801, if there were competing bids submitted for the Shares. Z. LVSI was timely provided by Debtors' counsel copies of the service lists that were prepared by the Debtors in order to comply with the notice requirements of the Bid Procedures Order and LVSI did not supply to the Debtors the names of any additional persons that it believed should be provided notice of the opportunity to submit competing bids for the Shares. AA. The Bid Procedures Order provided that the Court would reconvene the hearing on the Sale Motion on March 6, 2002, at 3:00 p.m. E.S.T., and would incorporate at such hearing the record of the evidence presented at the January 31, 2002 Sale Hearing and take additional evidence relating to any competing bids and auction as appropriate, and, if no competing bids were received by the Debtors and no auction occurred, then the Court would enter an order approving the sale of the Shares to the Buyer under the Stock Purchase Agreement, as amended. 8 BB. The uncontroverted evidence at the March 6, 2002 Sale Hearing established that the Debtors complied with the terms of the Bid Procedures Order, and, among other things served notice of the opportunity to submit competing bids for the Shares to approximately 160 additional entities, and published notice of the opportunity to bid on the Shares in the Press of Atlantic City and the Las Vegas Review Journal, and that there were no competing bids submitted for the Shares by March 1, 2002, in accordance with the Bid Procedures Order, and thus, no auction for the Shares on March 5, 2002. CC. The Debtors have presented credible and uncontroverted evidence that their collective prepetition and postpetition marketing efforts, advertising and solicitations conducted in connection with the sale of the Shares (and specifically, the Debtors' compliance with the procedures set forth in the February 5, 2002 Bid Procedures Order) were adequate and reasonable to obtain the highest and best offer for the sale of the Shares. A reasonable opportunity to object and to be heard regarding the relief requested in the Sale Motion has been afforded to all interested persons and entities including, but not limited to, the Office of the United States Trustee, HWCC, LVSI, each party in interest that has requested notice pursuant to Federal Rule of Bankruptcy Procedure 2002, Buyer, and all parties known to have asserted a lien, claim or interest in or against the Shares. DD. Consummation of the sale of the Shares under the Stock Purchase Agreement, as amended, is in the best interests of each of the Debtors, their respective creditors and their respective estates. The sale of the Shares under the Stock Purchase Agreement, as amended, is in contemplation of a chapter 11 plan and is thus a transfer pursuant to Section 1146(c) of the Bankruptcy Code, and shall not be taxed under any law imposing a stamp tax or a sale, transfer or any other similar tax. 9 EE. The Stock Purchase Agreement, as amended, was negotiated at arm's length, was proposed in good faith, and represents the highest and best offer for the sale of the Shares. The Purchase Price is fair and reasonable and consltitutes fair consideration and reasonably equivalent value under the Bankruptcy Code and applicable state law. Buyer has demonstrated adequately its financial wherewithal to pay the Purchase Price and its commitment to promptly close the transactions contemplated by the Stock Purchase Agreement, as amended. The Debtors' largest creditor, HWCC, which asserts claims of approximately $60 million, supports the sale to Buyer under the Stock Purchase Agreement, as amended. FF. It is in the best interest of the Debtors, their respective creditors and their respective estates that this Court enter this Sale Approval Order authorizing, under Sections 105(a), 363 and 365 of the Bankruptcy Code: (1) the Seller to assume the Stock Purchase Agreement, as amended, under Section 365 of the Bankruptcy Code; and (2) the Seller to complete the sale of the Shares to Buyer, under Section 363 of the Bankruptcy Code, subject to the terms and conditions of the Stock Purchase Agreement, as amended, free and clear of (a) all mortgages, security interests, conditional sale or other title retention agreements, pledges, liens, judgments, demands, encumbrances, interests, rights of others, easements, restrictions or charges of any kind or nature, if any, including, without limitation, any tax liens or judgments or liens or judgments of any other governmental authorities or any restrictions upon the use, voting, transfer, receipt of income or other exercise of any attributes of ownership (the foregoing collectively referred to herein as "Liens"); and (b) all debts arising in any way in connection with any acts or omissions of the Seller or any of the other Debtors, claims (as that term is defined in Section l0l(5) of the Bankruptcy Code) against the Seller or any of the other Debtors arising upon or prior to the Closing Date and obligations, demands, guaranties, options, rights, contractual 10 commitments, restrictions, interests and matters of or against the Seller or any of the other Debtors of any kind and nature, whether arising prior to or subsequent to the commencement of these cases, whether