-----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, PzX49vBGOHw0wMduO940wNSr40VHETW8w3ET2tRDwZfaCeD29zxDi2xHHqHvhKAz XHHteMjo6A9PES98Ado/Kw== 0001005477-00-004076.txt : 20000516 0001005477-00-004076.hdr.sgml : 20000516 ACCESSION NUMBER: 0001005477-00-004076 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GB PROPERTY FUNDING CORP CENTRAL INDEX KEY: 0000912906 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 752502290 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 033-69716 FILM NUMBER: 635229 BUSINESS ADDRESS: STREET 1: C/O SANDS HOTEL & CASINO STREET 2: INDIANA AVE & BRIGHTON PARK 9TH FLOOR CITY: ATLANTIC CITY STATE: NJ ZIP: 08401 BUSINESS PHONE: 609-441-07 MAIL ADDRESS: STREET 1: C/O SANDS HOTEL & CASINO STREET 2: INDIANA AVE & BRIGHTON PARK 9TH FLOOR CITY: ATLANTIC CITY STATE: NJ ZIP: 08401 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GREATE BAY HOTEL & CASINO INC CENTRAL INDEX KEY: 0000906595 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 222242014 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 033-69716-02 FILM NUMBER: 635230 BUSINESS ADDRESS: STREET 1: TWO GALLERIA TOWER SUITE 2200 13455 NOEL CITY: DALLAS STATE: TX ZIP: 75240 BUSINESS PHONE: 2143869777 MAIL ADDRESS: STREET 1: TWO GALLERIA TOWER SUITE 2200 STREET 2: 13455 NOEL ROAD CITY: DALLAS STATE: TX ZIP: 75240 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GB HOLDINGS INC CENTRAL INDEX KEY: 0000912926 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 752502293 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 033-69716-01 FILM NUMBER: 635231 BUSINESS ADDRESS: STREET 1: TWO GALLERIA TOWER 13455 NOEL ROAD STREET 2: STE 2200 CITY: DALLAS STATE: TX ZIP: 75240 BUSINESS PHONE: 2143869777 MAIL ADDRESS: STREET 1: TWO GALLERIA TOWER SUITE 2200 STREET 2: 13455 NOEL ROAD CITY: DALLAS STATE: TX ZIP: 75240 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. FORM 10-Q (Mark One) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2000 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 33-69716 GB PROPERTY FUNDING CORP. GB HOLDINGS, INC. GREATE BAY HOTEL AND CASINO, INC. - -------------------------------------------------------------------------------- (Exact name of each Registrant as specified in its charter) DELAWARE 75-2502290 DELAWARE 75-2502293 NEW JERSEY 22-2242014 - ------------------------------------ ----------------------------------- (States or other jurisdictions of (I.R.S. Employer incorporation or organization) Identification No.'s) c/o Sands Hotel & Casino Indiana Avenue & Brighton Park Atlantic City, New Jersey 08401 - ---------------------------------------- ------------------------------------ (Address of principal executive offices) (Zip Code) (Registrants' telephone number, including area code): (609) 441-4517 (Not Applicable) (Former name, former address, and former fiscal year, if changed since last report.) Indicate by check mark whether each of the Registrants (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 Registrants were required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the last practicable date. Outstanding at Registrant Class May 10, 2000 - --------------------------------- ----------------------------- -------------- GB Property Funding Corp. Common stock, $1.00 par value 1,000 shares GB Holdings, Inc. Common stock, $1.00 par value 1,000 shares Greate Bay Hotel and Casino, Inc. Common stock, no par value 100 shares 1 PART I: FINANCIAL INFORMATION Introductory Notes to Financial Statements The registered securities consist of 10 7/8% First Mortgage Notes (the "First Mortgage Notes") in the original principal amount of $185,000,000 due January 15, 2004 issued by GB Property Funding Corp. ("GB Property Funding"). GB Property Funding's obligations are unconditionally guaranteed by GB Holdings, Inc. ("Holdings"), a Delaware corporation with principal executive offices at 136 South Kentucky Avenue, Atlantic City, New Jersey 08401, and by Greate Bay Hotel and Casino, Inc. ("GBHC"), a New Jersey corporation and a wholly owned subsidiary of Holdings with principal executive offices at 136 South Kentucky Avenue, Atlantic City, New Jersey 08401. GB Property Funding is wholly owned by Holdings. Holdings was a wholly owned subsidiary of Pratt Casino Corporation ("PCC") through December 31, 1998. PCC in turn was a wholly owned subsidiary of PPI Corporation ("PPI"), which is wholly owned by Greate Bay Casino Corporation ("GBCC"). Effective after December 31, 1998, PCC transferred 21% of its stock ownership in Holdings to PBV, Inc. ("PBV"), a newly formed entity, controlled by certain stockholders of GBCC. GBCC's common stock is listed on the OTC Bulletin Board Service under the trading symbol "GEAAQ". As a result of a certain confirmed plan of reorganization of PCC and others in October 1999, the remaining 79% stock interest of PCC in Holdings was transferred to Greate Bay Holdings, LLC, whose sole member as a result of the same reorganization is PPI ("GBLLC"). GB Property Funding was organized in September 1993 as a special purpose subsidiary of Holdings for the purpose of borrowing funds through the issuance of the First Mortgage Notes for the benefit of GBHC. GBHC owns the Sands Hotel and Casino located in Atlantic City, New Jersey (the "Sands"). Substantially all of Holdings' assets and operations relate to the Sands. On January 5, 1998, Holdings, GB Property Funding and GBHC (collectively, the "Debtors") filed petitions for relief under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the District of New Jersey (the "Bankruptcy Court"). The prior Boards of Directors resigned on January 2, 1998 and new Boards of Directors were elected at that time. Each of the Debtor companies continues to operate in the ordinary course of business as set forth in the Bankruptcy Code. Each company's executive officers and directors as of the date of the filing remain in office, subject to the jurisdiction of the Bankruptcy Court, other than the following: as required by the Settlement Agreement as defined below, Richard Knight resigned as a Director, President, and Chief Executive Officer of the Debtors effective July 8, 1998; John P. Belisle was elected President and Chief Executive Officer of GBHC on July 28, 1998; and Jerome T. Smith was elected as a Director of the Debtors on August 3, 1998. On November 1, 1999, John P. Belisle resigned as President and Chief Executive Officer of GBHC. On November 5, 1999, Alfred J. Luciani was elected President and Chief Executive Officer of GBHC. On November 11, 1999, Jerome T. Smith, the independent member of the Boards of Directors of the Debtors, and one of the two independent members of the Audit Committee of Holdings, citing a newly arisen potential conflict of interest, resigned. Effective September 2, 1998, GBHC acquired the membership interests in Lieber Check Cashing LLC ("Lieber"), a New Jersey limited liability company that owns a land parcel adjacent to GBHC (the "Lieber Parcel"). GBHC acquired and caused an option agreement on other adjacent land parcels (the "Option Parcels") to be assigned to Lieber (the "Option Agreement"). On September 20, 1999, the closing took place under the Option Agreement and Lieber, whose sole member is GBHC, obtained title to the Option Parcels one of which 2 was subject to a lease (the "Lease") and a sub-lease for the operation of a "Gold Store" (the "Sub-lease"). The Lieber Parcel and the Option Parcels provide GBHC with an expansion opportunity and frontage on Pacific Avenue, the principal street running parallel and closest to the Boardwalk in Atlantic City, New Jersey. The demolition of the existing structures on the parcels was completed and construction of a new front entrance to the Sands' facility has commenced. GBHC obtained the rights under the Lease on March 27, 2000 for $371,000 and on the same date notified the operator of the Gold Store that GBHC had elected to exercise a 90-day cancellation provision of the Sub-lease and tendered to the sub-lessee a cancellation payment of approximately $30,000. GBHC intends to demolish the Gold Store upon expiration of the notice period and incorporate the land as part of its new front entrance. GBHC also entered into an agreement with the entities controlling the Claridge Hotel and Casino (the "Claridge"), subject to Bankruptcy Court approval, to acquire the Claridge Administration Building ("CAB"), which is situated between GBHC's existing main entrance and the new Pacific Avenue entrance presently under construction. GBHC intends to demolish the CAB and incorporate the land as part of the new front entrance. The purchase price was $3.5 million, consisting of $1.5 million in cash at closing with the remaining $2.0 million consideration tendered through the elimination for 40 months of a $50,000 monthly license fee paid by the Claridge to GBHC, under an agreement between the Claridge and GBHC governing the development and operation of the "People Mover" leading from the Boardwalk to the Sands and Claridge (the "PM Agreement"). GBHC and the Claridge also sought Bankruptcy Court approval of the assumption of the PM Agreement as modified. Additionally, after the elimination of the monthly license fee for the 40 months, the license fee will be reduced to $20,000 a month thereafter. On April 5, 2000, the Bankruptcy Court approved the acquisition of the CAB for the purposes described and approved the joint assumption of the PM Agreement as modified. On April 17, 2000, the closing took place on the CAB. On January 11, 1999, the exclusivity period during which only the Debtors could file a plan of reorganization expired and, as a result, any party in interest could file a plan of reorganization. On June 1, 1999, the Debtors filed with the Bankruptcy Court a plan of reorganization and disclosure statement, ultimately filing a third modified plan of reorganization (the "Plan") and third modified disclosure statement. On October 4, 1999, the Bankruptcy Court approved the adequacy of the disclosure statement and a confirmation hearing on the Plan was scheduled for December 17, 1999 (the "Confirmation Hearing"). On November 3, 1999, the Debtors received notice from Merrill Lynch Asset Management ("MLAM") that MLAM and Park Place Entertainment Corporation ("PPE") had reached agreement on a term sheet under which PPE would sponsor a plan of reorganization of GBHC (the "Term Sheet"). MLAM represented that it and PPE controlled approximately 53% of the First Mortgage Notes. MLAM requested that the Debtors agree to seek to adjourn the Confirmation Hearing, and accept a revised Plan incorporating the provisions of the Term Sheet. The Debtors agreed to seek the adjournment. On November 9, 1999, the Bankruptcy Court granted the adjournment and set December 1, 1999 as a status conference for a report by the Debtors on the status of their due diligence and evaluation of the provisions of the Term Sheet. Following the December 1, 1999 status conference, the Bankruptcy Court set December 22, 1999 as a final status conference for the Debtors to report on their due diligence and evaluation of the Term Sheet. Entities controlled by Carl Icahn ("Icahn") submitted a competing bid for a Plan of Reorganization of the Debtors prior to the December 22, 1999 status conference. The Bankruptcy Court decided at the status conference that PPE and Icahn should submit competing Plans of Reorganization and Supplemental Disclosure Statements with the Debtors submitting a Master Disclosure Statement by January 18, 2000, and that the Bankruptcy Court would conduct a hearing on February 16, 2000 to consider the adequacy of the Disclosure Statements. Icahn filed a joint Plan with the Official Committee of Unsecured Creditors (the "Committee") on January 18, 2000, and PPE also filed a Plan on the same date. The Bankruptcy Court conducted a hearing on the adequacy of the Disclosure Statements on February 16, 2000. The Bankruptcy Court directed Icahn and the Committee and PPE to file amended Plans and Supplemental Disclosure Statements with their final economic offers to the creditors by March 6, 2000, and scheduled a further adequacy hearing for March 23, 2000. 3 At that hearing, the Bankruptcy Court directed Icahn and the Committee and PPE to make certain revisions to their amended Plans and Supplemental Disclosure Statements and file them on March 31, 2000 and scheduled April 5, 2000 as a hearing date for the Bankruptcy Court to determine if any further changes to the Supplemental Disclosure Statements would be directed to be made by the Bankruptcy Court. At the hearing on April 5, 2000, the Bankruptcy Court approved the Debtors' Master Disclosure Statement, approved the Supplemental Disclosure Statements of Icahn and the Committee and of PPE subject to their making certain revisions, and established June 5, 2000 as the deadline for the creditors to deliver their votes for or against the Plans and June 19, 2000 as the beginning of the confirmation hearing. Subsequently, the Bankruptcy Court adjourned the confirmation hearing to June 20, 2000. A plan requires confirmation by the Bankruptcy Court and approval by the New Jersey Casino Control Commission (the "Casino Commission"). There can be no assurance at this time that a Plan will be confirmed by the Bankruptcy Court and approved by the Casino Commission. In the event a plan is confirmed, continuation of the business thereafter is dependent on GBHC's ability to achieve successful future operations. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that may be necessary should GBHC be unable to continue as a going concern. Although management has not made a determination whether an impairment of the carrying value currently exists, future adjustments to the carrying amount of GBHC's assets may be required with respect to the fresh-start reporting which would take place on the effective date of the confirmation of a Plan. Historically, the Sands' gaming operations have been highly seasonal in nature with the peak activity occurring from May to September. Consequently, the results of operations for the three months ended March 31, 2000 are not necessarily indicative of the operating results to be reported for the full year. The financial statements of GB Property Funding and the consolidated financial statements of Holdings as of March 31, 2000 and for the three months ended March 1, 2000 and 1999 have been prepared without audit pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, their respective financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly their respective financial positions as of March 31, 2000, and their respective results of operations and cash flows for the three-month periods ended March 31, 2000 and 1999. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These financial statements should be read in conjunction with the financial statements and notes thereto included in GB Property Funding's, Holdings' and GBHC's 1999 Annual Report on Form 10-K. 4 GB PROPERTY FUNDING CORP. (Debtor-in-Possession, wholly owned by GB Holdings, Inc.) BALANCE SHEETS (Unaudited) ASSETS March 31, December 31, 2000 1999 ------------ ------------ Current Asset: Cash $ 1,000 $ 1,000 Interest receivable from affiliate 9,373,000 9,373,000 Note receivable from affiliate 181,977,000 181,980,000 ------------ ------------ $191,351,000 $191,354,000 ============ ============ LIABILITIES AND SHAREHOLDER'S EQUITY Liabilities Subject to Compromise: Accrued interest payable $ 9,373,000 $ 9,373,000 Long-term debt 181,977,000 181,980,000 ------------ ------------ 191,350,000 191,353,000 Commitments and Contingencies Shareholder's Equity: Common stock, $1.00 par value per share, 1,000 shares authorized and outstanding 1,000 1,000 ------------ ------------ $191,351,000 $191,354,000 ============ ============ The accompanying introductory notes and notes to financial statements are an integral part of these financial statements. 5 GB PROPERTY FUNDING CORP. (Debtor-in-Possession, wholly owned by GB Holdings, Inc.) STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended March 31, -------------------------- 2000 1999 ----------- ----------- Revenues: Interest income (Note 2) $ -- $ -- Expenses: Interest expense (contractual interest of $4,948,000 and $4,955,000, respectively, for the three months ended March 31, 2000 and 1999). -- -- ----------- ----------- Net income $ -- $ -- =========== =========== The accompanying introductory notes and notes to financial statements are an integral part of these financial statements. 6 GB PROPERTY FUNDING CORP. (Debtor-in-Possession, wholly owned by GB Holdings, Inc.) STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended March 31, --------------------- 2000 1999 --------- --------- OPERATING ACTIVITIES: Net income $ -- $ -- Adjustments to reconcile net income to net cash provided by operating activities: Increase in interest receivable from affiliate -- -- Increase in accrued interest payable -- -- --------- --------- Net cash provided by operating activities -- -- Cash at beginning of period 1,000 1,000 --------- --------- Cash at end of period $ 1,000 $ 1,000 ========= ========= The accompanying introductory notes and notes to financial statements are an integral part of these financial statements. 7 GB PROPERTY FUNDING CORP. (Debtor-in-Possession, wholly owned by GB Holdings, Inc.) NOTES TO FINANCIAL STATEMENTS (Unaudited) (1) Organization and Operations GB Property Funding Corp. ("GB Property Funding"), a Delaware corporation, was incorporated in September 1993. GB Property Funding is a wholly owned subsidiary of GB Holdings, Inc. ("Holdings"), a Delaware corporation. Holdings was a wholly owned subsidiary of Pratt Casino Corporation ("PCC"), also a Delaware corporation, through December 31, 1998. Effective after December 31, 1998, PCC transferred 21% of the stock ownership of Holdings to PBV, Inc. ("PBV"), a newly formed entity, controlled by certain stockholders of Greate Bay Casino Corporation ("GBCC"). PCC was incorporated in September 1993 and was a wholly owned subsidiary of PPI Corporation ("PPI"), a New Jersey corporation and a wholly owned subsidiary of GBCC. As a result of a certain confirmed plan of reorganization of PCC and others in October 1999, the remaining 79% stock interest of PCC in Holdings was transferred to Greate Bay Holdings, LLC ("GBLLC"), whose sole member as a result of the same reorganization is PPI. Holdings was incorporated in September 1993 and, on February 17, 1994, acquired, through a capital contribution by its then parent, all of the outstanding capital stock of Greate Bay Hotel and Casino, Inc. ("GBHC"), which owns the Sands Hotel and Casino in Atlantic City, New Jersey (the "Sands"). GB Property Funding was formed for the purpose of borrowing $185,000,000 of First Mortgage Notes (the "First Mortgage Notes") for the benefit of GBHC; such debt was issued in February 1994 bearing interest at the rate of 10 7/8% per annum. All of the proceeds were loaned to GBHC (see Note 2). GB Property Funding has no operations and is dependent on the repayment of its note from GBHC for servicing its debt obligations (see Note 2). Administrative services for GB Property Funding are provided by GBHC at no charge. The cost of such services is not significant. The operation of an Atlantic City casino/hotel is subject to significant regulatory control. Under provisions of the Casino Act, GBHC is required to maintain a non-transferable license to operate a casino in Atlantic City. The accompanying financial statements have been prepared in accordance with Statement of Position No. 90-7, "Financial Reporting By Entities in Reorganization Under the Bankruptcy Code," and include disclosure of liabilities subject to compromise. On January 5, 1998, GB Property Funding, GBHC and Holdings (collectively, the "Debtors") filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the District of New Jersey (the "Bankruptcy Court"). Each company continues to operate in the ordinary course of business as set forth in the Bankruptcy Code. On June 1, 1999, the Debtors filed with the Bankruptcy Court a plan of reorganization and disclosure statement, ultimately filing a third modified plan of reorganization (the "Plan") and third modified disclosure statement. On October 4, 1999, the Bankruptcy Court approved the adequacy of the Disclosure Statement and a confirmation hearing on the Plan was scheduled for December 17, 1999 (the "Confirmation Hearing"). On November 3, 1999, the Debtors received notice from Merrill Lynch Asset Management ("MLAM") that MLAM and Park Place Entertainment Corporation ("PPE") had reached agreement on a term sheet under 8 GB PROPERTY FUNDING CORP. (Debtor-in-Possession, wholly owned by GB Holdings, Inc.) NOTES TO FINANCIAL STATEMENTS (Continued) (Unaudited) which PPE would sponsor a plan of reorganization of GBHC (the "Term Sheet"). MLAM represented that it and PPE controlled approximately 53% of the First Mortgage Notes. MLAM requested that the Debtors agree to seek to adjourn the Confirmation Hearing, and accept a revised Plan incorporating the provisions of the Term Sheet. The Debtors agreed to seek the adjournment. On November 9, 1999, the Bankruptcy Court granted the adjournment and set December 1, 1999 as a status conference for a report by the Debtors on the status of their due diligence and evaluation of the provisions of the Term Sheet. Following the December 1, 1999 status conference, the Bankruptcy Court set December 22, 1999 as a final status conference for the Debtors to report on their due diligence and evaluation of the Term Sheet. Entities controlled by Carl Icahn ("Icahn") submitted a competing bid for a Plan of Reorganization of the Debtors prior to the December 22, 1999 status conference. The Bankruptcy court decided at the status conference that PPE and Icahn should submit competing Plans of Reorganization and Supplemental Disclosure Statements with the Debtors submitting a Master Disclosure Statement by January 18, 2000, and that the Bankruptcy Court would conduct a hearing on February 16, 2000 to consider the adequacy of the Disclosure Statements. Icahn filed a joint Plan with the Official Committee of Unsecured Creditors (the "Committee") on January 18, 2000, and PPE also filed a Plan on the same date. The Bankruptcy Court conducted a hearing on the adequacy of the Disclosure Statements on February 16, 2000. The Bankruptcy Court directed Icahn and the Committee and PPE to file amended Plans and Supplemental Disclosure Statements with their final economic offers to the creditors by March 6, 2000, and scheduled a further adequacy hearing for March 23, 2000. At that hearing, the Bankruptcy Court directed Icahn and the Committee and PPE to make certain revisions to their amended Plans and Supplemental Disclosure Statements and file them on March 31, 2000, and scheduled April 5, 2000 as a hearing date for the Bankruptcy Court to determine if any further changes to the Supplemental Disclosure Statements would be directed to be made by the Bankruptcy Court. At the hearing on April 5, 2000, the Bankruptcy Court approved the Debtors' Master Disclosure Statement, approved the Supplemental Disclosure Statements of Icahn and the Committee and of PPE subject to their making certain revisions, and established June 5, 2000 as the deadline for creditors to deliver their votes for or against the Plans and June 19, 2000 as the beginning of the confirmation hearing. Subsequently, the Bankruptcy Court adjourned the confirmation hearing to June 20, 2000. A plan of reorganization requires confirmation by the Bankruptcy Court and approval by the New Jersey Casino Control Commission (the "Casino Commission"). There can be no assurance at this time that any plan of reorganization will be confirmed by the Bankruptcy Court or approved by the Casino Commission. In the event a plan of reorganization is confirmed, continuation of the business thereafter is dependent on GBHC's ability to achieve successful future operations. The accompanying financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classifications of liabilities that might be necessary should GB Property Funding be unable to continue as a going concern. As discussed above, GB Property Funding was formed for the purpose of issuing the First Mortgage Notes for the benefit of GBHC. GB Property Funding loaned the proceeds from the First Mortgage Notes to GBHC and, at March 31, 2000 has a note receivable, together with interest accrued through January 5,1998 due from GBHC totaling $191,350,000. GB Property Funding has no operations and the note receivable and the accrued interest receivable represents virtually all of GB Property Fundings' assets. As discussed above, on January 5, 1998, the Debtors filed petitions for relief under Chapter 11 of the Bankruptcy Code. As a result of the Chapter 11 filings, the First Mortgage Notes and related accrued interest payable have been classified as liabilities subject to compromise in the accompanying balance sheets. To the extent that any proceeds are 9 GB PROPERTY FUNDING CORP. (Debtor-in-Possession, wholly owned by GB Holdings, Inc.) NOTES TO FINANCIAL STATEMENTS (Continued) (Unaudited) ultimately realized from GBHC as a result of the resolution of the bankruptcy proceedings, such amounts would be offered in full satisfaction of the First Mortgage Notes. No provision for any loss relating to the uncollectibility of these receivables has been reflected in the accompanying financial statements. New Jersey Management, Inc. ("NJMI"), also a wholly owned subsidiary of PCC, was responsible for the operations of the Sands under a management agreement dated August 19, 1987, as amended, with GBHC (the "Management Agreement"). On May 22, 1998, GBHC filed a motion with the Bankruptcy Court to reject the Management Agreement (the "Rejection Motion"). GBCC, NJMI, and certain of their affiliates, on one side, and the Debtors, on the other, entered into an agreement on June 27, 1998, which was approved by the Bankruptcy Court on July 7, 1998, and by the Casino Commission on July 8, 1998 (the "Settlement Agreement"). Under the Settlement Agreement, among other things, the Management Agreement was suspended and replaced with a services agreement until a decision by the Bankruptcy Court on the Rejection Motion, and GBHC ceded ownership rights to an affiliate of GBCC in, and obtained a perpetual license from the same affiliate for, the software used in its operations. On September 28, 1998, and as a result of the Second Settlement Agreement, as defined below, the Bankruptcy Court granted the Rejection Motion and, in conformity therewith, no further fees will be paid under either the Management Agreement or the Settlement Agreement. Effective September 2, 1998, GBHC acquired the membership interests in Lieber Check Cashing LLC ("Lieber"), a New Jersey limited liability company which owns a land parcel adjacent to GBHC (the "Lieber Parcel") and GBHC acquired and caused an option agreement on other adjacent land parcels (the "Option Parcels") to be assigned to Lieber (the "Option Agreement"). The Lieber Parcel and the Option Parcels provided GBHC with an expansion opportunity and frontage on Pacific Avenue, the principal street running parallel and closest to the boardwalk in Atlantic City, New Jersey. On September 20, 1999, closing took place under the Option Agreement and Lieber, whose sole member is GBHC, obtained title to the Option Parcels. The demolition of the existing structures on the parcels was completed and construction of a new front entrance to the Sands' facility has commenced with completion expected in June 2000. On July 27, 1998, GBHC filed an adversary proceeding in the Bankruptcy Court against GBCC, certain of its affiliates, and certain of the former directors of GBHC (collectively the "Defendants") seeking to recover the Lieber Parcel and the Option Agreement for the Option Parcels and to restrain the use of its Net Operating Losses (the "NOL's"). Effective September 2, 1998, the Debtors, on one side, and the Defendants, on the other, reached an agreement resolving, among other things, the adversary proceeding (the "Second Settlement Agreement"). Under the Second Settlement Agreement, among other things, the Debtors agreed to be included in the consolidated federal income tax return of GBCC for the years ended December 31, 1997 and 1998. GBCC agreed to allow the Debtors to become deconsolidated from the GBCC group for federal income tax purposes by causing PCC to transfer 21% of the stock ownership interest of PCC in Holdings to a person other than any member of the GBCC group by December 31, 1998. In accordance with the Second Settlement Agreement and in order to effect the deconsolidation of the Debtors from the GBCC group, effective after December 31, 1998, PCC transferred 21% of the stock ownership in Holdings to PBV. The Second Settlement Agreement also resulted in the non-cash settlement of certain outstanding intercompany transactions, the transfer of the membership interests in Lieber to GBHC, and the assignment of the Option Agreement for the Option Parcels to Lieber. 10 GB PROPERTY FUNDING CORP. (Debtor-in-Possession, wholly owned by GB Holdings, Inc.) NOTES TO FINANCIAL STATEMENTS (Continued) (Unaudited) The preparation of financial statements in conformity with generally accepted accounting principles 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. The financial statements as of March 31, 2000 and for the three-month periods ended March 31, 2000 and 1999 have been prepared by GB Property Funding without audit. In the opinion of management, these financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position of GB Property Funding as of March 31, 2000, and the results of its operations and cash flows for the three-month periods ended March 31, 2000 and 1999. (2) Long-Term Debt On February 17, 1994, GB Property Funding issued the First Mortgage Notes due January 15, 2004. Interest on the First Mortgage Notes accrued at the rate of 10 7/8% per annum, payable semiannually. Interest only was payable during the first three years. Thereafter, semiannual principal payments of $2,500,000 were due on each interest payment date with the balance due at maturity. Such semiannual payments could be made in cash or by tendering First Mortgage Notes previously purchased or otherwise acquired by GB Property Funding. GB Property Funding acquired $2,500,000 face mount of First Mortgage Notes that were used to make the July 15, 1997 required principal payment. As a result of the filing under Chapter 11, the debt service payments due subsequent to January 5, 1998 were not made. The accrual of interest on the First Mortgage Notes for periods subsequent to the filing has been suspended. The indenture for the First Mortgage Notes (the "Indenture") contains various provisions which, among other things, restrict the ability of certain subsidiaries of GBCC to pay dividends to GBCC, to merge, to consolidate, to sell substantially all of their assets or to incur additional indebtedness beyond certain limitations. In addition, the Indenture requires the maintenance of certain cash balances and requires minimum expenditures, as defined in the Indenture, for property and fixture renewals, replacements and betterments at the Sands. Under an order of the Bankruptcy Court, permitting the disposition of furniture and equipment in the ordinary course of business, any payments received by GBHC for the sale of such assets, which are part of the security for the First Mortgage Notes, must be remitted to the Indenture Trustee for the First Mortgage Notes (the "Indenture Trustee") as reductions to the outstanding principal of the First Mortgage Notes. Proceeds from the sale of such assets amounting to $3,000 and $257,000 for the three months ended March 31, 2000 and the year ended December 31, 1999, respectively, were remitted to the Indenture Trustee. No interest was paid or received with respect to the First Mortgage Notes and the loan to GBHC during the three-month periods ended March 31, 2000 and 1999. Interest receivable and payable with respect to the notes of $9,373,000 are included on the accompanying balance sheets in non-current assets and liabilities subject to compromise, respectively, as such payments are subject to terms of a reorganization plan which requires confirmation by the Bankruptcy Court. 11 GB PROPERTY FUNDING CORP. (Debtor-in-Possession, wholly owned by GB Holdings, Inc.) NOTES TO FINANCIAL STATEMENTS (Continued) (Unaudited) (3) Income Taxes Prior to 1997, GB Property Funding was included in the consolidated federal income tax return of Hollywood Casino Corporation ("HCC"), the parent company of GBCC until HCC distributed the GBCC stock it owned to the shareholders of HCC as a dividend on December 31, 1996. As part of the Second Settlement Agreement, GB Property Funding was included in GBCC's consolidated federal income tax return through the year ended December 31, 1998, and GBCC agreed to allow the Debtors to become deconsolidated from the GBCC group after that date. In accordance therewith, effective after December 31, 1998, PCC transferred 21% of its stock ownership in Holdings to PBV, effecting the deconsolidation of GB Property Funding from the GBCC group. As a result, for tax years ending after 1998, GB Property Funding will file its federal income tax return on a consolidated basis with Holdings and GBHC. GB Property Funding made no federal or state income tax payments during the three-month periods ended March 31, 2000 and 1999. The Debtors are dependent upon receipt of information from HCC and GBCC as to the operations of their affiliates and the impact of those operations on the former HCC and GBCC consolidated tax returns. (4) Legal Proceedings On January 5, 1998, the Debtors filed petitions for relief under Chapter 11 of the Bankruptcy code in the Bankruptcy Court (see Note 1). 12 GB HOLDINGS, INC. AND SUBSIDIARIES (Debtors-in-Possession) CONSOLIDATED BALANCE SHEETS (Unaudited) ASSETS
March 31, December 31, 2000 1999 ------------- ------------- Current Assets: Cash and cash equivalents $ 25,506,000 $ 20,897,000 Accounts receivable, net of allowances of $10,949,000 and $11,413,000, respectively 8,079,000 9,864,000 Inventories 3,000,000 3,784,000 Due from affiliates 16,000 236,000 Deferred income taxes 3,478,000 3,478,000 Prepaid expenses and other current assets 1,681,000 2,266,000 ------------- ------------- Total current assets 41,760,000 40,525,000 ------------- ------------- Property and Equipment: Land 51,233,000 50,777,000 Buildings and improvements 185,508,000 185,508,000 Operating equipment 109,965,000 108,260,000 Construction in progress 3,509,000 2,295,000 ------------- ------------- 350,215,000 346,840,000 Less - accumulated depreciation and amortization (192,456,000) (189,805,000) ------------- ------------- Net property and equipment 157,759,000 157,035,000 ------------- ------------- Other Assets: Obligatory investments, net of allowances of $9,357,000 and $9,122,000, respectively 8,660,000 8,386,000 Other assets 2,406,000 2,470,000 ------------- ------------- Total other assets 11,066,000 10,856,000 ------------- ------------- $ 210,585,000 $ 208,416,000 ============= =============
The accompanying introductory notes and notes to consolidated financial statements are an integral part of these consolidated financial statements. 13 GB HOLDINGS, INC. AND SUBSIDIARIES (Debtors-in-Possession) CONSOLIDATED BALANCE SHEETS (Unaudited) LIABILITIES AND SHAREHOLDER'S DEFICIT
March 31, December 31, 2000 1999 ------------- ------------- Current Liabilities Not Subject to Compromise: Current maturities of long-term debt $ 81,000 $ 79,000 Accounts payable 5,292,000 4,849,000 Accrued liabilities - Salaries and wages 4,258,000 3,458,000 Reorganization costs 1,803,000 1,843,000 Insurance 1,966,000 1,872,000 Other 6,536,000 5,879,000 Due to affiliates 990,000 1,099,000 Other current liabilities 3,946,000 4,322,000 ------------- ------------- Total current liabilities 24,872,000 23,401,000 ------------- ------------- Liabilities Subject to Compromise (Note 3) 216,582,000 217,028,000 ------------- ------------- Long-Term Debt 818,000 839,000 ------------- ------------- Deferred Taxes and Other Noncurrent Liabilities 6,770,000 6,741,000 ------------- ------------- Commitments and Contingencies Shareholder's Deficit: Common stock, $1.00 par value per share; 1,000 shares authorized and outstanding 1,000 1,000 Additional paid-in capital 27,946,000 27,946,000 Accumulated deficit (66,404,000) (67,540,000) ------------- ------------- Total shareholder's deficit (38,457,000) (39,593,000) ------------- ------------- $ 210,585,000 $ 208,416,000 ============= =============