matured or unmatured, whether liquidated or unliquidated, whether known or unknown and whether imposed by agreement, understanding, law, equity or otherwise, including, without limitation, any tax claims, charges, penalties or other assessments by governmental authorities and claims of the kind specified in Sections 502(g), 502(h) and 502(i) of the Bankruptcy Code (the foregoing collectively referred to as "Claims"). GG. Upon the entry of this Sale Approval Order: (1) the sale of the Shares to Buyer shall be deemed to have been duly and validly authorized by all necessary corporate action of the Seller; (2) the Seller shall have all the corporate power and authority necessary to consummate the transactions contemplated by the Stock Purchase Agreement, as amended, and to execute and deliver all documents and perform all acts contemplated by the Stock Purchase Agreement, as amended, to complete the transactions thereunder; (3) other than those consents expressly provided for in the Stock Purchase Agreement, as amended, no consents, approvals or orders (including any order otherwise required under applicable state law) are required for the Seller to consummate the transactions contemplated by the Stock Purchase Agreement, as amended; and (4) no further order or approval by this Court shall be required. HH. The sale of the Shares as contemplated by the Stock Purchase Agreement, as amended, and this Sale Approval Order: (1) is, or will be, a legal, valid and effective transfer of property of the Seller's estate to Buyer; and (2) vests, or will vest, Buyer with all right, title and interest of the Seller in and to the Shares free and clear of all Liens and Claims. II. The Stock Purchase Agreement, as amended, has been proposed by Buyer and the Debtors in good faith in accordance with the standards of applicable law, including in re Abbotts 11 Dairies of Pennsylvania, Inc., 788 F.2d 143 (3d Cir. 1986). Buyer is not affiliated with any of the Debtors. There are no promises, arrangements or commitments other than those set forth in the Stock Purchase Agreement, as amended, the Exhibits, and the other pleadings or documents submitted to the Court in connection with the proposed sale. Buyer has acted in "good faith" and is a "good faith purchaser" within the meaning of Section 363(m) of the Bankruptcy Code and, as such, is entitled to the protections afforded thereby. No party has engaged in any conduct that would cause or permit the Stock Purchase Agreement, as amended, to be avoided under Section 363(n) of the Bankruptcy Code. JJ. In the absence of a stay of this Sale Approval Order by a court of competent jurisdiction, the Seller and Buyer will both be acting in good faith within the meaning of Section 363(m) of the Bankruptcy Code in consummating the transactions contemplated by the Stock Purchase Agreement, as amended, at any time after the entry of this Sale Approval Order. KK. All of the provisions of this Sale Order are nonseverable and mutually dependent. NOW, THEREFORE, IT IS HEREBY ORDERED, ADJUDGED AND DECREED THAT: 1. The Sale Motion is granted. 2. Any objections to the Sale Motion or the relief requested therein which have not been withdrawn, waived or settled, and all reservations of rights included therein, are overruled on the merits. 3. The assumption of the Stock Purchase Agreement, as amended, by Seller and Greate Bay is hereby approved under Section 365 of the Bankruptcy Code, and the terms and conditions of the sale of the Shares pursuant to the Stock Purchase Agreement, as amended, are hereby approved in all respects. Pursuant to the provisions of Sections 105(a) and 363 (including 12 Section 363(f)) of the Bankruptcy Code, the Seller is hereby authorized to sell the Shares to Buyer (and consummate the transactions related thereto) as provided in, and subject to the terms and conditions of, the Stock Purchase Agreement, as amended, free and clear of all Liens and Claims. No further consent, approval or order, including any separate authorization of any state court contemplated by applicable state law, is required for such sale and transfer. 4. By the issuance of this Sale Approval Order, the Seller is authorized to execute and deliver, and empowered fully to perform under, consummate and implement, the Stock Purchase Agreement, as amended, in accordance with the terms thereof, together with all additional instruments and documents that may be reasonably necessary or desirable to implement the Stock Purchase Agreement, as amended, and to take all further actions that may be reasonably necessary or desirable for the purpose of assigning, transferring, granting, conveying and conferring to Buyer, or reducing to Buyer's possession, the Shares, or as otherwise may be necessary or appropriate to the performance of the obligations contemplated by the Stock Purchase Agreement, as amended. Greate Bay is directed to cause the Seller to sell and transfer the Shares to Buyer in accordance with the Stock Purchase Agreement, as amended. 