The accompanying introductory notes and notes to consolidated financial statements are an integral part of these consolidated financial statements. 14 GB HOLDINGS, INC. AND SUBSIDIARIES (Debtors-in-Possession) CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended March 31, ---------------------------- 2000 1999 ------------ ------------ Revenues: Casino $ 54,845,000 $ 53,404,000 Rooms 2,169,000 2,019,000 Food and beverage 6,527,000 6,261,000 Other 1,080,000 1,414,000 ------------ ------------ 64,621,000 63,098,000 Less - promotional allowances (5,832,000) (5,171,000) ------------ ------------ Net revenues 58,789,000 57,927,000 ------------ ------------ Expenses: Casino 46,936,000 47,466,000 Rooms 677,000 765,000 Food and beverage 1,951,000 2,332,000 Other 809,000 954,000 General and administrative 2,411,000 2,683,000 Depreciation and amortization 3,089,000 2,857,000 ------------ ------------ Total expenses 55,873,000 57,057,000 ------------ ------------ Income from operations 2,916,000 870,000 ------------ ------------ Non-operating income (expense): Interest income 187,000 141,000 Interest expense (contractual interest of $5,515,000 and $5,523,000, respectively, for the three months ended March 31, 2000 and 1999) (73,000) (20,000) Reorganization and other related costs (1,245,000) (529,000) Gain/(loss) on disposal of assets (10,000) 28,000 ------------ ------------ Total non-operating expense, net (1,141,000) (380,000) ------------ ------------ Income before income taxes 1,775,000 490,000 Income tax provision (639,000) -- ------------ ------------ Net income $ 1,136,000 $ 490,000 ============ ============
The accompanying introductory notes and notes to consolidated financial statements are an integral part of these consolidated financial statements. 15 GB HOLDINGS, INC. AND SUBSIDIARIES (Debtors-in-Possession) CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended March 31, ---------------------------- 2000 1999 ------------ ------------ OPERATING ACTIVITIES: Net income $ 1,136,000 $ 490,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 3,089,000 2,857,000 (Gain)/loss on disposal of assets 10,000 (28,000) Provision for doubtful accounts 633,000 475,000 Decrease/(increase) in accounts receivable 1,152,000 (459,000) Increase in accounts payable and accrued expenses 1,825,000 1,016,000 Net change in other current assets and liabilities 463,000 (431,000) Net change in other noncurrent assets and liabilities 65,000 (158,000) ------------ ------------ Net cash provided by operating activities 8,373,000 3,762,000 ------------ ------------ INVESTING ACTIVITIES: Purchase of property and equipment (3,102,000) (2,208,000) Proceeds from disposal of assets 12,000 28,000 Obligatory investments (652,000) (664,000) ------------ ------------ Net cash used in investing activities (3,742,000) (2,844,000) ------------ ------------ FINANCING ACTIVITIES: Repayments of long-term debt (22,000) (58,000) ------------ ------------ Net cash used in financing activities (22,000) (58,000) ------------ ------------ Net increase in cash and cash equivalents 4,609,000 860,000 Cash and cash equivalents at beginning of period 20,897,000 23,844,000 ------------ ------------ Cash and cash equivalents at end of period $ 25,506,000 $ 24,704,000 ============ ============
The accompanying introductory notes and notes to consolidated financial statements are an integral part of these consolidated financial statements. 16 GB HOLDINGS, INC. AND SUBSIDIARIES (Debtors-in-Possession) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (1) Organization, Business and Basis of Presentation GB Holdings, Inc. ("Holdings") is a Delaware corporation and was a wholly owned subsidiary of Pratt Casino Corporation ("PCC") through December 31, 1998. PCC, a Delaware corporation, was incorporated in September 1993 and was wholly owned by PPI Corporation ("PPI"), a New Jersey corporation and a wholly owned subsidiary of Greate Bay Casino Corporation ("GBCC"). Effective after December 31, 1998, PCC transferred 21% of the stock ownership in Holdings to PBV, Inc. ("PBV"), a newly formed entity controlled by certain stockholders of GBCC. As a result of a certain confirmed plan of reorganization of PCC and others in October 1999, the remaining 79% stock interest of PCC in Holdings was transferred to Greate Bay Holdings, LLC, whose sole member as a result of the same reorganization is PPI ("GBLLC"). In February 1994, Holdings acquired Greate Bay Hotel and Casino, Inc. ("GBHC"), a New Jersey corporation, through a capital contribution by its then parent. GBHC's principal business activity is its ownership of the Sands Hotel and Casino in Atlantic City, New Jersey (the "Sands"). GB Property Funding Corp. ("GB Property Funding"), a Delaware corporation and a wholly owned subsidiary of Holdings, was incorporated in September 1993 for the purpose of borrowing funds through the issuance of $185,000,000 of ten-year, First Mortgage Notes for the benefit of GBHC; such debt was issued in February 1994 at the rate of 10 7/8% per annum and the proceeds were loaned to GBHC (see Note 2). Holdings has no operating activities and its only significant asset is its investment in GBHC. On January 5, 1998, GBHC, Holdings and GB Property Funding (collectively, the "Debtors") filed petitions for relief under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the District of New Jersey (the "Bankruptcy Court"). Accordingly, the accompanying consolidated financial statements have been prepared in accordance with Statement of Position No. 90-7, "Financial Reporting By Entities in Reorganization under the Bankruptcy Code", and include disclosure of liabilities subject to compromise (see Note 3). The prior Boards of Directors resigned on January 2, 1998 and new Boards of Directors were elected at that time. Each company continues to operate in the ordinary course of business as set forth in the Bankruptcy Code. Each company's executive officers and directors as of the date of the filing also remain in office, subject to the jurisdiction of the Bankruptcy Court, other than the following: as required by the Settlement Agreement, as defined below, Richard Knight resigned as a Director, President, and Chief Executive Officer of the debtors effective July 8, 1998; John P. Belisle was elected President and Chief Executive Officer of GBHC on July 28, 1998; and Jerome T. Smith was elected as a Director of GBHC on August 3, 1998. On November 1, 1999, John P. Belisle resigned as President and Chief Executive Officer of GBHC. On November 5, 1999, Alfred J. Luciani was elected President and Chief Executive Officer of GBHC. On November 11, 1999, Jerome T. Smith, the independent member of the Boards of Directors of the Debtors and one of the two independent members of the Audit Committee of Holdings, citing a newly arisen potential conflict of interest, resigned. Effective September 2, 1998, GBHC acquired the membership interests in Lieber Check Cashing LLC ("Lieber"), a New Jersey limited liability company that owns a land parcel adjacent to GBHC (the "Lieber Parcel"). GBHC also acquired and/or caused an option agreement on other adjacent land parcels (the "Option Parcels") to be assigned to Lieber (the "Option Agreement"). 17 GB HOLDINGS, INC. AND SUBSIDIARIES (Debtors-in-Possession) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) The accompanying consolidated financial statements include the accounts and operations of Holdings, GBHC, GB Property Funding and Lieber. All significant intercompany balances and transactions have been eliminated. On September 20, 1999, closing took place under the Option Agreement and Lieber, whose sole member is GBHC, obtained title to the Option Parcels. The Lieber Parcel and the Option Parcels provide GBHC with an expansion opportunity and frontage on Pacific Avenue, the principal street running parallel and closest to the boardwalk in Atlantic City, New Jersey. The demolition of the existing structures on the parcels was completed and construction of a new front entrance to the Sands' facility has commenced. On January 11, 1999, the exclusivity period during which only the debtors could file a plan of reorganization expired and, as a result, any party in interest could file a plan of reorganization. On June 1, 1999, the Debtors filed with the Bankruptcy Court a plan of reorganization and disclosure statement, ultimately filing a third modified plan of reorganization (the "Plan") and third modified disclosure statement. On October 4, 1999, the Bankruptcy Court approved the adequacy of the disclosure statement and a confirmation hearing on the Plan was scheduled for December 17, 1999 (the "Confirmation Hearing"). On November 3, 1999, the Debtors received notice from Merrill Lynch Asset Management ("MLAM") that MLAM and Park Place Entertainment Corporation ("PPE") had reached agreement on a term sheet under which PPE would sponsor a plan of reorganization of GBHC (the "Term Sheet"). MLAM represented that it and PPE controlled approximately 53% of the First Mortgage Notes. MLAM requested that the Debtors agree to seek to adjourn the Confirmation Hearing, and accept a revised Plan incorporating the provisions of the Term Sheet. The Debtors agreed to seek the adjournment. On November 9, 1999, the Bankruptcy Court granted the adjournment and set December 1, 1999 as a status conference for a report by the Debtors on the status of their due diligence and evaluation of the provisions of the Term Sheet. Following the December 1, 1999 status conference, the Bankruptcy Court set December 22, 1999 as a final status conference for the Debtors to report on their due diligence and evaluation of the Term Sheet. Entities controlled by Carl Icahn ("Icahn") submitted a competing bid for a Plan of Reorganization of the Debtors prior to the December 22, 1999 status conference. The Bankruptcy court decided at the status conference that PPE and Icahn should submit competing Plans of Reorganization and Supplemental Disclosure Statements with the Debtors submitting a Master Disclosure Statement by January 18, 2000, and that the Bankruptcy Court would conduct a hearing on February 16, 2000 to consider the adequacy of the Disclosure Statements. Icahn filed a joint Plan with the Official Committee of Unsecured Creditors (the "Committee") on January 18, 2000, and PPE also filed a Plan on the same date. The Bankruptcy Court conducted a hearing on the adequacy of the Disclosure Statements on February 16, 2000. The Bankruptcy Court directed Icahn and the Committee and PPE to file amended Plans and Supplemental Disclosure Statements with their final economic offers to the creditors by March 6, 2000, and scheduled a further adequacy hearing for March 23, 2000. At that hearing, the Bankruptcy Court directed Icahn and the Committee and PPE to make certain revisions to their amended Plans and Supplemental Disclosure Statements and file them on March 31, 2000, and scheduled April 5, 2000 as a hearing date for the Bankruptcy Court to determine if any further changes to the Supplemental Disclosure Statements would be directed to be made by the Bankruptcy Court. At the hearing on April 5, 2000, the Bankruptcy court approved the Debtors' Master Disclosure Statement, approved the Supplemental Disclosure Statements of Icahn and the Committee and of PPE subject to 18 GB HOLDINGS, INC. AND SUBSIDIARIES (Debtors-in-Possession) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) their making certain revisions, and established June 5, 2000 as the deadline for creditors to deliver their votes for or against the Plans and June 19, 2000 as the beginning of the confirmation hearing. Subsequently, the Bankruptcy Court adjourned the confirmation hearing to June 20, 2000. A plan requires confirmation by the Bankruptcy Court and approval by the New Jersey Casino Control Commission (the "Casino Commission"). There can be no assurance at this time that a plan will be confirmed by the Bankruptcy Court and approved by the Casino Commission. In the event a plan is confirmed, continuation of the business thereafter is dependent on GBHC's ability to achieve successful future operations. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should GBHC be unable to continue as a going concern. Although management has not made a determination whether an impairment of the carrying value currently exists, future adjustments to the carrying amount of GBHC's assets may be required with respect to the fresh-start reporting which would take place on the effective date of the confirmation of a plan. A significant amount of the Sands' revenues are derived from patrons living in northern New Jersey, southeastern Pennsylvania and metropolitan New York City. Competition in the Atlantic City gaming market is intense and management believes that this competition will continue or intensify in the future. The preparation of financial statements in conformity with generally accepted accounting principles 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. Prior to July 8, 1998, New Jersey Management, Inc. ("NJMI"), then a wholly owned subsidiary of PCC, was responsible for the operations of the Sands under a management agreement dated August 19, 1987, as amended, with GBHC (the "Management Agreement"). On May 22, 1998, GBHC filed a motion with the Bankruptcy Court to reject the Management Agreement (the "Rejection Motion"). GBCC, NJMI, and certain of their affiliates, on one side, and the Debtors, on the other, entered into an agreement on June 27, 1998, which was approved by the Bankruptcy Court on July 7, 1998, and by the Casino Commission on July 8, 1998 (the "Settlement Agreement"). Under the Settlement Agreement, among other things, the Management Agreement was suspended and replaced with a services agreement until a decision by the Bankruptcy Court on the Rejection Motion, and GBHC ceded ownership rights to an affiliate of GBCC in, and obtained a perpetual license from the same affiliate for, the computer software used in its operations. On September 28, 1998, and as a result of the Second Settlement Agreement, as defined below, the Bankruptcy Court granted the Rejection Motion and, in conformity therewith, no further fees will be paid under either the Management Agreement or the Settlement Agreement (see Note 5). On July 27, 1998, GBHC filed an adversary proceeding in the Bankruptcy Court against GBCC, certain of its affiliates, and certain of the former directors of GBHC (collectively the "Defendants"), seeking to recover the Lieber Parcel and the Option Agreement for the Option Parcels and to restrain the use of its Net Operating Losses (the "NOL's"). Effective September 2, 1998, the Debtors, on one side, and the Defendants, on the other, reached 19 GB HOLDINGS, INC. AND SUBSIDIARIES (Debtors-in-Possession) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) an agreement resolving, among other things, the adversary proceeding (the "Second Settlement Agreement"). Under the Second Settlement Agreement, among other things, the Debtors agreed to be included in the consolidated federal income tax return of GBCC for the years ended December 31, 1997 and 1998. GBCC agreed to allow the Debtors to become deconsolidated from the GBCC group for federal income tax purposes and, in accordance therewith, effective after December 31, 1998, PCC transferred 21% of the stock ownership in Holdings to PBV, effecting the deconsolidation of the Debtors from the GBCC group. The Second Settlement Agreement also resulted in the non-cash settlement of certain outstanding intercompany transactions, the transfer of the membership interests in Lieber to GBHC and the assignment of the Option Agreement for the Option Parcels to Lieber (see Note 7). GBHC is self insured for a portion of its general liability, certain health care and other liability exposures. A third party insures losses over prescribed levels. Accrued claims reserves represent estimates of such liabilities based on an evaluation of the merits of individual claims and historical claims experience. Accordingly, GBHC's ultimate liability may differ from the amounts accrued. Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of" requires, among other things, that an entity review its long-lived assets and certain related intangibles for impairment whenever changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. As discussed above, GBHC filed for protection under the Bankruptcy Code. Although management has not made a determination whether an impairment of the carrying value currently exists, future adjustments to the carrying amount of GBHC's assets are possible with respect to the fresh-start reporting which would take place on the effective date of the confirmation of a plan of reorganization. The consolidated financial statements for the three-month periods ended March 31, 2000 and 1999 have been prepared by Holdings without audit. In the opinion of management, these consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the consolidated financial position of Holdings as of March 31, 2000, and the results of its operations and cash flows for the three-month periods ended March 31, 2000 and 1999. 20 GB HOLDINGS, INC. AND SUBSIDIARIES (Debtors-in-Possession) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) (2) Long-Term Debt and Pledge of Assets Long-term debt is comprised of the following: March 31, December 31, 2000 1999 -------------- -------------- 10 7/8% first mortgage, notes due 2004 (a) $ 181,977,000 $ 181,980,000 14 5/8% affiliate loan, due 2005 (b) 10,000,000 10,000,000 Lieber Mortgage (c) 498,000 513,000 Other 401,000 405,000 -------------- -------------- Total 192,876,000 192,898,000 Less - current maturities (81,000) (79,000) Less - debt subject to compromise (Note 3) (191,977,000) (191,980,000) -------------- -------------- Total long-term debt $ 818,000 $ 839,000 ============== ============== - -------------------- (a) On February 17, 1994, GBHC obtained the net proceeds from the sale by GB Property Funding of $185,000,000 of First Mortgage Notes due January 15, 2004 (the "First Mortgage Notes"). Interest on the First Mortgage Notes accrued at the rate of 10 7/8% per annum, payable semiannually. Interest only was payable during the first three years. Thereafter, semiannual principal payments of $2,500,000 were due on each interest payment date with the balance due at maturity. Holdings acquired $2,500,000 face amount of First Mortgage Notes at a discount in May 1997, which it used to make its July 15, 1997 principal payment. As a result of the filing under Chapter 11, the debt service payments due subsequent to January 5, 1998 were not made and the accrual of interest on the First Mortgage Notes for periods subsequent to the filing has been suspended. Subject to certain exceptions in the Security Agreement, substantially all of Holdings' and GBHC's assets are pledged in connection with their long-term indebtedness. GBHC filed a motion in the Bankruptcy Court, seeking to use "Cash Collateral", as defined by 11 U.S.C. ss.363, in the ordinary course of its business. By opinion filed April 3, 1998 (the "Opinion"), the Bankruptcy Court granted GBHC the right to use "Cash Collateral" subject to providing certain adequate protection in favor of the Indenture Trustee for the First Mortgage Notes (the "Indenture Trustee") and concluded, among other things, that the Indenture Trustee did not have a perfected security interest in GBHC's deposit accounts or cash generated from casino operations. An order was entered in conformity with the Opinion on May 5, 1998. The Indenture Trustee took an appeal of the order to the United States District Court for the District of New Jersey. On March 19, 1999, the United States District Court for the District of New Jersey affirmed the Bankruptcy Court's decision. The Indenture Trustee filed an appeal with the United States Court of Appeals for the Third Circuit, which affirmed the decision on January 31, 2000. 21 GB HOLDINGS, INC. AND SUBSIDIARIES (Debtors-in-Possession) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) The Indenture for the First Mortgage Notes (the "Indenture") contains various provisions which, among other things, restrict the ability of certain subsidiaries of GBCC to pay dividends to GBCC, to merge, to consolidate, to sell substantially all of their assets or to incur additional indebtedness beyond certain limitations. In addition, the Indenture requires the maintenance of certain cash balances and requires minimum expenditures, as defined in the Indenture, for property and fixture renewals, replacements and betterments at the Sands. Under an order of the Bankruptcy Court, permitting the disposition of furniture and equipment in the ordinary course of business, any payments received by GBHC for the sale of such assets, which are part of the security for the First Mortgage Notes, must be remitted to the Indenture Trustee as reductions of the outstanding principal of the First Mortgage Notes. Proceeds from the sale of such assets amounting to $3,000 and $263,000, for the three months ended March 31, 2000 and the year ended December 31, 1999, respectively, were remitted to the Indenture Trustee. (b) On February 17, 1994, PRT Funding Corp. ("PRT"), then an affiliate, loaned GBHC $10,000,000 under a promissory note (the "PRT Subordinated Note"), which is subordinated to the First Mortgage Notes. The PRT Subordinated Note is due on February 17, 2005 and bore interest at the rate of 14 5/8% per annum, payable semiannually. Interest has been paid only through February 17, 1996. Repayment of the PRT Subordinated Note and the payment of the related interest are subject to any setoffs and defenses available under the Bankruptcy Code and applicable law. The accrual of interest on the PRT Subordinated Note for periods subsequent to the filing under Chapter 11 has been suspended. As a result of the confirmation of a certain plan of reorganization of PRT Funding Corp. in October 1999, the PRT Subordinated Note was transferred to GBLLC, whose sole member is PPI. (c) On September 2, 1998, and as part of the Second Settlement Agreement, GBHC acquired the membership interests in Lieber (see Note 7) which owns the Lieber Parcel. Principal mortgage indebtedness at the time of the acquisition was $591,000 and the indebtedness bears interest at the rate of 7% per annum. Principal and interest are paid monthly based on a ten-year amortization schedule. The balance of the note is due in July 2001. As a result of the Chapter 11 filing, principal payments and accrued interest with respect to the First Mortgage Notes and the PRT Subordinated Note are subject to a Plan of Reorganization, which requires confirmation by the Bankruptcy Court and approval by the Casino Commission. Pending such reorganization, the entire amount of the First Mortgage Notes and the PRT Subordinated Note and accrued interest are included in liabilities subject to compromise on the accompanying consolidated balance sheets. 22 GB HOLDINGS, INC. AND SUBSIDIARIES (Debtors-in-Possession) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) Scheduled payments of long-term debt as of March 31, 2000, exclusive of payments on the First Mortgage Notes and the PRT Subordinated Note, are set forth below: 2000 (nine months) $ 60,000 2001 467,000 2002 19,000 2003 21,000 2004 23,000 Thereafter 309,000 -------------- Total $ 899,000 ============== Interest paid amounted to $19,000 and $20,000, respectively, for the three months ended March 31, 2000 and 1999. At March 31, 2000 and December 31, 1999, accrued interest on the First Mortgage Notes in the amount of $9,373,000 is included with liabilities subject to compromise on the accompanying consolidated balance sheets. (3) Liabilities Subject to Compromise Liabilities subject to compromise under Holdings' reorganization proceedings consist of the following: March 31, December 31, 2000 1999 ------------ ------------ Accounts payable and accrued liabilities $ 6,589,000 $ 6,811,000 First Mortgage Notes (Note 2) 181,977,000 181,980,000 PRT Subordinated Note (Note 2) 10,000,000 10,000,000 Borrowings from affiliate (Note 5) 5,000,000 5,000,000 Accrued interest (Notes 2 and 5) 12,855,000 12,855,000 Due to affiliates 161,000 382,000 ------------ ------------ Total $216,582,000 $217,028,000 ============ ============ (4) Income Taxes Prior to 1997, Holdings was included in the consolidated federal income tax return of Hollywood Casino Corporation ("HCC"). In accordance with the Second Settlement Agreement (see Note 1), Holdings' operations were included in GBCC's consolidated federal income tax returns for the years ended December 31, 1998 and 1997 but GBCC agreed to allow Holdings to become deconsolidated from the GBCC group effective after December 31, 1998. In accordance therewith, PCC transferred 21% of the stock ownership in Holdings to PBV, 23 GB HOLDINGS, INC. AND SUBSIDIARIES (Debtors-in-Possession) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) effecting the deconsolidation of Holdings from the GBCC group for federal income tax purposes. Accordingly, beginning in 1999, Holdings' provision for federal income taxes is calculated and paid on a consolidated basis with GB Property Funding and GBHC. Federal and state income tax provisions or benefits are based upon estimates of the results of operations for the current period and reflect the non-deductibility for income tax purposes of certain items, including certain amortization, meals and entertainment, and other expenses. Holdings made no federal or state income tax payments during the three month periods ended March 31, 2000 and 1999. Deferred income taxes result primarily from the use of the allowance method rather than the direct write-off method for doubtful accounts, the use of accelerated methods of depreciation for federal and state income tax purposes, and differences in the timing of deductions taken between tax and financial reporting purposes for contributions of, and adjustments to, the carrying value of certain investment obligations and for other accruals. At March 31, 2000, Holdings and its subsidiaries have deferred tax assets including State net operating losses and Federal credit carryforwards. The net operating losses ("NOL's") do not expire before the year 2003 for state tax purposes. A portion of the credit carryforwards, if not utilized, will expire in the year 2000, and each year thereafter through 2004. The remaining credit carryforwards do not expire until the year 2019. The availability of the NOL's and credit carryforwards may be subject to the tax consequences of a plan of reorganization approved by the Bankruptcy Court. In addition, as provided in the Second Settlement Agreement GBCC may utilize NOL's of Holdings and its subsidiaries through December 31, 1998 to offset federal taxable income ("Federal NOL's") of GBCC and other members of its consolidated tax group. Representatives of HCC and GBCC originally advised Holdings in March 1999 that Holdings should have approximately $13 million in Federal NOL's available subsequent to December 31, 1998. Subsequent adjustments recognized by GBHC and reported to GBCC attributable to the year ended December 31, 1997, reduced the available Federal NOL"S. GBCC advised GBHC in February 2000 that a portion of the Debtors' Federal NOL's were utilized in the 1998 GBCC group consolidated federal income tax return. However, GBCC also notified GBHC in February 2000 that all of the Debtors' Federal NOL's attributable to periods prior to January 1, 1997 will be utilized to shield certain additional excess loss account adjustments attributable to the Spin Off, which may result in available Federal NOL's in 1999 being reduced to approximately $4.4 million. GBHC is in the process of examining the propriety of the use of its pre-1997 NOL's. The Debtors expect that these remaining Federal NOL's will be utilized in the 1999 federal tax return of the Debtors. Statement of Financial Accounting Standards No. 109 ("SFAS 109") requires that the tax benefit of NOL's and 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 all or a portion of such NOL's and deferred tax assets is more likely than not, requires the recording of a valuation allowance. As a result of book and tax losses incurred in 1997 and the filing under Chapter 11 by Holdings in January 1998, management is unable to determine that realization of Holdings' deferred tax asset is more likely than not and, thus, has provided a valuation allowance for the entire amount at March 31, 2000. Sales or purchases of Holdings' common stock could cause a "change of control", as defined in Section 382 of the Internal Revenue Code of 1986, as amended, which would limit the ability of Holdings to utilize its NOL's in later tax periods. Should such a change of control occur, the amount of NOL's available for use would most 24 GB HOLDINGS, INC. AND SUBSIDIARIES (Debtors-in-Possession) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) likely be substantially reduced. Future treasury regulations, administrative rulings, or court decisions may also affect Holdings' future utilization of its NOL's. The Internal Revenue Service is currently examining the consolidated federal income tax returns of HCC for the years 1993 through 1996 in which Holdings' was included (the "Audit"). During 1998, HCC reported that it may be required to file an amended federal tax return for calendar year 1996 and that it may experience a material increase in income tax liability as a result of the dividend by HCC to its shareholder of approximately 80% of the common stock of GBCC (the "Spin Off"). However, as part of the Second Settlement Agreement, and after use of any tax attributes available to members of the former HCC consolidated group, HCC and GBCC agreed to pay any increased taxes, that are attributable to the Spin Off without contribution from the Debtors. Representatives of HCC have advised GBHC that the HCC group's NOL's will first be used to shield audit adjustments relating to the years 1993 through 1996 before being used to offset excess loss account adjustments occurring at December 31, 1996. Representatives of GBCC and HCC also represented to the Debtors' independent accountants in March 1999 that the results of the Audit should not have a material adverse effect on the consolidated financial position or results of operations of the Debtors. In March 2000, GBCC reported in its 1999 SEC Form 10-K that the allocation of tax attributes to the entities consolidated with HCC cannot be determined until the Audit is completed. GBCC also reported that due to the inclusion of Holdings and its subsidiaries in the consolidated returns an as yet undetermined portion of any resulting tax liability to GBCC may be recoverable from Holdings. Any such claim will be subject to the terms of the Second Settlement Agreement. While this disclosure by GBCC is contrary to prior representations made by HCC and GBCC to Holdings and its independent auditors, such disclosure causes management to be presently unable to estimate the ultimate impact of the Audit on the consolidated financial position or results of operations of Holdings. The Debtors are dependent upon receipt of information from HCC and GBCC as to the operations of their affiliates and the impact of those operations on the former HCC and GBCC consolidated groups' Federal NOL's. (5) Transactions with Related parties Prior to July 8, 1998, NJMI was responsible for the operations of the Sands under a Management Agreement with GBHC. Under such agreement, NJMI was entitled to receive annually (i) a basic consulting fee of 1.5% of "adjusted gross revenues," as defined, and (ii) incentive compensation of between 5% and 7.5% of gross operating profits in excess of certain stated amounts should annual "gross operating profits," as defined, exceed $5,000,000. On May 22, 1998, GBHC filed the Rejection Motion. The Settlement Agreement, partially resolving the Rejection Motion, was entered into on June 27, 1998 and was approved by the Bankruptcy Court on July 7, 1998 and by the Casino Commission on July 8, 1998. Under the Settlement Agreement and effective as of May 1, 1998 and until decision on the Rejection Motion, NJMI agreed to provide certain services to GBHC and GBHC agreed to pay a monthly fee of $165,000, which was payable $122,000 on a monthly basis in arrears and $43,000 per month upon confirmation of a plan of reorganization for the Debtors by the Bankruptcy Court. On September 28, 1998, and as part of the Second Settlement Agreement, the Bankruptcy Court approved the Rejection Motion. The current fees under the Settlement Agreement have been paid and the deferred fees have been accrued. As part of the Second Settlement Agreement, a rejection damages claim of NJMI was preserved provided it was filed in the Bankruptcy Court within 30 days of the entry of the order of the Bankruptcy Court on September 11, 1998 approving the Second Settlement Agreement. The rejection damages claim was not filed and 25 GB HOLDINGS, INC. AND SUBSIDIARIES (Debtors-in-Possession) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) expired along with the corresponding avoiding powers causes of action under the Bankruptcy Code of GBHC, as provided in the Second Settlement Agreement. Accordingly, other than the deferred fees, no further management fees will be paid under either the Management Agreement or the Settlement Agreement except that NJMI possessed a claim for pre-petition management fees, which was settled for an unsecured claim in the amount of $75,000 and which was transferred to GBLLC along with the claim for the deferred fees. As a result of the Second Settlement Agreement and the Rejection Motion, no such fees were incurred for the three months ended March 31, 2000 and 1999. Amounts payable under the Settlement Agreement to NJMI, which have been assigned to GBLLC, and included in due to affiliates on the accompanying consolidated balance sheets at March 31, 2000 and December 31, 1999, amounted to $211,000. The $75,000 unsecured claim arising from the settlement in 1999 of the pre-petition management fee claim under the Management Agreement is included in liabilities subject to compromise on the accompanying consolidated balance sheets at March 31, 2000 and December 31, 1999. GBHC's rights to the trade name "Sands" (the "Trade Name") are derived from a license agreement between GBCC and an unaffiliated third party. Amounts payable by the Sands for these rights are equal to the amounts paid to the unaffiliated third party. Such charges amounted to $65,000 and $60,000, respectively, for the three month periods ended March 31, 2000 and 1999. Under the Settlement Agreement, GBCC agreed not to seek to cancel the rights of GBHC to use the Trade Name prior to December 15, 1998, and GBHC preserved its legal position that GBCC lacked the right to cancel the rights of GBHC to use the Trade Name. GBCC filed a motion in the Bankruptcy Court seeking relief from the automatic stay, pursuant to 11 U.S.C. ss.362(a), to send a letter to the licensor, purporting to terminate the license agreement. GBHC opposed the motion and the motion was denied by Order of the Bankruptcy Court dated March 2, 1999. On March 10, 1999, GBCC took an appeal to the United States District Court for the District of New Jersey. On June 10, 1999, the United States District Court for the District of New Jersey affirmed the Bankruptcy Court's decision. On July 13, 1999, GBCC filed an appeal with the United States Court of Appeals for the Third Circuit. GBCC and GBHC filed a motion with the Third Circuit on March 23, 2000, seeking an adjournment of the briefing schedule in the appeal based on the belief that the likelihood of the confirmation of either the Icahn/Committee or PPE Plan in the near future by the Bankruptcy Court will eliminate the automatic stay by the effective date of a Plan, will moot the issue raised by GBCC in the appeal and will permit GBCC to seek to terminate the license agreement if it still chooses to do so. An advance from GBHC to another GBCC subsidiary in the amount of $5,672,000 was outstanding at March 31, 2000, except that, under the Second Settlement Agreement, GBHC agreed not to sue the entity receiving the advance and its affiliates and reserved any rights it had to offset the advance against the PRT Subordinated Note, and the PCC Subordinated Note, as hereafter defined (collectively, the "Subordinated Notes"). Interest on the advance accrues at the rate of 16.5% per annum. The advance, together with accrued interest amounting to $6,084,000 and $5,850,000 at March 31, 2000 and December 31, 1999, respectively, is fully reserved as collection of the receivable is uncertain. During the third quarter of 1996, GBCC borrowed a total of $6,500,000 from HCC, which GBCC then loaned to GBHC to enable GBHC to make its debt service obligations and a property tax payment. According to the terms of the corresponding note, such borrowings accrued interest at the rate of 13 3/4% per annum payable 26 GB HOLDINGS, INC. AND SUBSIDIARIES (Debtors-in-Possession) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) quarterly commencing October 1, 1996. During the first quarter of 1997, GBHC borrowed an additional $1,500,000 from GBCC on similar stated terms. As part of the Second Settlement Agreement, GBHC settled certain intercompany obligations on a non-cash basis. This loan to GBHC from GBCC, totaling $8,000,000 along with accrued interest totaling $1,508,000, and a deferred federal tax asset of GBHC's, totaling $10,902,000, representing a claim against an affiliate for the overpayment of federal income taxes under a previously existing tax sharing agreement, were mutually released. As the deferred federal tax asset had been previously fully reserved as required by SFAS 109, this mutual release resulted in the recording of a capital contribution in the amount of $9,508,000. GBHC also borrowed $5,000,000 from another subsidiary of GBCC during January, 1997 at the stated rate of 14 5/8% per annum payable semiannually commencing July 15, 1997 and, as set forth in the terms of the corresponding note, the loan is subordinated to the First Mortgage Notes and payment is subject to certain conditions (the "PCC Subordinated Note"). Interest accrued on the PCC Subordinated Note amounted to $728,000 at both March 31, 2000 and December 31, 1999, and is included in liabilities subject to compromise on the accompanying consolidated balance sheets. Repayment of the PCC Subordinated Note and the payment of the related interest are subject to approval of the Casino Commission and any setoffs and defenses available under the Bankruptcy Code and applicable law and to the terms of a Plan, which requires confirmation by the Bankruptcy Court and approval by the Casino Commission. The accrual of interest on the PCC Subordinated Note for periods subsequent to the filing under Chapter 11 has been suspended. As a result of the confirmation of a certain plan of reorganization of PCC in October 1999, the PCC Subordinated Note was transferred to GBLLC. Interest accrued on the PRT Subordinated Note (Note 2) of $2,754,000 is included in liabilities subject to compromise on the accompanying consolidated balance sheets at March 31, 2000 and December 31, 1999. Effective September 2, 1998, GBHC acquired Lieber as part of the Second Settlement Agreement and caused the Option Agreement for the Option Parcels to be assigned to Lieber. The assignment of the Option Agreement for the Option Parcels under the Second Settlement Agreement requires a confirmation payment of $500,000 to be paid to a designated affiliate of GBCC upon confirmation of a plan of reorganization. This obligation was transferred to GBLLC by GBCC and is included in due to affiliates in the accompanying consolidated balance sheets at March 31, 2000 and December 31, 1999. 