5. Pursuant to Sections 105(a) and 363(f) of the Bankruptcy Code and subject to the terms and conditions of the Stock Purchase Agreement, as amended, the Shares shall be transferred to Buyer upon the Closing Date and shall be free and clear of all Liens and Claims. Upon the Closing Date, all such Liens and Claims shall be released, terminated and discharged as to the Shares and, to the extent not satisfied at Closing, shall attach to the proceeds of the sale of the Shares (the "Proceeds") in the order of their priority, with the same validity, force and effect, if any, which they now have as against the Shares. Notwithstanding the foregoing, the Debtors may pay, and shall pay to the extent required under the Stock Purchase Agreement, as amended. 13 or any other order of this Court, out of the Proceeds (i) any Break-Up Fee due and owing, which, if payable, shall be the first funds paid from the Proceeds, and (ii) all ordinary and necessary direct costs of closing the sale of the Shares. 6. On and after the Closing Date under the Stock Purchase Agreement, as amended, all persons and entities holding Liens and Claims of any kind and nature against any of the Debtors or with respect to the Shares are hereby barred and enjoined from asserting such Liens and Claims against the Shares, Buyer, its successors, assigns, affiliates, shareholders, members, officers, directors or trustees; provided that nothing herein shall limit, or shall be deemed to limit, any rights or remedies of the Debtors with respect to any breach of, or default under, the Stock Purchase Agreement, as amended, by Buyer. 7. Upon the Closing Date, all Liens on or Claims against the Shares shall, without the necessity of further action on the part of any creditor be deemed released and discharged. Upon the Closing Date, the creditors of each of the Debtors are authorized and directed to execute such documents and take all other actions as may be reasonably necessary to document and effect the release of their Liens on or Claims against the Shares, if any, as such Liens and Claims may have been recorded or may otherwise exist. 8. This Sale Approval Order: (a) is and shall be effective as a determination that, upon the Closing Date, all Liens on or Claims against the Shares before the Closing have been unconditionally released, discharged and terminated, and that the conveyances described herein have been effected; and (b) is and shall be binding upon and govern the acts of all entities, including, without limitation, all filing agents, filing officers, title agents, title companies, recorders of mortgages, recorders of deeds, registrars of deeds, administrative agencies, governmental departments, secretaries of state, federal, state and local officials and all other 14 persons and entities who may be required by operation of law, the duties of their office or contract to accept, file, register or other otherwise record or release any documents or instruments related to, or who may be required to report or insure any title or state of title in or to, any of the Shares. 9. Each and every federal, state and local governmental agency or department hereby is directed to accept any and all documents and instruments necessary and appropriate to consummate the transactions contemplated by the Stock Purchase Agreement, as amended. 10. If any person or entity that has filed financing statements or other documents or agreements evidencing Liens on or interests in the Shares shall not have delivered to the Debtors prior to the Closing Date, in proper form for filing and executed by the appropriate parties, appropriate Uniform Commercial Code releases, instruments of satisfaction, or releases of all Liens which the person or entity has with respect to the Shares, the Debtors are hereby authorized from and after the Closing Date to execute and file such statements, instruments, releases and other documents on behalf of the person or entity only with respect to releasing Liens on the Shares or any other assets or properties of the Debtors (any such unauthorized filings being null and void). 11. Except as otherwise expressly provided in the Stock Purchase Agreement, as amended, or as otherwise specifically provided in this Sale Approval Order, Buyer shall have no liability or responsibility for any liability or other obligation of the Debtors arising under or related to the Shares. Without limiting the generality and effect of the foregoing, the sale of the Shares will not subject Buyer to any liability for claims against any Debtor or the Shares by reason of such transfer under the laws of the United States, any state, territory or possession thereof or the District of Columbia applicable to such transactions. Buyer shall not be deemed, 15 as a result of any action taken in connection with the Stock Purchase Agreement, as amended, to: (a) be the successor of any of the Debtors or of any operation of the Debtors; (b) have, de facto or otherwise, merged with or into any of the Debtors; (c) be a mere continuation or substantial continuation of any of the Debtors or of the enterprise of any or all of the Debtors; or (d) be responsible for any liability of any of the Debtors or for payment of any benefit accruing to any of the Debtors, all except to the extent specifically and explicitly provided for in the Stock Purchase Agreement, as amended. 