27 GB HOLDINGS, INC. AND SUBSIDIARIES (Debtors-in-Possession) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) GBHC performed certain services for other subsidiaries of GBCC and for HCC and its subsidiaries and invoiced those companies for the Sands' cost of providing those services. Similarly, GBHC was charged for certain equipment and other expenses incurred by GBCC and HCC and their respective subsidiaries that relate to GBHC's business. Such affiliate transactions are summarized below: Three Months Ended March 31, ------------------------------- 2000 1999 -------------- -------------- Billings to affiliates $ -- $ 24,000 Charges from affiliates 139,000 313,000 (6) Legal Proceedings On January 5, 1998, the Debtors filed petitions for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court (see Note 1). On May 22, 1998, GBHC filed the Rejection Motion with the Bankruptcy Court. The Management Agreement was suspended as a result of the Settlement Agreement and was replaced with a service agreement until the decision on the Rejection Motion. On September 28, 1998, and as part of the Second Settlement Agreement, the Bankruptcy Court granted the Rejection Motion (see Note 1). On July 27, 1998, GBHC filed an action in the Bankruptcy Court (the "Action") against GBCC, certain affiliates of GBCC, and Jack E. Pratt, Edward T. Pratt Jr. and William D. Pratt, former directors of GBHC (collectively, the "Defendants"), alleging, inter alia, usurpation of corporate opportunities of GBHC and breach of fiduciary duty with respect to GBHC in connection with the acquisition of an option for certain land parcels and the acquisition of a land parcel on Pacific Avenue in Atlantic City, New Jersey adjoining the Sands (collectively, the "Parcels"), and seeking, inter alia, an order enjoining the Defendants from transferring the Parcels to third parties and requiring the Defendants to convey the Parcels to GBHC. The Action also sought to enjoin the Defendants from using the NOL's of the Debtors (see Note 4). Effective September 2, 1998, the parties entered into the Second Settlement Agreement resolving, among other things, the Action. The Second Settlement Agreement also resulted in the dismissal of all applications in the Bankruptcy Court related to the Action. The Debtors and the Defendants also entered into mutual and general releases subject to certain exceptions described in the Second Settlement Agreement. GBHC has filed tax appeals with the New Jersey Tax Court challenging the amount of its real property assessment for calendar years 1996, 1997, 1998, 1999 and 2000. The City of Atlantic City has also appealed the amount of the assessments for the same years. GBHC is a party in various legal proceedings with respect to the conduct of casino and hotel operations. Although a possible range of losses cannot be estimated, in the opinion of management, based upon the advice of 28 GB HOLDINGS, INC. AND SUBSIDIARIES (Debtors-in-Possession) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) counsel, settlement or resolution of these proceedings should not have a material adverse impact upon the consolidated financial position or results of operations of Holdings and GBHC. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of the uncertainties described above. (7) Acquisition of Lieber Check Cashing and the Agreement for the Option Parcels Effective September 2, 1998, and as part of the Second Settlement Agreement, (see Note 1), GBHC acquired the membership interests in Lieber from affiliates of GBCC for $251,000. GBHC also caused Lieber to acquire the rights under the Option Agreement for the Option Parcels from another affiliate of GBCC for a payment of $1.3 million and a payment of $500,000 at confirmation of a plan of reorganization. During September 1998, GBHC provided Lieber with $1 million, which Lieber paid to the owner of the Option Parcels to extend the closing under the Option Agreement for the Option Parcels to September 30, 1999. On April 20, 1999, GBHC filed a motion with the Bankruptcy Court seeking approval to close on the Option Agreement for the Option Parcels (the "Closing Motion"). In addition, on May 6, 1999, and subject to Bankruptcy Court approval, Lieber entered into a second amendment to the Option Agreement to set the closing date as September 20, 1999, to increase the down payment by $500,000, and to provide for the right to seek certain state and local land use approvals prior to the closing date without violation of the Option Agreement (the "Amendment"). On May 10, 1999, the Bankruptcy Court granted the Closing Motion and approved the Amendment. On May 10, 1999, $500,000 was paid to the Escrow Agent under the Option Agreement as required by the Amendment. The purchase price of the Option Parcels was $10 million, $2.5 million of which was paid prior to closing and $7.5 million of which was due at closing. On September 20, 1999, closing took place under the Option Agreement and Lieber, whose sole member is GBHC, obtained title to the Option Parcels. The demolition of the existing structures has been completed and GBHC is in the process of constructing a new front entrance to the Sands' facility on Pacific Avenue. The new front entrance is expected to be completed by June 2000. 29 GB HOLDINGS, INC. AND SUBSIDIARIES (Debtors-in-Possession) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Quarterly Report on Form 10-Q contains forward-looking statements about the business, financial condition and prospects of Holdings. 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 the gaming industry in general or Holdings in particular, and other risks indicated in Holdings' filings with the Securities and Exchange Commission. Such risks and uncertainties are beyond management's ability to control and, in many cases, cannot be predicted by management. When used in this Quarterly Report on Form 10-Q, the words "believes", "estimates", "anticipates" and similar expressions as they relate to Holdings or its management are intended to identify forward-looking statements. LIQUIDITY AND CAPITAL RESOURCES Holdings owns GBHC, which owns the Sands Hotel and Casino in Atlantic City (the "Sands"). Prior to 1996, the Sands' cash flow from operations was sufficient to meet debt service obligations and to fund a substantial portion of annual maintenance capital expenditures. In addition, the Sands used short-term borrowings as necessary to fund seasonal cash needs and for certain capital projects. After 1995, however, the competitive position of the Sands became impaired, which was due, in part, to insufficient capital expenditures particularly compared to certain competing Atlantic City casinos. In 1996, due to adverse weather in the first quarter, a decline in both table games and slot hold percentages and increased industry competition resulting in higher marketing expenditures, the Sands cash flow decreased significantly compared to prior years. While cash flow improved in 1997, it remained significantly below historical levels. These declines in operating cash flow at the Sands resulted in the need for periodic financial assistance from PCC and GBCC in order for GBHC to meet its debt service obligations. Substantial additional financial assistance would have been required to make the January 15, 1998 principal and interest payments due on the First Mortgage Notes. GBHC was unable to obtain additional borrowings from affiliates or other sources and, accordingly, on January 5, 1998, the Debtors filed petitions seeking protection under Chapter 11 of the Bankruptcy Code. Each company continues to operate in the ordinary course of business, as set forth in the Bankruptcy Code. Each company's executive officers and directors as of the date of filing remain in office, subject to the jurisdiction of the Bankruptcy Court, other than the following: as required under the Settlement Agreement, Richard Knight resigned as a Director, President, and Chief Executive Officer of the Debtors effective July 8, 1998; John P. Belisle was elected President and Chief Executive Officer of GBHC on July 28, 1998; and Jerome T. Smith was elected as a Director of the Debtors on August 3, 1998. On November 1, 1999, John P. Belisle resigned as President and Chief Executive Officer of GBHC. On November 5, 1999, Alfred J. Luciani was elected President and Chief Executive Officer of GBHC. On November 11, 1999, Jerome T. Smith, the independent member of the Boards of Directors of the Debtors, and one of the two independent members of the Audit Committee of Holdings, citing a newly arisen potential conflict of interest, resigned. On January 11, 1999, the exclusivity period during which only the Debtors could file a plan of reorganization expired and, as a result, any party in interest could file a plan of reorganization. On June 1, 1999, the Debtors filed with the Bankruptcy Court a plan of reorganization and disclosure statement, ultimately filing a 30 GB HOLDINGS, INC. AND SUBSIDIARIES (Debtors-in-Possession) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) third modified plan of reorganization (the "Plan") and third modified disclosure statement. On October 4, 1999, the Bankruptcy Court approved the adequacy of the Disclosure Statement and a confirmation hearing on the Plan was scheduled for December 17, 1999 (the "Confirmation Hearing"). On November 3, 1999, the Debtors received notice from Merrill Lynch Asset Management ("MLAM") that MLAM and Park Place Entertainment Corporation ("PPE") had reached agreement on a term sheet under which PPE would sponsor a plan of reorganization of GBHC (the "Term Sheet"). MLAM represented that it and PPE controlled approximately 53% of the First Mortgage Notes. MLAM requested that the Debtors agree to seek to adjourn the Confirmation Hearing, and accept a revised Plan incorporating the provisions of the Term Sheet. The Debtors agreed to seek the adjournment. On November 9, 1999, the Bankruptcy Court granted the adjournment and set December 1, 1999 as a status conference for a report by the Debtors on the status of their due diligence and evaluation of the provisions of the Term Sheet. Following the December 1, 1999 status conference, the Bankruptcy Court set December 22, 1999 as a final status conference for the Debtors to report on their due diligence and evaluation of the Term Sheet. Entities controlled by Carl Icahn ("Icahn") submitted a competing bid for a Plan of Reorganization of the Debtors prior to the December 22, 1999 status conference. The Bankruptcy court decided at the status conference that PPE and Icahn should submit competing Plans of Reorganization and Supplemental Disclosure Statements with the Debtors submitting a Master Disclosure Statement by January 18, 2000, and that the Bankruptcy Court would conduct a hearing on February 16, 2000 to consider the adequacy of the Disclosure Statements. Icahn filed a joint Plan with the Official Committee of Unsecured Creditors (the "Committee") on January 18, 2000, and PPE also filed a Plan on the same date. The Bankruptcy Court conducted a hearing on the adequacy of the Disclosure Statements on February 16, 2000. The Bankruptcy Court directed Icahn and the Committee and PPE to file amended Plans and Supplemental Disclosure Statements with their final economic offers to the creditors by March 6, 2000, and scheduled a further adequacy hearing for March 23, 2000. At that hearing, the Bankruptcy Court directed Icahn and the Committee and PPE to make certain revisions to their amended Plans and Supplemental Disclosure Statements and file them on March 31, 2000, and scheduled April 5, 2000 as a hearing date for the Bankruptcy Court to determine if any further changes to the Supplemental Disclosure Statements would be directed to be made by the Bankruptcy Court. At the hearing on April 5, 2000, the Bankruptcy court approved the Debtors' Master Disclosure Statement, approved the Supplemental Disclosure Statements of Icahn and the Committee and of PPE subject to their making certain revisions, and established June 5, 2000 as the deadline for creditors to deliver their votes for or against the Plans and June 19, 2000 as the beginning of the confirmation hearing. Subsequently, the Bankruptcy Court adjourned the confirmation hearing to June 20, 2000. A plan requires confirmation by the Bankruptcy Court and approval by the New Jersey Casino Control Commission (the "Casino Commission"). There can be no assurance at this time that a plan will be confirmed by the Bankruptcy Court and approved by the Casino Commission. In the event a plan is confirmed, continuation of the business thereafter is dependent on GBHC's ability to achieve successful future operations. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should GBHC be unable to continue as a going concern. Although management has not made a determination whether an impairment of the carrying value currently exists, future adjustments to the carrying amount of 31 GB HOLDINGS, INC. AND SUBSIDIARIES (Debtors-in-Possession) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) GBHC's assets may be required with respect to the fresh-start reporting which would take place on the effective date of the confirmation of a Plan. Operating Activities At March 31, 2000, GBHC had cash and cash equivalents of $25.5 million. GBHC generated cash flow from operations of $8.4 million for the three months ended March 31, 2000 compared to $3.8 million for the three months ended March 31,1999. During the first quarter of 2000, GBHC utilized cash generated by its operations to fund capital additions of $3.1 million and to make obligatory investments of $652,000. Financing Activities Semiannual principal payments of $2.5 million, which became due commencing in July 1997 with respect to the First Mortgage Notes, have been suspended as a result of the Chapter 11 filing. Exclusive of the First Mortgage Notes and the Subordinated Notes, which are subject to reorganization, the current portion of long-term debt due during the remainder of 2000 is $60,000. Under an order of the Bankruptcy Court, permitting the disposition of furniture and equipment in the ordinary course of business, any payments received by GBHC for the sale of such assets, which are part of the security for the First Mortgage Notes, must be remitted to the Indenture Trustee as reductions to the outstanding principal of the First Mortgage Notes. Proceeds from the sale of such assets, amounting to $3,000 and $41,000 for the three months ended March 31, 2000 and 1999, respectively, were remitted to the Indenture Trustee. Investing Activities Capital expenditures at the Sands for the three months ended March 31, 2000 amounted to approximately $3.1 million, including $1.7 for the ongoing construction of the new front entrance to the Sands facility. Management anticipates that capital expenditures in the ordinary course of business for the remainder of 2000 will be approximately $8.2 million. In addition, it is estimated that $4.0 million in capital expenditures will be spent for the new front entrance to the Sands facility during the remainder of 2000. Effective September 2, 1998, and as part of the Second Settlement Agreement, GBHC acquired the membership interests in Lieber from affiliates of GBCC for $251,000. GBHC also caused Lieber to acquire the rights under the Option Agreement for the Option Parcels from another affiliate of GBCC for payment of $1.3 million and a payment of $500,000 at confirmation of a plan of reorganization. During September 1998, GBHC provided Lieber with $1 million, which Lieber paid to the owner of the Option Parcels to extend the closing under the Option Agreement for the Option Parcels to September 30, 1999. On May 10, 1999, the Bankruptcy Court approved the Closing Motion filed by GBHC seeking approval to close on the Option Agreement. On May 10, 1999, an additional deposit of $500,000 was paid to the owner of the Option Parcels. The purchase price of the Option Parcels was $10 million, $2.5 million of which was paid prior to closing and $7.5 million of which was due at closing. On September 20, 1999, the closing took place under the Option Agreement and Lieber, whose sole member is GBHC, obtained title to the Option Parcels one of which was subject to a lease (the "Lease") and 32 GB HOLDINGS, INC. AND SUBSIDIARIES (Debtors-in-Possession) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) a sub-lease for the operation of a "Gold Store" (the "Sub-lease") Demolition of the existing structures was completed and construction of a new front entrance to the Sands' facility has commenced. The new front entrance is expected to be completed by June 2000. GBHC obtained the rights under the Lease on March 27, 2000 for $371,000 and on the same date notified the operator of the Gold Store that GBHC had elected to exercise a 90-day cancellation provision of the Sub-lease and tendered to the sub-lessee a cancellation payment of approximately $30,000. GBHC intends to demolish the Gold Store upon expiration of the notice period and incorporate the land as part of its new front entrance. GBHC also entered into an agreement with the entities controlling the Claridge Hotel and Casino (the "Claridge"), subject to Bankruptcy Court approval, to acquire the Claridge Administration Building ("CAB"), which is situated between GBHC's existing main entrance and the new Pacific Avenue entrance presently under construction. GBHC intends to demolish the CAB and incorporate the land as part of the new front entrance. The purchase price was $3.5 million, consisting of $1.5 million in cash at closing with the remaining $2.0 million consideration tendered through the elimination for 40 months of a $50,000 monthly license fee paid by the Claridge to GBHC under an agreement between the Claridge and GBHC, governing the development and operation of the "People Mover" leading from the Boardwalk to the Sands and Claridge (the "PM Agreement"). GBHC and the Claridge also sought Bankruptcy Court approval of the assumption of the PM Agreement as modified. Additionally, after the elimination of the monthly license fee for the 40 months, the license fee will be reduced to $20,000 a month thereafter. On April 5, 2000, the Bankruptcy Court approved the acquisition of the CAB for the purpose described and approved the joint assumption of the PM Agreement as modified. On April 17, 2000, the closing took place on the CAB. The Sands is required by the New Jersey Casino Control Act ("Casino Act") to make certain quarterly deposits based on gross revenue with the Casino Reinvestment Development Authority ("CRDA") in lieu of a certain investment alternative tax. The deposits for the three months ended March 31, 2000 totaled $652,000 and are anticipated to be approximately $2.3 million during the remainder of 2000. The Sands has agreed to donate certain of its future deposit obligations to the CRDA in connection with the construction related to the Atlantic City Boardwalk Convention Center. The projected total donation will amount to approximately $7.0 million, which will be paid over the next 12 years based on an estimate of certain of the Sands' future CRDA deposit obligations. Summary On January 5, 1998, Holdings, GB Property Funding and GBHC filed petitions for relief under Chapter 11 of the United States Bankruptcy Code. Accordingly, there is significant doubt about Holdings' ability to continue as a going concern. A plan of reorganization requires confirmation by the Bankruptcy Court and approval by the Casino Commission. As a result of the Chapter 11 filing, the debt service payments due subsequent to January 5, 1998 were not made and the accrual of interest on both the First Mortgage Notes and the Subordinated Notes for periods subsequent to the filing has been suspended. Management believes that cash flows generated from operations during 2000 will be sufficient to meet its operating plan and provide for scheduled capital expenditures. 33 GB HOLDINGS, INC. AND SUBSIDIARIES (Debtors-in-Possession) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) RESULTS OF OPERATIONS Gaming Operations The following sets forth certain unaudited financial and operating data relating to the Sands' casino operations: Three Months Ended March 31, ---------------------------- 2000 1999 ----------- ----------- ($000's) Units: (at end of quarter) Table Games - Sands 100 99 - Atlantic City (ex. Sands) 1,240 1,279 Slot Machines - Sands 1,949 2,010 - Atlantic City 33,339 33,769 Gross Wagering (1) Table Games - Sands $ 109,640 $ 102,738 - Atlantic City 1,692,981 1,588,086 Slot Machines - Sands 484,705 438,841 - Atlantic City 83,340,020 76,144,417 Hold Percentages (2)(3) Table Games - Sands 15.2% 17.5% - Atlantic City 15.5% 15.9% Slot Machines - Sands 7.7% 7.9% - Atlantic City 8.2% 8.2% Revenues (2) Table Games - Sands $ 16,659 $ 17,959 - Atlantic City 261,561 252,180 Slot Machines - Sands 37,390 34,750 - Atlantic City 679,399 623,092 Other (4) - Sands 796 695 - Atlantic City N/A N/A - ----------------- (1) Gross wagering consists of the total value of coins wagered in slot machines (the "handle") and the total value of chips purchased for table games (the "drop") excluding poker. (2) Casino revenues consist of the portion of gross wagering that a casino retains and, as a percentage of gross wagering, is referred to as the "hold percentage". (3) The Sands' hold percentages are reflected on an accrual basis. Comparable data for the Atlantic City gaming industry is not available; industry percentages have been calculated based on information made available by the Casino Commission and are possibly higher than if computed on the accrual basis. (4) Consists of revenues from poker and simulcast horse racing wagering. 34 GB HOLDINGS, INC. AND SUBSIDIARIES (Debtors-in-Possession) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Patron Gaming Volume Table game drop increased by $6.9 million (6.7%) during the three months ended March 31, 2000 compared with the same period of 1999. By comparison, according to Casino Commission reports, table game drop at all other Atlantic City casinos during the same period reflected an increase of 6.6%. As a result, the Sands table game market share (expressed as a percentage of the Atlantic City gaming industry (the "industry") aggregate table game drop) remained unchanged at 6.1%. The Sands table game drop increase in 2000 is attributable to an increased volume of play from patrons whose wagering is tracked and whose level of play generally entitles them to a varying level of rewards, including cash and/or complimentary rooms, food, beverage, entertainment and gifts ("rated players"). Between the first quarter of 1999 and the first quarter of 2000, the number of table games did not change significantly at the Sands, compared with a decrease of 3.1% at all other Atlantic City casinos. Aggregate gaming space at all other Atlantic City casinos decreased by approximately 42,300 square feet at March 31, 2000 compared to 1999 due to the closure of a portion of a competing facility. The amount of gaming space at the Sands remained virtually unchanged between periods. Slot machine handle increased $45.9 million (10.5%) during the three months ended March 31, 2000 compared with the same period of 1999. By comparison, the percentage increase in slot machine handle for all other Atlantic City casinos in the first quarter of 2000 vs. the same period in 1999 was 9.5%. As a result, the Sands' market share of slot machine handle as a percentage of total industry slot handle remained virtually unchanged at 5.5%. The increased Sands slot handle during 2000 is primarily attributable to an increased volume of play from rated players although the volume of unrated slot play increased as well. The amount of available gaming space did not change at the Sands from the first quarter of 1999 to the first quarter of 2000, but the number of slot machines decreased slightly. On an industry-wide basis, the number of slot machines decreased slightly in 2000 compared to 1999 due to the closure of a portion of a competing casino. During the last half of 1998 and in 1999, approximately 700 older or less popular slot machines were replaced with new and more popular machines as part of the Sands capital expenditure program approved by the Bankruptcy Court in March 1998. 35 GB HOLDINGS, INC. AND SUBSIDIARIES (Debtors-in-Possession) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) The following table sets forth the changes in operating revenues and expenses (unaudited) for the three-month periods ended March 31, 2000 and 1999: 2000 1999 $ % ------- ------- ------- ------- ($000's) Revenues: Casino $54,845 $53,404 $ 1,441 2.7 Rooms 2,169 2,019 150 7.4 Food and Beverage 6,527 6,261 266 4.2 Other 1,080 1,414 (334) (23.6) Promotional Allowances 5,832 5,171 661 12.8 Costs and Expenses: Casino 46,936 47,466 (530) (1.1) Rooms 677 765 (88) (11.5) Food and Beverage 1,951 2,332 (381) (16.3) Other 809 954 (145) (15.2) General and Administrative 2,411 2,683 (272) (10.1) Depreciation and Amortization 3,089 2,857 232 8.1 Income from Operations 2,916 870 2,046 235.2 Non-operating items, net 1,141 380 761 200.3 Income Tax Provision 639 -- 639 N/A Revenues Casino revenues increased $1.4 million due to the 10.5 % increase in slot handle that was partially offset by a slight decrease in slot hold percentage. While table game drop also increased by 6.7%, the increased volume was offset by a 13.1% decrease in the table game hold percentage resulting in a decrease in table games revenue. Rooms revenue increased $150,000 as a result of higher occupancy partially offset by a decrease in the average daily room rate (ADR). Food and beverage revenues increased $266,000 due to an increase in revenue per cover ("average check"). Other revenues decreased $334,000 as a result of a decrease in the number of theatre entertainment offerings. 36 GB HOLDINGS, INC. AND SUBSIDIARIES (Debtors-in-Possession) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Promotional Allowances Promotional allowances represent the estimated retail value of goods and services provided free of charge to casino customers under various marketing programs. As a percentage of rooms, food and beverage and other revenues, these allowances increased to 59.7% during the three months ended March 31, 2000 from 53.4% during the same period of 1999. The increase is primarily attributable to additions to and changes in marketing programs and other promotional activities that resulted in the increased gaming volume from rated players. Departmental Expenses Casino expenses at the Sands decreased by $530,000 as a result of management's ongoing efforts to create operating efficiencies in casino marketing. Rooms expense decreased $88,000 in part from an increase in the allocation of rooms expense to casino expense due to a higher percentage of rooms being utilized on a complimentary basis and in part from a reduction in the utilization of operating supplies. Food and beverage expense decreased $381,000 due to an increase in the allocation of food and beverage expense to casino expense due to a higher percentage of food and beverage being given away on a complimentary basis to rated players. Other expenses decreased $145,000 as a result of decreased costs associated with theatre entertainment. This decrease was partially offset by a lower allocation of other expenses to casino expense. General and Administrative Expenses General and administrative expenses decreased $272,000 due to higher than normal repairs and maintenance costs in 1999 and reduced utility costs in 2000. Depreciation and Amortization Depreciation and amortization expense increased as a result of capital additions including the 700 new slot machines which were on line for the entire quarter in 2000 vs. 1999. 37 GB HOLDINGS, INC. AND SUBSIDIARIES (Debtors-in-Possession) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Interest Income and Expense Interest income increased by $46,000 (32.6%) during the three months ended March 31, 2000 compared to the same period in 1999. The increase was due to payments received on obligatory investments that were previously reserved. Interest earned on cash balances accumulated as a result of the Chapter 11 filing (i.e., from not making debt service payments) is recorded as a reduction of reorganization costs. Interest expense increased $53,000 (265%) during the three months ended March 31, 2000 compared to the same period in 1999. The increase is due to the recognition of interest expense on the future CRDA donation liability. As a result of the Chapter 11 filing, the accrual of interest expense on the First Mortgage Notes, the Subordinated Notes and other affiliate advances for periods subsequent to the filing has been suspended. Income Tax Provision Prior to 1997, Holdings was included in the consolidated federal income tax return of HCC, the parent company of GBCC until HCC distributed the GBCC stock it owned to its shareholders as a dividend on December 31, 1996. As part of the Second Settlement Agreement (see Note 1), Holdings' operations were included in GBCC's consolidated federal income tax return for the years ended December 31, 1997 and 1998. Effective after December 31, 1998, PCC transferred 21% of the stock ownership in Holdings to PBV, effecting the deconsolidation of Holdings from the GBCC group for federal income tax purposes. Accordingly, beginning in 1999, Holdings and its subsidiaries' provisions for federal income taxes will be calculated and paid on a consolidated basis. At March 31, 2000, GBHC has deferred tax assets including state net operating losses and Federal credit carryforwards. The net operating losses ("NOL's") do not expire before the year 2003 for state tax purposes. A portion of the credit carryforwards, if not utilized, will expire in the year 2000, and each year thereafter through 2004. The remaining credit carryforwards do not expire until the year 2019. The availability of the NOL's and credit carryforwards will be subject to the tax consequences of a plan of reorganization approved by the Bankruptcy Court. In addition, as provided in the Second Settlement Agreement GBCC may utilize NOL's of GBHC through December 31, 1998 to offset federal taxable income ("Federal NOL's") of GBCC and other members of the consolidated tax group. Representatives of HCC and GBCC originally advised GBHC in March 1999 that GBHC should have approximately $13 million in Federal NOL's available subsequent to December 31, 1998. Subsequent adjustments recognized by GBHC and reported to GBCC attributable to the year ended December 31, 1997 reduced the available Federal NOL's. GBCC advised GBHC in February 2000 that a portion of the Debtors' Federal NOL's were utilized in the 1998 GBCC group consolidated federal income tax return. However, GBCC also notified GBHC in February 2000 that all of the Debtors' Federal NOL's attributable to periods prior to January 1, 1997 will be utilized to shield certain additional excess loss account adjustments attributable to the Spin Off, which may result in available Federal NOL's in 1999 being reduced to approximately $4.4 million. GBHC is in the process of examining the propriety of the use of its pre-1997 NOL's. GBHC expects that these remaining Federal NOL's will be utilized in the 1999 federal tax return. Statement of Financial Accounting Standards No. 109 ("SFAS 109") requires that the tax benefit of NOL's and deferred tax assets resulting from temporary differences be recorded as 38 GB HOLDINGS, INC. AND SUBSIDIARIES (Debtors-in-Possession) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) an asset and, to the extent that management can not assess that the utilization of all or a portion of such NOL's and deferred tax assets is more likely than not, requires the recording of a valuation allowance. As a result of book and tax losses incurred in 1997 and the filing under Chapter 11 by GBHC in January 1998, management is unable to determine that realization of GBHC's deferred tax asset is more likely than not and, thus, has provided a valuation allowance for the entire amount at March 31, 2000. The Debtors are dependent upon receipt of information from HCC and GBCC as to the operations of their affiliates and the impact of those operations on the former HCC and GBCC consolidated groups' Federal NOL's. As part of the Second Settlement Agreement, GBHC settled certain intercompany obligations on a non-cash basis. A loan to GBHC from GBCC, totaling $8,000,000 along with accrued interest totaling $1,508,000, and a deferred federal tax asset of GBHC's, totaling $10,902,000, representing a claim against an affiliate for the overpayment of federal income taxes under a previously existing tax sharing agreement, were mutually released. As the deferred federal tax asset had been previously fully reserved as required by SFAS 109, this mutual release resulted in the recording of a capital contribution in the amount of $9,508,000. Year 2000 Compliance Management completed on a timely basis a comprehensive program to prepare the Sands' computer systems and applications for a smooth transition to the Year 2000. The objective of this program was to determine and assess the risks of the Year 2000 issues and to plan and institute mitigating actions to minimize those risks. An assessment and inventory of systems, computer applications and software programs was completed and changes implemented where required. The Sands developed a contingency plan that included the identification of significant vendors that would be Year 2000 compliant to replace significant vendors that would not be Year 2000 compliant. The costs associated with testing and converting systems were not material. All Year 2000 costs were funded through operating cash flow. Because of these preparations, the Sands did not experience any significant disruptions in its operations as a result of the transition to the Year 2000. Additionally, there are no claims pending or, to our knowledge, threatened against the Sands arising out of the Year 2000 issue. Reorganization and Other Related Costs Reorganization and other related costs include costs associated with Holdings' reorganization under Chapter 11, including, among other things, professional fees, costs associated with the termination of agreements, and other administrative costs. As noted previously, interest income on cash accumulated during the reorganization is reflected as a reduction to reorganization and other related costs. Inflation Management believes that in the near term, modest inflation, together with increasing competition within the gaming industry for qualified and experienced personnel, will continue to cause increases in operating expenses, particularly labor and employee benefits costs. 39 GB HOLDINGS, INC. AND SUBSIDIARIES (Debtors-in-Possession) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Seasonality Historically, the Sands' operations have been highly seasonal in nature, with the peak activity occurring from May to September. Consequently, the results of operations for the first and fourth quarters are traditionally less profitable than the other quarters of the fiscal year. In addition, the Sands' operations may fluctuate significantly due to a number of factors, including chance. Such seasonality and fluctuations may materially affect casino revenues and profitability. 40 PART II: OTHER INFORMATION Item 1. Legal Proceedings On January 5, 1998, Holdings, GB Property Funding, and GBHC (collectively, the "Debtors") filed petitions for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. The prior Boards of Directors resigned on January 2, 1998 and new Boards of Directors were elected at that time. 