12. This Court retains jurisdiction: (a) to enforce and implement the terms and provisions of the Stock Purchase Agreement, all amendments thereto, any waivers and consents thereunder, and each of the agreements executed in connection therewith; (b) to compel delivery of the Shares to Buyer under the terms and conditions of the Stock Purchase Agreement, as amended; (c) to resolve any disputes arising under or related to the Stock Purchase Agreement, as amended; (d) to hear and determine any disputes relative to Liens on or Claims against the Shares; and (e) to interpret, implement and enforce the provisions of this Sale Approval Order, specifically including, without limitation, all provisions related to Liens and Claims. 13. Buyer has acted in "good faith" and is a purchaser of the Shares in good faith as determined in accordance with applicable law, including, without limitation, Section 363(m) of the Bankruptcy Code and In re Abbotts Dairies of Pennsylvania, Inc., 788 F.2d 143 (3d Cir. 1986), and is entitled to all of the protections afforded by Section 363(m) of the Bankruptcy Code. 14. In the absence of a stay by a court of competent jurisdiction, if Buyer closes under the Stock Purchase Agreement, as amended, at any time after entry of this Sale Approval Order, then, with respect to the Stock Purchase Agreement, as amended, Buyer shall be entitled to all of 16 the protections of Section 363(m) of the Bankruptcy Code should this Sale Approval Order or an authorization contained herein be reversed or modified on appeal. 15. For good cause shown, the provisions of Bankruptcy Rule 6004(g) are hereby waived and the stay provided therein lifted, and this Sale Approval Order shall be effective and enforceable immediately upon entry. 16. The sale and transfer of the Shares to Buyer under the Stock Purchase Agreement, as amended, is a transfer pursuant to Section 1146(c) of the Bankruptcy Code and, accordingly, shall not be subject to taxation under any state or local law imposing a stamp, transfer or similar tax. 17. The terms and provisions of the Stock Purchase Agreement, as amended, together with the terms and provisions of this Sale Approval Order, shall be binding in all respects upon, and shall inure to the benefit of, each of the Debtors, its estate and its creditors, Buyer, and their respective affiliates, successors and assigns, and any affected third parties and persons asserting a claim against or interest in any Debtor's estate or any of the Shares, notwithstanding any subsequent appointment of any trustee for a Debtor under any chapter of the Bankruptcy Code, as to which trustee such terms and provisions likewise shall be binding in all respects. 18. The failure specifically to include any particular provisions of the Stock Purchase Agreement, as amended, or any of the documents, agreements or instruments executed in connection therewith in this Sale Approval Order shall not diminish or impair the efficacy of such provision, document, agreement or instrument, it being the intent of this Court that the Stock Purchase Agreement, as amended, and each such document, agreement or instrument be authorized and approved in its entirety. 17 19. The Stock Purchase Agreement, as amended, and any related agreements, documents or other instruments may be modified, amended or supplemented by the parties thereto in accordance with the terms thereof without further order of this Court, provided that any such modification, amendment or supplement is not material. As used herein, the term "Stock Purchase Agreement" shall refer to such agreement as so modified. 20. The provisions of this Sale Approval Order shall be self executing and each and every federal, state or local agency, department or governmental authority with regulatory authority over bulk sales are hereby directed to accept this Sale Approval Order as binding authority to consummate the transaction contemplated in the Stock Purchase Agreement, as amended. Dated: Wilmington, Delaware March 6, 2002 /s/ Peter J. Walsh ------------------------------- UNITED STATES BANKRUPTCY JUDGE 18 Exhibit C --------- Corporate Organizational Structure (as of Petition Date) --------------- Public* --------------- 100% -------------------------------------- Greate Bay Casino Corporation (f/k/a Pratt Hotel Corporation) -------------------------------------- 100% ----------------------------- PPI Corporation ----------------------------- 100% 100% 100% - ------------------------ ------------------------ ------------------------ PCPI Funding Corp. PPI Funding Corp. Advanced Casino Systems Corporation** - ------------------------ ------------------------ ------------------------ *GBCC is a publicly held company whose shares of common stock are traded on the OTC-BB and approximately 36.26% of such common stock is held by members of the Pratt family of Dallas, Texas (either directly or through family trusts). **The stock of this entity was sold March 19, 2002, pursuant to order entered March 6, 2002 in this case. Exhibit D --------- Corporate Organizational Structure (Past) [GRAPH] *GBCC is a publicly held company whose shares of common stock are traded on the OTC-BB and approximately 36.26% of such common stock is held by members of the Pratt family of Dallas, Texas (either directly or through family trusts). -----END PRIVACY-ENHANCED MESSAGE-----