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 Bankruptcy Court, other than the following: as required under the Settlement Agreement, Richard Knight resigned as a Director, President, and Chief Executive Officer of the Debtors effective July 8, 1998; John P. Belisle was elected President and Chief Executive Officer of GBHC on July 28, 1998; and Jerome T. Smith was elected as a Director of the Debtors on August 3, 1998. On November 1, 1999, John P. Belisle resigned as President and Chief Executive Officer of GBHC. On November 11, 1999, Jerome T. Smith, the independent member of the Boards of Directors of the Debtors, and one of the two independent members of the Audit Committee of Holdings, citing a newly arisen potential conflict of interest, resigned. On November 5, 1999, Alfred J. Luciani was elected President and Chief Executive Officer of GBHC. On January 11, 1999, the exclusivity period during which only the Debtors could file a plan of reorganization expired and, as a result, any party in interest could file a plan of reorganization. On June 1, 1999, the Debtors filed with the Bankruptcy Court a plan of reorganization and disclosure statement, ultimately filing a third modified plan of reorganization and third modified disclosure statement. On October 4, 1999, the Bankruptcy Court approved the adequacy of the third modified disclosure statement and a confirmation hearing on the Plan was scheduled for December 17, 1999(the "Confirmation Hearing"). On November 3, 1999, the Debtors received notice from Merrill Lynch Asset Management ("MLAM") that MLAM and Park Place Entertainment Corporation ("PPE") had reached an agreement on a term sheet under which PPE would sponsor a plan of reorganization of GBHC (the "Term Sheet"). MLAM requested that the Debtors agree to seek to adjourn the Confirmation Hearing. The Debtors agreed to seek the adjournment. On November 9, 1999, the Bankruptcy Court granted the adjournment and set December 1, 1999 as a status conference for a report by the Debtors on the status of their due diligence and evaluation of the provisions of the Term Sheet. Following the December 1, 1999 status conference , the Bankruptcy Court set December 22, 1999 as a final status conference for the Debtors to report on their due diligence and evaluation of the Term Sheet. Entities controlled by Carl Icahn ("Icahn") submitted a competing bid for a Plan of Reorganization of the Debtors prior to the December 22, 1999 status conference. The Bankruptcy Court decided that PPE and Icahn should submit competing Plans of Reorganization and Supplemental Disclosure Statements with the Debtors submitting a Master Disclosure Statement by January 18, 2000 and that the Bankruptcy Court would conduct a hearing on February 16, 2000 to consider the adequacy of the Disclosure Statements. Ichan filed a joint plan with the Official Committee of Unsecured Creditors (the "Committee") on January 18, 2000 and PPE also filed a plan on the same date. The Bankruptcy Court conducted a hearing on the adequacy of the Disclosure Statements on February 16, 2000. The Bankruptcy Court directed Icahn and the Committee and PPE to file amended Plans and Supplemental Disclosure Statements with their final economic offers to the creditors by March 6, 2000, and scheduled a further adequacy hearing for March 23, 2000. At that hearing, the Bankruptcy Court directed Icahn and the Committee and PPE to make certain revisions to their amended Plans and Supplemental Disclosure Statements and file them by March 31, 2000, and scheduled April 5, 2000 as a hearing date for the Bankruptcy Court to determine if any further changes to the Supplemental Disclosure Statements would be directed to be made by the Bankruptcy Court. At the hearing on April 5, 2000, the Bankruptcy Court approved the Debtors' Master Disclosure Statement, approved the Supplemental Disclosure Statements of Icahn and the Committee and of PPE subject to their making certain revisions, and established June 5, 2000 as the deadline for 41 creditors to deliver their votes for or against the Plans and June 19, 2000 as the beginning of the confirmation hearing. Subsequently, the Bankruptcy Court adjourned the confirmation hearing to June 20, 2000. Item 3. Defaults Upon Senior Securities As a result of the filings discussed in Item 1. above, $182,500,000 principal amount of First Mortgage Notes issued by GB Property Funding are in default. The debt service payments due subsequent to January 5, 1998 were not made. Under an order of the Bankruptcy Court, permitting the disposition of furniture and equipment in the ordinary course of business, any payments received by GBHC for the sale of such assets, which are part of the security for the First Mortgage Notes, must be remitted to the Indenture Trustee as reductions to the outstanding principal of the First Mortgage Notes. Through May 11, 2000, $524,000 has been remitted to the Indenture Trustee as the proceeds on the sale of furniture and equipment. The accrual of interest on the First Mortgage Notes for periods subsequent to the filings has been suspended; such interest on a contractual basis amounts to $56,205,000 as of May 11, 2000. Item 6.(a) - Exhibits 10.1 Amendment to Brighton Park Improvements Agreement ("PM Agreement") dated April 5, 2000 10.2 Agreement between Greate Bay Hotel and Casino, Inc., and Atlantic City Boardwalk Associates, L.P. and/or the Claridge at the Park to acquire the Claridge Administration Building dated February 10, 2000 Item 6.(b) - Reports on Form 8-K The Registrants did not file any reports on Form 8-K for the quarter ended March 31, 2000. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, each of the Registrants has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GB HOLDINGS, INC. GB PROPERTY FUNDING CORP. ---------------------------------------- Registrants Date: May 15, 2000 By: /s/ Timothy A. Ebling ------------------------------------ Timothy A. Ebling Executive Vice President, Chief Financial Officer and Principal Accounting Officer 42 EX-10.2 2 AGREEMENT [LOGO] SANDS CASINO HOTEL - ATLANTIC CITY February 10, 2000 Frank Bellis, Esq. Chief Executive Officer Claridge at Park Place, Incorporated Boardwalk and Park Place Atlantic City, New Jersey 08401 Re: Block 47, Lot 11, formerly Block 30, Lot 35, as shown on the Tax Map of the city of Atlantic City, and as more particularly described as Tract I on Exhibit A to that certain deed dated June 15, 1989 from Del E. Webb New Jersey, Inc. to Atlantic city Boardwalk Associates, L.P. filed on June 20, 1989 in Deed Book 4922, Page 0001 in the Atlantic County Clerk's Office, and commonly known as 111-113 South Indiana Avenue (the "Lot") and the Improvements Located thereon, commonly known as the Claridge Administration Building (the "Building") (the Lot and the Building collectively the Property") Dear Mr. Bellis: This letter sets forth the terms of an agreement between Greate Bay Hotel and Casino, Inc. t/a "Sands Hotel & Casino" ("the Sands"), on one side, and Atlantic City Boardwalk Associates, L.P. ("the Partnership"), The Claridge Hotel and Casino Corporation ("the Company") and/or the Claridge at Park Place, Incorporated ("CPPI"), on the other side, under which (i) with the consent or CPPI, the Partnership would grant the Sands a certain license with respect to the North wall of the Building, (ii) with the consent of CPPI, end on notice to the Bank of New York as the Trustee for the holders of the Company's 11 3/4* Notes and approval of the Bankruptcy Court (as hereafter defined), the Partnership would deliver title to the Property to the Sands (the "Purchase") free and clear of all liens, encumbrances or leases, except as provided below, in exchange for the Sands paying the Price, as defined and described in this letter, and (iii) the Sands, CPPI, and the Partnership would jointly move in their respective Chapter 11 cases pending before the United States Bankruptcy Court for the District of New Jersey (the "Bankruptcy Court") at Docket Nos. 98-10001 (JHW), 99-17399 (JHW), and 99-18903 (JHW), respectively, (x) to assume, if executory and as modified below, that certain Brighton Park Improvements Agreement dated November 5, 1997 between the Sands and CPPI (the "Improvements Agreement"), (y) to assume, if executory, that certain Brighton Park Development Agreement dated November 9, 1987 between the Sands and CPPI, on one side, and the City of Atlantic City (the "City"), on the other side (the Indiana Avenue & Brighton Park o Atlantic City, New Jersey 08401 o (609) 441-4000 "Development Agreement"), and (z) to approve the Purchase of the Property. You have informed us that CPPI is the casino licensee that operates the Claridge Casino Hotel (the "Casino"), holds the license for the Casino, owns all the gaming related equipment used in connection with the Casino, and is a wholly owned subsidiary of the Company. Except as described in the next sentence, the Partnership owns the Property and all the other real property utilized by CPPI in operating the casino-hotel complex comprising the Boardwalk and Park Place address for the Casino, also known as Block 46, Lot 4, on the Tax Map of the City of Atlantic City (the "Casino Complex") and the Partnership leases the Casino Complex and the Property to CPPI pursuant to a certain lease(s) (individually and collectively "the Operating Lease"). The casino Complex does not include that certain self park garage bordered by Pacific Avenue, Park Place and Ohio Avenue and the adjoining valet park garage (the land and the structure collectively "the Self Park Garage") and the Self Park Garage is owned by CPPI. THE LICENSE CPPI presently uses the Building solely as an administrative office in connection with the Casino (the "Office") under the operating and Ground Lease with the Partnership. The north wall of the Office (the "North Wall") adjoins the site of the former Midtown Hotel on Block 47, Lots 1, 2, and 3 of the Tax Map of the City of Atlantic City (the "Midtown Hotel Lots"). The Sands is constructing a new entrance to its existing casino-hotel complex located at Block 47, Lot 12 of the Tax Map of the City of Atlantic City on the Midtown Hotel Lots and other contiguous lots (the "New Entrance"). The Midtown Hotel previously directly adjoined the Building and shielded the Building from the elements. The demolition of the Midtown Hotel as part of the construction of the New Entrance has now exposed the North Wall to the elements and to the public view. The erection of a shield wall attached to the North Wall would restore some of the protection from the elements that was previously provided by the Midtown Hotel. Without warranty as to the protection from the elements, the Sands seeks a license for the right to attach a dry-vit panel wall or some similar design element to the North Wall and in, about, and/or along the northern boundary of the Lot as a shield wall to the North Wall and to affix signage to the shield wall (the "License"), thereby, establishing a facade consistent with the New Entrance, and will indemnify the Partnership and CPPI against any damages caused to the North Wall or to the Building as a result of acting upon or implementing any rights under the License. The term of the License is perpetual except that the Building may be demolished provided that the Sands may at its own expense attach a shield wall to any replacement structure. The consideration for the License is $1.00 and such protection from the elements as would be afforded by the shield wall as provided herein. By signing this letter Agreement, and subject to Bankruptcy Court approval, the Partnership grants the License, CPPI consents to the License, and CPPI agrees to promptly apply at its expense for any necessary Bankruptcy Court approval of the License. The agreement with respect to the License is a separate and severable part of this letter agreement. PURCHASE OF THE PROPERTY The background for the Purchase is that it would be beneficial and more efficient for CPPI to consolidate the Office within the Self Park Garage (the "Relocated Office") because the Self Park Garage is connected under roof to the Casino Complex. Therefore, the Relocated Office would be more easily accessible from other offices in the Casino Complex unlike the Office in the Building, which is a separate structure across Indiana Avenue from the Casino Complex. In addition, with the Relocated Office, CPPI would enjoy expense savings from not having to incur the costs of occupying the Building. By signing below, CPPI consents to the sale of the Property based upon the Sands agreement as set forth herein to purchase the Property and to pay the consideration described below. The consent of CPPI to the sale of the Property includes any consent that may be required by CPPI under the Operating and Ground Lease with the Partnership and as may be required under that certain Expandable Wraparound Mortgage and Security Agreement between the Partnership and CPPI, as amended, inter alia, by that certain First Supplemental Amendment to Expandable Wraparound Mortgage and Security Agreement, and by that certain Second Amendment to Expandable Wraparound Mortgage and Security Agreement between the Partnership and CPPI ("the Wraparound Mortgage"). CPPI also recommends to the Partnership that it sell the Property to the Sands under the terms described below. By signing below, the Partnership agrees to the same. The Sands agrees to pay the sum of $3,500,000 for the Property (the "Price") in the manner described in this paragraph. $1,500,000 of the Price shall be paid at Closing (as hereafter defined) to CPPI (the "Closing Lump Sum") in order to provide CPPI with the amount necessary to fit-out the Relocated Office to accommodate the office personnel presently working in the Office. The remaining portion of the Price in the amount of $2,000,000 shall be paid as a monthly credit of $50,000 against the $50,000 monthly license fee otherwise required in the Improvements Agreement to be paid by CPPI to the Sands for a total of 40 months 3 (the "Initial Monthly Credit") commencing with the first full month following Closing. In return for the payment of the Price as described above to CPPI, the Partnership hereby agrees to deliver at Closing (as hereinafter defined) to the Sands a properly executed, good, sufficient, marketable, and recordable Deed, and an Affidavit of Title and such other documentation reasonably required by and acceptable to the Title Company of Jersey. The Deed shall be known as a Bargain and Sale Deed with Covenants Against Grantor's Acts and, except as set forth below, shall convey the Property free and clear of all claims, encumbrances, mortgages, leases or liens, other than ordinary utility easements and restrictions including as set forth in Deed Book 46, Page 29 on file in the Atlantic County Clerk's Office, and the conveyance shall include the termination as respects the Property of the Wraparound Mortgage and the Operating and Ground Lease except that the rent specified therein to be paid by CPPI to the Partnership shall be unaffected by this letter agreement and subject to any prior or subsequent orders of the Bankruptcy Court or any agreements between CPPI and the Partnership. Title to the Property shall be insurable at regular title insurance rates and charges by the Title Company of Jersey. In addition, the Partnership and CPPI shall each provide the Sands with a quit claim deed for any property in which each may have any ownership right in Block 47 of the Tax Map of the City of Atlantic City. The Sands shall pay the cost of its title insurance, any survey ordered by it, any attorney's fees of its counsel, and closing costs customarily allocated or items prorated to buyer. Closing costs of CPPI and/or the Partnership shall include the attorney's fees of its or their counsel, the realty transfer tax, and closing costs customarily allocated or items prorated to seller. Notwithstanding the previous sentence, all costs of the transaction of the Partnership shall be paid by CPPI. On the first Monday through Friday that is 10 days after the later of (i) the approval of this letter agreement by the Bankruptcy Court in each of the Chapter 11 cases of the Sands, CPPI, and the Partnership or (ii) notice by the Sands of waiver or satisfaction of the financing contingency, as described below, for the Closing Lump Sum, closing shall take place at the office of the Sands and the Claridge shall vacate the Property after the Closing as described in the next paragraph. For the purpose of this paragraph, upon execution of this letter agreement by the parties hereto, CPPI, the Sands, and the Partnership shall promptly and jointly seek Bankruptcy Court approval of this letter Agreement, and the obligations of either party with respect to the Purchase are contingent upon receiving such Bankruptcy Court approval. 4 The application for Bankruptcy Court approval shall include joint applications pursuant to 11 U.S.C. ss. 365 by the Sands and CPPI to assume the Improvements Agreement, as modified as described in the next sentence, and to assume the Development Agreement (the "Joint Applications"). The modifications sought to the Improvements Agreement shall consist of the Initial Monthly Credit, and a reduction in the monthly license fee of $50,000 thereafter for the duration of the Improvements Agreement to the sum of $20,000 (the "Modifications"). The relief sought in the Joint Applications and the Modifications are contingent upon, and subject to, Bankruptcy Court approval of the Purchase, and closing on the Purchase, and the upon assumption of the Improvements Agreement (subject only to the Modifications otherwise described herein) and the Development Agreement in accordance with their terms. Time is of the essence for Closing except that Closing nay take place earlier or later than the date specified in the first sentence of the preceding paragraph if all of the parties hereto consent in writing. Effective as of the Closing, the Sands and CPPI shall enter into a lease of the Property so that the Building can continue to be used as the Office until the Relocated Office is sufficiently suitable to accommodate the office staff from the Office (the "Lease") CPPI will cause the Relocated Office to be fitted--out as soon as reasonably possible, using its good faith best efforts to do so by May 31, 2000 because the Sands needs to demolish the Building in a time frame so as not to interfere with the opening of the new Entrance and to avoid any restriction, if any, on immediate demolition based on the time of the year. however, in no event shall the Lease extend beyond July 31, 2000 and the maximum term of the Lease shall be July 31, 2000 (the "Term"). The remaining terms of the Lease include rent for the Term of $1.00 on a triple net basis to the Sands with CPPI responsible for payment of the cost of insurance real estate taxes on the Property, and maintenance of the Property including, but not limited to, the provision of all necessary utility services. CPPI also hereby agrees to defend and indemnify the Sands and hold it harmless from any and all claims arising out of the use of the Property during the Term including claims of its employees. In addition, CPPI will name the Sands as an additional insured on its general liability policy and provide the Sands with a certificate of insurance thereof endorsed to provide the Sands 15 days prior notice of cancellation and to delete the "other insurance" clause as against the Sands. Likewise, CPPI agrees to defend and indemnify the Partnership and its partners with respect to matters arising from or related to the Property. Notwithstanding anything to the contrary in this letter agreement, the obligation of the Sands to Purchase the Property are 5 contingent upon the Sands obtaining first mortgage financing on and for the Property that is satisfactory to the Sands for the payment of the closing Lump Sum. The Sands must either obtain such first mortgage financing that is completely satisfactory to the Sands and so notify CPPI within 60 calendar days after the day that a fully executed copy of this letter agreement is delivered to the Sands or notify CPPI of the waiver by the Sands of this first mortgage financing contingency. In the event that the Sands fails to timely notify CPPI of the satisfaction or waiver of the first mortgage financing contingency, the obligations of CPPI and the Sands with respect to the Purchase shall be null and void except that the Sands shall reimburse CPPI for its reasonable costs and attorney's and architect's fees incurred in entering into this letter agreement and in seeking approval of this letter agreement including such costs and fees of the Partnership and reasonable expenses incurred in preparing for, and seeking approvals of, or construction of components necessary for the fit out of the Relocated Office in anticipation of, the move to the Relocated Office. The costs of construction of such components is subject to the agreement of the Sands prior to such costs being incurred. This Agreement is the entire and only agreement between the parties, and no oral representations or promises have been made with respect thereto. This Agreement replaces and cancels any previous agreements between the parties. This Agreement can only be changed by an agreement in writing signed by the parties hereto. This Agreement shall be governed by and be construed in accordance with the laws of the State of New Jersey applicable to agreements made and to be performed within the State of New Jersey without giving effect to the principles governing the conflicts of laws. The parties also agree that any claim arising hereunder or relating hereto shall be adjudicated within the County of Atlantic, State of New Jersey and consent to the jurisdiction of the Superior Court of New Jersey, Atlantic County except for matters required or permitted to be determined in the Bankruptcy Court. No general or limited partner of the Partnership nor any of their respective agents, officers, directors or employees as such shall be personally liable to any other party hereunder or any other person for any obligation of the Partnership under this Agreement or for any claim based upon or with respect to such obligations. Recourse to the Partnership with respect of all such obligations is expressly limited to the real and personal property that the Partnership may from time to time have available therefore. This Agreement is binding upon all parties who sign it and all that succeed to their rights and responsibilities, and their 6 successors and assigns. This agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same agreement and a signature appearing on a telecopied signature page shall be as effective as an original signature page. Any notices pursuant to this Agreement must be in writing. The notices may be delivered personally, mailed by certified mail, return receipt requested, or delivered by telecopier to the other party at the address(es) set forth below subject to change as to the person(s) to be notified and/or their respective addresses upon ten (10) days notice as provided herein. Any such notice shall be deemed to have been given on the date delivered, if delivered by hand, on the date three days after the date mailed, if given by certified mail, or the date delivered by telecopier, if electronic confirmation of receipt of the telecopier transmission is obtained and retained. The notices shall be addressed as follows: To the Sands: Alfred Luciani President Greate Bay Hotel and Casino, Inc. Indiana Avenue and Brighton Park Atlantic City, NJ 08401 telecopier (609) 441-4624 With Copy to: Frederick H. Kraus, Esq. Greate Bay Hotel Casino, Inc. Indiana Avenue and Brighton Park Atlantic City, NJ 08401 telecopier (609) 441-4937 To CPPI: Frank Bellis, Esq. Chief Executive Officer Claridge at Park Place, Incorporated Boardwalk at Park Place Atlantic City, NJ 08401 telecopier (609) 345-1128 With Copy to: Corporate Counsel Claridge at Park Place, Incorporated Boardwalk at Park Place Atlantic City, NJ 08401 telecopier (609) 345-1128 To the Company: Frank Bellis, Esq. Chief Executive Officer The Claridge Hotel and Casino Corporation Boardwalk at Park Place Atlantic City, NJ 08401 7 telecopier (609) 345-1128 With Copy to: Corporate Counsel The Claridge Hotel and Casino Corporation Boardwalk at Park Place Atlantic City, NJ 08401 telecopier (609) 345-1128 To the Partnership: Atlantic City Boardwalk Associates, L.P. 2880 West Meade Avenue Suite 201 Las Vegas, Nevada 89102 telecopier (702) 253-7663 with Copy to: Alan Wovsaniker, Esq. Lowenstein, Sandler PC 65 Livingston Avenue Roseland, New Jersey 07068 telecopier (973) 597-2565 If this Agreement is acceptable to CPPI and to the Company, would you kindly execute the same on behalf of CPPI and the Company forward the same to the Partnership for its consideration and THE REST OF THIS PAGE LEFT INTENTIONALLY BLANK 8 execution and return one of the three enclosed copies to my attention. Very truly yours, /s/ Alfred Luciani Alfred Luciani President Accepted and Agreed: Claridge at Park Place, Incorporated BY: Dated: ------------------------------------------- ------------------ Frank Bellis, Esq. Chief Executive Officer The Claridge Hotel and Casino Corporation BY: Dated: ------------------------------------------- ------------------ Frank Bellis, Esq. Chief Executive Officer Atlantic City Boardwalk Associates, L.P. BY: Dated: ------------------------------------------- ------------------ ANTHONY ATCHLEY - A General Partner BY: Dated: ------------------------------------------- ------------------ GERALD HEATLAND - Its Remaining General Partner 9 execution and return one of the three enclosed copies to my attention. Very truly yours, Alfred Luciani President Accepted and Agreed: Claridge at Park Place, Incorporated BY: /s/ Frank Bellis Dated: 2/10/00 ------------------------------------------- ------------------ Frank Bellis, Esq. Chief Executive Officer The Claridge Hotel and Casino Corporation BY: /s/ Frank Bellis Dated: 2/10/00 ------------------------------------------- ------------------ Frank Bellis, Esq. Chief Executive Officer Atlantic City Boardwalk Associates, L.P. BY: Dated: ------------------------------------------- ------------------ ANTHONY ATCHLEY - A General Partner BY: Dated: ------------------------------------------- ------------------ GERALD HEATLAND - Its Remaining General Partner 9 execution and return one of the three enclosed copies to my attention. Very truly yours, /s/ Alfred Luciani Alfred Luciani President Accepted and Agreed: Claridge at Park Place, Incorporated BY: Dated: ------------------------------------------- ------------------ Frank Bellis, Esq. Chief Executive Officer The Claridge Hotel and Casino Corporation BY: Dated: ------------------------------------------- ------------------ Frank Bellis, Esq. Chief Executive Officer Atlantic City Boardwalk Associates, L.P. BY: /s/ Anthony C. Atchley Dated: ------------------------------------------- ------------------ ANTHONY ATCHLEY - A General Partner BY: /s/ Gerald Heatland Dated: ------------------------------------------- ------------------ GERALD HEATLAND - Its Remaining General Partner 9 AMENDMENT TO BRIGHTON PARK IMPROVEMENTS AGREEMENT DATED NOVEMBER 5,1987 (the "Agreement") BY AND BETWEEN CLARIDGE AT PARK PLACE, INC. ("CPPI") AND GREATE BAY HOTEL AND CASINO, INC. ("GBHC") 1. CPPI and others, on one side, and GBHC, on the other, entered into a certain letter agreement dated February 10, 2000 (the "Letter Agreement"') providing, among other things, for an amendment to the Agreement to eliminate the monthly "rent" of $50,000, as provided for at Paragraph 4(d) of the Agreement (the "Rent"), for a period of 40 months in connection with the sale to GBHC Block 47, Lot 11 on the Tax Map of the City of Atlantic City (the "Sale") and to a reduction to $20,000 a month thereafter (the "Amendment"). 2. Became GBHC was and is a Debtor in Possession at Case No. 98-1001 (JW) in the United States Bankruptcy Court for the District of New Jersey (the "Bankruptcy Court"), and CPPI was and is a Debtor in Possession at Case No. 99-17399 (JW) in the Bankruptcy Court, the Amendment and joint assumption of the Agreement as Amended were conditioned upon receipt of Bankruptcy Court approval. 3. CPPI, GBHC and others made a joint application to the Bankruptcy Court for approval, among other things, of the Amendment and the assumption of the Agreement as Amended and the Bankruptcy Court approved the Amendment and the joint assumption of the Agreement as Amended by Order dated April 5, 2000, a copy of which Order is attached as Exhibit A (the "Order"). 4. By execution of this agreement, CPPI, and GBHC agree that the Agreement is amended as provided for in the Amendment, that the elimination of the Rent shall commence with the Rent due for the month of April, 2000 and end with the Rent due for the month of July, 2003, that the Rent due thereafter shall be reduced to $20,000 a month, and that in all other respect the Agreement is ratified and in full force and effect. WHEREFORE, CPPI and GBHC have entered into this agreement as of April 5, 2000. ACCEPTED AND AGREED: Claridge at Park Place, Incorporated BY: /s/ Frank Bellis ------------------------------------------- Frank Bellis, Esq. Chief Executive Officer GREATE BAY HOTEL AND CASINO, INC. BY: /s/ Alfred Luciani ------------------------------------------- Alfred Luciani, Esq. Chief Executive Officer --------------------------------- FILED JAMES J. WALDRON APR 5, 2000 US BANKRUPTCY COURT CAMDEN, NJ BY: /s/ [ILLEGIBLE], DEPUTY --------------- --------------------------------- GIBBONS, DEL DEO, DOLAN, GRIFFINGER & VECCHIONE A Professional Corporation One Riverfront Plaza Newark, New Jersey 07102-5497 (973) 596-4500 Attorneys for Greate Bay Hotel and Casino, Inc., GB Holdings, Inc. and GB Property Funding Corp., Debtors and Debtors-in-Possession PD-9779 LOWENSTEIN SANDLER PC 65 Livingston Avenue Roseland, New Jersey 07068 Attorneys for Atlantic City Boardwalk Associates, L.P., Debtor and Debtor-in-Possession AW-0742 CLIFFORD CHANCE ROGERS & WELLS LLP 200 Park Avenue New York, New York 10166-0153 - - and - ARCHER & GREINER One Centennial Square P.O. Box 3000 Haddonfield, New Jersey 08033-0968 Co-attorneys for Claridge at Park Place, Inc., and Claridge Hotel & Casino Corp., Debtors and Debtors-in-Possession JF-7850 UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF NEW JERSEY - -------------------------------------------------------------------------------- In re: GREATE BAY HOTEL AND CASINO, INC., GB HOLDINGS, INC., and GB PROPERTY FUNDING CORP., Debtors. - -------------------------------------------------------------------------------- Case No. 98-10001 (JW), et seq. (Jointly Administered) Chapter 1l Hearing Date: April 3, 2000, 2:00 p.m. - -------------------------------------------------------------------------------- In re: CLARIDGE AT PARK PLACE INC., and CLARIDGE HOTEL & CASINO CORP., Debtors. - -------------------------------------------------------------------------------- Case No. 99-17399 (JW), et seq. (Jointly Administered) Chapter 11 Hearing Date: April 3, 2000, 2:00 p.m. - -------------------------------------------------------------------------------- In re: ATLANTIC CITY BOARDWALK ASSOCIATES, LP., Debtor. - -------------------------------------------------------------------------------- Case No. 99-18903 (JW), et seq. Chapter 11 Hearing Date: April 3, 2000, 2:00 p.m. ORAL ARGUMENT REQUESTED ORDER AUTHORIZING GBHC, CPPI AND THE PARTNERSHIP TO (i) ENTER INTO LICENSE AND PURCHASE AGREEMENT FOR CLARIDGE ADMINISTRATION BUILDING, (ii) ASSUME, AS MODIFIED, BRIGHTON PARK IMPROVEMENTS AGREEMENT, (iii) ASSUME BRIGHTON PARK DEVELOPMENT AGREEMENT, AND (iv) FOR RELATED RELIEF PURSUANT TO SECTIONS 363(b) AND 365 OF THE BANKRUPTCY CODE Upon the verified joint motion (the "Joint Motion") of Greate Bay Hotel and Casino, Inc. ("GBHC"), Claridge at Park Place, Inc. ("CPPI"), and Atlantic City Boardwalk Associates, L.P., (the "Partnership"), debtors and debtors-in-possession (the "Debtors"), for an Order Authorizing GBHC, CPPI and the Partnership to (i) Enter Into License Purchase and Assumption Agreement for the Claridge Administration Building, (ii) Assume, as Modified, Brighton Park Improvements Agreement (iii) Assume Brighton Park Development Agreement and (iv) for Related Relief Pursuant to Sections 363(b) and 365 of the Bankruptcy Code; and notice of the Joint Motion having been given to the Office of the United States Trustee (the "U.S. Trustee"), the Official Committees of Unsecured Creditors of GBHC and CPPI (the "Creditors' Committees"), all secured creditors of GBHC, CPPI, and the Partnership, any indenture trustee and all parties-in-interest having filed and served a notice of appearance on the Debtors; and it appearing that such notice is appropriate under the circumstances and that no other notice need be given; and the Court being satisfied that the legal and factual bases in the Joint Motion set forth just cause for the relief requested in the Joint Motion; and that the relief requested in the Joint Motion is in the best interests of the Debtors, their estates and their creditors; and for good cause shown, IT IS on this 5 day of April, 2000, HEREBY FOUND THAT: (1) GBHC filed its voluntary petition for relief wider Chapter 11 of the Bankruptcy Code in this case on January 5, 1998, CPPI filed its voluntary petition for relief under Chapter 11 of the Bankruptcy Code in this case on August 16, 1999 and the Partnership filed its voluntary petition for relief under Chapter 11 of the Bankruptcy Code in this case on October 5, 1999. 2 (2) Under all of the circumstances presented, the granting of a license to place a shield wall (or similar design element) on and the sale of the Claridge Administration Building on the terms and provisions of the LPAA (as defined in the Joint Motion and as modified on the record of the hearing on the joint motion) are in the best interest of both estates and creditors of the Debtors. (3) Solely within the context of this transaction and without prejudice to any valuation arguments made in other matters, including but not limited to pending tax appeals by GBHC, negotiations between the Debtors have been conducted in good faith and at arm's length and, therefore, GBHC is a purchaser in good faith. (4) Solely within the context of this transaction and without prejudice to any valuation arguments made in other matters, including but not limited to pending tax appeals by GBHC, the purchase price of $3.5 million offered by GBHC constitutes fair and an adequate consideration for the Claridge Administration Building. (5) The Debtors provided 26 days' notice of the sale of the Property to all parties entitled thereto under Bankruptcy Rules 2002(a)(1), 6004(a) and 6006, such notice is proper and adequate and no higher or better offers were filed and served pursuant to said notice. IT IS HEREBY ORDERED that: 1. The Joint Motion is hereby granted. 2. The LPAA is hereby is approved in all respects, and Debtors are hereby authorized to enter into the LPAA. 3. The sale of the Claridge Administration Building to GBHC, free and clear of liens, with valid liens to attach the $1.5 million cash proceeds of sale 3 is hereby approved. The $1.5 million shall be placed in an interest.* 4. CPPI and GBHC are hereby authorized and empowered to assume the Brighton Park Improvements Agreement, as modified by the LPAA, and the Brighton Park Developments Agreement, pursuant to 11 U.S.C.ss.365(a). 5. CPPI and GBHC are hereby authorized to pay all amounts necessary to cure monetary defaults under the Brighton Park Agreements, if any. 6. The Debtors are authorized and directed to perform all acts and to make, execute and deliver any and all instruments as may be necessary to implement the terms and conditions of this Order and the transactions described herein and in the Joint Motion. 7. The County of Atlantic and the City of Atlantic City are hereby directed to cause to be issued and/or filed in the appropriate public records, within ten (10) days of the closing any and all documents necessary to release any liens they may have on the Claridge Administrative Building for periods occurring prior to the closing. 8. The Clerk of the Court shall enter this Order on the docket of the chapter 11 cases of GBHC, CPPI and the Partnership. 9. This Court shall retain jurisdiction to resolve any disputes arising from or related to the sale of the Property. 10. The Indenture Trustee's request for stay pending appeal is denied. /s/ Judith H. Wizmur -------------------------------------- JUDITH H. WIZMUR UNITED STATES BANKRUPTCY JUDGE * bearing escrow account of the Partnership to be held at Summit Bank, N.A. and a first priority lien and security interest of the Indenture Trustee for the benefit of the Noteholders, shall attach to all amounts in such accounts. EX-27.1 3 FDS FOR GB PROPERTY FUNDING CORP.
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF GB PROPERTY FUNDING CORP. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000912906 GB PROPERTY FUNDING CORP. 1,000 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 1 0 0 0 0 1 0 0 191,351 0 181,977 0 0 1 0 191,351 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
EX-27.2 4 FDS FOR GB HOLDINGS INC.
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF GB HOLDINGS, INC. AND SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000912926 GB HOLDINGS INC. 1,000 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 25,506 0 19,028 10,949 3,000 41,760 350,215 (192,456) 210,585 24,872 181,977 0 0 1 (38,458) 210,585 0 58,789 0 49,740 6,755 633 (114) 1,775 639 0 0 0 0 1,136 0 0
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